Valuation

Valuation of a leading cement manufacturer’s mining rights on behalf of its majority shareholder 

PwC was engaged to conduct a targeted valuation of the mining rights held by a leading cement manufacturer headquartered in Kenya, determining whether their value surpassed 20% of the company’s total asset base – a critical threshold influencing the transaction.

As part of a 2024 acquisition of a regional cement company, management sought a rigorous and defensible valuation of the mining rights – assets central to sustaining clinker production and safeguarding long-term viability. This valuation was pivotal in determining the consideration assigned to the mining rights within the KES 23 billion (USD 180 million) transaction.

This engagement built on PwC’s previous valuation mandate in 2019 and deliberately maintained a consistent methodology to preserve continuity and comparability. This provided a solid foundation of validated assumptions, while enabling us to integrate updated operational, market, and regulatory data – ensuring the valuation accurately reflected the realities of the current operating environment.

We applied the income approach – specifically the Discounted Cash Flow (DCF) method – to value the company’s mining rights. This method captures the present value of future cash flows expected from limestone deposits, discounted at a rate accounting for both the time value of money and unique risks inherent in mining operations.

We benchmarked limestone costs across key regions – Kilifi, Mombasa, Kajiado, Kwale, and other parts of East Africa – to estimate hypothetical costs the company would face if sourcing externally. These costs were projected over the useful life of the cement manufacturing company’s deposits, calibrated to clinker production forecasts. Together with other mining- related expenses, they were discounted to derive the net present value of mining rights.

Our scope of work included:

• A business review: Conducted a high-level assessment of the cement manufacturing company’s operations get a better sense of material changes since the last valuation. 
• Valuation update: Evaluated the reasonableness of management’s cash flow projections for inclusion in the updated valuation.
• Analytic procedures that we undertook included: 
  • Consideration of the remaining life of limestone deposits based on planned production. 
  • Review of the annual rate of clinker production which can be sustained from the mining company’s limestone resources.
  • Cost analysis regarding mining, transportation, and other related costs such as royalties, levies, licenses, rehabilitation costs, etc.
  • Price paid by the company’s recent land acquisitions for purposes of extraction and clinker production.
  • The prevailing mining levy, along with any factors that could drive changes in its future magnitude.
  • General market data considerations, including economic, governmental, and environmental factors, that may affect the valuation.

The valuation of mining rights formed a critical component of the overall company valuation conducted during the acquisition of a leading East African cement producer by a regional investment group. This strategic transaction, finalized in 2024, marked a significant shift in East Africa’s cement industry, with the acquiring group securing a controlling stake of over 96.54%. The deal, valued at approximately KES 23 billion (USD 180 million), highlighted the intrinsic value of the company’s limestone mining rights as a cornerstone of its long-term clinker production strategy.