Shen Stone Tiles
| Responding
to the recent construction boom, Shen seeks $3.5m for equipment to manufacture high quality facing tiles. This acquisition of modern tile manufacturing equipment will allow it to export to regional, Middle East and US markets. Niche markets include earthquake reconstruction areas in Armenia and the internationally competitive overseas Diaspora requirements. Company Shen Concern CJSC Amount $ 3,525,000 Tenor/terms To be determined Documentation Equipment specifications and technical details for mine quarrying and stone processing equipment. Use of Funds Purchase equipment - $ 3,050,000 Building Premises - $ 475,000 Legal status: Closed Joint Stock Company Local and Strategic Partners: A number of foreign companies have been identified as capable of delivering the requested equipment solutions. Two Italian companies have been selected as potential suppliers of machinery -- Pelligrini, as the supplier of mine quarrying equipment and Pedrini, as the supplier of stone processing equipment. Both companies will train the Armenian specialists and workers to operate the machinery supplied by them. In addition, Pelligrini will design infrastructure facilities for the new mines where their machinery is installed. Current Operations: Production, export, import of construction materials for the domestic market. Quarrying, as is the practice in Armenia is mainly done by blowing entire areas, a method that adds to the natural cracks in the rocks which further results in decreased volume and quality of stone suitable for processing. Moreover, the equipment currently utilized for processing the quarried stone has low productivity and precision. They therefore cannot manufacture a competitive range of stone products in the world markets. Technologically advanced equipment identified through market research is expected to make quarrying more efficient and productive overall. The equipment supplied by the two Italian companies complies with the international standards set out by ECIP54 (EN 60529) regarding harmful omissions of dust, humidity and noise. With regard to the exploitation of new quarries, the equipment selected is protective and environmentally conservative by Western standards. There are no import restrictions applicable to this industry in terms of supplies, spare parts, etc. The ultimate stone processing, packaging as well as shipment are made in the premises of the company that maintains its own railway station. This station is 300 meters distance to the main railway terminal "Karmeer Beloor" which is a part of TRACECA (Transport Corridor Europe, Caucasus, Asia) program. The proposed stone processing plant will by far be the largest enterprise of its type in the country. Sales and Marketing Plan: Production of facing tiles made of Armenian natural stone such as tuff, felsite, granite, basalt, marble and travertine. Target markets are Armenia, Russian Federation and CIS countries, USA and UAE. Worked and Finished Products Market orientation (% of sales) Armenia Russian Federation and CIS USA U.A.E. 1. Tuff 70 20 10 2. Felsite 70 20 10 3. Granite 20 30 40 10 4. Basalt 70 20 10 5. Marble 20 30 40 10 6. Travertine 20 25 55 Business Plan: Shen s business plan focuses positioning the company as a leader in the construction materials industry in Armenia. Its corporate commitment is to increasing its export capacity for processed natural stone. Shen is determined to make investments in modern and technologically advanced equipment, necessary to be competitive in the international marketplace. Investments will be made in quarry and processing equipment to produce tiles made of Armenian natural stone such as marble, granite, basalt, travertine and tuff. Competition In natural stone tile export markets the main competitors are: marble, granite and travertine from Italy, Turkey, Brazil, China, India, Mexico. Tuff, felsite and basalt — are not well known in the market and have no serious competition. Capital Cost and Financing: The total project cost is estimated at $3,525,000, including building construction of $475,000. Machinery and equipment costs are $3,050,000. The Shen Company proposes a joint venture structure for a future limited liability company with a 20-80% shareholding structure, expecting to buy back shares in 7 years. Already the Shen Company has invested $500,000. The project IRR is estimated at 16% over 7 years period. Net present value is estimated as $3,196,361. The average profit margin is projected 66-70% over 7 years of operation. Net profit margin is expected to reach 30% in 7th year, achieved through reducing fixed costs. Regulatory Considerations: The project is in full compliance with Armenian Government policies in environment protection and natural resources utilization. It also will make a substantial contribution to export promotion by $1.5 million in first three years and job creation in the rural areas by 42. The project will also be instrumental to the Armenian Government programs partially funded by the World Bank to reconstruct residential and industrial housing in the earthquake zone. Critical macro economic factors governing project performance are the political situation, legislation, exchange rate and overall economic improvements. Other project details: Projected production volumes and unit prices for each facing stone for the first three years are: Products Production Volumes (sq. meters) Price (US$/m2) 1st year 2nd year 3rd year TOTAL for 3 years 1. Tuff 8 000 10 000 25 000 43 000 7 2. Felsite 2 000 3 000 3 000 8 000 7 3. Granite 8 000 10 000 20 000 38 000 50 4. Basalt 4 000 5 000 10 000 19 000 8 5. Marble 4 000 5 000 15 000 24 000 30 6. Travertine 15 000 20 000 30 000 65 000 12 TOTAL 41 000 53 000 103 000 197 000 Pricing is based on full-container orders and all prices are ex-factory. The estimated transportation costs are: a) to Russian Federation — $3-4/per sq. meter, b) to USA — $6/per sq. meter; and c) Europe — $5.5/per sq. meter. Point of Contact: Mr. Ara Hasratyan Vice President Shen Concern Shiraki Street 2/2 Yerevan 375043, Armenia Tel: 3741-46-01-01/42/33 Fax: 3741-46-01-01/42-33-92 Shen-concern@netsys.am |