66.

PROFILE ON PRODUCTION OF KAOLIN

66-2

TABLE OF CONTENTS

PAGE

I.

SUMMARY

66-3

II.

PRODUCT DESCRIPTION & APPLICATION

66-3

III.

MARKET STUDY AND PLANT CAPACITY A. MARKET STUDY B. PLANT CAPACITY & PRODUCTION PROGRAMME

66-4 66-4 66-6

IV.

MATERIALS AND INPUTS A. RAW & AUXILIARY MATERIALS B. UTILITIES

66-6 66-6 66-7

V.

TECHNOLOGY & ENGINEERING A. TECHNOLOGY B. ENGINEERING

66-7 66-7 66-9

VI.

MANPOWER & TRAINING REQUIREMENT A. MANPOWER REQUIREMENT B. TRAINING REQUIREMENT

66-10 66-10 66-12

VII.

FINANCIAL ANALYSIS A. TOTAL INITIAL INVESTMENT COST B. PRODUCTION COST C. FINANCIAL EVALUATION D. ECONOMIC BENEFITS

66-12 66-12 66-13 66-14 66-15

66-3 I. SUMMARY

This profile envisages the establishment of a plant for the production of kaolin with a capacity of 1,300 per annum.

The present demand for the proposed product is estimated at 658 tonnes per annum. The demand is expected to reach at 2,271 tonnes by the year 2020.

The plant will create employment opportunities for 36 persons.

The total investment requirement is estimated at Birr 9 million, out of which Birr million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 15% and a net present value (NPV) of Birr 1.64 million discounted at 8.5%.

II.

PRODUCT DESCRIPTION AND APPLICATION

Kaolin is a clay mineral; an aluminium hydroxide silicate which corresponds to the chemical formula Al2(OH)4Si205. It is a naturally occurring weathered product of granite valued for its whiteness, purity and physically and chemical properties. Crude kaolin is a mixture of three main minerals: Kaolin, Quartz and Mica. This mixture is fed into a processing plant where the kaolin is extracted and the waste mica and quartz returned to the quarry for backfilling.

Kaolin clay has many known applications in industry including use as filler in paper making, a coating for paper, and a pigment in paint industries. It is also highly applicable in ceramics, plastic and rubber industries etc.

66-4 III. MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past Supply and Present Demand

Kaolin is used as filler and coating for paper, in rubber, refractory, cements, fertilizers, catalyst carrier, anticaking preparations. The demand for the product is met through local production and import. The historical import data of kaolin which is the unsatisfied demand is as shown in Table 3.1. Table 3.1 IMPORT OF KAOLIN ( KG)

Year 2000 2001 2002 2003 2004 2005 2006

Import 137,440 893,000 52,000 343,584 420,000 528,767 1,339,681

Source; External Trade Statistics.

As shown in Table 3.1, import of kaolin exhibits year to year fluctuation without any discernible growth trend. There were unusually small quantity of import, i.e. 52,000 kg, the year in 2002 and high quantity of import i.e. 1.33 million kg in 2006. Hence, in the

absence of a trend in the import data, it is considered as reasonable to assume that the the average import during the last four years ( 2003 2006 ) approximates the present (2007) demand for the product. Accordingly, the present unsatisfied demand for kaolin is estimated at 658,008 kg.

66-5 2. Projected Demand

The future demand for kaolin depends mainly on the growth of end user industries. Hence, future demand for kaolin is contingent upon growth of the national economy, especially the manufacturing sector.

Assuming that the manufacturing sector will grow by a rate higher than the average national economic growth rate of 6-7% in the recent past, future demand for kaolin is projected to grow by 10% annually. assumption is as shown in Table 3.2. The demand projection executed with this

Table 3.2 PROJECTED DEMAND ( KG)

Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Projected Demand 723,809 796,190 875,809 963,390 1,059,728 1,165,701 1,282,271 1,410,499 1,551,548 1,706,703 1,877,374 2,065,111 2,271,622

66-6 3. Pricing and Distribution

Based on the average CIF value of imported dextrin and other costs (duty, port handling, inland transport and bank charges) the ex factory price is proposed to be Birr 4,250 per tone.

Since kaolin is an intermediate product, the distribution of the product is more convenient if it is direct. Penetration of domestic market will be facilitated through advertisement by creating awareness as well as sales promotional measures.

B.

PLANT CAPACITY AND PRODUCTION PROGRAMME

1.

Plant Capacity

According to the market study above, the envisaged plant will have a capacity of 1,300 tones kaolin per annum. The plant will operate single shift of eight hours a day and 300 days per annum.

2.

Production Programme

The plant is intended starting production at 75% of installed capacity in the first year. It will then raise its capacity to 85% in the second year, and finally to 100% in year three and thereafter.

IV.

MATERIALS AND INPUT

A.

RAW AND AUXILIARY MATERIALS

The raw material required by the plant for the production of Kaolin is a Crude Kaolin.

66-7 Table 4.1 RAW MATERIALS REQUIREMENT AT FULL CAPACITY OPERATIONS

Sr. No. 1

Description Crude Kaolin(3% royality) Total

Qty. (tonnes) 2405

Unit cost ( Birr) 11.925 FC -

Total cost ('000 Birr) LC 28.680 Total 28.680 28.680

B.

UTILITIES

Inputs required by the plant consist of electricity, water and fuel oil. For the plant operating single shift of eight hours a day, and 300 days a year, the total annual electrical energy requirement will be 125,000 Kwh. The annual electricity bill will then be Birr 59,200.

Water is required for cleaning, drinking, general purpose and for the production process. The annual water requirement is estimated at 25,000m3, and the corresponding expenditure is Birr 250,000. The envisaged plant require 5,000m3 furnace oil and the cost is estimated at birr 27,050.

Thus, the total annual cost of utilities is estimated at about Birr 336,250.-.

V.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Process Description

The crude kaolin from the quarry is first made into slurry with water. In general, such processes for beneficiating crude kaolin clay require that the clay be refined via wet processing as low solid slurry. Therefore, it is necessary to add substantial amount of

66-8 water to the dry crude kaolin clay to form a clay suspension or slurry having low solids content, generally below 50% solids by weight and typically in the range of 15% to 40% solids by weight.

This slurry passes through a series of washing and classification steps in order to remove the quartz and mica impurities. Typically, the aqueous crude clay suspension is then subjected to a fractionation operation which is conventionally carried out by centrifugation of the dispersed aqueous clay slurry.

Following fractionation, the recovered aqueous clay will pass through a magnetic separator to remove at least a portion of any iron-based impurities there from. Then the kaolin clay is passing through vibrating screen to be filtered in filter press and the filter cake is pressed into pellet from prior to drying in gas fired dryers. The final kaolin pellets contain 10% moisture in average. These are packed and dispatched to customers in the ceramic, paint, paper and other industries.

A dry powder product is also produced for those industries that can not tolerate moisture, such as the rubber, plastic & pesticide industries. The dry powder is produce by passing the kaolin pellets through attritor and classifies with simultaneous drying with hot air.

Water from the drying process is recovered and recycled to the extraction plant through a return water pipeline.

2.

Source of Technology

The machinery and equipment required can be obtained from the following companies. HANGZHOU XINYI SANITARY WARE CO. LTD Street No.: Yinong Industrial Zone State: east Zip: 311247 City: Hangzhou

66-9 Country: China Tel: 86-571-82591376 Fax: 86-571-82591877 Cell: 86015925620553

B.

ENGINEERING

1.

Machinery and Equipment

Plant machinery and equipment required for the production of Kaolin is presented in table 5.1. The total investment cost of plant machinery and equipment is estimated at Birr 5.95 million. Table 5.1 MACHINERY AND EQUIPMENT REQUIREMENT AND COST FOR KAOLIN PLANT

Sr. No. 1 2 3 4 6 7 8 9 10 11

Description Excavator Grinding Mill Cluster Cyclones Vibrating Screen Magnetic Separator Blunger Filter Press Mechanical drier Radial fan Atritor Total

Qty. LC 1 1 5 1` 1 1 1 1 1 1 193.088 761.000 23.010 1.813 1.600 38.036 16.339 121.096 47.153 17.930 1,221.065

Cost (Birr)000 FC 772.352 3,044.000 92.041 7.250 6.400 65.357 484.384 188.610 71.720 4,732.114 Total 965.440 3,805.000 115.051 9.063 8.000 38.036 81.696 605.480 235.763 89.650 5,953.179

66-10

2.

Land, Building and Civil Works

The envisaged plant will require a total land area of 1,500m2. The total land lease value for 80 years at the rate of Birr 0.40 per m2 is therefore Birr 48,000. The floor space required for the building of and other facilities will be about 800m2. The total estimated cost of building and civil works at the rate of Birr 2,000 per m2 is about Birr 1.60 million.

Therefore, the total cost of land, building and civil works is estimated at Birr 1.648 million.

3.

Proposed Location

Location of an industrial plant is determined on the basis of the proximity to the market for final products. The majority of the raw materials for the envisaged products have to be imported although few auxiliary materials can be procured from local markets. End user of the products is available in big town and cities. Therefore, it would be advisable to locate the plant at Konso special wereda in Karat town.

VI.

MANPOWER & TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

The manpower list and the corresponding monthly and annual salaries are given in Table 6.1.

66-11 Table 6.1 LIST OF MANPOWER REQUIREMENT AND ANNUAL SALARY Sr. No. A. ADMINISTRATION 1 2 3 4 5 6 7 8 9 Plant Manager Head, Finance & Administration Department Head, Production and Technical Department Secretary Accountant Salesman Clerk Cashier General Service Sub-Total B. PRODUCTION 13 14 15 15 16 17 Forman Machine Operators Assistant Operators Mechanics Quality controller Laborers Sub-Total EMPLOYEE'S BENEFIT (25% OF BASIC SALARY) Total 2 10 6 2 1 4 25 36 900 750 450 800 600 200 21,600 90,000 32,400 19,200 14,400 9,600 187,200 76,350 263,550 1 1 1 1 1 1 1 1 3 11 2,000 1,600 1,600 850 1,000 800 600 650 250 24,000 19,200 19,200 10,200 12,000 9,600 7,200 7,800 9,000 118,200 Description No. Salary (Birr) Monthly Annual

66-12 B. TRAINING REQUIREMENT

The technology of Kaolin processing plant is not complicated. Therefore, on-job-training will be given during the installation and commissioning of the plant.

The training cost is estimated at Birr 45,000.

VII.

FINANCIAL ANALYSIS

The financial analysis of the kaolin project is based on the data presented in the previous chapters and the following assumptions:-

Construction period Source of finance

1 year 30 % equity 70 % loan

Tax holidays Bank interest Discount cash flow Accounts receivable Raw material local Raw material, import Work in progress Finished products Cash in hand Accounts payable

3 years 8% 8.5% 30 days 30days 90days 5 days 30 days 5 days 30 days

A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 9 million, of which 29 per cent will be required in foreign currency. The major breakdown of the total initial investment cost is shown in Table 7.1.

66-13 Table 7.1 INITIAL INVESTMENT COST

Sr. No. 1 2 3 4 5 6 7 Cost Items Land lease value Building and Civil Work Plant Machinery and Equipment Office Furniture and Equipment Vehicle Pre-production Expenditure* Working Capital Total Investment cost Foreign Share

Total Cost (000 Birr) 48.0 1,600.0 5,953.2 75.0 150.0 620.7 553.4 9,000.2 29

* N.B Pre-production expenditure includes interest during construction ( Birr 470.65 thousand ) training (Birr 45 thousand ) and Birr 105 thousand costs of registration, licensing and formation of the company including legal fees, commissioning expenses, etc.

B.

PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 4.82 million (see Table 7.2). The material and utility cost accounts for 67 per cent, while

repair and maintenance take 2.07 per cent of the production cost.

66-14 Table 7.2 ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Raw Material and Inputs Utilities Maintenance and repair Labour direct Factory overheads Administration Costs Total Operating Costs Depreciation Cost of Finance Total Production Cost

Cost 2,868.00 366.59 100 158.13 52.71 158.13 3,703.56 742.82 375.48 4,821.86

% 59.48 7.60 2.07 3.28 1.09 3.28 76.81 15.41 7.79 100

C.

FINANCIAL EVALUATION

1.

Profitability

According to the projected income statement, the project will start generating profit in the first year of operation. Important ratios such as profit to total sales, net profit to equity (Return on equity) and net profit plus interest on total investment (return on total investment) show an increasing trend during the life-time of the project.

The income statement and the other indicators of profitability show that the project is viable.

66-15

2.

Break-even Analysis

The break-even point of the project including cost of finance when it starts to operate at full capacity ( year 3) is estimated by using income statement projection.

BE =

Fixed Cost Sales Variable Cost

= 20 %

3.

Pay Back Period

The investment cost and income statement projection are used to project the pay-back period. The projects initial investment will be fully recovered within 6 years.

4.

Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 15% and the net present value at 8.5% discount rate is Birr 1.64 million.

D.

ECONOMIC BENEFITS

The project can create employment for 36 persons. In addition to supply of the domestic needs, the project will generate Birr 1.96 million in terms of tax revenue. The

establishment of such factory will have a foreign exchange saving effect to the country by substituting the current imports.