Why the Adbri (ASX:ABC) share price is pushing higher today

The Adbri Ltd (ASX:ABC) share price is on the move on Thursday after announcing the go ahead of a major project…

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In morning trade the Adbri Ltd (ASX: ABC) share price is pushing higher following the release of an announcement.

At the time of writing, the building materials company’s shares are up 2% to $3.50.

What did Adbri announce?

This morning Adbri announced that its Kwinana Upgrade Project has been given the go ahead after a final investment decision by its board.

The Kwinana Upgrade Project will see the company make a $199 million investment in a modern state-of-the-art facility that will consolidate Adbri’s two existing cement production sites into a single operation.

This operation will serve the Western Australia market and increase annual production capacity to 1.5 million tonnes per annum from 1.1 million tonnes.

Management believes this investment demonstrates the company’s commitment to and confidence in Western Australia’s mining and construction sectors, which are projected to grow over the coming years.

What are the benefits of the project?

As well as increasing its production capacity, the investment will strengthen Adbri’s long-standing position as one of Western Australia’s leading low-cost suppliers of cementitious materials well into the future.

It is projected to deliver cash cost savings of approximately $19 million for the first year post commissioning. This will be generated through lower energy, maintenance, and transport, which will lower unit production costs to enhance competitiveness.

In addition to this, the operation is expected to have a 20% lower carbon footprint than existing operations. This will be through reduced road transport and a more efficient plant.

Overall, the company estimates the net present value of the benefits to be in excess of $125 million, with an internal rate of return (IRR) of more than 15%. This is well above Adbri’s cost of capital.

Adbri’s CEO, Nick Miller, commented: “Our Munster and Kwinana cement operations have helped build Western Australia for over half a century, supplying a vital material to the construction and mining sectors. The Kwinana Upgrade Project represents a $199 million investment that will modernise our cement production capabilities, create employment opportunities during the construction phase and support the long-term growth of the Western Australian mining and construction sectors.”

“The Kwinana Upgrade Project will enable us to continue providing high quality products to the local market. It will significantly enhance our business, both by lowering our operating costs and decreasing our carbon emissions, while at the same time providing an attractive return on the investment for our shareholders,” he concluded.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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