EV/tonne is how cement companies are conventionally valued.
It is simply the size of the firm – i.e. its NET DEBT and EQUITY VALUE (market cap) added together – divided by the cement firm’s ANNUAL CEMENT PRODUCTION.
This figure essentially shows how much capital is used to produce one tonne of cement.
The lower the figure the CHEAPER the cement company appears to be.
The higher the figure the MORE EXPENSIVE the cement company appears to be.
Hence cement company A which has an EV/tonne of US$80 is cheaper than cement company B which has an EV/tonne of US$120.
Most large cement companies have an EV/tonne of between US$100-120. Small cement companies might have a 30 percent discount.
Another way of looking at it is from the replacement cost perspective.
Suppose a company has a EV/tonne of US$100 but the replacement cost – i.e. the cost of building a new cement plant – is U$150/tonne.
This would suggest the company is cheap and a likely candidate for a takeover (rather than build a plant for US$150/tonne a competitor could acquire this company’s cement production capacity for just US$100/tonne – a 33 percent discount!)