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Good morning, and welcome to the GCC First Quarter 2019 Earnings Call. [Operator Instructions] Information discussed today may include forward-looking statements regarding the company's financial and operating performance. All projections are subject to risks and uncertainties and actual results may differ materially. Please refer to the detailed notes in the company's earnings report regarding forward-looking statements. At this time, I'd like to turn the call over to Mr. Enrique Escalante, Chief Executive Officer. Please go ahead, sir.
Thank you, operator, and good morning, everyone. Joining me today is Luis Carlos Arias, our CFO; and Ricardo Martinez, Head of Investor Relations. As you can all appreciate, we have seen an extraordinarily winter season, adversely impacting most markets in the U.S. and every market in which we operate in the country, coupled with the mild first half 2018 winter and the benefit we saw related to the unique and accelerated construction cement demand in early 2018 to be more than 15 frack sand facilities in West Texas, representing around 30,000 metric tons, the comps this quarter are tough. Having said that, the overall underlying trends of our business remain strong in each of our markets. We continue to see solid demand with customer backlog expanding in both the U.S. and Mexico. And while the growth outlook for Mexico has weakened, that is not the case for the Chihuahua region where we operate. In fact, Chihuahua is outperforming the country as a whole, driven primarily by robust mining shipment, industrial maquiladora plants and warehouse construction and also middle-income housing starts at the northern cities. Let me now turn to the key performance drivers in the U.S., starting with the south and moving north, and then let's review GCC's operations in Mexico.
Luis Carlos will follow with the discussion of GCC financial results and we will then turn the call over to your questions. Overall, we are seeing strong performance in the El Paso, Texas and New Mexico areas, with a significant amount of work being quoted, including military-based runway reconstruction and road projects that have already been approved and awarded. Also, projects for 2019 and 2020 resulting from last year's full discrete bonds issued in El Paso. We also expect to see a pickup in cement consumption demand related to new rig construction, supported by oil prices increasing and by the opening of new pipelines from the Permian Basin oil fields in West Texas to East Texas, which was a constraint last year. There were several pipelines already under construction and we expect a couple more to be commissioned in the near term.
To supplement increasing demand, kiln 2 at our Chihuahua plant is now producing and exporting oil well cement and we're in the process to open a new cement terminal in Fort Stockton, Texas. It is important to note that this is an area where we have had very strong comps in 2018, driven by the extraordinary consumption to build the frack sand facilities to which I have referred. As these places were completed last year, this cement demand has not been replicated this quarter.
In terms of pricing, on April 1, the additional USD 8 per metric ton price increase came into effect across all our markets, excluding oil well cement. However, with added pressure from The Street on oil well profitability and cash generation, we have been experiencing some pushback in pricing increases with this segment. Given the high utilization rate in West Texas and if the oil price continues its favorable trend, we could expect an oil well cement price increase in the fall. In Colorado, we continue to see a very dynamic economy and expect growth momentum to remain solid for the next few years, underpinned by public infrastructure projects, including the Denver Airport.
Turning to the Northern Midwest and Plains states, in Montana, we continued to drive important synergies from the Trident plant acquisition made last year as we have begun to consolidate and sell directly to GCC Canadian customers. At this time, we are working on setting up a new terminal in Canada. In the Dakotas and Iowa, demand is mainly driven by the continued wind farm construction activity. Although agricultural products demand it's always present in the region, wind energy has become a key segment for our company. With benefit of several years' experience in advancing these type of projects, GCC has built a strong reputation with key wind farm developers. We are, therefore, optimistic that this is a segment that will -- which will continue to strengthen for our company as there is a solid wind farm backlog. Let me now provide a brief update on GCC's Rapid City plant. The operational ramp-up is proceeding at a slower pace than anticipated affecting the plant's variable costs structure. The issues we have been experiencing are fairly simple in nature and are related to certain auxiliary equipment, such as a crushed rock conveyor belt and a coal mill alleviator. However, the equipment provider has already stated that replacements are on their way. We are closely monitoring this situation related to the stabilization process and are analyzing further courses of action to mitigate this issue within our network. It is important to note that all major equipment at the facility is running well, and as of today, we have spare capacity and inventory.
Turning to our Mexico operations. We are very pleased with the results achieved in this geography, where GCC has performed well above our initial expectations in terms of both volume and prices on strong economics within the Chihuahua region. Mexico's mining sector continues to be one of the key drivers of sales growth as we evidenced -- as was evidenced by the record-high shipment we had in Mexico in March of this year. Industrial facilities construction has also boosted GCC's volume. In Juarez, the middle-income housing segment also showed strong demand. Additionally, scarcity of labor has driven homebuilders to switch to GCC's concrete block from other more labor-intensive construction materials, such as bricks. While we were able to achieve strong results for the first quarter of 2019, we, nevertheless, remain cautious in our optimism for the remainder of the year while the new administration moves forward with its proposed initiatives. In line with the strong opportunities, we have ambition for GCC's long-term future, we have created a new corporate technical and operations office to further drive our growth strategy by streamlining operations and facilitating GCC's ongoing progress. The key objectives for this area include: first and more importantly, improve our safety process company-wide to guarantee we are on industrial benchmark in health and safety; second, to standardize and implement operational best practices throughout our organization; third, define and implement our knowledge management process to better achieve GCC's organizational objectives by making the best use of our corporate knowledge; fourth, strengthen the performance of all GCC operations to higher standards; fifth, define and implement state-of-the-art technologies at all GCC projects; and sixth, facilitate and implement cross-training programs including related goals and guidelines. Let me now turn the call over to Luis Carlos to review the quarter's financial results, and I will return for some closing comments.
Thank you, Enrique, and good morning to everyone. Let me begin by reminding you that results for the Trident Plant in Montana were consolidated effective July 1, 2018. Our results also reflect the reclassification of the Oklahoma and Arkansas ready-mix assets sold in June as discontinued operations. Prior period results have been restated in accordance with IFRS 5, including sales, costs, expenses and volumes. Additionally, with the implementation of IFRS 16, the way in which GCC accounts for operating leases, which were off balance sheet will change. GCC will recognize a right-of-use asset of around $57 million on both the assets and liabilities side of the balance sheet and the impact in this year's income statement is to decrease costs and operational expenses by around $20 million, to increase depreciation and amortization by approximately $18 million and to increase interest expense by around $2 million. The foregoing without any effect in free cash flow, net income or total interest bearing debt.
Consolidated net sales for the first quarter decreased by 1.9%, mainly driven by the 6.9% decline in U.S. sales. The decline in sales volumes in the U.S. reflect the initial inclement weather conditions in every market in which we operate in, coupled with a difficult comparison from a record-high first quarter in 2018. Pricing dynamics continued to be favorable. Mexico performed above our expectations with sales growing 8.1% year-on-year, supported by growth in volumes and higher prices. This is on top of the 18% growth achieved last year. Cost of sales as a percentage of revenues increased 7.1 percentage points compared to the prior year quarter, mainly reflecting a $6.7 million increase in operating expenses from a major plant preventive maintenance shutdown at our Odessa and Trident plants, increased variable costs at Rapid City plant related to the operational ramp-up process challenges that Enrique described and higher power costs in Mexico.
In addition to the negative operating leverage impact of lower shipment levels, higher depreciation levels from the new facilities also affected our margins. As I had commented in the past, we continue to see an increase in electricity costs in Mexico, but expect this trend to revert in 2020 as we are working on 2 initiatives, which we expect will drive significant future cost savings. First, on the back of Mexico's ongoing energy reform, we are in the final stage of selecting a new long-term electricity generator and expect to see related savings beginning next year. We are also in the process of reviewing alternatives in the form of renewable energy, either through third parties or on-site to reduce our energy costs while maintaining our important focus on remaining environmentally conscious. We have the space and conditions are certainly amenable for both sun and wind alternatives. We, therefore, are actively evaluating those projects, which will make the most sense from both a cost and operational standpoint. We will be sure to provide relevant updates as they unfold. Operating expenses as a percentage of sales increased 1.7 percentage points in the quarter, mainly due to incorporation of the Trident plant and the creation of the corporate technical and operations office. While these expenses were previously recorded on the cost of sales, most have now been reclassified to the operating expenses line. EBITDA decreased 16% in the first quarter with the margin contracting 4 percentage points to 23.4%. As I have mentioned at the beginning of my remarks, EBITDA in this quarter and hereafter will benefit from the implementation of IFRS 16 due to the fact that the majority of the former rental expense from operating leases is now reflected in amortization with neither impact in net income nor free cash flow. Net financial expenses fell 23% in the quarter due to a decline in interest expense and lower debt balance as a result of the successful refinancing of all of our debt. As a result of these factors, net income from continued operations fell to $3.9 million in the first quarter of 2019 from $11.8 million in 2018. Due to the seasonal nature of our business, as we normally see in the first quarter of the year, free cash flow remained negative at $22.4 million compared to $10.6 million last year, mainly reflecting lower EBITDA generation and an increase in other expenses. Lower interest expenses and cash taxes as well as reduced working capital needs and maintenance CapEx partially offset this increase. Moving to our balance sheet. The net debt-to-EBITDA leverage ratio decreased to 1.74x in March 2019 compared to 1.83x as of March 31, 2018. As we mentioned during our fourth quarter 2018 conference call remarks, in February Fitch Ratings raised the company's local and foreign currency ratings to BB+ from BB and also upgraded our $260 million senior notes due 2024 to BB+ from BB. We have a very healthy and efficient capital structure that will enable us to continue to invest strategically in our business.
Further, we remain confident in the outlook we provided during last quarter's call given the dynamics we foresee in both the U.S. and Mexico for the balance of the year. As a reminder, it's important to note that historically GCC's first quarter represents between 12% to 15% of total annual sales, which, therefore, is not a strong indicator of the company's full year performance. If we compare for the last couple of years, the average third quarter volumes to the first quarter volumes in the case of concrete, there is a 3:1 ratio, while in cement third quarter volumes normally double the first quarter performance.
I will now return the call over to Enrique for his closing remarks.
Thank you, Luis Carlos. I would like to take this opportunity to reiterate the fact that the underlying trends of GCC's business remain solid. We, therefore, maintain our 2019 guidance based on our confidence in the pent-up demand in the U.S. that will be recovering with improving weather during the remainder of the year.
As I had stated, we remain cautiously optimistic on the economy in Chihuahua and expect performance in this state to continue to surpass Mexico's overall performance. Absent of a 2019 early winter resulting in a shorter than usual construction season, we should be on pace the next month to deliver on our guidance.
Now before opening the call for questions, I would like to briefly comment about the resolution recently issued by the U.S. District Court of Colorado regarding the Damages Award related to our past [ involvement ] in Bolivia. As we stated in our press release of April 1, we continue to refute that resolution as the resolution does not recognize the previous determinations of the Bolivian courts that considers the Liability Award null and in favor of GCC, furthermore because it overlooks the fact that there are ongoing Damages Award annulment proceedings in Bolivia. Today, we are filing our appeal to the Colorado District Court resolution in the U.S. Tenth Circuit Court of Appeals and we will make sure to provide relevant updates as soon as they are available. We currently have no accounting accrual in place as there is no reason or no need to create one on this claim. The foregoing has been approved and validated by our auditors every year since the case was initiated. Furthermore, we are entitled to reimbursement for any judgment, award, expenses or damages that could have raised from this proceeding, but since we are bound by a confidentiality duty, we cannot comment further at this time. As is our practice, we will be sure to keep the financial community updated whenever possible.
With that, this concludes our prepared remarks and we are now ready to take your questions. Operator, please go ahead.
[Operator Instructions] Our first question comes from Dan McGoey from Citigroup.
Two questions, if you may -- or if I may. First on Mexico, could you discuss a little bit the drop -- the year-on-year drop in the EBITDA margin in Mexico? I know you cited higher electricity and fuel costs and maintenance at Samalayuca, but could you put some numbers on that in terms of how much was related to each because it was quite a sharp drop year-on-year in margin and also your outlook for recovery or where we should expect margins for the remainder of the year in Mexico? And then secondly, on Rapid City, you mentioned the slow ramp-up and difficulties, I think it was conveyor belt and a crusher. Can you discuss where you are at the moment with that? Is the plant now operating to your satisfaction? Or what was the time line for getting there?
This is Enrique. I'm going to address your second question first, while Luis Carlos will get some of the more granular numbers that you need for the first question. In Rapid City, as I mentioned, I mean the problems we are having are with auxiliary equipment. It's basically one conveyor belt that needs to be redesigned because the slope was too steep and we are having problems maintaining an adequate flow of limestone into the raw mill. So that's been addressed by the supplier and we are in this process of redesigning that conveyor belt and setting up the order coming for new installation. There is a problem with the coal mill, which has a small alleviator. This is just a -- kind of pressure release valve that needs to be also larger and that order has been put in place for the acquisition of -- for purchasing of a larger piece of equipment. So this costing us as we cannot operate the plant at full capacity, which fortunately we don't need at this time.
As I mentioned, we have enough inventory and capacity for the forecast of demand as we have for the next couple of years in that area. This situation will be fixed in the next months, probably will take 4, 5, 6 months depending on the delivery of that equipment. But as I mentioned, it should have no impact on the availability of cement. It does have some impact on the variable costs of course because we cannot run at the expected efficiency that we initially estimated. The good news I can tell you is that the major pieces of equipment are working well and we just achieved the guarantee test on the run mill through passing the numbers that the original equipment manufacturer guaranteed to us. So that -- all the rest of the major equipment, it's running well.
And Dan, on your first question, as you can recall or maybe remember that during the -- during last year -- during the first couple of months, there was a steep decrease in the power cost in Mexico. We saw record-low cost per kilowatt hour. And then during the following months last year, there was a steep increase. So we -- this first quarter of '19 we are comparing high rates against record-low rates during the first quarter of 2018. So again, it's a very hard comparison against first quarter of '18. That's why -- as I explained in my remarks, that's why we are very focused on 2 projects for energy. We are progressing very fast on this. And as I said, once we have a more definite information, we will -- of course, we are going to comment on that in the future calls.
Okay. But in terms of even if electricity prices were up 15% or 20%, it doesn't seem to explain the magnitude of the year-on-year decline in EBITDA margin. Are there some other contributing factors? I know you mentioned the costs of Samalayuca, which presumably didn't occur in the first quarter of '18?
Yes, Dan, this is Enrique. Let me address the issue on fuel. On the fuel side, we also had an impact on the cost of the plant and all of the plants in the company because we have been going through a very difficult geology in the mine. And -- so we have been producing coal with a lot of what's called ash, which is basically rock that is in the middle of the coal seam. So that rock, obviously, called ash again, lowers the efficiency of the coal -- of the plant and the plants have been, obviously, having stability problems with that coal. That's basically resolved already because we changed to another part of the mine where the geology is better and we're just basically out of that area.
However, in order to improve the condition of the plants by burning that lower-grade coal, we had to do 2 things. One, to purchase some outside coal because also the production rate of the mine was lower with that while we were mining in that area, so we had to purchase outside coal, which, of course, comes at the full price as a cost item to our cement plant. That also has an impact on the cost side -- on the variable cost side of the cement plant. And to maintain a better plant stability, we supplemented with natural gas at a higher price and cost of coal. So those 2 factors, of course, are also impacting the fuel cost at all the GCC plants that consumed coal from the mine. Again, we are already finishing to solve that issue and we should go back to the previous coal -- fuel cost in all our plants.
The next question comes from Carlos Peyrelongue from Bank of America.
My questions are also related to margins. I believe you mentioned about 5 things that affected margins over the quarter. I wanted to go over them to see if these -- some of these are recurrent going forward or which of those are not. The first one was related to the maintenance in Trident in Odessa and I believe also Samalayuca. Are these maintenance shutdowns, are they over and therefore starting in second quarter we should not see those additional costs or can you comment on the timing of the periods of maintenance?
Second is related to Rapid City. I believe there you sort of answered already that it will take another 4 to 6 months before the problem is fully solved. Just wanted to confirm that? Then electricity costs in Mexico, it seems that they will remain at current levels for the rest of the year so that impact should be maintained.
Fourth, I guess, volumes in the U.S. weather, no need to answer that. Obviously, we expect weather to improve as we get out of the winter. And then the last one is on fuel cost that you just mentioned. Is that something that has been solved or we should still expect during the second quarter an impact? Sorry, for all the questions, but if you could address those would be very helpful.
Thank you, Carlos. On your number one question on maintenance in Trident and Odessa, that's behind. Those were related to the major outages -- maintenance outages for the year. And what we found is that in Odessa, we ended up doing a little bit more work than what we budgeted for originally. And that has resulted, I can tell you, in that the plant is running much, much better. Actually, in March, we probably had the best month in that plant since we brought the plant. So that's behind us and we expect the payoffs to continue going forward.
That's the same case for Trident. Trident is just coming out of its outage and of course, we didn't have that maintenance charge last year at this time. So that's also why it's increasing the onetime cost of this year. In terms of Rapid City, yes, I said, 4 to 6 months. And depending on when the new conveyor can be installed that may take up up in order to install that conveyor all the way through the end of the year depending on the delivery time, which we don't know yet. However, having said that, I can tell you that the efficiencies are improving a lot faster and we don't need to wait until we have got conveyor to achieve the expected efficiencies. We're working at this speed that plan to work during the year. And this is because we have some workarounds in order to achieve the required production by crushing rock little smaller size, which will resolve temporarily the problem of that conveyor until we have the new one. So we shouldn't -- we should be in pace to recover those efficiencies during the next 4 to 6 months, as I said originally.
In terms of the electricity costs, yes, we believe we are at the top level at the moment and from now on everything should be either the same level or lower level. In terms of volumes in the U.S., I think we already addressed that. And in terms of fuel cost, fuel cost, it's almost, just to reconfirm, it's almost over in terms of the quality of the coal. We may still need to purchase 1 or 2 trains of coal to supplement the system just because we were a little bit behind in production of the mining inventory, but that should be over again in the next couple of months.
The next question comes from Cecilia Jimenez from Santander.
Most of them have been already answered, but basically there's one remaining one. You mentioned there's a plan to improve the electricity -- not specifically electricity costs and saving in terms of energy in Mexico. So could you share with us when would that plan be implemented and where would we see the results on that? That's number one question. And number two is regarding the underlying trends in volumes in the U.S. I understand, Enrique, you mentioned it during the highlights that you see -- you continue to see strong underlying trends. We have had 2 quarters -- consecutive quarters with close to double-digit decline in volumes. So just wanted to make sure the overall outlook for the U.S. in terms of volume remains solid enough to be confident on that part. That is it from my side.
Thank you, Cecilia. First on the power cost in Mexico, we are finalizing the agreement with the power generator that we selected during a very long and thorough process to select between different offers in the power market in Mexico. So we're in this phase now. The savings will not take place until next year, which is when the power will be readily available. And I want to say also that this power is coming from a renewable source. It's going to be mainly from a generator that has capacity in a solar farm, which again will give us the benefit of the clean energy certificate that we will be needing here in Mexico, too. So it's a very, very good project. We expect that power to cost us -- I mean to deliver savings in the double-digit reduction of power cost in Mexico starting in 2020. For the rest of the year, as I mentioned before in the previous question, we are very confident that it will be constant at the current levels. In terms of volume trends in the U.S., as you all can imagine, we kept reviewing and reviewing in detail the backlog, and it's very solid. I can tell you that it's very solid and it's going to be more a matter of 2 things that we can deliver that backlog. And I already mentioned one, which is, of course, weather depending on what happens, if we have a very wet season or not during the summer or an early winter, which, of course, we cannot control. But absent of that, we should be in pace to deliver on solid backlog. The other factor -- limiting factor that could be on the way, and we have repeated this for years already, it's the scarcity of labor. So again, depending on how fast the contractors can put down the work could be affected by if they have enough labor. So of those 2 factors, I can tell you that the demand -- the underlying demand in projects and backlog is strong. For example, infrastructure work in several of the states where we are, we're still currently -- there are still projects being bid at the moment, which is usual -- unusual for this time of the year. Usually, all the projects are bid in the previous year or very early in the year. And today, we still have a considerable number of projects bidding for work this year. So we're confident that the work is there and it's solid.
The next question comes from Chelsea Colón from Aegon.
First, just like a housekeeping item. Can you clarify the numbers that you stated at the beginning with regard to the impact of IFRS? And then secondly, regarding the renewables project, can you quantify how much that could potentially cost in terms of investment? And then finally, when you think about growth going forward, I'm just kind of wondering where you stand in your strategic priorities with regard to either brownfield, acquisitions or greenfield projects?
Thank you, Chelsea. I'll ask Luis Carlos to answer the first question, and I will tackle the second one.
Chelsea, yes, we are recognizing around $57 million on both assets and liabilities. That's the present value of our lease agreement that we have -- or operating lease agreements. So that's on the balance sheet. And in terms of the P&L, we want to have a reclassification from cost of sales and operating expenses to amortization and financial expenses of around $20 million. Approximately, $18 million is going to be in amortization and $2 million in interest expense.
Okay. I will continue with the second question on renewables, and I think that the question was about cost of investment. So the first phase of this project, Chelsea, it's just entering into a long-term supply agreement, which obviously has no investment cost. It's just committing to the long-term supply. And that's the one that I mentioned, it's well advanced. And probably in the next call, we will be able to give you more details. There's a second phase that we're evaluating concurrently, but it will be a longer-term project, which is moving from that supply agreement into our own solar farm at one of our plants, and that's a project that we don't have yet a specific number for the investment but would be kind of a Phase 2 to improve on the benefits of the first and long-term supply agreement. So again, probably in the next call, we can give you more specific numbers as we proceed with the evaluation of that project. It seems very promising. We have been already doing a lot of work in terms of making sure we have the right space and the right number of sun hours that we need for the investment to be upgraded -- I mean effective one. In terms of growth, we continue looking for opportunities according to our strategy, mostly to expand our footprint in the U.S. as opportunities come in front of us. We think with the balance sheet, it's ready for us to take on opportunities and it's just a matter of continuing to see something develops. We're actively and constantly talking to people to make sure that we are aware if there's a possibility of doing something. In terms of brownfields, we have commented in previous calls that we have been in the process of electing where the next brownfield project should be for GCC, and it's in the state of Chihuahua. We have a project ready, and we are just cautiously waiting to see how things continue to develop in Mexico in terms of the outlook and the demand, of course, resulting from that outlook. But project is basically ready conceptually, in discussions with equipment providers, and we're ready to move forward as we see fit according to the demand forecast.
The next question comes from Mauricio Serna from UBS.
First on Mexico, I just wanted to go back and see how should we think about margins throughout the rest of the year. I mean this was a particularly tough comp in terms of energy cost, but as you mentioned, it should be either in line for the next months or even lower. So I was just thinking about maybe the rest of the year, margin should be -- could be pretty much in line with what we had last year. Last -- and second also on -- second on the Rapid City plant, you were mentioning that it would take 4 to 6 months before the ramp-up stage is finalized. So should we be thinking about the benefits from the expansion actually to come more in, I guess, the end of third quarter of this year and for the next 12 months rather than really something that's going to materialize this year? And finally, if you also could comment more about the U.S. prices. You did mention something about the oil well cement, some pushback because of the need for higher profitability of the oil industry, but what about the rest of the territories, how are -- or the rest of the markets, how is the pricing doing there?
Thank you, Mauricio. First, on the margins in Mexico, yes, we think that we will start climbing back to usual margins similar to last year within the next few months. So we don't see a big issue there, probably not to the top numbers of last year because as I mentioned in electricity cost, it's going to remain constant at the current level, but definitely climbing back towards that -- toward those levels. In terms of Rapid City, the benefits of the expansion, I think it's safe to assume that they are going to be there in the third quarter. Actually, where we end up with operations, and they are very optimistic that as we continue to overcome the initial phase of the ramp-up and with weather changing, which, of course, weather, it's a big factor in the plant, they are confident that we can achieve the expected viable cost for the plant in the next months. So third quarter will be a safe assumption. In terms of prices in the U.S., yes, we mentioned there is some pushback in oil well prices because of the pressure from The Street to the oil -- well service companies. And we expect to be back there talking about a price increase with these customers in the fall. The rest of the market, price is going mostly well everywhere. We have, of course, as it's customized, some pushback here, some pushback there, but small -- and some small negotiations that end up in some price increase and not at the full level with some specific customers and some specific regions, but nothing out of the ordinary. So we're confident that the price will be taking basically as we had forecasted for the year.
Okay. And just remind me -- remind us what were the price increases that you were pushing for at the end of last year in terms of dollar per ton?
It's $8 per metric ton starting April 1.
The next question comes from Ramon Obeso from Scotiabank.
I just have one question. Could you give us some color on the magnitude of the synergies you are achieving with the Trident plant? And when do you expect these synergies to be fully implemented?
Ramon, thanks for the question. What we have informed to the investors about the synergies, that it's in the range of $3 million. It's, of course, starting to take place, and we expect those to be completed basically by midyear of this year -- well, let's say, the third quarter to be up on the very safe side because of the installation of that terminal that we mentioned in Canada that is taking place next month.
[Operator Instructions] And the next question comes from Froylan Mendez from JPMorgan.
So it seems that 2018 EBITDA margins for Mexico were actually extraordinarily high. And if you expect electricity prices to actually remain flat throughout the year, should we see more -- 2019 margins more on the similar levels to 2017? That's my first question. The second one is regarding M&A, especially in the U.S. and how will -- and how are you looking at the environment for M&A. And have you looked at possibly going into the aggregates business? That's my second question. And thirdly, what is the amount of the investment that you expect on these brownfields in Chihuahua and what type of cement would this be focused on?
Thank you, Froylan. Well, as Enrique explained, yes, we -- definitely, going forward, we'll see better margins in Mexico because of the increase in energy -- in electricity cost. We may see maybe a bit lower than last year. On the other side, pricings in Mexico have been good. So yes, margins are getting better during the rest of the year. And in 2018, yes, we had a very good -- huge in terms of margin for Mexico. So again, it's a tough comparable.
In terms of M&A, so we don't have any specific knowledge of opportunities out there. Of course, we hear in the market rumors as everyone else, but we are not -- let me put it this way, I think there could be opportunities definitely before at the end of the cycle with some companies that may want to take advantage of selling some of their assets before the cycle ends. And of course, as we hear, as you know and we're very conscious of that is not to overpay for an investment in this part of the cycle. So we're being very cautious but also very active in being close to the payers in the industry. In terms of the project for the Chihuahua plant, we're thinking about an investment very similar to what we did in Rapid City. That could be around $100 million. But let me reiterate, that's not happening this year on the cash flow side because even if we decided to go forward and depending on what I said about the forecast and the situation in Mexico, it takes time to finish obviously the engineering work and the design work. And you have to really start investing actual dollars in the project. So the investment will not fall in 2019, but it's around the same investment that we are seeing for Rapid City. In terms of the cement, it's ordinary Portland cement that we will be producing. It's construction cement.
And would that be mostly for export or you see enough space for local demand to satisfy this or how you plan to move your capacity?
Mostly, for domestic sales as we have disclosed before. I mean the plants have been running almost at full capacity here in the south part of the system. And so that will be the place where we need to expand. And as -- but always, with the capability of laddering up shipments from south to north, if the demand surfaces in other geographies, I mean north of Chihuahua. So it's, again, in Chihuahua, but it can be shipped up north. As we displace more cement from some other to the export market, Chihuahua could be also shipping up north of Juarez.
That concludes today's question-and-answer session. Mr. Escalante, at this time, I'll turn the conference back to you for any additional or closing remarks.
Thank you, operator, and thank you, everyone, for joining us today. We appreciate your interest in our company, of course. And we look forward to many more and more over the coming months and providing relevant updates. In the meantime, if any of you have any questions, our team here remains available to answer them as soon as possible. Thank you, and enjoy the rest of your day.
Ladies and gentlemen, this concludes today's call. Thank you very much for your participation. You may now disconnect.