Tongaat-Hulett Group to expand sugar production in Mozambique for the EU market

25 January 2007

The Tongaat-Hulett Group (THG) has approved a R1,3 billion expansion of its sugar milling and cane growing activities at its Xinavane and Mafambisse sugar mills in Mozambique. This follows the announcement of a R950 million rolled aluminium products expansion in October 2006, the acquisition of a 50,35% stake in Hippo Valley Estates in Zimbabwe and THG’s announcement on 14 December 2006 providing details of its plans to unbundle and list Hulett Aluminium (Hulamin), the simultaneous introduction of broad based Black Economic Empowerment (BEE) equity participation in both Hulamin and TH and a return of capital of R500 million to THG shareholders by way of a share buy-back.

THG will change its name to Tongaat-Hulett (TH) and will be repositioned as a focussed agri-processing business, which includes the integrated components of land management, agriculture and property development activities.

Tongaat-Hulett CEO Peter Staude said, “The expansion of Xinavane and Mafambisse is directly aligned to a key element of TH’s strategy, namely of growing earnings through expansion of sugar production in low cost regions that have superior market realizations. A solid platform has been established in Mozambique over the past six years. We will use this base to expand low cost sugar production at our two factories from 115 000 tons in 2005 to over 270 000 tons at the time when the EU markets open up to LDC sugar producers. The EU delivered price will remain fixed from 2009 until 2015 at the equivalent of 19.6 US c/lb. Our targeted cash cost for producing sugar in Mozambique of some 8.5 US c/lb compares favourably with Brazil.”

“The R1,163 billion Xinavane expansion will see sugar production increasing from 61 000 tons in 2005 to 180 000 by the 2009 season. The mill infrastructure will be refurbished and/or upgraded, with new equipment being installed to increase the design crush rate from 150 to 380 tons cane per hour, achieving globally competitive economies of scale. Commissioning of the expanded factory will take place in April 2009. Cane growing activities will be expanded by the planting up in 2007 and 2008 of an additional 6 500 hectares under irrigated cane taking the annual cane crush from 509 000 tons in 2005 to 1,5 million tons. The additional sugar production of 119 000 tons will be sold partially in the domestic Mozambican market with the balance being exported into the European Union (EU) in terms of Mozambique’s duty and quota free access from 2009 under the Everything-But-Arms (EBA) initiative for Least Developed Countries (LDC) countries”, said Staude

“ The expansion will be funded by a combination of equity and debt financing from within Xinavane. Agreement has been reached with the Government of Mozambique in terms of which TH’s stake in Xinavane’s milling activities will rise from 49% to 88%. The expanded agricultural operations will remain 100% owned by TH”, he confirmed.

Staude indicated that “the Mafambisse expansion entails the planting of a further 2 100 hectares under cane. This cane will be irrigated from the recently constructed Muda dam near Mafambisse and will increase production at the mill to 82 000 tons per annum over the next two years.”

The two expansions will have a positive socio-economic impact on the region with the creation of 6 638 and 2 145 new jobs in Xinavane and Mafambisse respectively.

Plans are well advanced for a further 34 000 tons expansion at Mafambisse, which will result in total production rising to 116 000 tons per annum.

Total sugar production capacity across all of TH’s regional sugar businesses is expected to rise to some 1,9 million tons by 2009. TH’s total sugar production was 1,160 million tons in 2005.

The Xinavane project is subject to:

  • A favourable outcome to the EIA process currently underway,
  • South African Reserve Bank Approval.

25 January 2007;

Investec Bank Limited