Group considering closing its smallest mill
KwaZulu-Natal Correspondent
DURBAN The currency appreciation took a nasty turn yesterday with sugar and aluminium group Tongaat-Hulett considering closing down its northern KwaZulu-Natal mill, potentially threatening 120 jobs and the broader rural community.
Export-orientated and dollar-based companies have watched profits crumble this year with several mining companies threatening job losses should the situation continue.
Durban Roodepoort Deep has laid off about 3000 workers, while Anglo Platinum, De Beers and Klipspringer are reviewing their positions.
Tongaat-Hulett CEO Peter Staude said yesterday the local sugar industry was "facing its most extreme challenge in recent history".
Primarily, the strengthening of the rand to levels last achieved in 2000 coupled with cost pressures in the past three years have rendered the industry less competitive in dollar terms. Salary and wages were 39% higher than in 2000. Staude said the world sugar market price was at its lowest level in recent years, while the domestic market price had also fallen.
Poor rainfall and drought in many cane-growing areas have exacerbated the problems. Tongaat-Hulett Sugar MD Bruce Dunlop said the group initiated consultations with Entumeni mill employees, their representative trade unions and the cane growers in the region regarding a proposal to close the northern KwaZulu-Natal sugar mill.
The smallest of the group's five SA mills, Entumeni, near Eshowe, crushes around 5% of the group's 9-million ton crushing capacity.
Dunlop said the mill was Tongaat's highest cost producer and could not compete effectively. Staude said the group did not believe there was an alternative to closure, but accepted that negotiations may shed another light on the situation.
However, should the mill be mothballed, it will end its crushing season in mid-December and close its doors.
"Tongaat-Hulett Sugar has considered a number of alternatives for Entumeni's future, but believes that its continued operation cannot be justified in terms of the company's drive to lower its production costs to meet the considerable challenges ahead," Dunlop said.
Staude said the possible closure was "just one of the initiatives" being taken. Every aspect of the business was being re-examined and actions executed to mitigate the impact of the current situation.
The closure has to be seen in a broader context. In the six months to June, Tongaat bled red ink across its income statement, ravaged by a R375m (2002: R74m) valuation adjustment and falling prices.
Underlying operating profit was slashed 40% to R233m as the stronger rand, the smallest anticipated crop in seven years and low international prices took their toll.
The group was also unable to remit dividends from Zimbabwe subsidiary Triangle Sugar for the first time.
Staude told the Investor Analyst Society in August that the group's full-year results to December would be a story of two halves, as a portion of the interim period valuation losses flowed back to the income statement. However, he still anticipated the year to be more depressed than last year. Every one rand move against the dollar has an R80m implication for Tongaat.
Profile Group (Pty) Ltd. has taken care in preparing all information on this website, but does not accept any liability for errors or out-of-date information.
