Possible closure of Tongaat-Hulett Sugar’s Entumeni sugar mill

13 November 2003

The sugar industry in South Africa is facing its most extreme challenge in recent history brought about by a number of factors coming together at the same point in time, comments Tongaat-Hulett Group CEO Peter Staude. The most important of these factors being:

• The strengthening of the rand against the US$ to a level last seen early in 2000, together with cost push pressures since 2000 have rendered the industry less competitive in US$ terms. For example salary and wage levels are today 39% higher than they were in early 2000.
• The “dumped” world market price, at which less than 25% of the world sugar is sold, is at its lowest level in recent years in US$ terms.
• The recently announced reduction in the domestic market sugar price.
  

This environment has been exacerbated by poor rainfall in many parts of the cane belt with production in some of the worst affected areas reaching full-blown drought status.

At Tongaat-Hulett Sugar every action is being taken to deal with the challenges. This has resulted in the announcement today by Bruce Dunlop, Managing Director of Tongaat-Hulett Sugar, that the company has initiated consultations with Entumeni mill employees, their representative Unions and cane growers regarding the company’s proposal to close the Entumeni sugar mill.

The Entumeni mill is the smallest of Tongaat-Hulett Sugar’s 5 sugar mills in South Africa representing approximately 5% of the 9 million ton crushing capacity and has a complement of 120 permanent employees. The mill is Tongaat-Hulett Sugar’s highest cost producer and as such is not able to compete effectively, despite the best efforts of all concerned. 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.;

In order to face the challenges upon the industry, Tongaat-Hulett Sugar will continue to pursue strategies to lower its cost of production. One of the keys to achieving low cost production on an international scale is to ensure that milling capacity is fully utilised given the capital intensity and fixed cost nature of sugar milling. The proposed rationalisation of milling capacity, by closing the Entumeni mill and accommodating its cane supplies at the other Tongaat-Hulett Sugar mills, will contribute to lowering THS’ overall cost profile and improving its competitiveness.

In commenting on the possible closure of the Entumeni mill, Peter Staude said that this was just one of the initiatives being taken by Tongaat-Hulett Sugar. Every aspect of the business is being re-examined and actions will be executed to mitigate the impact of the current situation.