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Tongaat makes good progress on power-generation plans

24th May 2013

By: Idéle Esterhuizen

  

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The environmental-impact assessment and plant-construction contracting processes for JSE-listed agriculture and property group Tongaat Hulett’s proposed 80 MW power station, were well advanced, CEO Peter Staude said on Friday.

He noted that, as part of the company’s drive to optimise revenue earned from sugarcane, the company would, in the coming year, compile a bid to participate in the Department of Energy’s programme to secure 800 MW of cogenerated power from the timber and sugar industries, as set out in a Ministerial determination announced by Energy Minister Dipuo Peters in December.

Staude told Engineering News Online that the power station would likely be built at the company’s Amatikulu sugar mill, in KwaZulu-Natal.

“We would like to eventually put a power plant like this next to each of our four South African sugar mills,” he said, adding that Tongaat was already generating enough electricity to power each of its local operations.

“If you undertake a high capital-intensive investment, basically on the boilers and the alternator [at the sugar mill], then you can generate three to five times more power from the same fibre. But to [make] this investment, you essentially need to sign a 20-year power purchase agreement. An important step in this regard was the Ministerial determination, which opened up the procurement process for the sugar industry,” Staude noted.

Meanwhile, Tongaat reported a 19% rise in revenue to R14.37-billion for the year ended March 31, while headline earnings attributable to shareholders amounted to R1.06-billion, compared with R891-million in 2012.

Total net profit before the deduction of minority interests was R1.17-billion, up from R1.02-billion in the previous year, and a final dividend of 190c a share had been declared, bringing the yearly dividend to 340c a share, a 17.2% year-on-year increase.

Total sugar production increased by 9% year-on-year to 1.25-billion tons, after increasing by 14% in the prior year. Staude said the advantage of higher overall sugar production volumes, with the related benefits in the unit costs of production, were partially offset by continued general margin pressure in the relationship between selling price movements and higher input costs.

“We are taking a fundamental review, looking at all our input costs, including the quantum of goods and services we buy in and the value-add of everything we buy in. This quantum that we buy in at the moment exceeds R4-billion a year,” he said.

Profit from the company’s starch operations increased to R388-million during the year under review, an improvement from R363-million in 2012. Starch and glucose processing margins were favourably influenced by higher coproduct realisations and local maize costs that were close to international prices over the course of the full year.

Operating profit from the South African sugar operations, including the downstream sugar value-added activitie,s amounted to R308-million, down from R354-million in 2012. The season concluded with sugar production of 486 000 t, which was unchanged from the prior year.

Further, local market sales were 3% below that of last year, which Staude attributed to cost increases in some countries. This resulted in lower-value export sales increasing accordingly.

However, Staude said increased cost pressures placed margins under pressure.

OUTLOOK

Going forward, Staude said Tongaat would continue to focus on increasing cane supplies to fully utilise its available milling capacity.

He added that the company’s ongoing strategy to increase cane supply in South Africa was geared towards commercial farmers, small-scale farmers and increasing the company’s influence in cane development through leasing additional land and collaborating with government.

“Based on Tongaat’s view of its existing mills, a further 600 farmers on 12 700 ha could supply an additional 1.4-million tons of cane a year. In total, all these indigenous private cane farmer developments could earn more than $140-million gross revenue a year and employ more than 12 000 people,” Staude indicated.

In South Africa, the company was making good progress to accelerate land conversion. The firm targeted some 8 500 developable hectares for development. At present, about 1 900 developable hectares were the subject of well-advanced environmental and planning processes.

Further, total sugar production was forecast to grow by about 110 000 t in the year ahead, with the increase to come from its South African operations.

Staude noted that the company’s increased focus and progress made, to date, on reducing input costs should, to some extent, counter cost pressures going forward.

Further, the current dynamics of the market pointed towards pressure on sugar prices, in general, with global prices currently at their lowest level in thee years.

“For the first time since the introduction of the current duty- and quota-free regime in 2009 for Least Developed/African, Caribbean and Pacific Countries, the benefits of selling into the European Union are being eroded.

“In the regional markets, a period of pressure on selling prices and pressure from imports could prevail if the world price remains low and pricing into Europe remains under pressure,” Staude warned.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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