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York Timbers’ proposed R1.4bn biomass plant to feed national grid

York Timbers’ proposed R1.4bn biomass plant to feed national grid

Photo by Duane Daws

30th September 2015

By: Natalie Greve

Creamer Media Contributing Editor Online

  

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Local timber group York Timbers has fleshed out ambitious plans to establish a R1.4-billion electrical biomass power plant at its timber plant, in Mpumalanga, which will deliver 25 MW into the national grid and allow the company to generate energy income from what would otherwise be discarded biomass waste produced by its six timber operations.

Addressing analysts and shareholders at a presentation of the company’s results for the 12 months ended June 30, on Wednesday, CEO Pieter van Zyl said the project, which would further diversify the lumber, plywood, wholesale and plantation provider’s earnings base, would see York Timbers participating in the Department of Energy's Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) in the expedited fourth bid window that would close on November 11.

“This project will strengthen York's earnings before interest, taxes, depreciation, and amortisation- (Editda-) generating capability, diversify earnings and extract increased value from available biomass in the group.

“We will be using a huge volume of biomass that would otherwise be useless. It’s a key game-changer for the company, as, in the past, we simply burned the biomass or left it to turn into compost,” he noted.

To enable participation into the empowerment-conscious REIPPPP, York had created a ring-fenced company dubbed York Timber Energy, which was 12% held by the community and staff through a trust and the remainder owned by the parent group.

“Of the R1.4-billion capital expenditure (capex) required to develop the plant, a big portion – about 75% – of this is debt, so we've geared as far as possible with debt.

“The plant, which will use Austrian technology, will provide us with between 10 and 20 years of predictable cash flow,” he remarked.

PLYWOOD OPTIMISATION
York’s revenue diversification-driven capex programme had also seen it undertaking an expansion project at its Sabie plant, creating an integrated site that was expected to significantly improve the use of available fibre and boasted a central log merchandising yard, a sawmill, a medium-density fibreboard plant and an upgraded and expanded plywood plant.

The first phase of the Sabie integrated site saw the expansion of the plywood plant, which entailed the installation of a boiler and new heat exchangers in one of the veneer dryers, as well as the conversion of the log conditioning chambers
from hot water to steam.

The boiler increased the available thermal energy of the plant and the heat exchangers increased the thermal energy transfer of the dryer.

The conversion of the log conditioning chambers meant that the logs were no longer boiled in hot water, but rather steamed until the required core temperature was reached.

This reduced the initial moisture content of the veneer and, subsequently, the amount of moisture that had to be removed during the drying process.

Thus, the available thermal energy was increased, the effective transfer was increased and the amount of energy required to dry the veneer was reduced, which, ultimately, led to increased production capacity.

The upgrade was due to be completed in the last quarter of the 2016 financial year.

“We’ve managed to increase the yearly production capacity from 78 000 m3 to 133 000 m3 and, had we developed this plant from greenfield status, it would have cost us between R700-million and R800-million, rather than our budgeted R300-million,” said Van Zyl.

FINANCIAL SHOWING
Looking to the group’s financial performance for the 12 months, York increased its cash generated from operations by R31-million to R183-million for the year, pushed up largely by the previously lossmaking wholesale division, which was acquired from Iliad Africa, which became profitable during the year.

Revenue increased 17% to R1.54-billion, while operating profit improved 23% to R116.8-million on the back of improved sales, better average selling prices and operational efficiencies.

Earnings a share, meanwhile, improved 107% to R31 apiece, while overall Ebitda rose 28% to R199.3-million.

The group’s remanufacturing division contributed R392.5-million in turnover for the 12 months, benefiting from its ability to meet short delivery lead times though immediate stock availability across a range of  products.

The forestry division’s Ebitda, meanwhile, decreased 29% year-on-year, in line with York's sustainable forestry management practices and outside procurement strategy, Van Zyl outlined.

“Industry log prices for solid wood processing continues to increase for larger diameter logs; at the same time, the number of hectares managed for pine long saw log rotation continue to reduce,” he commented.

The York biological asset increased year-on-year with a fair value adjustment of R37-million.

PROSPECTS
Van Zyl reiterated that extracting value from its plantation growth stock remained a key focus area for York and it was with this objective in mind that the company continued to invest in the appropriate processing technology.

“York will continue to focus on efficiencies in its processing plants and improving process flow, where appropriate,” he said.

The insourcing of various forestry activities would, meanwhile, continue to deliver benefits to York and would remain a key priority.

“The continued improvements in our plantation growth stock through enhanced silviculture practices, site specie matching and
effective external log procurement will ensure adequate raw material is available to deliver on the growth strategy,” Van Zyl emphasised.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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