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February 27, 2009

South African sugar company upbeat on its Zimbabwe sugar investment

by Margie Inggs

Tongaat Hulett's wholly owned Zimbabwean sugar estate, Triangle, had the potential to produce 600000 tons of sugar, but the company needed to spend R70m on the Triangle and Hippo mills to realise this, CE Peter Staude said at a presentation yesterday.

The company owns 100% of the 30 000ha Triangle estate and 51% of the adjacent Hippo Valley estate in Zimbabwe.

Last year, 644000 tons of sugar was produced at all Tongaat Hulett's operations in South Africa, and Staude said that in normalised conditions, Zimbabwean sugar operations would have twice the capacity of the expanded Mozambican operations, with similar market access and lower costs.

From October, lesser developed countries will have unlimited, duty-free access to the European Union market. SA will not benefit from this, but the potential for sugar operations in Zimbabwe, Zambia, Swaziland and Mozambique will be enormous. "We are very excited about the future," Staude said.

The Triangle estate produced 580000 tons of sugar in 2002, but managed only 298000 tons last year, which was "an absolute nightmare", compared with 349000 tons in 2007. "We couldn't even get basics like tyres and fertiliser," Staude said. "However, € 45m is available for cane recovery operations in the country like replanting and fertilising, subject to the rule of law, security of land tenure and the elimination of price controls."

He said Triangle expected to produce 411000 tons of sugar next year and the mill should reach full crushing capacity by 2012. This would result in an operating profit of more than R540m next year and more than R790m in 2012.

The group's operating profit for last year was R1,132m .

Staude was optimistic that Zimbabwe's economy was moving in a positive direction, but said the macroeconomy would have to be re-established to get the country back on its feet.

"The economy is changing rapidly and a lot of serious people are trying to put it back on track," he said. "We started realising that the Zimbabwean dollar was disappearing in December and stopped selling sugar in January, but (this month) to date we have sold 14000 tons for more than $500 a ton."

Despite the extreme effects of hyperinflation, exchange rate movements, foreign currency shortages and price controls last year, Triangle still managed a dividend of R35m , compared with R53m in 2007.

However, Staude said a lot of this had flowed from 2007 and the dividend was not really a reflection of conditions last year.

Head trader at Sasfin Securities, Mohil Bandulal, who attended the presentation, said given an environment that was conducive to normalising business, the build-up to full capacity at Triangle, together with the business in Mozambique, would enhance Tongaat Hulett's sugar production significantly.

"As the group only has to invest R70m in the Triangle mill to bring it up to speed, we could see significant increases in sugar production within the next 24 months," he said

Business Day

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