Pulp and Paper Sector Summit

Resource Book

Compiled by:

1

Pulp and Paper Sector Research

Sections in this Document

Introduction and Methodology Section 1: Global Overview Section 2: Supply chain Forestry Recycling Pulp Paper Section 3: Companies Section 4: Economic factors Supply and demand factors Trade Investment Section 5: Employment Section 6: Findings and Recommendations (summary)

Prepared by CSRSC for Naledi and CEPPWAWU

2

Introduction and methodology

The nature of the brief for this research called for a combination of descriptive and analytical techniques aimed at generating a practical and strategic approach for labour in the sector as to how to engage both employers and government. There was a need to investigate a number of elements relating to the industry and to document the supply chain as far as possible with a focus on the pulp and paper subsectors. As such the methodologies employed where quite varied.

Data sources:

Data was collected during a desktop research phase and sources included both theoretical papers, global industry descriptions and projections, company reports and economic data on trade from various sources using Comtrade including the UN statistics division, Tips Trade map and the Department of Trade and Industry. Employment data was collected from company work place skills plans, the labour Force Srvey, DTI data, company interviews and reports, industry association and HSRC studies in the sector.

This data was integrated with data collected from a series of interviews around the country with various industry players. Interviews included relevant government departments, industry associations, employer and contractor associations, employers, labour, research organisations and industry experts. It was not within the scope of the research to conduct a complete employer survey although this is not seen as a particular weakness given the exploratory nature of the research and the policy focus which could adequately be covered through a process of merging qualitative discussions with statistical data.

Initial data was presented to CEPPAWU in late 2004 at a reference group meeting resulting in some areas of refocus and the final shape and nature of the report presented here.

3

Section 1: Global Overview

4

Introduction

South African Companies in the Global Pulp and Paper Market

In the Price Waterhouse Coopers Global Forestry and Paper Survey (2004) top 100 companies, Mondi, a subsidiary of Anglo American is ranked 15th for 2002 and 2003. Sappi is ranked 20th for 2002 and 2003. Nampak is a new entrant in 2003 at 65th. Kimberly Clark, the US giant is ranked 4th for 2002 and 2003, the company has a subsidiary in South Africa. Proctor and Gamble (paper), another large US multinational is ranked 6 th in 2002 and 10th in 2003, the company operates a distribution centre in South Africa for its products which are imported, these include top feminine product brands such as Tampax and Always and baby diapers, Pampers. Proctor & gamble do produce nappies in South Africa through a contractor under licence. (See Annexure 1 for full list of top 100 companies)

Rank Top 100 Pulp & Paper Companies

Net Sales (US$ millions)

Net Income (Loss) (US$ millions)

Return on CapitalEmployed(%)

2003 2002 Company Country 2003 2002 2003 2002 2003 2002

4 4 Kimberly-Clark US 14,348 13,566 1,694 1,675 14 15

10 6 Procter & Gamble (paper)

US 9,933 9,233 1,015 849 10.1 7.8

15 15 Mondi (Anglo American)

UK 5,628 4,805 350 345 10 12.3

20 20 Sappi SA 4,299 3,729 149 220 5.8 7.5

64 NA Nampak SA 1,112 486 32 19 10.5 8.1

According to the Price Waterhouse Coopers Global Forestry and Paper Survey (2004) Companies from the US are by far the largest in terms of sales and net income, followed by Europe, Japan and Canada. Note the figures for South Africa are only for Sappi and Nampak, it excludes Mondi that is listed in the UK (Europe), and the South African subsidiary of Kimberley Clarke and South African distribution and production by Procter & Gamble, listed in the US.

Financial Information by Country/Region (US $ millions)

1

Sales Net Income Return on capital

employment 2003 2002 Change 2003 2002 Change 2003 2002

US $138,865 $135,945 2.10% $3,653 $793 360.70% 4.70% 4.50%

Europe

Finland 37,710 33,445 12.8 609 369 65 2.5 4.5

Sweden 16,746 14,191 18 1,226 1,194 2.7 6.2 6.8

Other Europe 37,342 32,026 16.6 651 1,066 -38.9 4.3 5.6

Total Europe 91,798 79,662 15.1 2,486 2,629 -5.4 3.9 5.4

1 Source PWC global survey 2004

5

Japan 38,817 35,972 7.9 111 -15 840 1.9 1.6

Other Regions

Australia/New Zealand

8,003 6,390 25.2 210 444 -52.7 4.3 2.9

Non-Japan Asia

9,126 7,893 15.6 -974 -1,195 18.5 2.8 -0.2

Latin America 8,718 7,850 11.1 1,392 415 235.4 8.3 7.2

South Africa 5,411 4,215 28.4 181 239 -24.3 6.3 7.6

Total Other Regions

31,258 26,348 19 809 -97 934 6 4

Canada 18,690 17,547 6.5 266 237 11.8 3.9 3

6

Section 2 : Pulp and Paper Supply Chain

7

Pulp and Paper Supply Chain

South Africa is self sufficient in the supply of fibrous raw materials for the production of pulp, paper and board.2 The main source of fibre is pulpwood harvested from domestic plantations. This is supplemented by forest and saw milling residues, this is made up of thinnings from plantations for saw logs and of the by products in the saw milling process.

There are two types of wood: hardwood and softwood. In South Africa the hardwood commonly used in pulp and paper is eucalyptus and the softwood used is pine. Softwood fibres are stronger than hardwood fibres and is used to meet strength and bulk requirements of the produced paper mainly newsprint, magazine and packaging grades.

Fine paper manufacture uses hardwood fibres in combination with softwood fibres and filler material to produce paper with a smooth finish and good printing quality. Hardwood fibres are also used in high strength corrugated carton manufacture.

The supply of pulp is also supplemented with bagasse, a by product of sugar cane. However, the sugar industry uses bagasse as a source of energy in its processes limiting the amount of bagasse available for use by the pulp and paper industries. Pulp mills using bagasse also need to be located close to sugar mills to reduce transportation and there are spatial considerations to be considered as sugar is a seasonal industry so large quantities of bagasse must be stored to enable the paper machine to operate all year round. There are two mills in South Africa that produce paper from bagasse. The South African pulp industry consumed 229 000 tons of bagasse in 2003.3 It thus remains a small contributor to the fibre requirements of the industry.

Another important source of fibre is fibre recycling. According to PAMSA, South Africa currently recycles 52% of its paper consumption increasing its capacity to produce paper products.4

Currently there is research being done on alternative sources of fibre such as hemp and even pineapple.5

2 Interview with John Hunt PAMSA 5 November 2004 3 South African Pulp and Paper Industry Statistical Data January to December 2003, PAMSA 4 Creamer Media’s Research On Line, Paper and pulp contributes to the manufacturing sector, 12/3/2004 5 Interview with Tom Moyane DTI 5 November 2004.

8

Forestry Value Chain6

Source: South African Forestry, Pulp and Paper Industries, 2004

Raw Material Supply

6Source: South African Forestry, Pulp and Paper Industries, 2004

Raw Material Supply 2003*

softwood

39%

hardwood

50%

bagasse

3%

recovered paper8%

9

Raw Materials Consumed* 2001 to 2003

thousand metric tons 2001 2002 2003 YTD

YTD YTD YTD Change

Total softwood ( as received) 3440 3452 3344 -3.1%

pine wood round logs with bark 3063 3072 3010 2.0%

pine chips 377 381 334 12.1%

Total hardwood (as received) 3576 3572 4193 17.4%

eucalyptus wood round logs with bark 3228 3297 3832 16.2%

eucalyptus chips 6 5 6 20.3%

other hardwood round logs with bark 341 270 355 31.2%

other hardwood chips

Total bleached softwood pulp (air dried) 157 143 129 -9.6%

bleached softwood pulp sources from mills in SA 114 112 97 -13.0%

bleached softwood pulp sources from outside SA 43 31 32 2.8%

Total unbleached softwood pulp (air dried) 18 40 21 -46.7%

unbleached softwood pulp sources from mills in SA 14 37 21 -42.4%

unbleached softwood pulp sources from outside SA 4 3 -100.0%

Total bleached hardwood pulp (air dried) 227 291 332 14.1%

bleached hardwood pulp sources from mills in SA 227 291 314 7.9%

bleached hardwood pulp sources from outside SA 18

Total unbleached hardwood pulp (air dried) 18 18 17 -5.1%

unbleached hardwood pulp sources from mills in SA 18 18 17 -5.1%

unbleached hardwood pulp sources from outside SA

Bagasse (as received) 153 164 229 39.7%

Recovered paper (as received) 706 667 714 7.0%

brown grades 510 470 513 9.1%

white grades 196 197 201 2.0%

Source: PAMSA7

Note: raw material supply is only for the companies that participated in the study, please refer to footnote below.

7 South African Pulp and Paper Industry Statistical Data January to December 2003, PAMSA The companies participating in the industry survey are as follows: Kimberly-Clark SA, Mondi Cartonboard, Mondi Kraft, Mondi Paper, Nampak Tissue, Nampak Corrugated, Sappi Kraft, Sappi Fine Paper, Sappi Saiccor. An estimate of production and capacities has beenmade for companies not participating in the survey.

10

Raw Materials Supply: Forestry

The area of plantation forests in South Africa is 1,4 million hectares or 1,15% of South Africa’s land area. Most plantation forests are held by companies and private individuals. The State, which through the State forestry company, SAFCOL and the Department of Water Affairs and Forestry (DWAF), used to be a major plantation owner but this is changing with the privatisation of SAFCOL.

Mosselbay

Pretoria

Richards Bay

Johannesburg

Durban

Pietermaritzburg

Nelspruit

Cape Town

Messina

Vryheid

Port Elizabeth

Piet Retief

Bloemfontein

Commercial forestsMosselbay

Pretoria

Richards Bay

Johannesburg

Durban

Pietermaritzburg

Nelspruit

Cape Town

Messina

Vryheid

Port Elizabeth

Piet Retief

Bloemfontein

Mosselbay

Pretoria

Richards Bay

Johannesburg

Durban

Pietermaritzburg

Nelspruit

Cape Town

Messina

Vryheid

Port Elizabeth

Piet Retief

Bloemfontein

Commercial forestsCommercial forests

Location of South African Commercial Forests

Source: PAMSA8

In the higher, cooler areas of KwaZulu-Natal and Mpumalanga, pine plantations are grown for both sawn timber and pulping use. Eucalyptus trees are grown in the lower lying areas of the KwaZulu-Natal Midlands and Mpumalanga, coastal regions of KwaZulu-Natal and in the Tzaneen region of the Limpopo province. Some cold tolerant eucalyptus species are grown in the Highveld regions of Mpumalanga. Plantations in the Western and Southern Cape are mostly pine plantations and are used primarily for sawn timber production. A relatively new block of plantation forest has been established by Mondi in the Eastern Cape in the Maclear/Ugie district. This block consists of both pine and eucalyptus plantations and is not yet in full production.9 In South Africa 80% of the land under afforestation is managed according to standards set by the Forest Stewardship Council to ensure its sustainability and ensure the industry’s future, the highest percentage in the world for plantation forest.10

8 Draft Background Information: South African Forestry, Pulp and Paper Industries, PAMSA, February 2004 9 Draft Background Information: South African Forestry, Pulp and Paper Industries, PAMSA, February 2004

10 Draft Background Information: South African Forestry, Pulp and Paper Industries, PAMSA, February 2004

11

0

5

10

15

20

25

30

35

40

45

50

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

Years

Th

ou

san

d H

ecta

res

Northern KZN South Total

New Afforestation by Region 1980 to 2002 Source: Forestry SA New afforestation over the period from 1980 to 2002 was 357,494 ha, an increase of 26.5% to the total afforestated area. This averages 15,543 ha of new afforestation per year over the period. Highest new afforestation from 1982 to 2002 was for pulpwood. The peak of afforestation in this period (between 1991 and 1992) can be attributed to increase in pulpwood production. Average per year

0

5

10

15

20

25

30

35

40

45

50

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

Years

Th

ou

sa

nd

He

cta

res

Pulpwood Sawlogs Mining Timber Other Total

New Afforestation by Product 1980 to 2002 Source: Forestry SA

Potential productivity (yet to be fully realised) of South African plantation forests is relatively high by world standards, averaging about 20m3 per ha per annum. They currently yield about 18.5 - 19 million m3 per year. Of the 14,6 million tons of wood produced by the forests from July 2001 to June 2002, 9,3 million tons was consumed for pulp production and 3,9 million tons for sawmilling. The balance was used for other used such as mining supports and poles. 11

11 Draft Background Information: South African Forestry, Pulp and Paper Industries, PAMSA, February 2004

12

0

2

4

6

8

10

12

14

16

18

20

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

Years

Mil

lio

n m

3

Pulp & Paper Mills Sawmills

Mng. Timber Mills Other

Total

Intake of Roundwood into Processing Plants 1980 to 2002 Source: Forestry SA

The total increase in intake of roundwood over the period 1980 to 2002 was 5.7 million m3 which represents an increase of 52%. Whist intake of roundwood for mining timber has declined and intake for sawmills and other process plants has varied relatively little during this period, the increase comes from the intake at pulp paper and board mills at 8.1 million m3, an increase of 192% over the period. However pulp paper and board mills is processed in 11% of the total 182 plants, the largest type of processing plant being sawmills accounting for 56.6% of the total.

56.6%

11.0%

6.6%

22.5%

3.3%

Sawmills Pulp, Paper & Board MillsMng. Timber Mills OtherPole Plants

Number of Processing Plants by Type 2002 Total – 182 plants Source: Forestry SA

13

101

164

109

1868

10150

13807

23

60

61

705

2405

3266

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000

Charcoal Plants

Pole Plants

M. T. Mills

Sawmills

Pulp / Paper Mills

Total Industry

Million Rand

Output Input

Value Addition in Primary Processing Industry 2002 Note : excludes secondary processing (e.g. paper manufacturing) Source: Forestry SA

Pulp, paper and board mills have a greatest value addition in primary processing as shown in the table above. Labour intensity varies greatly in the processing sectors. Sawmilling employs about one worker for every 80 m3 processed; in pulp and paper, the ratio is one worker for every 250 m3. Pulpwood and mining timber plantations employ fewer people per hectare than saw log plantations. In addition most of this employment has been contracted out in recent years.

Whist the pulp and paper industry is not labour intensive as compared to industries that source raw materials from sawmills such as building and furniture manufacture, capital returns are greater on pulpwood than sawlogs. In an interview with a senior manager at a forestry company, he stated that it was easier and less costly to keep pulpwood and the duration in years required for pulpwood can be shorter than that required for sawlogs; and then roundwood sold for pulp fetched about the same amount as that sent to sawmills. In other words, returns on pulpwood are higher than that of sawlogs. Given the limited land available for afforestation, this could potentially hinder supply of sawlogs as growers seeking more profitable returns may convert more sawlog plantations to pulpwood in anticipation of future demand. Thus the challenge will be to ensure supply to more labour intensive industries that use sawlog products in the interest of maintaining, and possibly creating, jobs in these sectors.

Labour intensity in the forestry and forest products sector will change significantly over time. For example, if proportionately more land is used for pulpwood production, overall labour intensity will decline, both in the forests and in the processing plants. On the other hand, a move to higher value addition within South Africa, for example through high value sawlog production, and processing and marketing of quality solid wood products from this resource, could contribute to higher and more rewarding employment. The choice of appropriate policy would strongly influence this picture.12

12 The sentiment expressed in this paragraph is contained in the Forestry White paper prepared by DWAF in 1997, however policy today does not reflect this.

14

Water Usage

Commercial forestry in South Africa begins in the period of the First World War and since its inception there have been concerns on the water usage of the plantations as farmers would complain of reduced run off from afforestated areas. The droughts in 1960s led to research into Afforestation and water usage and led to the creation of the Aforestation Permit System in 1972. However, the life span of a commercial plantation is up to 35 years so the effect of plantations planted pre 1972 on water supply have lingered to present day.

Plantation forestry reduces the amount of water entering rivers (runoff) by the equivalent of 100 to 200 mm of rainfall per year. Depending on the timber species, tree age, climatic and edaphic factors, a mature plantation can reduce stream-flow by up to 500mm a year. The average annual stream-flow reduction taken over the full lifespan of a plantation is about 120mm. However, plantation forestry is only practised in the wetter areas, needing a minimum of 800 mm per annum to be viable. The effects of timber plantations on the amount of water in rivers are most noticeable in the dry season and in drought years. In 1996, the commercial plantation forests in South Africa were estimated to consume about 1.65 billion cubic metres of water that would otherwise have entered rivers and streams, and been available for other uses. This volume equated to about 15% of the amount used for urban and industrial purposes, or about 5% of the volume used in irrigated agriculture.13

Currently the South African government through the Department of Water Affairs and Forestry regulates forestry in terms of the National Water Act of 1998, commercial forestry is regarded as a Stream Flow Reduction Activity and needs to be licensed. Forestry companies therefore need to register their plantation areas as a water user and pay a levy, dependent on the catchment and area of trees. All new aforestation must apply for a SFRA licence.

Water is required in both the pulping and paper making processes. Specific consumption rates for water vary from 8 tons of water per ton of paper produced to 35 tons of water per ton of paper produced. These figures are lower than in water rich countries where consumption rates of 50 to 70 tons of water per ton of pulp are not uncommon. A major concern of government is the high opportunity costs of water in certain localities. The industry needs to compete with others for this water. Specific industry concerns about water are as follows:

Medium and long term security of supply Cost of water supply Use of industry to subsidise cost of domestic water supply14

Climatic Conditions

Forest expansion and the planting of new forests is limited in the country by climatic conditions. “Therefore, there is only about another 200 000 ha that could be planted in South Africa, which only amounts to about a 14% growth in land that can be used,” Hunt points out. He says another way of gaining additional fibre would be by increasing the yield per hectare of the land that has already been planted. He explains that this could be done by making use of the country’s tree-breeding expertise.15

Rainfall governs the extent of plantations, both directly and indirectly. Areas that receive more than 800 mm of rain per year and have a mean annual temperature greater than 14°C are preferred for pines and eucalyptus. Rotation lengths are 7 to 12 years (depending on site

13 SAPPI Forest Products, Main Assessment Report, Qualifor Programme, March 2000. 14 Draft Background Information: South African Forestry, Pulp and Paper Industries, PAMSA, February 2004 15 Creamer Media’s Research On Line, Paper and pulp contributes to the manufacturing sector, 12/3/2004

15

conditions and diameter requirements) for eucalypt species, 14 to 20 years for pine species pulpwood and 25 to 30 years for pine saw timber. This is a relatively short compared to rotation periods of 50 to 100 years in the Northern Hemisphere giving South Africa a competitive advantage. The fast growth of local plantations makes tree breeding a possibility. This led to South Africa being a world leader in selective breeding and cloning of eucalyptus species. With the land available for tree plantations limited by climatic conditions, selective breeding enables growth in future supply of wood. The tree breeders have traditionally focused on breeding for maximum growth of the plantations. This focus is changing to look at the possibilities of breeding for specific characteristics in the pulp produced. This opens up the possibility for developing niche pulp and paper products and the possibility of a sustained competitive advantage.

16

Department Of Water Affairs and Forestry (DWAF)

Whilst numerous attempts were made to have DWAF participation in this study, thee has been no response to any queries despite verbal commitment to this during a telephone conversation with a senior official of the department. SAFCOL reports that (some of the) land under afforestation held by DWAF was merged together with SAFCOL land prior to privatisation.

DWAFs Role in Regulating Afforestation

Governments and forest managers used to consider forests from narrow point of view, seeing, for example, their value only in terms of wood or land for agriculture. Now, with the increased emphasis on environmental and social issues, it is acknowledged that these perspectives -and therefore the way that forests are valued and managed- are changing and must continue to do so. Plantation forests are subject to licensing requirements as the activity is classified as a Stream Flow Reduction Activity (SFRA) under the National Water Act.

The National Water Act (Act 36 of 1998) also requires the progressive development of a National Water Resource Strategy which will provide the framework within which water will be managed at regional or catchment level. The reason for DWAF requiring licences for afforestation is to ensure that available water is not oversubscribed, to ensure that other water users in the catchments are not unfairly prejudiced and to ensure environmental controls are maintained. The criteria for the issuing of licenses depend on three factors:

The impact of stream low flows The impact on the environment The impact on people.16

At the macro landscape level, new planting is restricted or banned in particular catchments where river systems supply conurbations or important agricultural areas. New planting can only take place if granted a permit and all planting permits are subject to a full Environmental Impact Assessment and the approval of the government’s Department of Water Affairs and Forestry. The aim of the permit system for afforestation is to disperse afforestation amongst catchments, rather than to limit afforestation generally; permits are administered at the level of quaternary catchments. The intention is that the increased water use anticipated from a proposed forestry development should be assessed in relation to all demands for water downstream of the development. The decision is based on the most favourable use of the water in economic terms after the provision of community needs; the needs of downstream countries on international rivers; and the requirement to maintain aquatic ecosystems.

16 Draft Background Information: South African Forestry, Pulp and Paper Industries, PAMSA, February 2004

17

PAMSA Concerns on Forestry17:

Forestry is the only agricultural activity requiring licensing yet forestry consumes at most 5% of the national water supply and that other agricultural activity more than 50%, the forestry industry considers its unique classification rather unfair. The classification as a SFRA also results in a Water Resource Management Charge. The cost of this is passed down the wood products value chain.

The process of applying for a licence is complex, expensive and time consuming. Amongst other requirements is the need for an environmental impact assessment of the proposed afforestation of areas greater than 10 ha, proof of consultation with adjoining land owners and requirements for publication of intent to plant trees in local newspapers. The licensing system is onerous for large companies and impossible for small growers to comply with unless they are given external assistance. The cost of applying for a license can go as high as R6 000 per hectare. The licensing of small grower schemes has been due to the sponsoring companies providing the expertise and finance for groups of small growers.

Despite a number of applications for licences, the licensing process together with a breakdown in co-operative governance (particularly in the national/provincial interface) procedures amongst relevant government departments has resulted in very few licences are being issued. The reasons for this are the complexity of the system and the bureaucracy involved. The perception of the forest industry is that DWAF and the other government departments involved are overcautious when assessing licensing applications and that the economic benefits of the afforestation are either not fully understood or given due consideration.

DWAF has a policy of granting licenses for only 70% of the area covered by a title deed, even if the remaining 30% is suitable for afforestation. This means that significant capital is tied up in land that cannot be used. The licenses issue has not only constrained the expansion of large scale commercial forestry, it has severely limited the development of sponsored small grower schemes.

Forestry Ownership

Mondi Holdings and SAPPI have the largest commercial forests concerns in South Africa. The state used to be the largest owner of commercial forests with 414 000ha prior to the amalgamation of some forests of DWAF with SAFCOL which have then been portioned off for privitisation. The state has sold off land to two Black Economic Empowerment Consortium; Singisi Forest Products in the Eastern Cape and Siyaqhubeka Consortium in Kwa Zulu Natal. Negotiations are underway to sell Komatiland Forest in Mpumalanga. Despite this the state still holds a large share in commercial forestry with 224 000 ha.

OwnerPlanted

Area Employment

(1000ha)

Mondi 301 500

SAPPI 475 590**

Private Timber Growers 237

Other State Holdings 153

Komatiland Forests* 129

SAFCOL 71 3019

Global Forest Products 67 2000

17 Draft Background Information: South African Forestry, Pulp and Paper Industries, PAMSA, February 2004

18

Small Growers 4318 900

(24 000)

Singisi Forest Products* 43

Siyaqhubeka Consortium* 18 80

Other Corporate Growers 41

Total 1350

* Note: commercial forests under SAFCOL that have been or are in the process of being privatised. ** Employment for SAPPI Forests includes 75 ha in Swaziland. The table includes the recently leased area of 140 000 ha of forestland to MTO and Amatola although not indicated as separate entries.

Forestry SA estimates employment in the forestry sector at 60 000 with many more employed by contractors to the industry. FIETA estimates employment in the forestry sector at 39 173.

Source: PAMSA18

SAFCOL

The Department of Public Enterprises (DPE) states that “The objectives of government, mobilisation of private capital and economic empowerment, were realised” through the privitisation of SAFCOL. The total afforestated land of SAFCOL prior to privatisation was approximately 264 000 hectares. SAFCOL is primarily a sawlog producer, but pulpwood dimensions are produced in the process of producing sawlogs. Some stands were dedicated fibre/pulpwood stands, but these were minimal. About 15% of SAFCOLs timber production is sold as pulpwood. In most instances pulp wood are incidental to sawlog production, such as small logs resulting from thinning operations, or treetops which are not suitable for processing in sawmills.

SAFCOL forestry assets were grouped into five forestry packages: 1. Singisi (Eastern Cape, North) 2. Siyaqhubeka (KZN) 3. Amatola (Eastern Cape, South) 4. MTO (Southern and Western Cape) 5. Komatiland (Limpopo/Mpumalanga)

The combined 82 000 ha of Singisi and Siyaqhubeka forestry asset packages have been sold to investors. Mondi and Imbokdvo Lemabalabala (BEE partner) bought the 75% stakes in Siyaqhubeka for R100 million. Singisi and Singalana (BEE partner) bought the 75% stake in Singisi for R45 million. Amatola Forest Holdings and Wildbreak Investments (BEE partner) have leased 25 000 ha in the Eastern Cape. MTO and Cape Timber Resources (BEE partner) have leased 115 000 ha of state land in the Western and Southern Cape.

Whilst SAFCOL and DPE have not provided any information on the lease of Komatiland Forest, it was reported in April 2004 that government had reached an agreement for the lease of 187 000 ha or 75% of the Komatiland Forest including two sawmills and a veneer plant to a consortium including Bonheur for R396 million. Bonheur is 70% owned by Global Forest Products and 30% by

18 Draft Background Information: South African Forestry, Pulp and Paper Industries, PAMSA, February 2004

19

Imbokodvo Lemabalabala Holdings. Together with smaller saw millers, Yorkcor, A South African company, opposed the sale on the ground that it gives Global Forest Products too much market share as it had acquired some of Mondi’s forestry concerns three years earlier. Information on the outcome of this deal has not been available.

SAFCOL retains 25% stake on behalf of government in each of the packages. Of the 25% stake held by SAFCOL on behalf of the government, 19% is earmarked for community trust and ESOPs. Ownership of land is retained by the State. Instead, a lease agreement is entered into between government and private investor, which governs use of forest land. Requirements of the investor must be satisfied in a formal business plan undertaking that deals with various government objectives; including job retention, skills development, community development, further investment and similar issues.

SAFCOL land that has not yet been privatised continues to be used for commercial purposes. Very small portions of SAFCOL land is leased for purposes such as cellphone towers. The only material lease is a notarial lease with Mondi for the operation of a plantation in the Barberton area. This plantation was acquired from the STK with the lease in place.

Currently SAFCOL employs 3019 employees, this has dropped by 1302 since 2000. There has been significant changes due to the privatisation process. SAFCOL retrenched workers from the regional offices and head office and took transfer of DWAF workers, employment of these workers has been transferred with the privatisation transactions.19

Net Profit (Loss)

-20

0

20

40

60

80

100

120

mil

lio

ns r

an

ds

Net Profit (Loss)

Net Profit (Loss) 16.3 32.7 19.2 16.5 8.6 -10.6 15 31.9 32.9 103.9

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Source: Department of Public Enterprises

Forestry Companies

Siyaqhubeka Forests

Mondi and Imbokdvo Lemabalabala (BEE partner) bought the 75% stakes in Siyaqhubeka for R100 million. Siyaqhubeka Forests plans to convert all its forests to pulp wood. At present, eucaplytus is

19 Data and information on SAFCOL was sourced from an interview With Mulungisi Vungwana at the Department of Public Enterprises, November 2004

20

produced for pulp is sold to Mondi and pine is sold to SAPPI, but delivered to Mondi in an exchange arrangement between SAPPI and Mondi that saves on transport costs. Siyaqhubeka Forests produce 300 000 tonnes of eucalyptus pulpwood and 150 000 tonnes of pine pulkp wood per annum. In addition they also produce about 100 000 cubic metres of eucalyptus and pine saw logs, 9 000 cubic metres of treated poles and 9 000 cubic metres of eucalyptus saw timber for export.20

Most of the labour at Siyaqhubeka is outsourced and of the 1500 workers only 80 are directly employed by the company. While most contractors are affiliated to the South African Contractors Association there may be some black emerging contractors that are not. The workers of Siyaqhubeka are unionised under the National Industrial Commercial Workers Union.

Singisi Forest Products

Singisi and Singalana (BEE partner) bought the 75% stake in Singisi for R45 million, the holding company is Hans Merensky. Singisi General Manager Piet Van Zyl was unavailable for an interview.

Amatola

Amatola Forest Holdings and Wildbreak Investments (BEE partner) have leased 25 000 ha in Hogbak and Stutterheim areas of the Eastern Cape.

MTO

MTO and Cape Timber Resources (BEE partner) have leased 115 000 ha of state land in the Western and Southern Cape. Cape Timber comprises of Cape Sawmills and Wild Peachh Investment Holdings.

Komatiland Forest

Whilst SAFCOL and DPE have not provided any information on the lease of Komatiland Forest, it was reported in April 2004 that government had reached an agreement for the lease of 187 000 ha or 75% of the Komatiland Forest including two sawmills and a veneer plant to a consortium including Bonheur for R396 million. Bonheur is 70% owned by Global Forest Products and 30% by Imbokodvo Lemabalabala Holdings. Together with smaller saw millers, Yorkcor, A South African company, opposed the sale on the ground that it gives Global Forest Products too much market share as it had acquired some of Mondis forestry concerns three years earlier. Information on the outcome of this deal has not been available.

Global Forest Products

In 2001 Mondi Limited together with a US based international investment management firm, Global Environmental Fund Management Corporation launched a joint venture, Global Forest Products (Pty) Ltd (GFP). GFP is an integrated forest products company, located in Mpumalanga and headquartered in Sabie, South Africa. GFP manages 92000 ha of land, predominantly pine plantations. The company also owns and operates conversion facilities including three sawmills, a plywood mill and two value added remanufacturing plants. Mondi Limited previously wholly owned these assets but after a strategic decision that timber processing was a non core business, set up the joint venture as part of its exit strategy from the industry.21

20 Interview with Mr Kewley, Siyaqhubeka Forests, November 10 2004. 21 Global Forest Products (Pty) Ltd, Forest Management Cerification Report, Qualifor Programme Associated Documents, 5 April 2002.

21

Subsequently, Mondi Limited has sold its shares in GFP to the IDC.22 GFP is one of the largest suppliers of softwood products to the South African market and surplus is exported. Currently GFP grows eucalyptus on a ten year cycle for pulpwood and produces 105 tonnes/annum. Pine pulp logs are a secondary product from the saw log plantations and GFP produces 211 tonnes/annum as well as 130 tonnes of softwood chips for pulp, a by product of the sawmill process. GFP employs 2000 workers in its forests and another 2000 in its sawmills. 23

NCT Forestry Cooperative Limited24

NCT is a supplier of quality round wood timber and the largest forestry-marketing organisation in southern Africa. It was established in 1949 as a marketing co-operative to cater to the needs of private and independent timber growers. As a co-operative, its members who share in profits, own NCT. Today Membership stands at 2039 shareholding members, representing a total area of 300 000 ha – 21% of afforested land in South Africa.

NCT’s role is to act as agent for both members and processors, to negotiate prices on behalf of its members and offers a range of services including, timber order allocations, timber transport co-ordination, accounts and technical forest advice.. The coooperative’s area of management and operation stretches from the Western Cape through the Eastern Cape, into KwaZulu-Natal to Mpumalanga and Limpopo Province and including Swaziland. The head office and Southern Natal District office are based in Pietermaritzburg with additional district offices in Greytown, Richards Bay, Vryheid, Nelspruit and George.

Eucalyptus timber and wattle is exported in log form by NCT itself and in woodchip form previously through CTC and ShinCel and now through it new facility in Durban. Chipped Pine sawmill waste is sold to pulp producers.

NCT has constructed a new wood chip facility in the Port of Durban. It is a joint venture between NCT Forestry and a management consortium, Zululand Chip Management Company (Pty) Limited. The facility has a capacity of 360 000 air dry tonnes of hardwood chips per annum and is the fourth wood chip export facility in South Africa but the only one in Durban; the three existing plants are all located in Richards Bay - CTC, ShinCel and Silvacel (Mondi). This wood chip facility is aimed at the export of eucalyptus hardwood chips from Durban to pulp and paper manufacturers in Japan. The plant became operational in July 2004 with the first export shipment taking place at the end of January 2005.

Forestry concerns of Mondi and Sappi

Mondi and Sappi have the largest commercial forests concerns in South Africa. The forestry assets of both Mondi and Sappi, provides the companies with a pulp revenue stream that hedges the pulp purchases of their paper operations, thereby reducing their exposure to the volatility of world pulp prices.

Sappi owns and manages 515 000 hectares of Pine and Eucalyptus plantations in South Africa and 75 000 ha in Swaziland. Mondi manages an area of 537 000 ha, of which 335 000 ha are afforestable, in Mpumalanga, KwaZulu- Natal, Eastern Cape, Limpopo Province and Swaziland. Between them, Sappi and Mondi own one percent of the total land area in South Africa and directly employ just over 1000 workers in their forestry operations.

22 Interview with Shaun McCartney, Global Forest Products, 8 November 2004. 23 Interview with Mr Keyne, Global Forest Products, 8 November 2004. 24 www.nctforestry.com

22

Outgrowers and Small Emergent Farmers in Forestry

Since 1983, the forestry industry has been managing timber growing initiatives amongst small scale emerging farmers. Farmers with use rights to communal land in districts close to the markets, such as near Richards Bay, have planted Eucalyptus grandis or wattle (Acacia mearnsii)in lots of about 0.5 to 2 ha, entering the industry at their own initiative. Sappi and Mondi have initiated outgrower (contract farming) schemes in KwaZulu/Natal and the Eastern Transvaal, as part of corporate social investment programmes, or as commercial schemes with the goal of securing raw material supplies. The South African Wattle Growers Union (SAWGU) has opened its membership to small growers of wattle, and actively supports the expansion of the small-grower sector through extension services, training and loans. In addition, the Natal Timber Cooperative is actively providing extension services to aspirant tree-growers in the small-farmer sector and is establishing technology transfer agreements with the CSIR and others to ensure quality support to these growers. As many as 7,000 farmers may be involved in forestry in this way.

The number of growers involved in the various schemes by the end of 1999 was approximately 12 300. They had planted 24 200 ha in KwaZulu-Natal and the Eastern Cape.25 Apart from the organized schemes, a further 19 250 ha involving 6 600 people is estimated to have been planted by individuals on their own initiative. The total area planted by small growers is therefore estimated to be 43 500 ha and involves 18 900 individual growers. These figures are again confirmed in 2004 by PAMSA. For each 8 hectares planted, it is estimated that an additional job (apart from the owner) is created. For the managed schemes, the sponsoring company needs to employ one additional person for every 1000 ha planted in the scheme. Total employment generated is estimated at over 24 000 people. Net profit generated by small grower schemes averages at R9100/ha over the rotation of the crop (six to eight years). This can be as high as R16 000 depending on factors such as soils, rainfall and plantation management.26 The potential for these schemes to grow is substantial. Forestry South Africa estimates that the afforestation could reach 137 000 ha and involve 29 000 growers

PAMSA states that the land tenure system in rural areas is a major constraint on the expansion of small grower schemes. Traditional land tenure systems are complex and not well understood by the industry. In KwaZulu-Natal, the local traditional leader is able to grant use of land to individuals. This results in individuals with sufficient security of tenure that they can plant trees and know that they will be able to reap the harvest. The decision to plant trees is thus primarily that of the individual on whose allocated land the trees will be planted. In the Eastern Cape, the land tenure system appears more complex. The right to use land appears to vest more with the community than the individual. Any forestry operation, therefore, has to have the approval of the community. Mechanisms such as the Communal Property Association (CPA) are required to initiate afforestation projects. Setting up a CPA is a lengthy and laborious process. The length of a forestry rotation (6-10 years) further compounds the problem. The Communal Land Rights Bill presently before the legislature will have an impact on afforestation projects although it is still too early to define the impact.

25 Edwards, MPB, Report on Small Grower Afforestration Development in Kwazulu-Natal and Eastern Cape, Forestry South Africa, Sept200026 Cairns, RI, Report on Outgrower Timber Schemes in Kwazulu-Natal: Do they build sustainable rural livelihoods and what interventions should be made?, A contribution to the IIED-CSIR coordinated project: Instruments for sustainable private sector forestry, 2000

23

Case Study: Outgrowers for eucalypt production in KwaZulu/Natal 27

Since 1983, more than 4,000 black farmers in KwaZulu/Natal have joined the small-grower commercial timber schemes administered by Sappi Forests, Mondi Timber and the Lima Rural Development Foundation (a non-government organization contracted to Sappi). Tarmers join the schemes under contract and are provided with technical assistance, subsidized inputs and loans for the establishment and maintenance of small Eucalyptus grandis plantations. The average size of these plantations is 1.2 ha. Trees are planted in plots on land where individual farmers have rights to use the land this way. After six to eight years the timber companies expect to purchase all trees subsidized by the schemes. They retain first rights to the timber from subsequent coppice regrowth. The cost of loans and certain inputs are then deducted from the gross payment to farmers. The timber is processed in pulp mills at Mandini, Richards Bay and Umkomaas. At present, small-grower schemes contribute less than 1% of the total intake at these mills, a contribution which will grow to about 2.5% when these woodlots are in full production.

StrengthsParticipating households receive income as payment for their labour in establishing, maintaining, and protecting woodlots Woodlots are also used as a means of saving. Outgrower schemes reach the poorest and most isolated farmers, since the timber companies operate in isolated and neglected rural areas and have a vested interest in seeing that woodlots are successfully cultivated and profits are acceptable to farmers; advance payments for site preparation, weeding and fire protection allow even those farmers with meagre cash incomes to participate. Women participate in the schemes on an equal footing with men; 49% of all woodlots are owned by women. Most households (77%) plant less than 50% of their total land allocation to trees. Trees are normally planted on lands previously used for grazing or on marginal (especially steep) lands. Woodlots do not seriously compete for household land and labour, but rather diversify the number of farming enterprises and spread labour inputs more evenly through the year. Outgrower schemes inject capital into under-developed areas and provide farmers with timely and appropriate inputs, professional advice, an assured market and local employment spin-offs.

WeaknessesSmallholders can have little or no influence over the terms of contract. The formation of growers' associations can balance the power of companies in negotiating the terms of contracts. Present associations, supported by Mondi, need to develop their independence. Risks arise from depending on a single crop for a single market; diversification is useful here. Wattle, for example, provides a greater diversity of products that can be sold into various markets, providing greater opportunity to maximise income. Outgrower schemes may cause inequities. In areas of rapid afforestation newcomers are less likely to procure unused land for their own households. Some households may have joined the schemes in order to tie up unused land. Farmers may sometimes overlook more profitable alternatives such as sub-tropical fruit, and need balanced extension services to facilitate a proper choice of land use. The schemes have resulted in a certain amount of discord and concern among rural communities. About 18% of growers recount cases of conflict with neighbours concerning

27 The State of Forestry in South Africa Today

24

stock damage, boundary disputes and deliberate fire in individual plots. People have raised concerns about the affects of afforestation on stream runoff and groundwater levels.

The commercial woodlots are not well integrated into farming systems e.g. for building poles production and general benefits such as windbreaks, shade, fodder, prevention of soil erosion, and soil enrichment.

Social Responsibility of Forestry Companies

In South Africa all the major forestry companies have social responsibility programmes. The social benefits for forestry workers have been in the form of land (for cultivation and grazing), housing, water and sanitation, transport, primary and adult education and opportunities for sport and recreation. With an increase in contract labour it is unclear whether these benefits extend to workers not directly employed by the forestry companies. In addition, it is also not known what relationship existed between the government and communities located in close proximity to state owned forests or how privatisation of these forests has impacted on communities.

In some areas forestry companies allow local communities to grow crops, especially legumes such as groundnuts, between newly planted timber trees. This practice benefits the local community from having access to additional land on which to grow food and possibly earn an income, and the forestry companies benefit from improved weed control and soil fertility. Some forests also allow for surrounding communities to collect medicinal plants from the forests.

25

Raw Materials Supply: Recycling

South Africa has a well developed and successful infrastructure for the collection and recycling of paper. Of the 1,78 million tons of paper consumed in South Africa in 2002, about 278 000 tons is non-recoverable (tissue etc.) leaving 1,38 million tons of potentially recoverable paper. Of this amount, 922 00028 tons was collected for reuse in paper mills in 2002, that is about 52% of its consumption of paper, which is equivalent to European levels of fibre recycling. This increases capacity to produce paper and reducing volumes that must be handled by solid waste disposal. PAMSA estimates that there are 13 small recycled-paper-based mills in South Africa.

The collecting of paper for recycling is a source of direct employment for more than 10 000 people in South Africa. Collecting of recycled paper has also been a first step into paper manufacturing for some paper manufacturers.

A related benefit of recycling paper is that the cost of solid waste removal and disposal is reduced for local government authorities. Recycled fibre is a cheaper fibre source than virgin fibre. Advances in paper making technology have resulted in more and more products being made with recycled fibre. The quality of such products approaches and in some cases can exceed that of product made using virgin fibre. Some products can use varying proportions of recycled and virgin fibres thereby exploiting supply and pricing opportunities. Recycled fibre can be used in the manufacture of a wide range of paper products: tissue paper, corrugating box papers, newsprint and various other packaging grades. The proportion of recycled fibre in the products also varies from 100% recycled fibres to a few percent.

The wood fibres integral to the paper-making process can be recycled up to six times before they lose their strength and become unsuitable for recycling. It takes 1.2 tons of waste paper to make approximately 1.12 tons of recycled paper. It is estimated that every ton of recycled waste paper saves three cubic metres of valuable landfill space and 17 trees. The recycling process requires only half the amount of water needed to produce paper from virgin fibre. When compared to the wood pulping process, recycling results in energy savings of up to 40%, while producing less water pollution and less air pollution.

28 Source: Paper Recyclers Association of South Africa, Powerpoint presentation, Recycle for the future, Jan 2004.

26

Source: www.Mondi.co.za

The value of paper collected for recycling varies. The lowest value papers are those of mixed grade and those contaminated with materials such as dirt, wax staples and glues. Brown (unbleached grades) papers tend to have a lower value than bleached papers. Uncontaminated waste from converting plants (pre-consumer) is most valued due to the consistent grade of paper and its cleanliness. These would typically include off-cuts and trimmings from printers or corrugated box manufacturers. Mixed waste salvaged from municipal dump sites are generally the lowest priced. Separation of waste paper at source is the key to retaining its value. Some grade of paper cannot use recycled fibres for either health reason i.e. liquid packaging papers or paper property reasons i.e. photocopy papers. The next diagram shows the major sources of recycled fibre. It also illustrated the opportunity for increasing collection from homes and offices.

Sources of recycled paper collection in South Africa29

(Numbers are thousands of tons)

Mondi Recycling

29 Source: paper Recycling Association of South Africa

AvailableFor Recycling

1381

Landfilled

Domestic(Homes)

50

Offices

157

146193115

513

Other Business(Retail. W/S etc.)

Convertors & Allied

Industries

202

5

Recovered

922

Not Recovered

459

=

=

PRE-CONSUMER (15%) POST-CONSUMER (85%)

27

Mondi Recycling source and supply 300 000 tons of all waste paper grades to Paper and Board Mills per annum. On a national scale there are 82 Buy-Back Centres in operation which collectively generate 60 000 tons of waste paper per year. Mondi Recycling has provided 500 Paper Barrows to hawkers and invested R3,5 million in the Buy-Back Centres in the form of scales, Paper Barrows, bins and portable offices.

Sappi Waste Paper Sappi Waste Paper is a division of Sappi Kraft, it supplies Sappi Kraft with waste paper for use in Sappi's mills throughout South Africa. One of these, Sappi's Cape Kraft Mill, runs on 100% recycled fibre. Based at Sappi's Head Office in Johannesburg, Sappi Waste Paper has a national network of recycling operations throughout the country. The company drives the procurement of waste paper through on-site waste management and recycling programmes. Sappi Waste Paper also utilises an extensive network of recycling centres which purchase waste paper from numerous street collectors.

Nampak Paper Recycling Recycled paper represents a significant part of Nampak's packaging operations. According to Charles Bromley, one of the company's paper cluster directors, about half of the raw materials used in its (corrugated) paper activities is recycled. Every year Nampak Paper Recycling collects and recycles 200 000 tons of paper, according to the company's marketing executive, Di van Breda. "We collect office paper, magazines, newspaper and corrugated board. Non-cardboard materials are converted into tissue paper jumbo reels and supplied to Nampak Tissue as raw material. Brown paper is converted into cardboard, which is supplied to our corrugated division as raw material."

Smaller Recyclers There are several smaller waste paper recycling mills, mainly producing tissue paper. In total there are about 12 mills, including Unicell, Jacaranda, Genpak, Green Tissue.

28

Conversion: Pulp

Mosselbay

Pretoria

Richards Bay

Johannesburg

Durban

Pietermaritzburg

Nelspruit

Cape Town

Messina

Vryheid

Port Elizabeth

Piet Retief

Bloemfontein

9

1

2

34

5 6

7

8

South African Pulp Mills

1. Sappi Saiccor2. Mondi Merebank

3. Sappi Stanger4. Sappi Tugela5. Mondi Felixton6. Mondi Richards Bay7. Mondi Piet Retief8. Sappi Ngodwana9. Sappi Enstra

Mosselbay

Pretoria

Richards Bay

Johannesburg

Durban

Pietermaritzburg

Nelspruit

Cape Town

Messina

Vryheid

Port Elizabeth

Piet Retief

Bloemfontein

Mosselbay

Pretoria

Richards Bay

Johannesburg

Durban

Pietermaritzburg

Nelspruit

Cape Town

Messina

Vryheid

Port Elizabeth

Piet Retief

Bloemfontein

9

1

2

34

5 6

7

8

South African Pulp Mills

1. Sappi Saiccor2. Mondi Merebank

3. Sappi Stanger4. Sappi Tugela5. Mondi Felixton6. Mondi Richards Bay7. Mondi Piet Retief8. Sappi Ngodwana9. Sappi Enstra

Location of South African Pulp Mills Source: PAMSA

Pulp mills are located close to the forestry or bagasse resource. The one exception to this is the location of Sappi Enstra mill in Springs. The reason for this unusual location is that the mill was originally designed to pulp maize residue or straw which is available on the Highveld. In common with other seasonal agricultural fibre crops, the cost of operating the mill only when straw is available makes the manufacture of pulp from maize straw uneconomic. Mills dependent on recycled fibre for their raw material supply are usually located near urban centres to minimise transportation costs. These mills are covered in the section on recycling.

29

Pulp Production In South Africa

Company Mill Products 2001 Capacity (1000 ts)

Mondi Richards Bay Mill

Hardwood and softwood Kraft paper 576

Piet Retief Mill HARDWOOD AND SOFTWOOD NSSC PULP

60

Flexiton Mill Unbleached Bagasse pulp 70

Merebank Mill Thermomechanical pulp

Groundwood Pulp

220

66

SilvaCel Mill Hardwood Pulp *

Sappi Ngodwana Mill Hardwood and softwood Kraft paper

Groundwood Pulp

410

100

Tugela Mill Unbleached softwood pulp

Hardwood NSSC pulp

230

120

Stanger Mill Bleached Bagasse pulp 60

Enstra mill Bleached hardwood pulp 90

Saicor Mill Dissolving pulp 500

Total 2602*

*1.9 million green metric tonnes of hardwood woodchips/annum

Most pulp mills also have paper machines on site. This eliminates the need for the pulp to be dried and transported before being converted to paper. Only one pulp mill in South Africa does not have paper making capacity, Sappi Saiccor produces dissolving pulp which is used in the chemical industry and not for paper production.

Pulp production (from raw material other than recycled waste) in South Africa is carried out by two companies, Mondi and Sappi. However recent developments may see the entrance of NCT Forestry Cooperative and the Swedish market pulp producer, Sodra Cell into this market. They have embarked on a joint venture, forming a company called Pulp United and are currently assessing the feasibility of constructing a pulp mill in KwaZulu Natal. NCT and a management consortium, Zululand Chip Management Company (Pty) Limited have also built a new chipping plant in Durban. The facility has a capacity of 360 000 air dry tonnes of hardwood chips per annum and was operational towards the end of 2004.

Whilst the table below is incomplete for data on quantity of dissolving pulp produced for 2001 to 2003, most of this product is exported, so information can be taken from export figures and for 2003 amounted to 535 thousand tonnes. A fair amount of chemical pulp production is exported but most of mechanical pulp and semi-chemical pulp produced is used for local consumption.

30

Pulp Production 1999 to 2003

thousand tons 1999 2000 2001 2002 2003 YTD

YTD YTD YTD YTD YTD Change

Pulp

mechanical pulp 270 285 274 285 277 -2.70%

semi-chemical pulp 171 155 155 -0.10%

chemical pulp 1372 1419 1296 1323 1350 2.00%

dissolving pulp 476 557

Total Pulp 2118 2261 1740 1763 1782 1.10%

Source: PAMSA30

The Pulp Process

There are two major categories of pulp. Mechanical pulp is produced by applying mechanical force to the wood resulting in a separation of the fibres to form pulp. This process is only used on softwood to produce so called “wood containing” papers such as newsprint and magazine grades. The major benefit of mechanical pulping is that it produces a 90% plus yield on the dry wood used. The pulp is, however, much weaker than chemical pulp and has a tendency to yellow with age.

30 South African Pulp and Paper Industry Statistical Data January to December 2003, PAMSA The companies participating in the industry survey are as follows: Kimberly-Clark SA, Mondi Cartonboard, Mondi Kraft, Mondi Paper, Nampak Tissue, Nampak Corrugated, Sappi Kraft, Sappi Fine Paper, Sappi Saiccor. An estimate of production and capacities has beenmade for companies not participating in the survey.

31

. Mechanical Pulp Chemical Pulp

Energy consumption 1000 KW/tonne of pulp Self-sufficient

Yield (from wood material) 95% 45%

Fibre length Fibres broken Mainly longer fibres

Paper strength Lower High

Production costs Lower Higher than in case of mechanical pulp

Chemical pulp is made by chemically dissolving the lignin (the natural polymer that binds the fibres together in wood) from the wood. Chemical pulp has a high strength and can be bleached to a high brightness. The yield of chemical pulps is about 50% on dry wood used. Chemical pulping is suitable for hardwood and softwood. The most common chemical pulping process is called the kraft process. This process uses sodium hydroxide and sodium sulphide as the pulping agents. This process has the advantage that all the pulping chemicals can be recycled and reused.

Most chemical pulp is produced for paper making (paper-grade pulp). A portion of the chemical pulp produced is intended for the cellulose industry where it is used to produce chemical products such as textile fibres, cellulose acetate film and explosives. This grade of pulp is known as dissolving pulp. Sappi Saiccor is the world’s largest producer of this grade of pulp.

32

Conversion: Paper and Board

Mosselbay

Pretoria

Richards Bay

Johannesburg

Durban

Pietermaritzburg

Nelspruit

Cape Town

Messina

Vryheid

Port Elizabeth

Piet Retief

Bloemfontein

9

2

34

5 6

7

8

South African Paper Mills

1. SA TissueGoodview InvestmentsCentral TissueHygenic Paper

2. Mondi Merebank, Rafello Paper MillsSA Paper Mills

3. Sappi StangerNampak RiverviewTongaat Tissue

4. Sappi Tugela5. Mondi Felixton6. Mondi Richards Bay7. Mondi Piet Retief8. Sappi Ngodwana9. Sappi Enstra

Kimberly Clark SA10. Mondi Cartonboard

LothlorienUnicell Mill

11. Nampak RosslynWaldens Paper MillNampak KliprivierExpert Tissue

12. Heidleburg13. Ligia Paper Industries14. Sappi Adamas15. Sappi Cape Kraft

Nampak BelvilleJanjirkar Paper Mill

1

12

15

10

11

13

14

Mosselbay

Pretoria

Richards Bay

Johannesburg

Durban

Pietermaritzburg

Nelspruit

Cape Town

Messina

Vryheid

Port Elizabeth

Piet Retief

Bloemfontein

Mosselbay

Pretoria

Richards Bay

Johannesburg

Durban

Pietermaritzburg

Nelspruit

Cape Town

Messina

Vryheid

Port Elizabeth

Piet Retief

Bloemfontein

9

2

34

5 6

7

8

South African Paper Mills

1. SA TissueGoodview InvestmentsCentral TissueHygenic Paper

2. Mondi Merebank, Rafello Paper MillsSA Paper Mills

3. Sappi StangerNampak RiverviewTongaat Tissue

4. Sappi Tugela5. Mondi Felixton6. Mondi Richards Bay7. Mondi Piet Retief8. Sappi Ngodwana9. Sappi Enstra

Kimberly Clark SA10. Mondi Cartonboard

LothlorienUnicell Mill

11. Nampak RosslynWaldens Paper MillNampak KliprivierExpert Tissue

12. Heidleburg13. Ligia Paper Industries14. Sappi Adamas15. Sappi Cape Kraft

Nampak BelvilleJanjirkar Paper Mill

1

12

15

10

11

13

14

Location of South African paper mills

Source: PAMSA (3)

Paper and Board Production in South Africa

Most pulp mills also produce paper. But sometimes the two operations are separate, with paper, especially specialist grades, being produced nearer the markets. Bulk pulp is traded and shipped around the globe in dried blocks for this purpose. Mondi and Sappi dominate the market, Kimberly-Clark and Nampak both have mills producing tissue paper, Nampak also has a board mill. Unicell is one of the smaller companies producing board from recycled waste. There are several smaller privately owned mills that have sprung up in the last five years. Almost all these mills produce tissue paper although there are a few that are producing cartonboard. Many of the small paper mills start and up grade their mills with second hand plant equipment imported mainly from Europe and reconditioned.

33

Paper Conversion Paper manufacture is a highly capital intensive operation. As a consequence, paper machines have to run continuously to be economical. They consequently produce large quantities of paper in roll or sheet form that must be converted into another form before being used. Some of the converting operations such as sheeting or coating can be done in the paper mill. Most are performed by a separate converting operation.

Printing and writing grades are sold by paper companies in roll or sheet form. Bulk printers such as newspaper operations run continuously fed printers. Smaller print runs generally require the paper to be delivered in sheet form. As there are numerous consumers of printing and writing grades of paper, some of whom require only a few kilograms of paper at a time, a well developed infrastructure of paper wholesalers, merchants and distributors has developed for these grades. Typical value added products produced from printing and writing grades are newspapers, magazines, advertising flyers, school and office stationary and books.

Packaging converters normally supply industrial companies and as a consequence, their production volumes are high. They are generally supplied directly from the paper makers in reel form. Typical packaging products produced are corrugated cartons for the fresh produce and industrial market, packaging for display of goods in supermarkets (i.e. cereal boxes, powdered soap boxes etc.), paper sacks for cement, potatoes etc and paper grocery bags. Nampak is the largest packaging convertor in South Africa.

Tissue converting involves the conversion of rolls of tissue from a paper machine into facial tissues, serviettes, paper towels and sanitary products. Unlike in packaging papers, where the converted products are supplied to industrial customers, the tissue converting industry is mostly aimed at the consumer products market. Some tissue companies convert their own production into consumer products while others sell to dedicated converting operations.

Converters of paper products generate cuttings from the paper they use. This forms an important source of good quality recycled fibre for the paper manufactures. Most major paper companies in South Africa operate recycled paper collection divisions who contract to converters to collect their waste.

Company Mill Products Total Capacity (1000 ts)

Kimberly-Clark Enstra Mill Crepe tissue 52

Mondi Richards Bay Mill White top and craft liner board 260

Felixton Fluting medium 100

Piet Retief Unbleached linerboard 130

Springs Mill Carton Board 125

Merebank Mill News print and telephone directory paper

230

SC mechanical 100

Uncoated fine paper 220

Other grades 16

Nampak Belville Mill Crepe tissue 25

Klipriver Mill Crepe tissue 23

River view Mill Crepe tissue 10

Rosslyn Mill Fluting and testliner 50

Sappi Ngodwana Mill White top and Kraft linerboard 240

Newsprint 140

Tugela Mill Kraft linerboard, fluting and other kraft paper

390

Cape Kraft Mill Testliner, fluting and ceiling board 80

Enstra Mill Uncoated printing and writing paper 170

Coated fine paper 80

Tissue paper 30

Uncoated industrial and packaging paper

40

Unicell Germiston Mill Testliner 80

34

Other Approximately 12 Other smaller mills often dealing with recycled paper

77*

total 2648*

Major Paper and Board Mills in South Africa31 (*Estimate)

Value of Total Production 2001 to 2003

Million Rands 2001 2002 2003 YTD

YTD YTD YTD Change

Paper and Board

Printing and Writing Paper 4874 5758 5602 -2.7%

Packaging Paper 4390 5414 4771 -11.9%

Tissue Paper 1164 1186 1286 8.5%

Total Paper and Board* 10428 12357 11658 -5.7%

Source: PAMSA 32

The tables above and below suggest a fairly constant (stagnant) sector in the writing packaging and tissue sub sectors. Although there are year on year fluctuations in different product lines the overall trend in both volume and value is fairly flat. Where fluctuations do occur these can be ascribed to fluctuations in the currency especially the dramatic drop in the Rand and its more recent strengthening against major currencies as well as the cyclical nature of global supply and demand in the pulp and paper sectors. Tissue is more often a conversion of recycled material and therefore may demonstrate different cycles to those product lines with either mechanical or chemical pulp as a direct input. Some product lines are more focused around export whereas others such as tissue paper are more likely to be bound for the domestic consumption market as it is generally considered too bulky for transport reducing its trade efficiencies. In this regard it is interesting to note that tissue (read domestic market) records a consistent growth in value of production and is one of the few sectors to attract new market entrants on the supply side over this period.

Paper and Board Production 1999 to 2003

thousand tons 1999 2000 2001 2002 2003 02 -03 YTD

YTD YTD YTD YTD YTD Change

Paper and Board

Printing and Writing Paper 834 852 863 904 916 1.3%

uncoated paper 339 361 382 398 405 1.7%

coated paper 75 66 62 80 77 -4.1%

newsprint and telephone directory paper 328 333 328 338 336 -0.6%

SC mech and lightweight coated paper 92 92 91 88 98 11.2%

Packaging Paper 1062 1138 1245 1265 1264 -0.1%

31 www.paperloop.com, 2004 32 South African Pulp and Paper Industry Statistical Data January to December 2003, PAMSA The companies participating in the industry survey are as follows: Kimberly-Clark SA, Mondi Cartonboard, Mondi Kraft, Mondi Paper, Nampak Tissue, Nampak Corrugated, Sappi Kraft, Sappi Fine Paper, Sappi Saiccor. An estimate of production and capacities has been made for companies not participating in the survey.

35

liner board 646 711 802 815 840 3.0%

fluting 213 216 232 229 224 -2.0%

other kraft, paperboard & fibreboard 203 211 211 222 200 -9.9%

Tissue Paper 145 134 150 154 152 -1.6%

tissue paper 145 134 150 154 152 -1.6%

Total Paper and Board 2041 2124 2257 2324 2331 0.3%

Source: PAMSA33

The performance of the industry is reflected in the utilisation of manufacturing equipment as shown below. All paper grades were produced at over 90% of the capacity of the mills. The utilisation of bagasse was relatively low at 77,8%. This was due to substitution of other fibre grades for bagasse pulp. These would be waste paper in the case of fluting made from bagasse and bleached hardwood for bagasse used in fine papers.

Paper and Board Processes

Making paper consumes large amounts of energy and water. For example, in 1992 the US paper industry was the third largest consumer of energy after the petroleum and chemicals sectors. But the paper industry differs from others in that it generates a significant proportion of its own energy needs by burning by-products (residues, bark, etc.). This is considered a renewable energy source and, unlike fossil fuels, does not contribute to a net increase in carbon dioxide emissions as it usually offset by forest regrowth. The US industry, for example, generates 55% of its energy needs; in this way and other countries are making increasing use of renewables.

33 33 South African Pulp and Paper Industry Statistical Data January to December 2003, PAMSA The companies participating in the industry survey are as follows: Kimberly-Clark SA, Mondi Cartonboard, Mondi Kraft, Mondi Paper, Nampak Tissue, Nampak Corrugated, Sappi Kraft, Sappi Fine Paper, Sappi Saiccor. An estimate of production and capacities has been made for companies not participating in the survey.

Figure 3. Equipment utilisation

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Mechanical

pulp

Chemical

pulp

Semi-chem

pulp

Bagasse

pulp

Paper mills Newsprint Writing &

printing

paper

Packaging

paper

Percent of capacity

36

Water is an essential ingredient in pulp and paper making. It is used to create the pulp and to flush away unwanted impurities. Emissions to water are one of the most significant environmental impacts of pulp and paper making.

Numerous grades of paper are produced. They can be summarised into three major groups: printing and writing grades, packaging grades and tissue grades.

As a generalisation, printing and writing grades use mechanical and/or chemical pulps as raw material. The pulps used are generally bleached. They also use filler materials such as clay, limestone or titanium dioxide. The weight of the sheet (grammage) for printing and writing grades are relatively light – 40 to 120g/m3.

Packaging materials are mostly made using unbleached chemical pulps. The use of bleached fibres is increasing as more use is made of the packaging materials in advertising. Packaging papers are generally classified into three groups. Linerboard and fluting are used for the manufacture of corrugated cartons. They are sometimes referred to as containerboard. Lightweight papers used for paper bags are often referred to as sack kraft. Board used for the manufacture of folding boxes such as used for cereals, soap powders etc. is called cartonboard and is generally much heavier than other packaging grades.

Tissue is made from deinked recycled fibres and bleached pulp. Tissue making requires substantially different equipment than for the manufacture of other paper grades. It has the advantage that it can be economically produced on a smaller scale than most other grades.

37

Section 3: Pulp and Paper Companies

in South Africa

38

Companies in the South African Pulp and Paper Sector

In the Price Waterhouse Coopers Global Forestry and Paper Survey (2004) top 100 global companies, Mondi, a subsidiary of Anglo American is ranked 15th for 2002 and 2003. Sappi is ranked 20th for 2002 and 2003. Nampak is a new entrant in 2003 at 65th. Kimberly Clark, the US giant is ranked 4th for 2002 and 2003, the company has a subsidiary in South Africa. Proctor and Gamble (paper), another large US multinational is ranked 6 th in 2002 and 10th in 2003, the company operates a distribution centre in South Africa for its products which are imported. Proctor & Gamble do produce nappies in South Africa through a contractor under licence.

Rank Net Sales Net

Income(Loss)

Return on capital

employed

2003 2002 Company Country 2003 2002 2003 2002 2003 2002

1 1 International Paper US $25,179 $24,976 $302 -$880 3.80% 2.80%

2 2 Georgia-Pacific US 20,255 23,271 254 -735 4.4 4.13

3 3 Weyerhaeuser3 US 17,844 16,771 13 16 2.4 2.5

4 4 Kimberly-Clark US 14,348 13,566 1,694 1,675 14 15

5 5 Stora Enso Finland 13,745 12,090 165 -212 2.1 4.5

6 7 UPM Finland 11,234 9,907 415 520 3.8 5.2

7 10 Svenska Cellulosa Sweden 10,562 9,091 629 588 5.9 7

8 9 Oji Paper Japan 10,465 9,635 105 -142 2.5 0.5

9 8 Nippon Unipac Japan 10,053 9,696 43 -5 1.3 1

10 6Procter & Gamble (Paper) US 9,933 9,233 1,015 849 10.1 7.8

11 11 Metsäliitto Finland 9,393 8,387 -18 118 1.2 3.9

12 13 Boise Cascade US 8,245 7,412 8 11 2.1 2.3

13 12 Smurfit-Stone US 7,722 7,483 -197 65 1.1 2.8

14 14 MeadWestvaco US 7,553 7,242 -6 -389 1.9 3.2

15 15Anglo American (Mondi) UK 5,628 4,805 350 345 10 12.3

16 16 Jefferson Smurfit Ireland 5,359 4,455 -76 93 4 6.5

17 18 Amcor Australia 4,856 4,071 234 463 6.4 7.7

18 17 Worms France 4,759 4,186 126 180 5.4 4

19 19 Asia Pulp and Paper (Est)

Singapore 4,550 4,000

-1,300 -1,450 0.4 -2.5

20 20 SappiSouthAfrica 4,299 3,729 149 220 5.8 7.5

64 65 Portucel Portugal 1,130 1,027 75 84 3.6 4.8

65 NA NampakSouthAfrica 1,112 486 32 19 10.5 8.1

66 61 Rayonier US 1,101 1,117 50 54 4.7 5.3

99 NA Gunns Australia 398 285 48 29 13.3 22.8

100 NA Tenon New Zealand 385 302 -158 -115 -20.9 -2.3

34

Sappi is the leading producer of coated woodfree paper in North America, Europe and Africa commanding 26% market share in North America, 22% in Europe and 60% in Africa. Sappi Saiccor, in South Africa, is the world’s largest and lowest cost producer of dissolving pulp, used in the manufacture of viscose fibre, with a 15%

34 source PWC global survey

39

share of the world market. The South African operations of Sappi comprised 24% (2003 financial year).

Mondi forms part of Anglo American plc’s wholly owned Paper and Packaging Division. Anglo American has its primary listing on the London Stock Exchange. The South African operations of Mondi comprised 33% (2002 financial year).

Forestry concerns of Mondi and Sappi The forestry assets of both Mondi and Sappi, provides the companies with a pulp revenue stream that hedges the pulp purchases of their paper operations, thereby reducing their exposure to the volatility of world pulp prices.

NCT Cooperative Limited is a supplier of round wood timber and the largest forestry-marketing organisation in southern Africa. It was established in 1949 as a marketing co-operative to cater to the needs of private and independent timber growers. As a co-operative, its members who share in profits, own NCT. Today Membership stands at 2039 shareholding members, representing a total area of 300 000 ha – 21% of afforested land in South Africa. NCT has recently entered the pulp market in South Africa with the construction of a new wood chip facility in the Port of Durban in 2004. It is also conducting a feasibility study for a pulp mill in KwaZulu Natal.

Nampak is a South African listed company whose primary business is in packaging. They do, however, operate three tissue mills and one corrugating papers mill in South Africa. Nampak is Africa’s largest packaging manufacturer. It is also one of the top six manufacturers of folding cartons in Europe and enjoys a strong position in several important niche markets, including the healthcare market.

Other pulp and paper companies in South Africa are usually privately owned small businesses. using recycled waste. Many of the small paper mills start and up grade their mills with second hand plant equipment imported mainly from Europe and reconditioned. Almost all these mills produce tissue paper although there are a few that are producing cartonboard. Most of these mills have entered the market in the last 10 years, with investment rate in new operations increasing dramatically in this period and many of these mills are growing (see section on investment). There are also some smaller conversion companies that are producing toilet products and packaging.

40

SAPPI

Sappi is a South African-based international forest products company, and has been ranked as the 20th top pulp and paper manufacturers in the world in 2002 and 2003. From a totally South African company in 1989 which exported approximately 50% of its total capacity to about 50 destinations throughout the world, the company has grown to an international organisation with manufacturing facilities on four continents Today, Sappa is the global market leader in its core businesses of coated woodfree paper and dissolving pulp.

Shareholding details are unclear, one report says that the largest shareholder is Buhrmann with 19,9 percent of the company. Buhrmann is an international business-to-business services and distribution group and one of the world's major suppliers of office products and graphic systems for the business market. The head office is located in the Netherlands. Other reported shareholders include First National Nominees (Pty) Ltd, South Africa, Industrial Development Corporation of South Africa Ltd (although no record of shareholding is reported in the IDC Annual Report 2004), Nedcor Bank Nominees Ltd, South Africa and Sanlam Ltd, South Africa.

Background

South African Pulp and Paper Industries Limited, registered as a company in December 1936. the first mill was built near Springs using straw, a maize by product for paper production. Over the next 35 years, the company built up mills and plantations and in 1973 it re-registered as Sappi Limited. In 1977 Sappi formed three operating subsidiaries, Sappi Fine Paper, Sappi, Kraft and Sappi Forests, each with its own board of directors. In 1980 Sappi formed a new division, Sappi Timber Products, specialising in sawmilling and in 1981 began producing linerboard from waste paper. In 1986, Sappi created Sappi International to handle export marketing of all Sappi products.

In 1988 Sappi acquired Usutu Pulp Company in Swaziland, one of the world's leaders in unbleached softwood kraft market pulp production and in 1989, acquired Saiccor, the world's single largest producer of dissolving pulp which it then expanded in 1995. Sappi purchased five fine paper mills in the United Kingdom, and established Sappi Europe, with it's head office in London in 1990. Over the next five years Sappi acquired Speciality Pulp Services in Hong, 99% of Hannover Papier, Germany's leading producer of coated woodfree paper and 75% stake in S D Warren, the USA's largest manufacturer of coated woodfree paper, establishing Sappi Limited as the world's leading producer of these grades. During the same time, Sappi established Sappi Trading, the group's international trading company, Sappi Europe SA launched as the pan-European sales organisation for Sappi products and Sappi shares are listed on London and Frankfurt stock exchanges, and Paris Bourse.

In 1997, Sappi acquired Europe's largest producer of coated woodfree paper, KNP Leykam and restructured the Sappi group as two focused operating divisions - Sappi Fine Paper, domiciled in London, managing the coated and uncoated fine paper businesses, and Sappi Forest Products, domiciled in Johannesburg, managing the diversified forestry, pulp, particleboard and containerboard businesses. Sappi Fine Paper became the world's largest producer of coated fine paper. It is the market leader in Europe, North America and Africa and is the largest exporter of coated

41

papers to Asia. All companies in the Sappi group shed their former names and assumed the name 'Sappi' worldwide. In 1998, The Sappi group listed its shares on the New York Stock Exchange.

From 2000, Sappi strategy is to focus on pulp and paper and the company began to shed it non core operations. Between 2000 and 2003, Sappi sold Sappi Novobord, the particleboard and medium density fibreboard manufacturing division of Sappi Forest Products, Sappi Mining Timber, the mining timber division of Sappi Forest Products as it no longer fits Sappi's strategy, which focuses on pulp and paper and Boskor sawmill to Swartland Meubels, a family owned business. At the same time Sappi Fine Paper North America closed down its Mobile Mill in Alabama, exiting the US uncoated paper business and acquired Potlatch Corporation's coated fine paper business and its Cloquet pulp and paper mill in Minnesota, USA. Sappi Europe closes its Transcript Mill in Scotland, exiting the carbonless paper market.

Recent International Investment35

Sappi has invested in 34% of Jiasngxi Chenming Paper Co, to make their first direct investments in China along with global South Korean company Shinmoorim (7.5%)China's largest local paper company, Chenming Group(47.2%), The International Finance Corp (7.5%0 and Jiangxi Paper Industry (3.8%). Sappi's equity contribution will be approximately US$60 million.

The IFC, the private sector arm of the World Bank Group, is supporting the construction of the light weight coated paper machine with a 350,000 ton annual capacity, a bleached thermo mechanical pulp (BTMP) mill, and deinking plant. The financing will also support an ancillary power plant and transportation infrastructure in Nanchang, the capital of Jiangxi Province in southeast China.

The total project cost is an estimated at almost $487 million. IFC is providing $72.9 million in equity and loans for its own account and is arranging an $205 million limited recourse project financing. The mill is scheduled to start paper production in the first half of 2005.

35 SAPPI Press Release, December 2004

42

SAPPI finepaper

SAPPI tradingHong Kong

SAPPI forest productsJohannesburg

SAPPIJohannesburg

South AfricaJohannesburg

North AmericaBoston

EuropeBrussels

Mills Mills Mills

Cloquet

Muskegon

Somerst

Westbrook

Alfeld

Blackburn

Ehingen

Gratkorn

Lanaken

Maastricht

Nash

Nijmegen

Adamas

Enstra

Stanger

Sales offices

Africa

Australia

CentralAmerica

Europe

Export Services(pulp)

ExportServices (SA)

Export Services(USA)

Kenya

SouthernAfrica

SAPPIForests

SAPPISaiccor

SAPPI Kraft

Divisions

SAPPI Forests

Sawmills

Mills

SAPPI Saiccor

Mills

Cape Kraft

Ngodwana

Tugela

Usutu

Divisions

SAPPI Waste Paper

Sappi Fine Paper

Sappi Fine Paper is a global business with manufacturing assets in eight countries on three continents. It has three divisions, in Southern Africa, Europe and North America. The company has a total paper capacity of 4.3 million metric tons and the division represents 83% of group sales and 66% of group operating income, contributing US$190 million in 2003. Sappi is the world's leading producer of coated fine paper with production capacity of 3 450 000 tonnes per annum.

43

source: www.sappi.co.za

Sappi Forest Products

Sappi Forest Products, is a pulp and commodity paper products business based in Southern Africa Sappi Forest Products is the world's largest producer of dissolving pulp with production capacity of 600 000 tonnes a year, equating to 15% of world market share in the commodity. The division produces dissolving pulp, bleached and unbleached kraft pulp, containerboard, packaging paper, newsprint and sawn timber.

The three business units of Sappi Forest Products are Sappi Saiccor, Sappi Kraft and Sappi Forests and represented 17% of group sales and contributed 35% of group operating profit in 2003.

The division owns and manages 540,000 hectares of Pine and Eucalyptus plantations in Southern Africa. It also produces newsprint and kraft packaging paper and beneficiates wood into timber products. It has strong market share positions in South Africa in its main product areas: Containerboard - 51% Sackkraft - 81% Newsprint - 43%

44

Sappi Saiccor

Sappi Saiccor is the world's largest manufacturer of chemical cellulose (dissolving pulp) and has the capacity to produce approximately 600,000 tons of Elemental Chlorine Free (ECF) chemical cellulose per annum. In 1995, Sappi Saiccor spent more than US$250 million in expanding and upgrading the mill's facilities increasing capacity from 450,000 to 600,000 tonnes per annum.

Almost 100% of the pulp produced is exported to countries in Europe, the Americas and Asia. It is used in the manufacture of a wide range of products including textiles, chemicals and plastics. Sappi Saiccor's chemical cellulose is used extensively to make viscose staple fibre, an important blend and constituent for textile yarn, and an increasingly important product in non-woven fibre applications. The chemical cellulose is also used in the manufacture of lyocell (solvent spun) fibres. These are natural cellulosic fibres used to produce fabrics that are soft, strong and absorbent for both the woven and non-woven industries. The acetate-flake market is also an important outlet for Sappi Saiccor's pulp. Acetate flake is used primarily in the manufacture of products such as cigarette filters, as well as in high-quality yarns and fabrics.

Sappi Kraft

Sappi Kraft currently produces newsprint and packaging papers, more than half of South Africa's kraft packaging paper requirements, including linerboard, corrugating medium, bag and sack kraft. These products are used in the South African market and exported.

Sappi Waste Paper is a division of Sappi Kraft. Its core objective is to supply Sappi Kraft with waste paper for use in Sappi's mills throughout South Africa. One of these, Sappi's Cape Kraft Mill, runs on 100% recycled fibre. Sappi Waste Paper has a national network of recycling operations throughout the country. The company drives the procurement of waste paper through on-site waste management and recycling programmes. Sappi Waste Paper also utilises an extensive network of recycling centres which purchase waste paper from numerous street collectors.

45

Capacity(’000 Tons) Divisions

Mills/Factories/ Plantations

Products Produced

paper pulp

Employees

Sappi Fine Paper

Sappi Fine Paper NorthAmerica

Cloquet mill Muskegon mill Somerset mill Westbrook mill

Bleached chemical pulp for own consumption Coated woodfree graphic paper Bleached chemical pulp for own consumption Coated woodfree graphic paper Bleached chemical pulp for own consumption Coated woodfree graphic paper Coated woodfree graphic paper, coated and uncoated speciality paper

240260760110

410110490

3,270

Sappi Fine Paper Europe

Alfeld millBlackburn mill Ehingen millGratkorn millLanaken mill Maastricht millNash millNijmegen mill

Bleached chemical pulp for own consumption Coated woodfree graphic paper, coated and uncoated speciality paper Coated woodfree graphic paper Bleached chemical pulp for own consumption and market pulpCoated woodfree graphic paper, uncoated woodfree paper Bleached chemical pulp for own consumptionCoated woodfree graphic paper, uncoated woodfree paper Bleached chemi-thermo mechanical pulp for own consumptionCoated mechanical graphic paper Coated woodfree graphic paper Uncoated business paper Coated woodfree graphic paper

35012023082048032030240

110130230170

5,480

Sappi Fine Paper SouthAfrica

Adamas millEnstra millStanger mill

Uncoated woodfree graphic paper Bleached chemical pulp for own consumption Uncoated graphic and business paper Bleached bagasse pulp for own consumption Coated woodfree graphic paper and tissue paper

30180110

10060

2,020

Sappi Forest Products

Sappi Kraft

Cape Kraft millNgodwana millTugela millUsutu mill

Waste-based linerboard and corrugating medium Unbleached kraft pulp for own consumption, bleached chemical pulp for own consumption and market pulp Mechanical pulp for own consumption Kraft and white top linerboard Newsprint Unbleached kraft and semi-chemical pulp for own consumption Kraft linerboard and corrugating medium Other kraft packaging papers Unbleached kraft market pulp

6024014030090

410100350230

2,500660

SappiSaiccor

Saiccor mill Dissolving market pulp 600

990

KwaZulu Natal Mpumalanga Usutu (Swaziland)

Plantations (pulpwood and sawlogs) Plantations (pulpwood and sawlogs) Forests (pulpwood)

230 ha 235 ha 75 ha

590SappiForests

Sawmills Sawn timber 80 m3 750

Source: 2003 Sappi Annual Report

46

SAPPI Employment 2004 2005

CategoryAfrican Coloured Asian White Disabled Total African Coloured Asian White Disabled Total

M 1 1 0 65 67 1 1 1 67 70Legislators, Senior Officials & Managers F 0 1 0 2 3 0 1 0 1 2

M 20 7 52 513 9 592 22 9 60 500 591

Professionals F 4 3 7 74 1 88 1 3 14 87 105

M 313 28 167 591 7 1099 393 31 197 600 1221Technicians & Associate Professionals F 22 9 30 139 0 200 38 12 31 122 203

M 528 19 104 26 1 677 552 16 88 26 682

Clerks F 51 29 52 283 5 415 58 27 50 288 423

M 9 3 2 18 32 6 0 1 21 28Service Workers, Shop & Market Sales Workers F 0 0 1 8 9 0 0 1 6 7

M 34 1 2 55 2 92 39 3 4 54 100Skilled Agricultural & Fishery Workers F 2 0 1 6 0 9 2 1 0 4 7

M 142 17 96 381 11 636 136 17 104 369 626

Craft & Related Trade Workers F 1 0 0 1 0 2 1 0 0 0 1

M 1702 77 205 153 2137 1396 43 186 91 1716Plant & Machine Operators & Assemblers F 54 3 1 4 62 23 2 2 2 29

M 1108 76 27 9 1220 0

Elementary Occupations F 251 19 5 0 275 0

M 25 1 4 0 30 38 5 9 12 64Apprentices & Section 18(2) Learners F 1 0 1 0 2 9 1 2 1 13

M 3882 230 659 1811 30 6582 2583 125 650 1740 5098

total F 386 64 98 517 6 1065 132 47 100 511 790

Overall total 4268 294 757 2328 36 7647 2715 172 750 2251 5888

Source: SAPPI Workplace Skills Plan, 2004, 2005, FIETA

47

In its 2003 Annual Report Sappi reports 7510 employees in South Africa. In the 2004 Workplace Skills Plan submitted to FIETA, the total employment for the group is 7647 excluding an additional 472 non permanent workers. However, the 2005 Workplace Skills Plan reports a drop in employment to 5888, a reduction of 1759 jobs. This can be attributed to no jobs being recorded under the category of Elementary Occupations in 2005, shedding 1495 jobs in the category since 2004, these functions have most probably been outsourced. There are no other significant differences between the employment reports with the exception of Plant & Machine Operators & Assemblers category where a further 465 jobs were lost between 2004 and 2005. Significantly, of the 1759 workers that lost their jobs between 2004 and 2005, 1553 were African.

The actual annual payroll for 2004 is reported to be R814 024 376, whilst the estimated annual payroll for 2005 is almost half of the previous year at R443 237 727.

0% 20% 40% 60% 80% 100%

Legislators, Senior Officials &

Managers

Professionals

Technicians & Associate

Professionals

Clerks

Service Workers, Shop & Market

Sales Workers

Skilled Agricultural & Fishery

Workers

Craft & Related Trade Workers

Plant & Machine Operators &

Assemblers

Elementary Occupations

Apprentices & Section 18(2)

Learners

ca

teg

ory

Sappi Percentage Employment By Race

2005

African Coloured Asian White

48

Mondi

Mondi is part of the Anglo American Industrial Corporation group of companies. Anglo Forest Products, operating under the Mondi International name, is an integrated paper and packaging group with operations and interests in Europe and South Africa. It has been ranked as 15 in the worlds top pulp and paper companies for 2002 and 2003. The Group has integrated production from forestry through to paper products and is principally involved in the growing of timber and manufacture of pulp, graphic paper, packaging papers and converted packaging. The packaging businesses are in the industrial packaging and corrugated packaging sectors and more recently in the flexible packaging sector.

Previously, Mondi has been managed along geographic lines, with Mondi Europe and Mondi South Africa under separate structures. In 2004, Mondi has reorganised the group's uncoated woodfree businesses under a global product structure and to consolidate the group's packaging interests into two substantial integrated entities.

Ayelsford

Newsprint

50%

Mondi

100%

Anglo American

Mondi Packaging

South Africa

50%

Europapier

90%

Mondi Shanduka

Newsprint

50%

Mondi Packaging

100%

Mondi Business

Paper

100%

Mondi Packaging Paper

Mondi Packaging corrugated

Mondi Packaging bags

Mondi Packaging Flexibles

Mondi Packaging coating

Mondi Business Paper Austria

Mondi Business Paper Hungary

Mondi Business Paper Hadera

Mondi Business Paper SCP

Mondi Business Paper Syktyvacar

Mondi Business Paper South Africa

49

Mondi Business Paper

Neusiedler is one of the largest European producers of uncoated woodfree high-quality office paper and is wholly owned by Mondi. With seven mills located in Austria, Slovakia, Hungary, Israel and Russia and 14 paper machines, the company has an annual production capacity of some 1.7 million tonnes of paper, of which 1.4 million tonnes is uncoated woodfree paper. The integrated pulp capacity is approximately 900,000 tonnes. Neusiedler's market position in Western and Eastern Europe has been considerably strengthened by its increased participation to 98% of the voting stock of the Russian pulp and paper mill, Syktyvkar.

Mondi South Africa's wholly-owned graphic paper interests will all be in the uncoated woodfree sector and all exports outside of sub-Saharan Africa will be sold through the existing Neusiedler sales and distribution networks. The Merebank business will in future be known as Mondi Fine Paper South Africa and will report under Neusiedler. The Merebank Mill produces uncoated woodfree, newsprint, super-calendered magazine, telephone directory and carbonless copy papers off five paper machines. It has annual production capacities of 270,000 tonnes of uncoated woodfree paper and 312,000 tonnes of mechanical papers, as well as 262,000 tonnes of converting capacity.

The integration under Mondi Fine Paper South Africa's includes Mondi South Africa's eucalyptus forestry operations, the SilvaCel woodchip mill and the Richards Bay mill. The SilvaCel woodchip facility, formerly under Mondi Kraft has the capacity to chip and load some 1.9 million green metric tonnes of hardwood (eucalyptus and wattle) woodchips per year. At present, all the woodchips are exported to the Pacific Rim, mainly Japan, where they are used to manufacture pulp and paper products.

The Richards Bay mill produces a range of products. These include Baycel, a premier grade bleached market pulp, which is made from 100% eucalyptus hardwood fibre, and Baywhite, a whitetop kraft linerboard. About 65% of the mill's annual sales is exported.

Internal pulp consumption for increased woodfree paper production will increase as a result the RB 720 pulp mill project to be completed next year and the rebuild of the Merebank PM1 machine. Specific arrangements will be made with Mondi Packaging in Europe and South Africa to accommodate the strategic, marketing and sales requirements of the PM2 whitetop linerboard machine at the Richards Bay mill. The existing export marketing arrangements for bleached eucalyptus pulp, woodchips and Baywhite linerboard via MSI in Dublin will continue.

Mondi Packaging Europe

Mondi Packaging Europe is a leading corrugated packaging group with operations in the United Kingdom, France, Poland and Ireland producing a full range of corrugated products. It has an annual production capacity of 1.6 billion m2 from 45 plants across the United Kingdom, France, Poland and Ireland. The group has developed into Europe's fifth largest corrugated producer. During 2002, it expanded its presence in the UK, France, Ireland and Poland through the acquisition of four integrated plants and two large sheet plants. The Group manufactures 1 million tonnes of corrugated paper in the UK, Poland, Russia and the Czech Republic. Swiecie is the largest producer of corrugated paper in the Group, with an annual production capacity of 340,000 tonnes of unbleached pulp and 80,000 tonnes of semi-chemical pulp. It produces 580,000 tonnes of corrugated case materials and

50

around 110,000 tonnes of sack kraftpaper. Swiecie has rebuilt its PM3 to enhance the capacity and quality of testliner.

In December 2003, Mondi Packaging Europe acquired the Bauernfeind corrugated paper and packaging group with operations in Austria, Germany, Belgium, Switzerland, Italy, Poland and China. This significantly repositions Mondi's corrugated business, with increased European coverage, making it now the 4th largest corrugating group in Europe. Mondi has reached an agreement in principle with Frapag AG` 30% partner in the Frantschach Group based in Austria, to acquire their remaining shareholding. Frantschach is the world's largest industrial sack packaging group. 100% ownership of Frantschach provides for a simpler integration with. Frantschach Packaging is the world's largest producer of industrial packaging and sack kraftpaper, with three paper mills and about 40 sack plants situated throughout Europe and the Middle East as well as one operation in Malaysia. In 2002 it successfully expanded the flexible and industrial packaging business. The group has eight flexible packaging, seven barrier coating and two release liner operations. Total annual production capacity is approximately 2.6 billion industrial sacks, 600,000 tonnes of sack and other kraftpaper, 180,000 tonnes of market pulp, 470 million consumer bags, as well as 1.6 billion m2 of barrier coated material. The group is a world market leader in double-sided polyethylene coated release liners and a leading European supplier for stand-up pouches. The activities of Frantschach and Mondi Packaging Europe will be fully integrated to form a single packaging business Mondi Packaging Europe.

The corrugated paper mills acquired as part of the Bauernfeind transaction will form a separate division within Mondi Packaging and will be combined with the paper mills which are currently part of the Frantschach pulp and paper division. This division will control the strategic, marketing and sales arrangements for the PM21 linerboard machine at Syktyvkar and for the PM2 whitetop linerboard machine at the Richards Bay mill.

Mondi Packaging South Africa

Mondi has consolidated its South African packaging paper and board, converting and waste paper recycling businesses/operations into a single new entity to be known as Mondi Packaging South Africa. The component parts of Mondi Packaging South Africa are:

The corrugated packaging businesses of Mondipak. The solid packaging and industrial board businesses of Mondi Cartonboard based at the Springs mill.The Felixton and Piet Retief corrugating paper mills as well as the domestic sales and marketing organization of Mondi Kraft. The waste paper collection and processing activities of Mondi Recycling.

MONDIPAK is a division of Mondi Ltd, which is a wholly owned subsidiary of Anglo-American. MONDIPAK was originally formed when Consol sold their three South African based corrugated plants to Mondi Ltd. Consol Corrugated was then renamed MONDIPAK, in April 1998. These three plants were located in Kuils River, Alrode and Phoenix. In November 1998, Kohler Limited (a wholly owned subsidiary of Rembrandt) offered its South African corrugated division for sale. At the time, Kohler Corrugated consisted of eight manufacturing plants, located in the Western Cape (Epping & Paarl), Port Elizabeth, East London, Pinetown, Brakpan, Nelspruit and Walvis Bay - as well as a number of sales offices elsewhere. The intention was that these operations would be amalgamated with the plants of the new MONDIPAK company. However, as part of the deal (in accordance with the

51

requirements of the Competitions Board of South Africa) Mondi Ltd had to sell two of the corrugated plants. These two plants (Alrode and Phoenix) were sold to Golden Era in September 1999. Mondipak is a manufacturer of corrugated packaging, specific to customer requirements, for the agricultural and industrial markets. The division has eight integrated corrugating plants that also service sheet plants strategically located in southern Africa, with a production capacity of 400 million m2 of corrugated board.

Mondi Cartonboard has two board machines based at Springs in Gauteng. It manufactures a range of coated packaging board and industrial board for carton printing, stationery, construction and core winding applications. The capacity is 133,000 tonnes.

The Felixton Mill is situated near Empangeni alongside a sugar mill, and was acquired by Mondi in 1982. It was the first paper mill in South Africa to process bagasse fibre, a by-product of sugar cane, together with waste paper, to produce fluting. The mill produces fluting using a mix of bagasse and waste paper fibre. The product, branded Bayflute, is sold both locally and internationally.

The Piet Retief mill produces paper products for the corrugated packaging industry, manufacturing high quality linerboard using eucalyptus logs, pine chips and waste fibre, was acquired by the division in 1982. Recent environmental upgrades to the Piet Retief mill have increased its waste paper recycling capacity and reduced its air pollution.

Aylesford

Mondi has 50% share in Aylesford Newsprint, a UK producer of newsprint using 100% recycled fibre. The mill recycles 500,000 tonnes per annum of recovered paper and is conveniently located south of London, from where much of the waste paper that is recycled at the mill is sourced. Aylesford is a single-site operation with two paper machines and a total annual production capacity of 400,000 tonnes. The company has set world records for the production of newsprint, its PM14 producing newsprint at a speed of over 1.6 kilometres per minute.

Europapier

Mondi owns 90% of Europapier, the largest paper merchant in Austria, Hungary, Slovakia, Slovenia and Croatia and has a leading position in Poland, the Czech Republic and Romania. Europapier sells graphic papers, office communication papers and other office supplies as well as packaging.

Black Economic Empowerment

MCI Resources renamed Shanduka, acquired 42% shareholding in Mondi South Africa's integrated newsprint business (MNB), in an empowerment transaction that values the business at ZAR 1 100 million, finalized in 2004. A further 8% in MNB has been set aside for further broad-based participation by Mondi South Africa employees and by relevant communities. In a similar deal, Shanduka also acquired 42% of Mondi Packaging. Shanduka is a Black Economic Empowerment Company, chaired by Cyril Ramaphosa. Shanduka also has shares in Alexander Forbes (30%), Rentworks (50.1%), and two other Black Economic Empowerment Companies. One of these is Dinalta (15%) that has a 15% share in The Bidvest Group and 15% share in Dinalta New Ventures. The other is Tutuwa Consortium (40%) that has shareholding in Liberty Group.

52

2001 2002

EuropeGraphic Papers 000 tonnes 1,143 1,476 Pulp 000 tonnes 188 182 Packaging Papers 000 tonnes 1,290 1,520 Corrugated Packaging million sqm 780 1,121 Industrial Bags million units 2,400 2,600 Consumer Bags and Pouches million units 305 470

South Africa Graphic Papers 000 tonnes 510 518 Pulp 000 tonnes 290 320 Packaging Papers 000 tonnes 528 573 Corrugated Packaging million sqm 275 300 Lumber 000 sqm 137 127 Woodchips 000 gmt 1,248 1,648 Mining Timber 000 tonnes 132 143

Comparison of Mondi European and South African production36

Comparing the same product production in the graph above it is immediately apparent that the Mondi European operations have far greater production than those in South Africa. South Africa remains a significant producer of pulp production, but contributes only 26% of total production in graphic paper, 27% of production in packaging paper and 21% in corrugated packaging in 2002.

The graph below shows that across the three categories of packaging papers, pulp and graphic papers production increases occur both in South Africa and Europe from 2001 to 2002 but it these increases are greater in Europe. With increased investment in Europe during 2003 and 2004, it is expected that production output differences between South African and European operations would have grown even larger as a result of increased total production output at the European operations.

36 Source: Mondi

53

0

500

1,000

1,500

2,000

2,500

3,000

3,500

000 t

on

nes

europe

2001

europe

2002

south

africa 2001

south

Africa 2002

Mondi Europe SA Product Production

Comparison 2001/2002

Packaging Papers

Pulp

Graphic Papers

Mondi Operations In South Africa

Given that the changes in the company are relatively new, below is a summary of Mondi Divisions in South Africa prior to the reorganisation under Mondi’s global operations. Note that Mondi

Division Location Production Capacity

Mondi Paper Merebank Paper Mill - Durban

270,000 tonnes of uncoated woodfree paper 312,000 tonnes of mechanical papers and 262,000 tonnes of converting capacity per annum

Cartonboard Springs, Guateng a range of coated packaging board and industrial board at 133,000 tonnes/annum.

Mondipak 400 million m2 of corrugated board/annum Mondi Kraft Richards Bay Mill,

Felixton and Piet Retief

SilvaCel – Richards Bay

330,000 tonnes of eucalyptus pulp/annum 450,000 tonnes of corrugating papers/annum

1.9 million green metric tonnes of hardwood woodchips/annum

Mondi Forests Mpumalanga, KwaZulu- Natal, Eastern Cape, Limpopo Province and Swaziland

The area managed is 537,000 hectares, of which 335,000 hectares are afforestable.

Mondi Recycling sources 316,000 tonnes of waste paper per year

Mondi Timber 3 sawmills consume 218,000 m3 of Mondi-grown sawlogs per annum of pine and saligna lumber for the furniture and industrial markets.

54

Mondi Forests Mondi Forests owns and manages extensive hardwood and softwood plantations. It has land holdings in Mpumalanga, KwaZulu- Natal, Eastern Cape, Limpopo Province and Swaziland. The area managed is 526,000 hectares (this includes Peak Timber Ltd, its associated company in Swaziland, with about 32 000 hectares of land). Of this, 335,000 hectares are afforestable. 329 000 hectares are planted - 31,7 percent to pine, 58,9 percent to gum, 8,7 percent to wattle and the remainder planted to sugar cane. Mondi Forests has a sustainable annual production of just under 6 million tons of timber including pine, eucalyptus(gum) and wattle. This accounts for almost a third of the total timber production in South Africa. Current log production exceeds 5,4 million tons per year with 88,5 percent devoted to pulp logs, 6,1 percent to saw logs and 5,4 percent to mining timber, poles and other products

Mondi Recycling

Mondi operates the largest wastepaper collection and recycling operation in South Africa, sourcing 316,000 tonnes of waste paper per year. Collection is from converters, other industries, hawkers, small businesses, retail and wholesale businesses, offices, schools, homes and community paper banks. Mondi Recycling has secured a R500 000 loan from the Industrial Development Corporation for suppliers to provide them with capital to set up small businesses. Mondi estimates that it has 5000 suppliers ranging from hawkers to small businesses.

Investment Plans for 2005

The main projects in South Africa for 2005 are projects that have already been approved and started in the last few years but not yet completed:

In Richards Bay, the RB 720 project aimed at increasing pulp production at Mondi Business Paper South Africa from 550 000 to 720 000 tons (R1.7billion) and includes the new waste water treatment plant (R218.4 million). Construction of PM31 in Merebank (R1.4 billion) which will increase the capacity by 270 000 tonnes of uncoated woodfree papers for office communication.

The main projects for 2005 in Europe are: Conversion to EFC (elementary chlorine free) bleach at Mondi Business Paper Syktyvkar at a cost of around R179.4 million Conversion of PM3 at the Kematen site of Mondi Business Paper Austria at a cost of around R40.6 million. R78.8 million conversion of the bark boiler at the Ruzomberok site of Mondi Business Paper SCP.R15.6 million for a supply chain management programme. At Mondi Business Paper, Hadera R66.3 million is being invested in a new flow box and a new small format line.

55

Employment

Employment

Division 2004 2005

Actual Annual Payroll

2004

Estimated Annual Payroll

2005

Mondi Group Office 61 90 R 30,059,439 *

Mondi Recycling 97 95 R 10,436,812 R 10,958,652

Mondi Paper 1211 1210 R 241,110,020 R 241,008,000

Mondi Cartonboard 253 472 R 65,666,515 R 68,480,360

Mondi Kraft 1592 R 275,465,867 *

Mondi Forests 634 500 R 72,138,969 R 126,078,487

Mondi Mining Supplies 737 974 R 45,288,170 R 45,288,170

Total 4585 * R 740,165,792 *

Employment figures for the table above are taken from the workplace skills plans submitted by Mondi for each division for 2004 and 2005. * Incomplete data: estimated annual payroll for the Mondi Group Office was excluded in their 2005 workplace skills plan and no 2005 workplace skills plan was submitted for Mondi Kraft.

The actual annual payroll for 2004 was R740 165 792, but differs greatly from one division to the next, for Mondi Group Office the average actual annual payroll per employee was R492 778.00 whilst for Mondi Mining Supplies the average actual annual payroll per employee was R61 449.00. Estimated annual payroll for 2005 does not take into account increase in employment in Mondi Cartonboard and Mondi Mining Supplies, whist Mondi Forests reports a drop in employment of 134 jobs from 634 to 500, yet the estimated annual payroll for 2005 is nearly R54 million higher than actual annual payroll for 2004.

Total employment recorded for Mondi Consolidated in the workplace skills plans submitted for 2004 is 4544, of which 3893 are male and 651 are female.

There are a total of 131 Legislators, Senior Officials & Managers, of which 127 are male and 5 are female. 117 are White, 5 are Black, 1 Coloured and 8 Asian.

Of the 2180 Black employees 1465 are employed in the Plant & Machine Operators & Assemblers and Elementary Occupations categories, 215 in the category of Craft & Related Trade Workers, 186 as clerks, 192 as Technicians & Associate Professionals and 43 as professionals.

Of the 1274 White employees, 65 are employed in the Plant & Machine Operators & Assemblers category, 303 in the category of Craft & Related Trade Workers, 214 as clerks, 254 as Technicians & Associate Professionals and 247 as professionals.

Of the 1011 Asian employees, 449 are employed in the Plant & Machine Operators & Assemblers category, 198 in the category of Craft & Related Trade Workers, 130 as clerks, 175 as Technicians & Associate Professionals and 47 as professionals.

56

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Legislators, Senior Officials &

Managers

Professionals

Technicians & Associate

Professionals

Clerks

Service Workers, Shop &

Market Sales Workers

Skilled Agricultural & Fishery

Workers

Craft & Related Trade Workers

Plant & Machine Operators &

Assemblers

Elementary Occupations

Apprentices & Section 18(2)

Learners

Non-Permanent Workers

Mondi Consolidated 2004Percentage Employment by Race

Total Employment = 4544

African Coloured Asian White

57

Nampak Limited

Nampak Limited is listed on the JSE Securities Exchange South Africa in the Business Support Services sector. It is largest and most diversified packaging manufacturer in Africa with operations in the United Kingdom and Europe. Nampak is Africa’s largest packaging manufacturer. The company posted a turnover of more than R18 billion last year - paper represents 45% of this value.

It produces packaging products from metal ,paper, plastic and glass, is a major manufacturer and distributor of tissue products, and has a significant position in the paper merchanting market. The group operates from manufacturing sites in South Africa, Kenya, Malawi, Mozambique, Namibia, Nigeria, Swaziland, Tanzania, Zambia, Zimbabwe, the United Kingdom, Belgium, France, Holland, Ireland and Italy. The group is actively engaged in the collection and recycling of all forms of used packaging. Nampak also exports to many countries world-wide. NamITech, a subsidiary company operating in the security sector of the IT industry servicing the telecommunications and financial services industries and to large corporates. .Shareholding Remgro, Allan Gray and Sanlam are the top three shareholders in Nampak, holding just over 37% of the shares in the group. In total, 20 shareholders hold 80% of Nampak shares.

Type of production Metals and Glass (for packaging) PaperRigid Plastics (for packaging) Flexible Plastics (for packaging)

Subsidiaries and Joint Ventures

Nampak has numerous subsidiaries and joint ventures in South Africa, Africa and Europe. Countries in Africa where Nampak has investments are: Ethiopia, Kenya, Malawi, Mozambique, Namibia, Nigeria, Swaziland, Tanzania, Zambia and Zimbabwe. For a full list of these joint ventures and subsidiaries including percentage shareholding, refer to the following tables taken from the Nampak Annual Report for 2003. The subsidiaries and joint venture’s income after taxation attributable to the holding company for the year ending 30 September 2003 is R931.7 million, up from R732.5 million in 2002. These investments performed better in 2003 than 2002 where the aggregate amount of losses attributed to the holding company was R109.8 million, in 2003 the aggregate amount of losses was R12.2 million.

58

59

60

Source: Nampak Annual Report 2003

Investment activities

M.Y. Holdings plc, a Nampak subsidiary acquired the total issued share capital of Gallagher Printers Limited of Ireland with effect from 17 October 2002 for a consideration of R40 million. Gallagher is a niche business specialising in cartons, leaflets and commercial printing for the healthcare industry. Kohler Packaging Limited sold its Bubblepack business and machine in accordance with the requirements of the Competition authorities to Nampak.

During 2003, the group completed a number of significant transactions. In two separate transactions, Pamodzi Investment Holdings, an empowerment company, acquired a 28% stake in NamITech through its subsidiary company, Clidet No 426 (Pty) Limited (“Clidet”). As part of the combined transactions, NamITech acquired the remaining interests in Integrated Card Technology and

61

NamITprepaidz from the respective minority shareholders in those companies in exchange for equity in NamITech. Nampak Products Limited subscribed for 12 206 redeemable preference shares in Clidet as part of the funding mechanism to assist Pamodzi to make the acquisitions and Nampak’s resultant shareholding in NamITech decreased to 51.08%.Clidet has been consolidated in terms of AC412. Subsequent to the above transactions taking place, Nampak announced that it had reached agreement to sell its 51.08% interest in NamITech to Allied Technologies Limited ("Altech") for a consideration of R329.5 million in cash, a further amount of approximately R68 million in cash for its loan and R125 million for the preference shares in Clidet. The transaction is subject to the approval of the Competition authorities. Subsequent to 30 September 2003, the Competition Commission recommended to the Competition Tribunal that the acquisition by Altech of a controlling shareholding in NamITech should not be permitted.

Following an internal restructuring, Nampak Products Limited purchased the following businesses as going concerns with effect from 1 June 2003: the entire business of Printpak Limited; the Flexible and Cartons and Labels businesses of Kohler Packaging Limited; the Rotoflex-Quix business of Metal Box South Africa Limited; and the entire business of Kohler Flexible Packaging (Pinetown) (Pty) Limited. Printpak and Kohler Carton & Print were merged to create Nampak Cartons & Labels.

Disaki Cores and Tubes (Pty) Limited was incorporated on 30 July 2003 as a Black Economic Empowerment partnership. Nampak’s Cores and Tubes business was sold as a going concern for a consideration of R52 million, effective from 1 September 2003, to Disaki Cores and Tubes which operates from plants situated in Johannesburg, Cape Town and Durban. Disaki employs 243 people and services approximately 150 customers throughout the country. Nampak retains 70% share in this new company.

During 2003, Redibox, a Nampak subsidiary, purchased the assets of Pica Box Manufacturers cc and the assets of Pica Box Western Cape (Pty) Limited for an aggregate purchase price R3.96 million. These businesses manufacture and market pre-erected boxes on pallets from sites in Port Elizabeth and Cape Town. Redibox also purchased the business of B & B Distributors of George as a going concern for a total consideration of R1.58 million. The business, which trades as Redibox George, markets a range of packaging products from its premises in George,Western Cape.

Following a strategic review, the PET business in Spain and the protective clothing business in the United Kingdom were sold for a total consideration of R149.8 million and Kohler Packaging sold its 45% shareholding in Pyramid Holdings Limited for R2.4 million.

Company Performance

Performance of Nampak Paper by operating profit is up by R245.8 million from R417.7 million (no abnormal items) in 2002 to 663.5 million (including abnormal items of income of R22.5 million) in 2003. Operating Profits in Africa grew by R73.6 million from R378.5 million in 2002 to R452.1 million (including abnormal items of income of R18 million). Operating profits of European operations grew considerably more by R172.2 million contributing 70% of total operating profit for Nampak Paper, from R39.2 million in 2002 to R211.4 (including abnormal items of income of R4 million) in 2003. Some of may be attributed to new investment

62

Source: Nampak Annual Report 2003

Employment

The following table of employment at Nampak comes from its annual report for 2003. It does not however state whether the employment figures are for South Africa or the group as a whole. Also, it does not state whether it includes Nampak subsidiaries. It gives the group’s staff complement in the management and skills band but does not define what is considered skilled work. Nampak reports employment in these two bands at 5058. The only other available data for Nampak employment is that of Nampak tissue, as submitted to FIETA for 2005. (please refer to section on Nampak Tissue below)

63

Nampak Paper

Nampak paper has operations in Africa and Europe. The company produces a broad range of leading paper-based carton packaging includes folding cartons, corrugated cartons, liquid cartons, display cartons and composite containers. The division also produces wet glue paper labels, leaflets, multiple-wall paper sacks and bags as well as paperboard cores, cones and tubes. Also manufactured from paper is a range of speciality coated papers and industrial packing materials. Non-packaging paper products include a range of printed books and diaries, tissue products and paper merchanting. Revenue generation from the operations in Africa are almost double that of Europe for 2003, however revenue of the European operations have increased substantially from 2002 to 2003.

Source: Nampak Annual Report 2003

Nampak Paper in South Africa

DisakiPreviously Kohler Cores & Tubes, Disaki, the leading cores and tubes manufacturer in South Africa, is an empowerment company jointly owned by Nampak and local black businessman, Vince Raseroka. Disaki primarily manufacture spirally wound cores and tubes and paperboard cones, as well as angleboard, speciality expanded cell material (Dufaylite / the Kohler cell) and composite containers. There are three plants in Cape Town, Durban and Gauteng.

Nampak Cartons and Labels Nampak Cartons & Labels is South Africa's leading producer of litho printed folding cartons. The company also produce gravure printed labels, specialising in paper based wet glue labels, and has a book and diary printing operation. The division operates nine different factories, incorporating six lithographic plants, two gravure printing plants and one book printing operation. These are segmented into the following business units: Nampak Cartons & Labels Gauteng Nampak Cartons & Labels Western Cape Nampak Cartons & Labels KZN Nampak Cartons & Labels Eastern Cape Nampak Gravure Interpak Books

64

Nampak Corrogated This division produces corrugated cartons and trays, sheet board SFK, and other specialist products such as corrugated coffins and furniture. The plants are situated in: Gauteng: Wadeville

Rosslyn KZN: Pinetown

Pietermaritzburg Cape: Epping

East London Port Elizabeth

Swaziland

Elopak S.A. Elopak South Africa (Elopak SA), a joint venture between Nampak and Elopak of Norway, manufactures the Pure-Pak range of gable topped cartons. The Pure-Pak range of cartons is targeted at the non-carbonated liquid beverage market. The range of liquids that can be contained in Pure-Pak cartons includes milk, fruit juice, wine, maas and cream. Dry powders can also be packaged in Pure-Pak cartons. Nampak Liquid’s Isithebe plant handles all converting of cartons.

Nampak Liquid Nampak Liquid is the largest and most diversified supplier of liquid packaging solutions, primarily to the non-carbonated beverage, dairy and sorghum beer industries in Africa, South of the equator.There are a total of nine plants situated around the country, in the following locations: Bloemfontein Cape Town Industria, JHB Isithebe Pietersburg Port Elizabeth Vredendal Vryburg Durban

Nampak Sacks Nampak Sacks is South Africa's leading supplier of multi-wall paper sacks and self-opening bags, producing in excess of 190 million sacks and 600 million bags annually. There are two plants, Mobeni in Durban and Epping in Cape Town. The products are used in the following markets: Construction: Cement Food: Tea

SugarMaize & Flour Salt

Agricultural: Potatoes Retail trade: Pet food

Charcoal

65

Peters Papers Nampak's paper merchandising division, Peters Papers, is one of the leading paper merchants, graphics and mill agents in South Africa. As a result, Nampak holds a substantial share of the country's paper merchanting industry, representing more than 40 leading graphics suppliers from around the world and have full access to products from South Africa's leading local paper manufacturers. The company markets a diverse range of papers, boards and graphics sundries to the printing, packaging and office equipment manufacturing markets, with sales in excess of 100 000 tons per annum, while speciality grades sold on a direct indent basis are approximately 20 000 tons per annum. The division has operations in South Africa's major centres: Gauteng, Kwazulu Natal, Western Cape, Eastern Cape and Mpumalanga. It also operates in Botswana, Swaziland, Namibia and Mozambique.

Nampak Tissue

As the Nampak Group's consumer products division, Nampak Tissue produces a wide range of products from toilet paper, to nappies, kitchen paper to wound dressings. Nampak Tissue produces the many recognised household brands including: Twinsoft TwinsaverLifestyle CuddlersGlad foil Hulett foil

Nampak Tissue has paper manufacturing mills in: Klipriver in Gauteng; Belville in Cape Town; Riverview in Kwa-Zulu Natal and Swaziland. Nampak Tissue has manufacturing plants in: Pretoria, Pietermaritzburg, Klipriver, Durban, Cape Town, Swaziland, Mozambique, Tanzania and Kenya.

Sancella is a joint venture between Nampak Tissue and SCA Sweden, which encompasses the Cuddlers, Lifestyle and Tena brands. Nampak Tissue manufactures and distributes Cuddlers and Lifestyle products and imports and distributes Tena products. There are 18 raw materials used in the production of nappies, and about 80% of these are imported from Europe, mainly France and Sweden and from Colombia. Many of these raw materials could be produced locally, with investment in appropriate technologies. The Nappies produced are consumed locally and exported to Namibia, Botswana and Swaziland.37

Nampak Recycling collects, processes and controls approximately 200 000 tons of paper a year. This volume is converted into wastepaper products at its paper mills located in Southern Africa. The non-cardboard materials collected are converted into tissue paper jumbo reels, by Nampak's paper mills and used in the manufacture of various tissue products, such as toilet paper and roller towel. Waste paper is collected, sorted, baled and distributed to mills where tissue is manufactured. The quality of waste collected in South Africa is not always good, as there can be undesirable quantities of glue, ink and china clay. Office paper that is high quality is desirable as the raw material but it is possible to meet Nampak tissues demand locally so some of this is imported. However, in the future this may be met locally as sourcing potential has not been extended to domestic homes and recovery rates can be improved. 38

37 Interview with Simon Ndimande, Nampak Tissue Klipriver, 2004. 38 Interview with Philip Sapto, Nampak Tissue, 2004

66

Nampak Tissue employs 936 workers and its actual annual payroll for 2004 was R151 993 184. Non core functions such as cleaning, building maintenance and canteen services. Distribution is outsourced to Biddulphs. Casual labour to fill in when workers are ill, injured or in the case of overtime shiftwork, employed adhoc are sourced from Transman. Whilst general plant maintenance is done in house, shutdowns and new installations are outsourced. 39

NAMPAK Tissue 2005 Category African Coloured Asian White Disabled Total

M 7 3 2 38 50 Legislators, Senior Officials & Managers F 2 1 1 4 8

M 9 3 2 22 36 Professionals F 5 0 0 15 20

M 17 17 0 34 68 Technicians & Associate Professionals F 5 1 0 0 6

M 32 24 11 7 74 Clerks F 18 1 12 29 60

M 3 1 4 16 24 Service Workers, Shop & Market Sales Workers F 0 7 2 0 9

M 0Skilled Agricultural & Fishery Workers F 0

M 0 10 14 18 42 Craft & Related Trade Workers F 0 0 0 0 0

M 250 54 63 6 373 Plant & Machine Operators & Assemblers F 4 44 0 2 50

M 25 56 4 0 85

Elementary Occupations F 4 23 4 0 31

M 0 31`Apprentices & Section 18(2) Learners F 0

M 0Non-Permanent Workers F 0

M 343 168 100 141 752 Total male & female F 38 77 19 50 184

Total 381 245 119 191 936

39 Interview with Philip Sapto, Nampak Tissue, 2003

67

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%100%

Legislators, Senior Officials & Managers

Professionals

Technicians & Associate Professionals

Clerks

Service Workers, Shop & Market Sales Workers

Skilled Agricultural & Fishery Workers

Craft & Related Trade Workers

Plant & Machine Operators & Assemblers

Elementary Occupations

31`Apprentices & Section 18(2) Learners

Non-Permanent Workers

ca

teg

ory

Nampak Tissue 2004

Pecentage Employment by Race

Total = 936

African Coloured Asian White

68

69

Kimberley Clarke

Kimberley Clarke is a global company based in the United States. The South African operations of Kimberly-Clark, represent a small component of their global business. Its South African operation is 51% owned by Kimberly-Clark and 50% (minus I share) is owned by First Asian Investment Company FASIC, now 82% owned by Nedbank Limited. On 1 April 1999, Malbak Limited, a subsidiary of Nampak Limited, sold its effective 50% shareholding in Kimberley-Clark to The Lion Match Company Limited (“Lion Match”). Lion Match in turn sold its shareholding to Fasic Africa (Pty) Limited (Fasic). Fasic has an irrevocable put option, subject to the same terms and conditions as the original sale, to sell to Malbak Limited the shares acquired during the first five years of ownership should Kimberly-Clark Corporation USA sell its interests in Kimberley -Clark.and exit from South Africa. Conditions governing such an exit by Kimberly-Clark Corporation exclude conduct or omission on part of the partners and any changing political environment in South Africa. The directors have assessed the financial performance of K.C. and are satisfied that an exercise of the put option is remote. This put option expired on 31 March 2004.40

Carlton Paper of SA (Pty) Ltd, formerly a subsidiary of Kohler has been bought over by Kimberely Clarke. Its Enstra facility near Springs was upgraded to include a waste paper recycling plant. The new plant almost eliminates the use of virgin pulp and consumes 72,000 tons of waste paper per annum.

There has been an increase in employment at Kimberley Clarke between 2004 and 2005, from 855 to 1094. this increase has mainly been in the category of Plant & Machine Operators & Assemblers.41

40 Nampak Annual Report 2003, www.nampak.co.za 41 The following employment data was sourced from Workplace Skills Plan, FIETA 2004

70

0% 20% 40% 60% 80% 100%

Legislators, Senior Officials & Managers

Professionals

Technicians & Associate Professionals

Clerks

Service Workers, Shop & Market Sales Workers

Skilled Agricultural & Fishery Workers

Craft & Related Trade Workers

Plant & Machine Operators & Assemblers

Elementary Occupations

Apprentices & Section 18(2) Learners

Non-Permanent Workers

category

Kimberley Clarke 2005

Percentage Employment By Race

Total Employment = 1094

African Coloured Asian White

71

Kimberley Clarke Employment 2004 Employment 2005 Category

African Coloured Asian White Disabled Total African Coloured Asian White Disabled Total

M 5 1 5 30 41 3 2 9 31 45Legislators, Senior Officials & Managers F 3 0 1 15 19 1 0 2 16 19

M 6 3 3 31 43 3 4 2 30 39

Professionals F 7 3 1 15 26 6 0 2 16 24

M 44 9 6 69 1 128 43 4 11 75 133Technicians & Associate Professionals F 2 0 1 6 0 9 2 2 2 13 19

M 33 16 6 6 1 61 28 2 4 2 36

Clerks F 1 6 2 32 0 41 5 9 3 26 43

M 4 1 0 2 7 8 0 1 3 12Service Workers, Shop & Market Sales Workers F 7 1 6 17 31 4 0 5 1 10

M 0 0Skilled Agricultural & Fishery Workers F 0 0

M 6 0 0 29 35 6 3 0 29 38Craft & Related Trade Workers F 0 0 0 0 0 0 0 0 0 0

M 279 55 2 17 1 353 370 81 30 15 496Plant & Machine Operators & Assemblers F 1 44 0 2 0 47 18 52 14 84 168

M 0 0

Elementary Occupations F 0 0

M 9 0 0 1 10 7 0 0 0 7Apprentices & Section 18(2) Learners F 4 0 0 0 4 5 0 0 0 5

M 0 0Non-Permanent Workers F 0 0

M 386 85 22 185 3 678 468 96 57 185 806

total male&female F 25 54 11 87 0 177 41 63 28 156 288

Totals 411 139 33 272 3 855 509 159 85 341 0 1094

72

Unicell

Unicell is a new entrant into the South African market with their first corrugating papers mill in Germiston being commissioned in 2002. Unicell is owned by the Sharma Group, a privately owned company with operations in India, South Africa, Swaziland, Trinidad & Tobago, United Arab Emirates, United States of America, United Kingdom and Zambia.

The major shareholder of Unicell is Cosco Ltd which has an 85% equity stake and is an investment holding company controlled by the Sharma Group. The Sharma Group has a long history in the paper manufacturing business, and owns paper mills and converting plants in Botswana, South Africa, Swaziland, United Arab Emirates and Zambia.

Industrial Development Corporation of South Africa has a stake in the project. The mill has employed the state-of-the-art twin wire technology and has capacity to produce 70,000 metric tons per year of high quality Kraft papers of all grades including white top liner, fluting, virgin and test liners. The plant complements the existing group capacity of 50,000 metric tons at Swazi Paper Mills in Swaziland. This project has taken the groups Kraft capacity in the region to 120,000 metric tons per year.

Unicell operates an integrated paper mill, consisting of deinked pulp (DIP) mill, tissue paper mill and converting lines. The DIP mill has the capacity to produce 120 tons per day (40,000 tpa) of deinked pulp from waste paper. Fifty percent of the output is fed into the downstream tissue facility to produce 60 tons per day (20,000 tpa) of tissue paper and converted tissue products. The remaining deinked pulp (20,000 tpa), in the form of wetlap, is sold to Swazi Paper Mills, an existing client of IFC, and a part of the Sharma Group.

Unicell Global Operations and Production

Unicell Paper Mills Caribbean Limited, Trinidad & Tobago High quality all grades of tissue paper, bath tissue, kitchen towels, facial tissue, napkins/serviettes and Industrial towels. Unicell Paper Mills (S.A) Pty Limited., South Africa High quality Kraft papers of all grades including white top liner, fluting, virgin and test liners. Swazi Paper Mills Limited, Swaziland Kraft paper from 100% recycled waste paper for the corrugated box industry Emirates Paper Mills Limited, U.A.E High quality Tissue paper including white and coloured bathroom tissue, facial tissue handkerchief tissue, kitchen towels, diaper wrap tissue, hand towel and napkin for both consumer and away from home products. Unicell Paper Mills Inc., U.S.A All grades of high quality tissue paper, bath tissue, kitchen towels, napkins/serviettes, facial tissue and industrial towels. Zambezi Paper Mills, Zambia High quality tissue, packaging paper, board and economical writing and printing paper

Recent development: Gayatri Paper took over Unicell Paper Mills in Germiston, the 50,000 tonne/yr containerboard facility, from the Sharma Group in December 2004. Gayatri is a South African investment vehicle, but details of the deal and the new owners have not been made available.

73

Unicell Employment 2004 Category African Coloured Asian White Disabled Total

M 0 0 7 3 10Legislators, Senior Officials & Managers F 0 0 0 1 1

M 0Professionals F 0

M 2 2 14 2 20Technicians & Associate Professionals F 0 0 1 3 4

M 0 0 0 0 0Clerks F 0 2 1 3 6

M 9 0 2 4 15Service Workers, Shop & Market Sales Workers F 0 0 0 0 0

M 0Skilled Agricultural & Fishery Workers F 0

M 11 0 4 4 19Craft & Related Trade Workers F 0 0 0 0 0

M 57 2 8 3 70Plant & Machine Operators & Assemblers F 0 0 0 0 0

M 57 0 0 0 57Elementary Occupations F 4 0 0 0 4

M 0Apprentices & Section 18(2) Learners F 0

M 0Non-Permanent Workers F 0

M 136 4 35 16 191

Total male & female F 4 2 2 7 15

Total 140 6 37 23 206

0% 20% 40% 60% 80% 100%

Legislators, Senior Officials & Managers

Professionals

Technicians & Associate Professionals

Clerks

Service Workers, Shop & Market Sales Workers

Skilled Agricultural & Fishery Workers

Craft & Related Trade Workers

Plant & Machine Operators & Assemblers

Elementary Occupations

Apprentices & Section 18(2) Learners

Non-Permanent Workers

Unicell 2004

Percentage Employment by Race

Total = 206

African Coloured Asian White

74

Green Tissue and Janjirker Paper Mill

The Aziz family own Green Tissue, a tissue converter, in Beaconvale, Cape Town. The facility currently converts 10,000 tonnes/yr of tissue into toilet paper, facial tissues and napkins, as well as making paper plates. The Aziz brothers plan to install a diaper line, a feminine hygiene products unit and a pocket handkerchief line at the plant in the near future.

The family also owns Janjirker Paper Mill that currently produces 4,000 tonnes/yr of tissue on one unit. They are sourcing a new tissue PM that they aim to install at their plant in Bellville, near Cape Town, by the end of 2005.

Green Tissue and Janjirker have a combined turnover of some Rand 83 million/yr.

Employment at Green Tissue42

Green Tissue Employment 2004 Category African Coloured Asian White Disabled Total

M 0 5 0 0 5Legislators, Senior Officials & Managers F 0 0 0 0 0

M 0

Professionals F 0

M 0Technicians & Associate Professionals F 0

M 0 0 0 0 0

Clerks F 0 6 0 0 6

M 31 5 0 0 36Service Workers, Shop & Market Sales Workers F 0 24 0 0 24

M 0Skilled Agricultural & Fishery Workers F 0

M 0

Craft & Related Trade Workers F 0

M 0 0 0 0 0Plant & Machine Operators & Assemblers F 0 26 0 0 26

M 0 0 0 0 0

Elementary Occupations F 0 1 0 0 1

M 0Apprentices & Section 18(2) Learners F 0

M 0

Non-Permanent Workers F 0

M 31 10 0 0 0 41total male&female F 0 57 0 0 0 57

Totals 31 67 0 0 0 98

42 Workplace Skills Plan, FIETA 2004 No data on Janjirker Paper Mill was available as no WSP was submitted. The Aziz family was unavailable for an interview.

75

0% 10%20%30%40%50%60%70%80%90%100%

Legislators, Senior Officials & Managers

Professionals

Technicians & Associate Professionals

Clerks

Service Workers, Shop & Market Sales Workers

Skilled Agricultural & Fishery Workers

Craft & Related Trade Workers

Plant & Machine Operators & Assemblers

Elementary Occupations

Apprentices & Section 18(2) Learners

Non-Permanent Workers

category

Green Tissue 2004

Percentage Employment by Race Total = 98

African Coloured Asian White

76

Cape Waste Paper Pty Ltd

Cape Waste Paper is a privately owned, family run business that statered 21 years ago. When it began it was the only recycler in Cape Town. It supplies waste as raw material to SAPPI, Nampak and Mondi and uses some in its own tissue mill. Recently with the strong rand there has been less demand for waste pulp as exports in recycled finished goods have dropped. Cape Waste has began exporting its surplus waste to India, Indonesia and China. Of the 66 000 tonnes of waste pulp produced, 18 000 tonnes were exported in 2003. The company owns 2 tissue mills TOPCO in Tongaat and SA Tissue in Pietermaritzburg, that produces 12 000 tonnes a year and employs about 40 people. It is looking to invest in two more tissue mills in the near future. The company employs 176 people in total. The collection of the waste paper is subcontracted out and there are about 110 vehicles involved in this and it supports about 300 people. 43

Cape Waste Employment 200444

Category African Coloured Asian White Disabled Total

M 0 0 0 3 3Legislators, Senior Officials & Managers F 0 0 0 0 0

M 0

Professionals F 0

M 0Technicians & Associate Professionals F 0

M 0 0 0 0 0

Clerks F 0 0 0 3 3

M 0Service Workers, Shop & Market Sales Workers F 0

M 0Skilled Agricultural & Fishery Workers F 0

M 0

Craft & Related Trade Workers F 0

M 7 17 0 1 25Plant & Machine Operators & Assemblers F 0 2 0 0 2

M 14 7 0 0 21

Elementary Occupations F 13 21 0 0 34

M 21 24 0 4 49Apprentices & Section 18(2) Learners F 13 23 0 3 39

M 0

Non-Permanent Workers F 0

M 42 48 0 8 0 98

total male & female F 26 46 0 6 0 78

Totals 68 94 0 14 0 176

43 Interview with Managing Director of Cape Waste Mr Nick Van Wyk 44 Data sourced from workplace skills plans, 2004 FIETA

77

0% 20% 40% 60% 80% 100%

Legislators, Senior Officials & Managers

Professionals

Technicians & Associate Professionals

Clerks

Service Workers, Shop & Market Sales Workers

Skilled Agricultural & Fishery Workers

Craft & Related Trade Workers

Plant & Machine Operators & Assemblers

Elementary Occupations

Apprentices & Section 18(2) Learners

Non-Permanent Workers

ca

teg

ory

Cape Waste 2004

Percentage Employment by Race

Total = 176

African Coloured Asian White

78

New Africa Packaging (PTY) LTD – T/A GENPAK

GENPAK Employment 200545

Category African Coloured Asian White Disabled Total

M 0 0 4 0 4Legislators, Senior Officials & Managers F 0 0 1 0 1

M 0Professionals F 0

M 1 0 1 0 2Technicians & Associate Professionals F 0 0 1 0 1

M 1 0 0 0 1Clerks F 0 0 0 1 1

M 1 0 1 1 3Service Workers, Shop & Market Sales Workers F 0 0 0 2 2

M 0Skilled Agricultural & Fishery Workers F 0

M 0Craft & Related Trade Workers F 0

M 19 0 0 0 19Plant & Machine Operators & Assemblers F 0 0 0 0 0

M 17 0 0 0 17Elementary Occupations F 1 0 0 0 1

M 39 0 6 1 46Apprentices & Section 18(2) Learners F 1 0 2 3 6

M 0Non-Permanent Workers F 0

M 78 0 12 2 92Total male & female F 2 0 4 6 12

Total 80 0 16 8 0 104

Actual Payroll R 2 259 428 (2004)

45 Data sourced from workplace skills plans, 2005 FIETA, no other information was available.

79

Other Companies

Pulp United

Pulp United is a joint venture between South Africa's NCT Forestry Cooperative46 and the Swedish market pulp producer, Sodra Cell. Södra Cell, like NCT, is a timber co-operative servicing some 35,000 members. Pulp United is undergoing a feasibility study to build a 300,000 tonne/yr pulp mill in South Africa and an investment decision is expected by the end of the third quarter 2005. The firm is studying potential sites in Richards Bay and elsewhere in the KwaZulu Natal region, as well as technology for the eucalyptus-based bleached chemi-thermomechanical pulp plant. Pulp United has short-listed two suppliers and expects to receive tenders in May or June. The pulp plant's raw materials would be supplied by local forest owners and members of NCT. The mill could start up as early as the third quarter of 2007.

Lothlorien (Pty) Ltd

Lothlorien runs a small paper mill that produces tissue from waste paper that is collected through the companies collection branches located in all major centres in South Africa. The company is installing a 35,000 tonne/yr twin wire testliner machine at its containerboard mill in Alberton, near Johannesburg and will start production by April/May 2005. The equipment will double the plant's existing capacity.

Crystal Paper Group

Crystal Paper owns several small tissue mills in Heidelburg, some 40 km south of Johannesburg. The subsidiaries, Egoli Tissue, Crystal Paper Mills and Paper and Pulp Industries have a combined capacity of 14,000 tonnes/yr. Crystal Paper also has two converters, Universal Tissue and Crescent Packaging, in Heidelburg. Universal Tissue processes 12,000 tonnes/yr of tissue into toilet paper,

46 See forestry companies

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Legislators, Senior Officials & Managers

Professionals

Technicians & Associate Professionals

Clerks

Service Workers, Shop & Market Sales Workers

Skilled Agricultural & Fishery Workers

Craft & Related Trade Workers

Plant & Machine Operators & Assemblers

Elementary Occupations

Apprentices & Section 18(2) Learners

Non-Permanent Workers

Category

GENPAK 2004

Percentage Employment by Race

Total = 104

African Coloured Asian White

80

napkins, handkerchiefs, facial wipes and away-from-home products, while Crescent Packaging converts 5,000 tonnes/yr of containerboard into corrugated packaging, but has a capacity of 12,000 tonnes/yr.

The Dosani family manages the group via a London-based holding company. The clan also has other business interests in the UK and in Malawi.

The Crystal Paper Group is building a new paper and board mill in Wadeville, Johannesburg. The $15 million facility will house a 6,000 tonne/yr tissue machine and an 18,000 tonne/yr cartonboard and coreboard unit.

The group has completed civil works for the plant and will start production on the tissue machine, P4 in April 2005. Installation of the board unit, has begun and should be completed in January 2006. PM 4 is a second-hand Toscotec machine imported from Europe, while PM 1 is an old Voith Paper unit picked up overseas.

Gardenia Paper Products

Gardenia manufactures 7,000 tonnes/yr of tissue at a facility in Roslyn, near Pretoria, with most of the output converted on site into toilet paper. Gardenia Paper Products has also started up a 7,000 tonne/yr tissue machine at a new mill in Kagiso, near Johannesburg. The second-hand unit began production in December 2004. The firm plans to bring a second 7,000 tonne/yr tissue PM online at the site in mid-2005 or early 2006.

Rafalo Paper Mills and Correll Tissue

Rafalo Paper Mills has a 11,000 tonne/yr tissue facility in Durban. It is building a new deinking plant at the facility to start up in February or March 2005, boosting the quality of fiber produced and doubling its tissue output in the future. The investors behind Rafalo also own Correll Tissue, which is located close to the Rafalo mill and converts all of its output into toilet paper and industrial wipes.

Hygienic Tissue Mills

Hygienic Tissue Mills (HTM) is a family-owned firm based in Pietermaritzburg. The company produces 1-ply bathroom tissue (500 sheets/roll) on two fully automated PCMC converting lines with a Hayssen packer. Products are sold under the brand names Ultra Fresh and Best Tissue. The capacity of the converting plant is 35 tonnes/day wadding. HTM also makes its own cores.

The company currently buys jumbo rolls from Kimberly-Clark South Africa but is set to begin producing its own tissue paper in May/June 2005. HTM is assembling a Valmet twin-wire tissue machine, the 65 tonne/day will nearly double the capacity of the converting plant, HTM aims to export some output to converters elsewhere in Africa. HTM's managing director is Yunus Essa. With the new tissue mill set to have

South African Paper Mills

South African Paper Mills (SAPM) currently manufactures 6,000 tonnes/yr of kraft paper in a weight band of 40-165 g/m². Output is sold as jumbo reels and later processed into wrapping paper, packaging paper, envelopes and exercise book covers. The firm's owner-manager is Anesh Madaree.

81

SAPM is set to enter the corrugating materials sector in 2005 with a new containerboard machine at its mill in Durban. The 18,000 tonne/yr unit, PM 4, is slated to start production of 80-230 g/m² testliner and recycled fluting by the end of the month.

The privately-owned company aims to commission another small unit in January next year. The 17,000 tonne/yr PM 3 will manufacture kraft paper in a 40-120 g/m² basis weight range. Both machines are second hand: PM 4 came from a Stora Enso mill in Sweden, while PM 3 was acquired from an unnamed location in Germany.

Ligia Paper Industries

The new Ligia Paper Industries tissue plant was inaugurated on July 28 2004. The mill is owned by China's Chang An Industry and is located in Welkom. Ligia Paper Industries' two paper machines can produce a total of 15 tonnes/day of tissue from recycled fiber. Output from the two PMs is converted onsite into toilet paper, kitchen rolls and napkins, depending on orders. The Free State Development Corp. provided Rand 6.8 million ($1.1 million) in grants to the Rand 15 million project.

Alex White Holdings

Ltd This holding company is involved in the printing and packaging industry. Major shareholders include S A Mutual Life Ass Soc, Kane TP, Kay PD, Kane PJ, Kane R, Brunner HV, Didaxs Holdings AG, Kane S. Alex White & Co (Pty) Ltd was established in 1913 and the division has concentrated on sheet fed litho printing and has established itself as a leading specialist printer. Pharmaceutical Publishers was acquired by Alex White and Company in 1995. Cape Wrappers (Pty) Ltd was founded in Paarl in 1951. Initially producing fruit wrappers and bottle wrappers, the company gradually expanded into other areas of flexible packaging and was acquired in 1982 by Alex White Holdings. The company is listed on the JSE.

Consol Limited is an industrial company with activities in the packaging and rubber sectors. The packaging division manufactures and markets glass, plastic and paper packaging and glass tableware. It also mines and processes industrial minerals. The rubber division was disposed of in January 1997. Anglovaal Industries Limited is Consol's holding company with a 60.6% interest in the share capital of the company.