Mpact, the largest paper and plastics packaging business and recycler in southern Africa, said on Thursday that it had got the green light for a R1.2 billion capital investment project at its Mkhondo paper mill in Mpumalanga.
In intraday trade Mpact’s shares slid 2.33%to R28.50, having fallen 11.58% in a year.
The investment was in line with Mpact’s strategy to pursue organic growth and was “expected to create significant value for shareholders and other stakeholders”, the company said.
“It also forms part of the group’s portfolio development and will strategically position the Mkhondo mill to meet the increasing demand for quality, sustainable fresh produce packaging solutions, driven by robust growth in the South African export fruit sector,” Mpact said in a statement.
Mpact chairperson Tony Phillips said: “Our R1.2bn investment into the Mkhondo mill demonstrates our strong belief in the growth prospects of particularly our fruit exporters who need our container board, and Mpact’s successful investment and project management track record.
“What’s exciting is that the improved mill also gives us the technical flexibility to expand into new markets by producing pulp by-products for the industrial market such as the SLS (sodium lignosulfonate) powder, most of which we will sell into the export market. As always, we invest to generate value for our shareholders through prudent capital allocation that sustains our growth and allows us to return cash to shareholders via dividends and share buybacks as appropriate.”
Repositioned to become a predominantly virgin fibre mill, with an enhanced and flexible product range, the Mkhondo mill would benefit from improved cost competitiveness and reduced environmental footprint while enabling it to respond to the strong domestic and international demand for high quality semi-chemical fluting, it said.
“The approval of this project highlights the Mpact board’s confidence in the growth prospects of the South African fresh produce sector as well as Mpact’s proven track record in enhancing its assets, as demonstrated through projects such as the successful R800 million upgrades to the Felixton paper mill, which was delivered on time and within budget,” the company said.
The project included improvements to the paper machine and upgrades to the pulping section, which would increase the wood pulping capacity by approximately 55 000 tons per annum to 110 000 tons.
“This will enable the migration to a higher proportion of Bayplex production with improved properties, enhancing Mpact’s ability to meet growing customer demand. The paper machine capacity will increase by approximately 10 000 tons per annum to 142 000 tons,” it said.
Bayplex is required to produce corrugated cartons for cold-chain applications.
In addition, a new spray drying facility would be installed at the mill to beneficiate the additional by-product generated from the wood pulping process by producing up to 35 000 tons of sodium lignosulfonate (SLS) powder, primarily for export sales. SLS powder is widely used as a concrete additive in the construction industry, among other applications.
Start-up of the project was planned for the first half of 2025.
“The project is estimated to generate an internal rate of return in excess of 20%. The strong operating cash flow profile of the existing business allows Mpact to fund this project along with other potential high yielding opportunities through borrowings, while being able to maintain current covenant levels. This investment of R1.2bn is expected to result in the group’s borrowings peaking in 2024,” Mpact said.
In August, Mpact stated in its results for the six months to June 30 that it has set aside R500 million in new investments to build three new factories and increase renewable energy capacity.
The new investments included a bulk plastics plant in Gauteng, a recycling facility in North West and a large recycling warehouse and handling facility in KwaZulu-Natal, while the group’s solar energy capabilities would be increased to 10.5 megawatts from 4MW.
Its underlying earnings per share were up sharply to 121c from 9c in the same period last year. Headline earnings a share increased by 112.1c to 120.5c.
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