Shiver me tim­bers

Mondi’s model for land claims

Finweek English Edition - - COMPANIES&MARKETS - SHAUN HAR­RIS shaunhar­ris@ya­

LAND CLAIM SET­TLE­MENTS can be a del­i­cate process, es­pe­cially for the own­ers of large tracts of land. On the one side is Gov­ern­ment, which is meant to be pay­ing the owner for the land, and on the other side the new own­ers, of­ten ru­ral com­mu­ni­ties, who are happy to rent the land back to its for­mer own­ers for some form of in­come agree­ment.

In KwaZulu-Na­tal the big land own­ers are play­ers in the tim­ber and pa­per in­dus­try, largely Mondi and Sappi, and the sugar in­dus­try, in­clud­ing Illovo Sugar, Ton­gaat Hulett and Crookes Brothers. Some might re­mem­ber what hap­pened to Crookes Brothers a few years ago. It will­ingly agreed to sell a sugar es­tate and reached an agree­ment with a few com­mu­ni­ties on a deal to rent back the land and con­tinue plant­ing sugar cane. But the Gov­ern­ment depart­ment at that time just didn’t pay, say­ing its bud­get had run out. Though it fi­nally did pay a year later af­ter its new bud­get was al­lo­cated, it put Crookes Brothers un­der some cash flow strain.

Un­for­tu­nately, that’s the dan­ger when deal­ing with Gov­ern­ment. “It’s clear Gov­ern­ment has bud­getary con­straints and at times we battle. But we’re re­ceiv­ing money for our land claim set­tle­ments,” says Mondi CEO David Hathorn. He was com­ment­ing on the 11 suc­cess­ful land claim set­tle­ments Mondi has con­cluded, which in­clude the pro­vi­sion of post-set­tle­ment sup­port for the com­mu­ni­ties in­volved. Mondi’s model is based on the sale of the land and lease­back ar­range­ments, to­gether with em­pow­er­ment re­quire­ments, for the com­mu­ni­ties in­volved.

“With this agree­ment, Mondi has ef­fec­tively en­sured the set­tle­ment of 40% of all claims to its land coun­try­wide and the vast ma­jor­ity of out­stand­ing claims in KwaZulu-Na­tal,” says Mondi chair­man Cyril Ramaphosa. “That’s se­cur­ing the fi­bre sup­ply into our mills.”

The agree­ment is be­tween Mondi and SA’s Depart­ment of Ru­ral De­vel­op­ment and Land Re­form to try and en­sure ex­pe­di­tious set­tle­ment of land claims and the pro­vi­sion of post-set­tle­ment sup­port. Mondi still has 22 “known claims” in KwaZulu-Na­tal and 39 in Mpumalanga. While the 11 set­tled claims in KwaZu­luNatal have been suc­cess­ful, Hathorn says the process has some­times been “er­ratic and un­pre­dictable” for all par­ties. “In par­tic­u­lar, post-set­tle­ment sup­port has lacked clar­ity with re­spect to con­tent, roles and re­spon­si­bil­i­ties, fund­ing mech­a­nisms and risk-shar­ing.”

But while the set­tle­ment of land claims is a nec­es­sary process in SA, what are the fi­nan­cial im­pli­ca­tions for Mondi? Is it af­fect­ing re­turns to share­hold­ers, par­tic­u­larly over­seas, where Mondi is dual-listed on the Lon­don Stock Ex­change? Do for­eign share­hold­ers un­der­stand, or care about, land claim set­tle­ments in SA?

“For re­turn on equity, it’s pretty neu­tral,” says Hathorn. “We rent the land back and run it like be­fore. It’s a good model from Mondi’s point of view, pro­vid­ing good value. It’s also good for the com­mu­ni­ties in­volved, giv­ing them a means of gen­er­at­ing in­come and other ben­e­fits.”

Apart from earn­ing in­come from the land they now own, lo­cal com­mu­ni­ties are also em­ployed as far as pos­si­ble to help man­age the forests and act as fire­watch­ers. Rentals in­clude a stumpage fee to en­cour­age peo­ple not to cut down trees for fire­wood, a prob­lem Sappi had with one of its land set­tle­ment claims. Ul­ti­mately, the agree­ment is aimed at the pro­gres­sive in­volve­ment of com­mu­ni­ties in the forestry in­dus­try, pos­si­bly lead­ing to a new gen­er­a­tion of tim­ber farm­ers.

But what’s to stop a ri­val tim­ber group, such as Sappi, com­ing along and of­fer­ing com­mu­ni­ties a slightly bet­ter deal, thereby gain­ing ac­cess to Mondi’s tim­ber sup­ply?

“They can’t,” says Hathorn. “It’s part of the long-term agree­ment we have signed with the com­mu­ni­ties.”

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