Sappi declares force majeure at its big Vulindlela expansion project

• Contractors and suppliers are told of controlled closure as SA prepares for 21-day lockdown

Sappi, the world’s largest manufacturer of dissolving wood pulp, has halted its R2.7bn expansion project at its Saiccor Mill in KwaZulu-Natal because of the coronavirus outbreak.

SA will be on nationwide lockdown from Friday until mid-April as part of efforts to curb local transmission of the virus.

The company declared force majeure, which is a legal defence that allows it to avoid liability for failing to meet contractual obligations due to an unexpected event.

Sappi said in 2018 that the overall project referred to as Vulindlela included a R2.7bn investment in new capacity at Saiccor and a planned R5bn investment over five years in various improvement initiatives and upgrade projects.

At the peak of the project, there would be between 2,500 and 2,800 contractors on site at any one time.

The group has informed suppliers and contractors of its decision to cease work, and the expansion project is undergoing a controlled shutdown.

The project was 65% complete and materially on track, the group said in a statement.

“Sappi does not expect any material cost increases from the declaration of force majeure, and future cash flows will be aligned to the revised project timelines,” the statement read.

Sappi spokesperson André Oberholzer said on Wednesday that the outbreak of the coronavirus had so far had “very little” impact on the company’s operations. Sappi has operations in more than 20 countries in Southern Africa, Europe and North America.

“Across all three regions [the operations] continue to produce and deliver to customers. Our one small mill — 60,000 tonnes per annum — in Italy [Condino Mill] has temporarily shut to protect the health and safety of our staff,” he said.

Oberholzer said the group had increased health and safety systems and procedures at all its operations, and many staff are working from home. “We are guided by local government requirements,” Oberholzer said.

He said the company — which makes wood pulp products that are used mainly by converters to create viscose fibre for fashionable clothing and textiles — opted to declare force majeure “based on realities around the project and government’s decision that construction work should end in line with the 21-day shutdown”.

Oberholzer said Sappi had embarked on a planned shutdown in consultation with project contractors.

“We will recommence once government guidance allows for this and it is practical to do so. The contractors will ensure that they are ready to return and continue. The declaration of force majeure has no material cost implication for the project,” he said.

Oberholzer said that the declaration of force majeure would have no effect on Sappi employees.

“The majority of project staffing is, however, contractor staff. We cannot speak for them beyond that they need to ensure that they are able to deliver service with the correct staff once the project recommences,” he said.

Faced with weak prices in the dissolving wood pulp and graphic paper markets, Sappi CEO Steve Binnie in February said the company would not commit to big new projects other than the upgrade of the Saiccor mill.

The share price of Sappi, which has a market capitalisation of R11.4bn, was up 8.69% at R20.88 on Wednesday.

WE WILL RECOMMENCE ONCE GOVERNMENT GUIDANCE ALLOWS FOR THIS AND IT IS PRACTICAL TO DO SO