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Sappi to mothball PM4 at Tugela mill in South Africa from Jan. 1, 2013

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Sappi to mothball PM4 at Tugela mill in South Africa from Jan. 1, 2013

October 11, 2012 - 23:44

DURBAN, South Africa , Oct. 12, 2012 (Press Release) -Sappi Southern Africa today embarked on an official Section 189 engagement process with staff at its Tugela Mill in Mandeni on the KwaZulu-Natal North Coast regarding its decision to mothball the PM4 paper machine from 01 January 2013. In total just over 400 staff have received Section 189 notices, although the eventual number of positions that will be impacted by the mothballing of PM4 will be substantially lower. This will only be known at the conclusion of the consultation period of 60 days. Sappi remains committed to its approach that retrenchments are a last resort, and as such will work with staff to investigate options to minimise retrenchments.

Despite on-going corrective actions and interventions to address increased energy, labour and raw materials costs, the Tugela Mill has not delivered acceptable financial returns over the past number of years. In recent times the competitiveness of the mill has further been challenged by overcapacity in the local paper market, an influx of imported products, weak demand for certain papers and depressed selling prices.

Initial actions taken during 2011 and 2012 to return Tugela Mill to profitability, included closing one paper machine (PM3), closing down the KCD (Kraft Continuous Digester) pulp circuit, right-sizing the mill to service the remaining assets and ceasing the production on PM4 of Sackkraft products, many of which will be moved to Sappi's Enstra Mill. PM 4 is currently manufacturing lightweight containerboard products which have been very well received by the market, however the current cost structure and market conditions do not allow PM4 to operate profitably.

This decision will enable Tugela Mill to reposition its cost structure and ensure the sustainability of its other paper machine (PM2) which produces a range of fluting and liner products.

Sappi is confident, given current market conditions, that sufficient capacity exists to meet all local containerboard requirements. No disruptions in supply to customers are anticipated as a result of this decision. Sappi believes that when market conditions improve it will be in a position to restart PM4.