Criterion African Partners has completed a $10.5 million investment into Mozambique Fibra, a subsidiary of South Africa-headquartered Mozambique Tree Farming with plans for a wood chip export facility.
Bethesda, Maryland-headquartered CAP made the investment into MozFibra in December, which was founded by a pair of South African entrepreneurs with experience at South Africa’s NCT Forestry Agricultural Co-operative Limited. NCT Forestry is a supplier of wood chips to global export markets and domestic buyers including South Africa Pulp and Paper Industries and Mondi, a packaging and paper supplier headquartered in the UK that operates in South Africa.
Plans for MozFibra include eucalyptus plantations in the Sofala and Manica provinces of central Mozambique managed by its Investimento Florestal Mozambique unit. The company also plans construction of a wood chip facility on land it already owns adjacent to the nearby port of Beira.
CAP managing director Jim Heyes told Agri Investor he has been aware of MozFibra and the plans of its South African-born founders for about 10 years. Although the project was previously too greenfield for CAP and a volatile political situation in Mozambique made investing there difficult, Heyes added, he was very impressed by the team’s progress after reconnecting with them about a year ago.
They had planted 7,000ha over 10 years at a low per hectare price and the political situation within Mozambique has improved, said Heyes.
“A problem with a lot of the forestry companies in Africa is that they’ve started with the trees, then what to do with them. These guys really started with the market thesis and acquired the land and the port to be able to access the global wood chip market. It’s a really well thought-through and sequenced overall strategy,” said South Africa based Heyes, who spent 10 years at Global Environmental Fund (GEF) (from which CAP spun out) before joining CAP in 2017, according to his LinkedIn profile.
“Other companies have made that mistake, have planted the trees – including for global pulp markets – and not secured the logistics and now are suffering.”
MozFibra’s plans call for planting up to 20,000ha of timber and the construction of a wood chip mill expected to be operational by 2026.
Heyes explained that while there is some use of wood chips for energy among companies looking to reduce dependence on natural gas, the company’s main customers will be from pulp and paper markets in which Chinese companies have replaced Japanese firms as the dominant customer base, while some European companies have turned to Southern African suppliers in recent years.
“It’s a product that’s part of a global commodity and one that has very good fundamentals. The global demand for wood fiber is increasing and the supply is constrained,” he said.
CAP’s investment is designed to support MozFibra continued growth, Heyes explained, adding the firm intends to help the company raise the additional capital necessary to complete construction of the wood chip mill.
“Growing wood fiber for wood chips is a shorter rotation, than some of the other forestry products, so the cycle to positive cashflow is shorter, which is good when you are planting trees. It’s a dollar market, so you get away a little bit from some of the foreign exchange currency risks that many of our investments have faced,” he added.
CAP was established in 2017 as a spinout from Bethesda, Maryland-headquartered GEF and manages $275 million across two funds. In April, it collaborated with Dutch development bank FMO on an investment into Merensky Timber, a South African timber products company that previously operated as a subsidiary of Harvard Management Company backed avocado producer Westfalia Fruit International.