The contribution of koala bears to the SA paper industry

The name Cecil John Rhodes is so intrinsically linked to the diamond industry that it’s a little known fact that by the time Rhodes actually got to Kimberly in 1871, there were already around 50,000 people there. How did he, out of those 50,000 people, emerge to be the chairman of De Beers, still the world’s largest diamond company?
The short answer is, it didn’t happen overnight; he was deft and creative and an extraordinary mover and shaker. He was also helped by his ice machine. He and his partner Charles Rudd bought an ice machine in London, brought it to Kimberly and sold ice to the miners. They did a roaring trade because Kimberly is searingly hot at the best of times.
How much of a difference the ice machine made in Rhodes’ ability to buy up all the rival claims at Kimberly is not clear, but it falls into the category of the “picks and shovels” theory of business.
This theory is that the big money seldom derives from the most obvious source, in this case, diamonds. At the original gold diggings in the US, for example, the people who made the most money were not the gold miners, but those who sold picks and shovels to the gold miners.
What happens is that competition drives down margins in the main business, particularly if it’s very visible and obvious. Yet, precisely because it’s so visible – and often there is an investment mania surrounding the main business – the businesses that supply the main business is where you want to be.
So, about paper.
SA’s two paper producers, Sappi and Mondi, just released their quarterly and half-yearly results respectively, and they are both absolute blow-outs.
Mondi’s earnings were up 28% off a pretty high base, and Sappi’s doubled compared to last year. Because Sappi and Mondi are both SA paper companies, and their names both end with an “i”, I suspect lots of people think they do more or less the same thing: make paper.
But actually, they are in completely different markets, and paper doesn’t have a lot to do with it anymore, with Mondi focused on packaging and Sappi in a range of paper products, but increasingly in clothes. Yes, clothes. More on that a bit later.
The “picks and shovels” analogy really applies to Mondi, because packaging is to the internet delivery market what shovels were to the gold industry. Of course, the paper ...