Sunday, 27 April 2014

MIS last rites

Reports suggest New Forests has bought Gunns’ assets (not including the pulp mill site and permits) for $330 million.

In all likelihood this means Gunns’ land plus the trees growing on the land. Some of the trees however belong to MIS investors and joint venture partners.

Court proceedings have been underway for some time to get court approval for the amount to be split to the tree growers.

It won’t all end up with the hedge funds or whoever now owns Gunns’ bank debt.

Joint venture partners will get some and some will go to the MIS growers. Korda Mentha also will undoubtedly clip the ticket.

According to pre sale information released by PPB Advisory, Gunns’ Liquidator,  approximately 200,000 hectares of freehold land located in Tasmania was offered for sale, of which 50% is planted with trees.

Of those trees:

·       approximately 56,000 hectares of the planted trees relate to the Gunns’ MIS Schemes;

·        approximately 30,000 hectares of planted trees are owned by Gunns  in its own capacity;

·       and approximately 6,500 hectares of trees are owned by a joint venture, Tamar Tree Farms (TTF), 62% of which is controlled Gunns and 38% controlled by a third party;

This is what New Forests has probably bought.

Other freehold assets for sale were the port facilities at Burnie and Tamar, woodchip mills at Hampshire and Tamar,the Somerset nursery and Ridgeley research lab. News reports suggest New Forests bought the Burnie port facilities as part of the $330 million deal, but as yet there has been no mention of the other facilities. ( 29th April:New Forests have since confirmed these assets formed part of the deal).

Also for sale was approximately 165,000 hectares of leasehold land located in Tasmania of which:

·       approximately 27,000 hectares of the planted trees relate to the Gunns’ MIS Schemes

·       approximately 8,000 hectares of planted trees are owned by Gunns  in its own capacity.

It is doubtful New Forests has purchased any leasehold interest in land or trees.

The Receivers, Korda Mentha and Liquidator PPB Advisory will now need to negotiate with lessors. With considerable rental arrears it is doubtful lessors will pay much for the trees on their land.

For once lessors hold the upper hand.

Gunns’ MIS schemes also lease approximately 14,000 hectares of Crown land in Tasmania and those trees are likely to end up with Forestry Tasmania. The price is presumably still being negotiated.

Nothing is straightforward when Gunns is involved as there is more land and trees owned by two trusts Australian Forestry Plantations Trusts AFPT1 and AFPT2. Gunns own 30% of AFPT1 and 100% of AFPT2. The two trusts, in the hands of a separate Receiver McGrath Nicol, own approximately 22,000 hectares of land growing 12,000 hectares of plantations.

The Australian reported a possible sale price for AFPT assets of $45 million to an unnamed party (but not New Forests), which puts the land at $1,500 to $1,700 per hectare and the trees at $600 to $800 per hectare. Probably better quality than the MIS land and trees given Gunns had a direct interest.

The price paid by New Forests for the ex Great Southern MIS trees has now been revealed. Three years ago New Forests purchased  land from Great Southern’s liquidator, 279,000 hectares growing 106,000 hectares of MIS trees. The MIS schemes continued when Gunns foolishly opted to take over as Responsible Entity and saddle itself with more outgoings which only hastened its insolvency, eventually leading to New Forests acquiring the trees for $38.5 million in November 2013.

After fees to Korda Mentha, PPB Advisory and overdue fees to Great Southern's Liquidator the 40,000 Great Southern growers will be able to share $24 million, a return of 2% of their original outlay of $10,000 per hectare or just over $1 billion in total. Just enough for a celebratory stubby. Similar losses, not quite enough for Martin Ferguson and Jan Davis to categorically rule out future MISs, can be expected by Gunns' and FEA MIS growers.
New Forests are proceeding on the premise that about one-third of MIS land is suitable for continuing forest operations, one third is unsuitable and the jury is out on the remaining one third. How did foresters get it so wrong? The forest plantation estate will likely reduce by up to 50%.

New Forests are understood to be selling unsuitable land assets which may account for their website referring to 80,000 hectares of trees being acquired from Gunns’ Liquidator, winding up the old Great Southern schemes, not 106,000 hectares as advertised for sale. The implicit tree price is about $500 per hectare but this was a net price adjusted for rental arrears owing to the landlord, New Forests.

The $330 million purchase price for Gunns’ assets implies a land price in the range of $1300 to $1500 per hectare (for 200,000 hectares) and plantations worth about$600 to $700 per hectare (for about 100,000 hectares of trees).

These prices are likely to apply when  Forest Enterprises' (FEA) assets are finally sold. The FEA plantation setup is a little simpler; it didn’t grow trees in its own capacity only MIS trees on its land and land leased from third parties.

The Australian’s Bridget Carter reported New Forests may be eying off FEA assets.

“Final bids were believed to have closed last week for FEA, which comprises 97,900 ha of mature hardwood forests and 46,000 ha of land in NSW, Queensland and Tasmania.

It was expected to sell for a price somewhere between $200m and $400m and a buyer could be announced within weeks, if not days.”

Ms Carter has got it wrong. There are 97,900 hectares of land in three states growing 46,000 hectares of MIS hardwood plantations of varying quality, the oldest only about 13 to 14 years.

The all up price is unlikely to exceed $200 million.

In Tasmania there are still 16,000 hectares of FEA MIS plantations growing on FEA’s land and a further 8,500 hectares growing on leased land.

It wouldn’t surprise if New Forests acquired the freehold land and trees.

New Forests are investment managers and the trusts they manage on behalf of pension funds and other long term investors are well cashed up.

New Forests raised $490 million via the Australia New Zealand Forest Fund (ANZFF) in 2010 and $570 million via ANZFF2 in June 2013 which it has since topped up to $707 million.

ANZFF has acquired investments separately and also participates in joint ventures.

ANZFF is the owner of the Tasmanian 45,000 hectares of softwood plantations once owned by Forestry Tasmania.

The Forestry Investment Trust FIT a joint venture between ANZFF (27%) and AIMCo (73%) (Alberta Investment Management Corporation, a Canadian pension fund) acquired, as mentioned above, the Great Southern land and recently the MIS trees located on that land.

FIT has also bought land and subsequently 32,000 hectares of MIS trees located on that land from Elders.

ANZFF is also the lead partner in the Green Triangle Forest Trust GTFT which acquired 46,000 hectares of softwood plantations established by Auspine and subsequently sold to Gunns. GTFT supplies timber for the Tarpeena (in SA) sawmill now owned by Timberlink. Timberlink also owns the Bell Bay softwood sawmill built by FEA and owned by Gunns for a brief time.

Timberlink is believed to be 100% owned by ANZFF.

ANZFF2’s first acquisition a month ago was 21,000 hectares of plantation hardwoods in the Green Triangle. The Gunns’ acquisitions and the possible FEA purchases are likely to boost its portfolio.

The current sale of freehold forestry assets will signify a consolidation of the teetering industry and a transfer to long term forestry investors. The remaining trees growing on leasehold land, whether MIS trees or trees owned by Gunns itself, will likely revert to the lessors. Whether they remain in the forest industry is doubtful. Returns to tree owners from current crops have been or will be a pittance.

The hardwood plantation estate will shrink to 50% of its current size.

The MIS experiment has ended.


  1. Great article John. As you well know John, money corrupts just about everything including foresters.

    The MIS experiment may have ended, but history suggests that another forestry monster will rise from the ashes. The forest industry in Australia is in a state of transition, but what new form it will take is anybody's guess. I suspect that politics and dodgy business models will continue to play a part for many years yet.

  2. Trevor Burdon1 May 2014 at 10:55

    Thanks John. Do you have any thoughts on the reasonableness of the price achieved on the plantations, please? Obviously discounts apply to bulk purchases, but what are the approximate returns to a private grower selling a ha destined for wood chip today?. Are the figures of $9/t for 400 t/ha and hence $3600/ha in the ballpark?

    1. Looks pretty low but that may be the reality.

      One can deduce the price per hectare of the current plantations being sold but the big unknown is the yield. The age probably varies between 5 and 13 years. The average per hectare at this stage might only be 100 tonnes to the hectare. If New Forests are paying $500 per hectare that implies $5 per tonne.

      The woodchip price was $145, maybe it’s risen a bit lately to $170. But it takes 2 tonnes of green timber to make one tonne of dry woodchips, so that means $85 may be effective wharf delivered price for green plantation woodchips. Say $40 to $50 for harvesting and cartage, $10 to chip and $10 to $20 profit for the exporter doesn’t leave much for the grower.

      Maybe $9 per tonne is the going rate? That’s terrible seeing as 400 tonne per hectare sounds like a good crop.