Friday Offcuts – 16 March 2012

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With all that Tasmania's been through recently, last week’s late withdrawal by New Zealand billionaire Richard Chandler from the AU$150 million investment in Gunns was a bitter pill to swallow. It's tough on the company. It’s just as tough on the investors, on the wider Australian forest products industry, the local community and for the State. There’s still conjecture at the moment as to whether the recent "orchestrated and well-funded" campaigns of conservation groups led in the end to RCC's decision not to buy in.

The company’s planned AU$2.5 billion pulp mill project at Bell Bay in Tasmania must now be up in the air and the future direction of the company according to some analysts is still unclear. Gunns Managing Director Greg L'Estrange has said that despite this setback that the company "remained confident" that the mill would still proceed but he did leave the door open to selling the project. A new capital raising strategy is being worked on by Gunns to reduce the company’s debt and they’ve continued to remain confident with negotiations reportedly still underway with a new institutional investor. Monday next week the trading halt is lifted and we should know a little more.

This week the two-yearly market update for leading forestry and financial companies from across Australasia, Future Forestry Finance 2012, was completed. The Australian leg of the series ran in Sydney on Tuesday and Wednesday. This week we have a short wrap up on this Australasian series and a story on forestry and investment comparisons between the two powerhouses of Latin American forestry, Brazil and Chile and Australasia. We plan on bringing you some of the other key points that came out of the discussions in future issues of Friday Offcuts.

Interest in the Wood Preservation technology update planned for New Zealand and Australia is also strong with the last independent update run three years ago. Changes to the industry, nationally and internationally, since then have been significant and a raft of complementary manufacturing processes, new formulations and wood products have since 2009 been designed. Remember several industry initiatives and meetings are planned around the series. Generous discounts are also being offered to members of a number of industry associations in both countries who are supporting this event. Full details on this latest programme can be found on

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Investor withdraws support for Gunns

Gunns shares were placed in a two-day trading halt on Friday last week at the request of the company, after it announced that the Singapore-based Richard Chandler Corporation (RCC) had decided against investing in Gunns.

RCC had been undertaking a process of due diligence to assess the possibility of investing AU$150 million and taking a 39% stake in Gunns. The investment was to have been part of a proposed AU$280 million capital raising for Gunns that would have given the RCC a cornerstone stake in the company.

Gunns had announced the AU$150 million placement of securities to RCC and the AU$130 million rights issue on 8 February. At that stage, the commercial terms of the placement and the rights issue were non-binding, and RCC's subscription was subject to completion of due diligence.

Opponents of Gunns' AU$2.3 billion Tasmanian pulp mill on the back of the withdrawal of a cornerstone have declared the project dead. Analysts also said the future of the mill and Gunns itself was now in question, with the company's bankers potentially revisiting a deadline for repayment of its main AU$360m debt facility.

Later in the week Gunns extended its trading halt pending an announcement on a new capital raising strategy. In a statement to the stock exchange, Gunns said it will offer new shares to shareholders and is in negotiations with a new institutional investor. Gunns expected the suspension to last four trading days, with quotation of its securities to restart next Monday.

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Finance and forestry leaders meet in Australasia

Over the last two weeks FIEA hosted over 230 delegates at the Future Forestry Finance 2012 Conference series in Auckland and Sydney. The response from delegates was overwhelmingly positive on the information gained and the networks they made and strengthened over each of the 2-day conferences.

With a strong turnout from senior executives from the forest products industries of both countries at the two events – there was plenty of questioning of speakers and constant conversations during the lunches, breaks and over dinner. Each conference had tailored content to the specific issues facing each sector on both sides of the Tasman.

With subject matter ranging from a full session on Maori trustees’ issues in New Zealand, understanding forest products international trade in more depth through to issues in Australia such as community support at a regional level and nationally rebuilding credibility with other sectors post-MIS there were a large number of presentations and discussions as part of the series.

Delegate feedback has confirmed the continued need for these conferences to be held on a two yearly basis. The ever widening spread of delegates from related sectors such as finance and communities dependent on forestry meant that people attending the conferences had plenty of chances to make new contacts and develop their own personal and business networks.

FIEA thanks the delegates and speakers who made the events a real success and we look forward to building on their feedback from this month’s events to design and deliver an even more appealing series for 2014.

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Keeping an eye on machine fuel consumption

Fuel prices increasingly dominate machine costs. The Canadian research organisation, FPInnovations provides tips to control fuel costs. This guidebook is based upon the original report by I Makkonen (2004) titled “Saving fuel in mechanised forestry operations. The second edition is titled “In forestry operations: fuel economy counts”. The updated document covers the following areas:

• The factors that influence fuel consumption
• Improving forestry equipment fuel efficiency. This section briefly examines engine power, engine tiers (stages), the fan, the power train, differential lock, hydraulic systems and hydraulic oil coolers.
• What improves fuel economy? Many handy tips for operators.
• Fuel consumption of different types of forestry machines. The range of consumption values is provided for each type of logging machine.
• Measuring fuel consumption
• Biodiesel in forest operations
• Tips for reducing fuel consumption with different forestry machines

For further details click here

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Wood modification complements wood treatment

As detailed in a recent issue of Offcuts, in addition to WPC’s increasingly being used for decking, fencing products and other outdoor end-uses, wood modification is another treatment process that’s making its presence felt in this part of the world. Since 2008 a New Zealand company, Tunnicliffe Timber, has been using ThermoWood®- a heat treatment process developed in Finland - to modify NZ Radiata pine at temperatures of up to 230 degrees Celsius in a specially designed chamber. Another larger NZ forest products company has also installed a pilot plant and is looking at options for expansion.

Tunnicliffe Timber, recognising a niche for the heat treated wood, diversified and added the ThermoWood range to their CCA and LOSP treatment and other wood manufacturing operations. As part of Wood Preservation 2012 series running in mid-May, Tunnicliffe Timber will be outlining their journey on how and why they branched out into other alternate treatment operations.

Rather than being seen as a threat, there are real opportunities for local companies to diversify their current operations from the outset” says Brent Apthorp, FIEA Director. “Early adoption of new technology – formulations, treatment processes and new wood treatment technologies - provides companies with diversification. In most cases it complements existing operations and provides the company with an early competitive advantage.”

The production of WPC’s or the ThermoWood products are low capital, flexible and highly automated manufacturing operations that can complement other traditional wood treatment and processing operations. Key trends and issues highlighted in Wood Preservation 2012 are expected to have a major bearing on the future operation of Australian and New Zealand companies in the next few years.

Wood Preservation 2012 will run in Rotorua, New Zealand on 16-17 May and again in Australia, on 23-24 May 2012. Presenters from Australia, New Zealand, the US and Norway will be presenting as part of this new series. Full details including the programmes for Wood Preservation 2012 can be downloaded from the event website,

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EUR 250 million loan for forestry projects

The European Investment Bank has granted a EUR 250 million loan to the People’s Republic of China for forestry projects that contribute to climate change mitigation through carbon sinking and avoidance of greenhouse gas emissions.

According to the European Investment Bank, the proposed CFFL would be a multi-investment scheme under which the Bank would support several individual forestry projects across China that contribute to the forestry programme of the People’s Republic of China and that have the following two objectives: environmental and biodiversity preservation and improvement, climate change adaptation and mitigation.

This loan is being provided under the EUR 4.5 billion Energy Sustainability and Security of Supply Facility. This will be the first operation of its kind in China but will follow the same principles as the previous China Climate Change Framework Loans and have a similar structure.

The EIB has a well-developed track record of successful investments in afforestation, reforestation and forest-derived/wood-based industries, both in the EU and around the world. In total, approximately 100 individual investment loans have been handled by the Bank during the past 30 years, together with an estimated 9 000 smaller projects/allocations under Global Loans during the same period. The ElB's lending volume to forestry-focussed operations during 2010 approached EUR 1 billion, leveraging at least twice that amount of investment in the sector.


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Korea planting trees in Indonesia for carbon

Korea plans to receive 100 million tons of carbon emission credits over the next decade in return for planting trees on a 200,000-hectare plot of land in Indonesia. That amount of credits would normally cost W2.2 trillion (US$1=W1,116), or $20 per ton, but Korea will save more than W1 trillion through the tree-planting deal.

Park Jong-ho, an official at the Korea Forest Service, said, "Our government signed an MOU with the Indonesian government on 26 January aimed at preventing deforestation." This relates to a United Nations-led initiative called Reducing Emissions from Deforestation and Forest Degradation (REDD) in Developing Countries. Under the MOU, Korea will first plant trees in a 14,000-hectare area of rainforest in Indonesia's Sumatra region at a cost of $10 million.

"This is a pilot project, but we plan to expand the area of coverage to 200,000 hectares by 2020 and earn 100 million tons of carbon emission credits," Park added. Korea is not bound by any agreements or laws to reduce its greenhouse gas emissions, but plans to voluntarily reduce carbon emission levels by 30 percent by 2020.

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Comparing Australasia to Latin America forestry investments

Over the last two weeks leading forestry and financial companies have met in both Auckland, New Zealand and Sydney, Australia (finishing on Wednesday this week) to discuss investment opportunities, strategies and issues for the Australasian Forest Products sector. Around 230 delegates attended the latest FIEA series, Future Forestry Finance 2012.

Bob Flynn, Director International Timber with RISI spoke at both events and looked at the two leading South American forestry countries, Brazil and Chile, and the impact both have on competition in the market place for forest products and for investment capital.

Brazil and Chile dominate the forest industry in Latin America, accounting for 54 % and 17% of the total planted forest resource in the region. In 2010, Brazil and Chile accounted for 67% of wood products exports, 44% of paper exports and 90% of pulp exports from Latin America.

Combined, both South American countries have more pine plantations than New Zealand or Australia, and growth rates are higher. An interesting trend is the amount of forests in both Brazil and Chile that have been certified. Both countries have more than double the area of FSC-certified plantations as New Zealand or Australia. Brazil has more FSC certified forest than the rest of Latin America combined. In addition, Chile has 1.9 million ha of PEFC certified forest with Brazil having 1.3 million ha.

For investment, foreign ownership of plantation forests in Latin America has not changed in the last few years, and amounts to only 14% of total plantation area (compared to over 50% in Australia/NZ). In RISI’s 2012 Global Tree Farm Economics Review, they examined 104 case studies of possible investments, representing 30 species in 35 countries. Both New Zealand (3rd in Timberland Investment Attractiveness ranking) and Australia (4th) tended to score much higher than either Brazil (8th) or Chile (6th) in international benchmark ratings, and have been more attractive for international timberland investors as well.

This trend is picked up in the institutional ownership figures from 2011. Despite attractive growth rates and relatively high potential returns in Latin America, ownership of timberlands in New Zealand and Australia by institutional investors is 1.5 times greater than all of Latin America and this is expected to continue in 2012.

Detailed analyses of some of the global investment trends and future outlook for investors and forestry companies in this part of the world was given by key local and international presenters at this latest Forestry Finance series. Delegates from Auckland and Sydney will be able shortly to download all presentations, where presenter approval has been given, from the event website.

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South Island wood pellet plant closes

Nature’s Flame, a New Zealand Solid Energy business, has ceased wood pellet production at its Rolleston plant. The move does not impact on either the supply or pricing of Nature’s Flame wood pellets in the South Island.

Kerry Ellem, Nature’s Flame General Manager, says fuel from the Rolleston plant has for several years been supplemented by pellets made at the company’s North Island plants at Taupo and Rotorua. “Our distribution lines to South Island fuel retailers are well established, with a variety of transport modes,” he says. “Nature’s Flame is confident there is no risk to continued supply.”

Rolleston is the company’s oldest and smallest manufacturing plant and it does not make economic sense to upgrade it, Mr Ellem says. Substantial investment would be needed to maintain the plant’s reliability and health and safety standards and this could not be justified in a region where forestry was dwindling.

“Pine forestry is no longer a big industry in Canterbury. Land-use projections show that plantation forestry here and in the neighbouring provinces on the east coast will continue to shrink. Rolleston’s supplies of pine wood residues from sawmilling and timber manufacturing have been shrinking for some time, making our primary feedstock harder and more expensive to source and transport to the Rolleston plant.

“Our North Island plants are more modern, larger, and certified to produce pellets to the highest international export quality,” Mr Ellem says. “They are also right alongside the country’s largest concentration of plantation forestry and timber processing and, in terms of capacity, are more than capable of meeting any increase in fuel demand from New Zealand customers.”

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Bioenergy on show at AusTimber 2012

For the first time at AusTimber there will be a Bioenergy Precinct where some biomass-to-energy technologies in common use in other parts of the world can be seen. Information will be available on others. Further information will be available about the systems already being installed in Australian timber industry or processing.

The coincidence is that Mt Gambier is the site of the last wood biomass-fuelled combined heat and power plant (CHP) in Australia, which ceased producing electricity in the early 1990s. Soon it’s likely that we’ll see many of this sort of biomass-fuelled energy plant opening up again across regional Australia. Supplying them will provide a profitable use of forestry and timber industry wastes and residues. Within the same biomass-to-energy sector will be the supply of smaller volumes of chipped residues for institutions and industry, and production of pellets for household space heating. In Australia up to 40% of overall energy requirement is as heat energy.

An example of the Finnish-made Veto chip-fuelled boiler is on show. This system is suitable for heating larger houses, or schools, hospitals or commercial premises. The available outputs range from 30-700 kW. The system on show is a smaller model from the Veto range, imported by David Matuschka, well-known as the importer of Karasaws.

Across the world many companies are pursuing the ‘holy grail’ of turning wood waste into electricity at smaller scale and cost-competitively with coal-fired power plants. While companies in Germany, Finland, the USA, Belgium and China are working on gasifier prototypes or producing small numbers of small gasifiers it is presently in India that hundreds of gasifiers are in regular use.

At the Bioenergy Precinct will be a small Ankur 10 kilowatt electrical output (10 kW-e) gasifier as used in about 150 Indian villages to power minigrids using agricultural and forestry waste. Larger gasifiers being used by industries to produce heat, or heat and electricity, have outputs of up to 500 kW-e, or all the electricity needs for 500-750 average Australian households.

A major function of the Bioenergy Precinct will be to provide information, including on costs, rates of return and pay back periods for various bioenergy technologies. Helping to provide this information will be Liz Hamilton, Senior Bioenergy Officer with the Victorian Department of Primary Industry. Liz is also the driving force behind the Victorian Bioenergy Network, which regularly brings industry and government members together to share information and educate each other.

Also at the Precinct will be Andrew Lang, a board member of the World Bioenergy Association. Andrew has good knowledge of developments in bioenergy around the world and also about the equipment used in Scandinavia for harvesting and handling biomass. Both Liz and Andrew have used Gottstein Fellowships to study bioenergy development in North America and Scandinavia respectively, and will be happy to talk about bioenergy developments in Australia and elsewhere.

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Forestry sponsor puts weight behind Rugby League

As a strong supporter of the forestry industry through their association with the Forest Industry Contractors Association (FICA), PIRTEK New Zealand Ltd is pleased to announce that it will be re-joining New Zealand Rugby League as principal sponsor.

Pirtek, a worldwide supplier of Hydraulic & Industrial hose and associated fittings has long been a supporter of Rugby League and were sponsors of the Kiwis during their successful 2008 World Cup campaign.

Signing the three year sponsorship agreement, Chris Bourke of Pirtek NZ said, “The game has achieved new heights in recent years and we are very proud to once again be associated with rugby league in New Zealand”.

Jim Doyle, NZRL CEO said “We’re really pleased to have Pirtek join our family of sponsors. They have a long history of supporting Rugby League in Australasia and with their assistance we will be able to continue our games development across the country.”

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VicForests appoint new Chief Executive

VicForests has appointed a new chief executive as it reassesses its role as the seller of timber from Victoria's native forests the Sydney Morning Herald reports. The new chief, Robert Green, was previously VicForests' director of sales and contracts. Mr Green has strong international experience in many facets of forestry. He previously worked in fibre supply, marketing and distribution and business development for several timber NZ companies, including Carter Holt Harvey. He was general manager of Snavely Forest Products in San Francisco before joining VicForests.

Mr Green said the state government was reviewing the legislation that governed VicForests. Mr Green's appointment follows a critical but largely positive assessment of VicForests' first five years of operation conducted by consultant URS for Treasury. Among the proposed changes are two key related moves: giving VicForests control over the part of native forest available to industry; and giving native timber processors more resource security through long-term contracts of up to 20 years. Source: Sydney Morning Herald

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China aims for 23% forest coverage by 2020

China aims to increase its forest coverage to more than 23 percent and lift the forested land area to 223 million hectares by end of 2020, according to Jia Zhibang, head of the State Forestry Administration. Citing a national afforestation outline for the 2011-2020 period, Jia made the remarks during an interview with Xinhua, saying that the public will be mobilized to plant 26 billion trees over the next 10 years.

China's forest coverage had reached 20.36 percent, or 195 million hectares, at the end of 2008, according to official figures. Jia's remarks came as the 34th National Tree-Planting Day, a yearly campaign designed to promote tree-planting efforts among the public, was observed across China on Monday.

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NZ forestry GIS event planned

Following on from the 2010 Forestry GIS conference, Scion will be hosting another Forestry GIS Conference on April 18th. Experts have been drawn together to present on a range of relevant topics including Inventory from LiDAR, ETS, Climate Change, ArcGIS v10.1, and the Cable Harvesting tool.

The conference will once again be held at the School of Forestry complex at Waiariki Institute of Technology, in Rotorua. For users of ATLAS software, ATLAS will be hosting a users’ forum the following day at Scion. For more details see the brochure, or go to to register.

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Buy and Sell

...and one to end the week on...Paddy McCoy

Paddy McCoy, an elderly Irish farmer, received a letter from the Department for Work & Pensions stating that they suspected he was not paying his employees the statutory minimum wage and they would send an inspector to interview them.

On the appointed day, the inspector turned up.

"Tell me about your staff," he asked Paddy.

"Well," said Paddy, "there's the farm hand, I pay him €240 a week, and he has a free cottage.

Then there's the housekeeper. She gets €190 a week, along with free board and lodging.

There's also the half-wit. He works a 16 hour day, does 90% of the work, earns about €25 a week along with a bottle of whisky and, as a special treat, occasionally gets to sleep with my wife."

"That's disgraceful" said the inspector, "I need to interview the half-wit."

"That'll be me then," said Paddy.

And on that note, have a great weekend. Cheers.

Brent Apthorp
Editor, Friday Offcuts
PO Box 904
Level Two, 2 Dowling Street
Dunedin, New Zealand
Ph: +64 3 470 1902
Fax: +64 3 470 1904
Web page:

This week's extended issue, along with back issues, can be viewed at

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