12/12/2016 Emerald Hills Forest Group Meeting Sunday, 27 November 2016 Housekeeping • All mobile phones to silent • Note the location of exits and toilets • In case of emergency, follow our staff in hi vis • Presentation is being recorded and will be available to view online 1
12/12/2016 Introductions Forest Enterprises Team Trustees Executors Logic Forest Solutions Purpose and Structure of Today’s Meeting • Session 1 • The best way to practically harvest the Emerald Hills forest • Consequences of this harvest progamme for the 6 investments which collectively own the Emerald Hills forests Morning Tea • Session 2 • The current projected timing of the harvest • The second rotation and exit options for Investors Light Lunch 2
12/12/2016 The Best Way to Harvest Emerald Hills Forest The Harvest Plan Map 1: The Harvest Plan 3
12/12/2016 The Harvest Plan • This is the currently identified best way to harvest the Emerald Hills Forest • This plan is dynamic and will change • Rationale for location of harvest roads? The most cost effective way to harvest the total area • This is a massive network of roading Forest Roading kms Total Skids Landings Pads MILW 17.7 44 37 7 GLEW 16.7 38 32 6 LONG 10.3 36 29 7 GOOD 16.3 44 37 7 MAJE/W 14.2 37 33 4 HOME 15.7 55 52 3 Total 90.9 254 220 34 The Harvest Plan • Observations – • The Plan ignores the investment boundaries • The Plan ignores rights of way • May be possible to remain within boundaries but doing so would cost a vast amount more and this network is projected to cost $10 million 4
12/12/2016 Harvest Outside of the Investment Boundaries Map 2: Cross Boundary Harvesting Harvest Outside of the Investment Boundaries • Observation • Every investment has areas which will be harvested from out of the investment boundary 5
12/12/2016 Harvest Areas Which Use Roads Out of Boundaries Map 3: Cross Boundary Roading Connection to the Public Road Map 4: 6
12/12/2016 Connection to the public road • Roading network connects to the public road via 4 main gateways - • Shanks, Kohn, Airstrip, Patuata • All ultimately end up on Waingake Road to Port • One road to town, even though there are multiple exits • Potentially, we are also competing with other forests Gate Area Utilising Tonnes Truck Loads Truck Movements Airstrip 1,019 730,300 25,625 51,249 Kohn 260 186,700 6,551 13,102 Patuata 100 71,662 2,514 5,029 Shanks 958 686,862 24,100 48,201 Waingake 42 30,004 1,053 2,106 Total 2,379 1,705,528 59,843 119,686 Connection to the public road • Observations • Huge volume to come out the three main entranceways • So there are practical constraints • Massive volume to go down Waingake Road • So there are practical constraints 7
12/12/2016 River Catchment Issues Map 5: Water Catchment River Catchment Issues • Resource consent implications • Forest Enterprises is already working closely with Gisborne District Council • Observations • Need to submit resource consents as soon as possible for entire catchments (not investments) • Must maximise the Emerald Hills collective catchment constraints allocation 8
12/12/2016 The Best Way to Harvest Emerald Hills Forest Questions? 9.45am Consequences For The 6 Investments 9
12/12/2016 Why Are There 6 Investments? Map 6: Harvest Map with Road Network Why are there 6 investments? • Combination of two main historical legal reasons - 1. Assumed the best investment amount financially, based upon partnership of Qualifying Companies at the time, restricted to maximum of 125 investors 2. 6-month life span of Prospectus 10
12/12/2016 Legal Rights of Each Investment Map 7: Emerald Hills Forest Rights of Way Is This a Monumental Stuff Up? • No . • Because, in 1993 – • We were looking 25 years into the future • Not worth the investment at the front in Harvest Plan • Assumption was that common sense would prevail at the time (now) 11
12/12/2016 Is Common Sense Going to Prevail? Map 8: Harvest Plan Without Boundaries Effect of Not Co-operating 12
12/12/2016 Legally, How Can We Harvest As One Forest? • Joint venture • Cannot amalgamate for tax reasons “But MY investment is more valuable than YOURS !” • Yes, the money does matter! • Two solutions – • Employ a bus load of consultants? • Let common sense prevail? 13
12/12/2016 Common Sense Approach • Each investment already has a measure of value of their interest in the Emerald Hills Forest • Indicative value • Why is indicative value a fair measure? Indicative Value Investment Title Area (ha) Crop Area (ha ) Millwood 515 19.0% 445 18.7% 19.3% Glenwood 492 18.1% 424 17.8% 18.5% 433 397 16.4% Longwood 16.0% 16.7% Goodwood 440 16.2% 383 16.1% 15.7% Majestic Pine 412 15.2% 343 14.4% 13.1% Homewood 422 387 17.0% 15.6% 16.3% Total 2,715 100% 2,379 100% 100% Common Sense Approach Indicative Value Investment Title Area (ha) Crop Area (ha ) 515 445 19.3% Millwood 19.0% 18.7% 492 424 18.5% Glenwood 18.1% 17.8% 433 397 16.4% Longwood 16.0% 16.7% 440 383 15.7% Goodwood 16.2% 16.1% 412 343 13.1% Majestic Pine 15.2% 14.4% 422 387 17.0% Homewood 15.6% 16.3% Total 2,715 2,379 100% 100% 100% 14
12/12/2016 Consequences For The 6 Investments Questions? 10.30am Projected Timing of the Emerald Hills Harvest 15
12/12/2016 Projected Timing of the Emerald Hills Harvest • When reflecting on the timing of harvest, we must remember – 1. The scale of the forest 2. The limited number of road entrances 3. That there is only one road to town being used by Emerald Hills and other forest owners 4. That there will be resource consent constraints 5. Other harvest timing issues Regional Wood Volumes 16
12/12/2016 Where is all the wood going? 1. Local mills – very little opportunity • Wairoa – small quantities • JNL – seldom buy 2. Export – the vast majority is to be exported Eastland Port • Currently, Eastland Port (Gisborne Port) is handling approximately 2.5 million tonnes of logs annually • May soon be the second largest log export port in New Zealand • Forest Enterprises is currently exporting approximately 40,000 tonnes per annum out of this port 17
12/12/2016 Capacity of Eastland Port Constrained • Currently limited to loading one log ship at a time • Limited on site storage so already offsite storage being used (Dunstan Road) • Objective is to be able to load two ships concurrently and supply the wood from on-site and off-site storage • Forest Enterprises is already working closely with Eastland Port Forest Enterprises Projected Port Volume • Current projection is that Forest Enterprises will be able to secure up to 700,000 tonnes per annum of the increased port capacity • 700,000 tonnes per annum is similar to the present capacity of the largest users of the port • Forest Enterprises will be a major customer of Eastland Port 18
12/12/2016 Impact of Port Capacity on Harvest Realistic Scenario Base Case Woodflow Period • Port capacity is a major constraint on harvest timing When Do Investors Expect Emerald Hills to Be Harvested? • Prospectus set out the simplistic scenario based upon harvesting at age 28 • Age 28 has harvest occurring in 2022 and 2023 • We have always stressed that the simplistic scenario will not happen • Annual Reporting has continued to set out this simplistic scenario, but highlighted in the assumptions that harvest will likely commence earlier and finish later • Have stated at previous forest visits that harvest could start 2 to 3 years early and finish 2 to 3 years later than the simplistic scenario 19
12/12/2016 Current Timing Projection for Emerald Hills Harvest • Having now completed our preliminary forward planning, the current projection for the Emerald Hills Forest is – 1. Commence 2018/2019 – just over 1 year’s time 2. Finish 2028/2029 3. 2028 is 5 years after 2023 • The important factor in this projection is that this harvest spread maintains an average harvest age of 28 years Impact On Your Investment Return • Maintaining an average harvest age of 28 years is important because – 1. The younger trees harvested will have less than the average volume therefore return less value 2. BUT, the older trees will have higher than the average volume/value • The overall value outcome is consequentially about the same 20
12/12/2016 Impact on distributions from harvest • Distributions are likely to occur from 2018/2019 through until completion of harvest in 2028/2029 • This is a 10 year spread of what are likely to be regular distributions • Distributions will be impacted in the early years because of the substantial forward investment in roading and related infrastructure Projected Timing of the Emerald Hills Harvest Questions? 11.20am 21
12/12/2016 Second Rotation and Exit Options for Investors Second Rotation and Exit Options for Investors • Harvest is a controlled activity under the Gisborne Regional Plan • A standard condition of harvest is an obligation to replant • A Radiata pine forest remains the most economic use of the land, especially given the substantial investment in roading and related infrastructure which will be made during harvest 22
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