This is important because the value of the plantation estate includes the value of the land. Notionally 260,000 ha of land would be worth about $3,000 hectare as farm land, giving a total value of $780 million for the land alone. But because the land can only be used for forestry, the value depends on whether or not successive generations of trees can be grown.
At the first harvest, there’ll be stumps aplenty. Replanting will require regeneration of soil nutrients to assure that the trees have the basics for growth; that’ll cost money. Second generation yield rates per hectare on Tasmania’s soils are unknown, but given the failure of first generation plantations there could be a high percentage failure.
If financiers choose to accept Gunns valuations then they’ll consider the company as good value. If they pause to think about what would happen if Gunns couldn’t meet its debts, and they had to sell plantations to meet those debts, then they’d need to revalue the plantations in that light.
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Who would want the plantations and at what price? Will plantations be tolerated if they’re shown to be draining catchments of valuable water? What is land that is forestry “in perpetuity” really worth to anyone else?
There may be some answers if Gunns manages to sell its 40,000 ha of plantation in South Australia.
In the meantime, wise financiers will stay well away because there are just too many unknowns and too many risks.
The role of governments
It appears that governments are happy to create, participate in, or promote, any scheme that shores up the growth of the timber industry. That view is reinforced by the federal Department of Forestry’s goal “to assist our forestry industry to grow, improve and capitalise on new opportunities”.
You’d expect it to read something like “to assure that public forestry resources are deployed in the best interests of the community” or some such, but the department is clearly an example of “regulatory capture”.
Governments’ have also led Gunns deeper into difficulties with incomplete and inadequate assessment processes that helped to conceal real risks and paint an artificially rosy economic future.
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Taxpayers could be forgiven for believing that the government is colluding with the industry to transfer wealth from taxpayers, contractors, investors and financiers into forestry pockets. They also appear to be quite happy to use taxpayers” money to promote the schemes, easing the burden of “investor” losses.
Keeping on
Whether Gunns can prevail in today’s financial climate and whether Kevin Rudd can, or will, act to protect taxpayers, contractors and investors from dubious federal schemes, remains to be seen.
At every step, pulp novices Gunns have been spurred on by knowledgeable consultants that convinced Gunns to bet the company on a project that was too big, too risky and too expensive.
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