Pulp mill on chopping block Mercury NICK CLARK | August 07, 2012 4:27pm
CASH-strapped timber company Gunns has conceded that its $2.3 billion pulp mill almost certainly will not proceed.
The company yesterday said it wrote off the $250 million investment it has made in the Bell Bay project over the past seven years as part of a $700-$800 million charge.
It comes as Tasmania's forest peace talks have once again ended without agreement, with the parties yesterday calling on Federal Environment Minister Tony Burke and Deputy Premier Bryan Green to step in.
A market update yesterday said Gunns' worth had plunged as low as negative $150 million.
Managing director Greg L'Estrange said the uncertainty surrounding the proposedmill could no longer justify a positive valuation of the project, nor of the Tasmanian tree farms on the company's books.
Gunns' board could not justify its view the project was "probable to proceed".
"The impact of the decline in stumpage prices and its asset position has raised material uncertainty regarding the current financing strategy, including the mill project," Mr L'Estrange said.
The company, which employs 640 people, revealed it needed the support of its banks to continue.
"Ongoing lender group support is required to stabilise the company's operations whilst discussions on a capital-raising continue," he said.
However, Mr L'Estrange optimistically said it didn't necessarily mean the mill would not proceed.
"It is an indication of decreased confidence from the company that it has the ability to influence the mill project proceeding," he said.
Pulp The Mill spokeswoman Lucy Landon-Lane said it was another nail in the coffin for the project, while Australian Greens Leader Christine Milne welcomed the news the mill was "dead in the water".
Gunns has not traded on the Australian Securities Exchange since March when a would-be "white knight", the Richard Chandler Corporation, suddenly pulled out of a $150 million investment.
Yesterday's announcement reveals the full collapse of Gunns' fortunes since it announced the pulp mill project in 2004.
At the time, the then-timber giant boasted an after-tax profit of $105 million and had assets of $951 million.
Gunns now owes a debt of about $580 million to an ANZ-led consortium with a sunset of December 31, 2012, on $340 million of senior debt and working capital.
The company is using proceeds from asset sales to meet operational requirements.
The plunge in woodchip prices in Asia means that the value of the 250,000ha of Tasmanian tree farms can only be equated to the harvest proceeds of the current woodchip market.
Gunns said it was continuing with attempts to raise capital or restructure its business.
Pulp industry expert Robert Eastment said overseas interest in the tree farms would continue, despite the uncertainty about the mill
GNS Price at posting:
16.0¢ Sentiment: Sell Disclosure: Held
