QIN (ASX) Host Management and Irrigation

Originally posted by SDE ↑

Great Southern collapsed because it had a flawed business model. The model required ongoing annual plantation sales (ie new investors) to support previous plantation projects returns (ie payments to old investors); in effect, a Ponzi scheme arrangement.

The GFC caused the Banks to recall their loans to Great Southern when they fell due, and the final death knell was when the Federal Government removed tax deductibility for MIS plantation investors, essentially stopping any investments in future plantation projects, so no cash flow.

Great Southern’s plantations had never grown anywhere near the predicted yield curve (sound familiar). You have quoted 1/3 of trees died, QIN’s soon to be harvested 2003 crop had mortality which is even worse, ( > 40% of trees planted have died).

To support ongoing plantation sales, Great Southern established a wholly owned subsidiary to buy plantation logs at grossly inflated prices to prop up and achieve predicted yields. QIN’s wholly owned subsidiary, Gulf Natural Supply, pays top dollar to prop up and support yields of QIN’s earlier projects, no doubt to ensure ongoing plantation sales (again, sound familiar). You seem to accept that QIN’s 2003 project will not achieve its initial projected returns.

The Glaucus and Viceroy reports are QIN’s equivalent of the GFC. The net effect is likely to deter investment in future projects (Your words : It came unstuck when finally it could not sell its MIS investments so could not fund its expenses)

Similarily, if QIN’s cashflow from future plantation sales dries up, it will not be able to fund its expenses and it is likely it will go the way of Great Southern.

History has a habit of repeating itself, and those who ignore history are bound to repeat it.

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The product of Great Southern was a commodity (wood chips $A30/t) with plenty of suppliers. Sandalwood is certainly not comparablele to that market. Constant demand and shrinking supply from the main markets (India, china). I don't like MIS either but you can't leave the product in your 'analysis' of doom and gloom out. The value for Qin would be that you have an established producer and you have synergy effects with whoever invests into it additionally to your own sandalwood production - called economics of scale. Wood chips were oversupplied - even the big Tasmanian company (forgot the name ) didn't make it.
IMO