Working TFC over on small volumes - Their playing again, page-55

Hi Guys,

I had a good chat with AS, the CFO today.

Amongst other things we chatted about the short positions in TFC.

Earlier in the year there was 'broker chatter' that the shorts revolved around speculation that TFC would not be able to roll over their Senior Secured Notes. That, however, has now been resolved and the maturity, now 2023, is far better aligned with TFC's operational revenue flows.

Now however, it is speculated that the level of shorting is more a form of hedging for those warrant holders wanting to lock in profits now and utilize the cashflow that shorting enables ... much as we speculated.

As we have also previously discussed here, TFC's goal, at maturity is to have annual harvests of c. 1,500 so a total plantation of c. 22k ha ... so we can accurately model what a mature business revenue cycle will look like.

Once harvests ramp up and TFC's operational cashflows really accelerate, as these plantations are harvested and replanted a much greater % will be retained by TFC instead of offered to third parties. This will likely occur as the 2020's progress.

Some of the speculated risks we talked about here are diminishing. It is becoming much easier for TFC to market its product to institutional investors due to the progression in development that they are achieving and, in part the decline in the USD for US based institutions. TFC are hitting milestones and delivering on expectations, e.g.

(1) Harvest forecasts being delivered upon show heartwood is meeting expectations
(2) Long term offtake agreements being secured shows that there is demand for TFC's product
(3) Favourable pricing of multi year contracts shows that the market can absorb the current prices
(4) Continued improvement in plant husbandry provide confidence that future yields will be as expected and improves the IRR per ha

These successes are providing greater confidence for institutional investors to invest in TFC plantations, especially due to the IRR's on offer relative to other asset classes that institutions such as pension plans can invest into - e.g. look at the issues encountered by the Dallas Police Pension Fund last week. This sector is absolutely stuffed and in dire need of higher returning investments.

Whilst TFC is a slow burn ... like watching grass Sandalwood grow, it is a no brainer over the longer term. There is simply no supply challenges for years and years and there are a very clearly defined and analysed set of markets for TFC to progressively develop.

If the shorters are not also holders of warrants I think, that in time, they will experience a world of hurt, all else being equal.

Cheers
John