pulp mill invalid, page-124

Lord, your first question is too hard to answer without specialist estate level inventory information that Gunns would have and they would place it in any data room they set up for an asset sale process. This data is for each hectare of an estate and includes age, site quality, growth rate and a fairly accurate prediction, especially for older plantations, of the harvest year. Any serious investor would also put in its own measurement plots to confirm the reliability of the data provided. Once they had reasonable certainty as to volume of wood and when it would reach harvest age, the price is pretty obvious to those in the know. Therefore, you are much closer than zwu with 10-15%. The discount would be mainly for risks in the estimates for younger plantations, where the inventory data may not exist.

With respect to land values, you need to remember two things (1) only the planted ground has value to a forestry company, so one needs to only evaluate the land area planted up, not the total land owned; and (2) a lot of land the Tasmanian MIS companies have accumulated has been ex-pasture land. A lot is in high rainfall areas and the soil is very good. In fact, if you believe the hype of the anti-forestry brigade, it's prime agricultural land, especially in Tasmania, and has been subject to greenie campaigns based on that myth. Prime ag land is probably worth $15,000 per hectare upwards. The reality is that it isn't prime land the MIS companies bought, but don't let that get in the way of a good story. It is generally "good" land that would have been mainly used for beef, worth say up to $6,000 per planted hectare. There is always below average land (that's the nature of averages!) valued down to $2,000 per hectare. My guess for Gunns' freehold land is that its average value might be $3 - 4,000 per hectare. Its a bit like your first question, a data room will give quality and location information for each and every hectare, and investors will pay what it's worth. At zwu's $2,400 per hectare you would have people camped out for weeks to be in the queue (like a recent land release in SW Sydney).

I don't know much about the Forestry Queensland sale but I thought both you and Alimak were on the money when I read your comments. As with zwu's use of the Auspine 34k ha wood sale to value the rest of Gunns estate, you can easily end up comparing apples with pears if you don't try and drill down as you have. I certainly aren't critical of zwu's attempt to value. He has done well. It's a specialist and complex business and for those who invest but don't know the business, you need to start somewhere and then tune your estimates as new information and clarity arrives.

As investors, the big question is whether a 48c share price grossly under-capitalises the net asset backing of the company. That's what zwu's trying to estimate I think. In my opinion it clearly does undervalue at a simple analysis level. However, I think the market (always to be respected IMHO) devalues for some risks that aren't clear to outsiders looking in - clumsy senior management and board; are debt covenants under threat?; cashflow problems with current export business downturn etc. I think, in this case, the market has over done it. The media hype (see, for example, Wooduk's endless rehash of it) is distorting and clouding the investment reality. It's now a good opportunity for a contrarian. Once it turns (if it turns), my current plan is to buy on the way up (anything below 80c would excite me initially)!