Did the first MIS investors get a better return than Australian stocks??

Hi All,

We all know that the first MIS investors (in the EKS project of 1999) would have received their funds by now following TFC's purchase of their wood, and that the project was poor regards the quantity of heartwood generated. But I don't recall seeing if the actual returns to investors have been revealed, or if any HC commenters out there were original investors. So here is my attempt to calculate a return on investment....

TFC indicated it purchased heartwood at an implied $A100/kg (investor presentation 29 Aug 2014, P19), however we do not know the heartwood yield per hectare. But! on the same slide TFC also indicated it purchased the EKS retainer block with an estimated heartwood of 88t for $8.4m which represents ~ $A95/kg so can act as a proxy.

We know the EKS retainer block is 25ha (page 3, announcement 29 Aug 2013), so the effective price realised is $8.4m for 25ha which equals $336,000 per ha.

So to derive a return on investment we need to know the cost of 1ha back in 1999. A look at the TFC website doesn't reveal the original EKS prospectus but the 2014 PDS indicated a $6,875 (incl GST) price for 1/12ha which equates to $82,500/ha. We can try to work out the original price paid by EKS investors by estimating the asset value of the trust and extrapolating back from the earliest accounts in 2004 (see the TFC website for retail project account) but I can't be bothered so I will use the 2014 project as the equivalent price....

The annualised return = ($336,000/$82,500)^(1/15) = 1.098 which equals a 9.8% annualised return. This return does not account for EKS investors likely getting a big upfront tax deduction thereby lowering the effective cost of investment, offset to an extent by management fees that take roughly 1/3 off the final proceeds. But at the end of the day this would have boosted returns (50% marginal rate in 1999 vs 33% of final proceeds taken as share of harvest proceeds by TFC).

For such a poor plantation that isn't such a bad return, remembering the tree survival rates of EKS were <40% vs +70% since 2004 plantings (see chart P4, 29 Aug 2013 First Harvest Update). A look at the All Ordinaries saw an index of ~3000 points in mid 1999 vs ~5,200 today which is an annualised return of 3.7%, so this poor plantation appears to have been a better investment than Australian equities!

Math check please HC commenters. Am I right or wrong?