Gunns beset on several frontsCARRIE LAFRENZ, AFR17 May, 2011...

Gunns beset on several fronts
CARRIE LAFRENZ, AFR
17 May, 2011 10:30 AM
ANY way you cut it, Gunns is up against it. The timber company is trying to execute two complex sales transactions while locking down a joint venture equity partner for its $2.3 billion pulp mill project in Bell Bay.

Meanwhile it is still facing community opposition to the project, which Gunns has been trying to get over the line for more than seven years, according to The Australian Financial Review .


Several thousand protesters marched through Launceston over the weekend as part of a rally against construction of the pulp mill. The Tasmanian Greens have said they would try to block the mill project in state parliament. The company is also facing a class action funded by IMF (Australia), and a disruption in Japanese orders following the earthquake and tsunami in that country.


While Gunns is focused on achieving its full-year guidance for underlying earnings before interest and tax of between $40 million and $50 million, it's difficult to see how it will get there.


Woodchip shipments from Tasmania have faultered and the strong local dollar is making its product less competitive in the international market. While demand has increased from China, the key Japanese market remains volatile.


In March 2011, exports of hardwood chips from Tasmania rose slightly but were well behind the longer term monthly average. Shipments in March were made out of Bell Bay, with China and Taiwan accounting for 60 per cent.


Gunns chief executive Greg L'Estrange is caught between a rock and a hard place: he is trying to extract the most value out of the investment Gunns has made in the pulp mill and look after existing shareholders, but is also trying to be pragmatic in attracting a JV partner ? all while under serious time constraints.


Its back is up against a wall, and it needs to quickly get in place a JV partner and financing. Only then will it know whether the pulp mill gamble will pay off.




The Australian Financial Review
Source: http://www.afr.com