forest agreement, page-11

Gambier

The sale price of $107m compares to the net book value of $255M. So on the face of it it is a massive discount. However there are a few things to be considered;

1) GNS took over Auspine in a very highly priced takeover bid. Hence the book values that GNS inherited in my view would have been inflated to reduce the goodwill component. It was also purchased at a relatively good time in timber markets. i.e high prices

2) When GNS sold 75% of the Auspine trees some years back to GMO for $175m I believe they were sold on the basis that GNS would pay for the annual maintenance until harvest. Hence they could get a very good upfront price but pay for it through the backend.

This second point is why, when you look at the book values for the softwood division that they have a payable of $68m on the balance sheet. Hence the gross book asset value of the land and trees is about $323m.

Now that $323m included 45k hectares of land and 12k hectares of younger trees. Please note that this price seems way too high. On the land alone it is over $7k/hectare and if we took land and trees together it is about $5,500/hectare whereas I would have thought $3k/hectare was the going rate for unencumbered pine trees these days.

At any rate they have sold the assets for $107m but adding back the $68m payable gives a $175m gross figure. hence they have sold the estate for about $3,100/hectare which as I said seems about right to me. The reason the proceeds are only $107m is that they have to pay out the maintenance. If the buyer was GMO then GMO is effectively getting a "credit" against the $175m price it paid previously for the 75% of the trees.

The question them becomes what will GNS get for its Tasmania estates?? I have had a guess based on the information from this sale price that the $830m in Tasmania land and trees will go for about $500-600m (100%) but as I dont have the exact size of the land and trees that they are selling it is hard to be precise, hence my range.

The bottom line would seem to be that GNS will not go broke but on the other hand I cannot see how a pulp mill can be financed on these numbers either.........

Lord