Gunns' mill cut down by forest negotiationsMatthew DenholmFrom:...

Gunns' mill cut down by forest negotiations
Matthew Denholm
From: The Australian
February 16, 2011 12:00AM

TIMBER giant Gunns has blamed delayed negotiations over the Tasmanian forestry agreement for the failure to secure funding for its $2.3 billion pulp mill project.

The troubled company also revealed it has been forced to take out temporary finance to avoid a cashflow crisis -- and its ability to meet the repayment may require further asset sales.

In a briefing to the ASX yesterday, Gunns said securing equity for the plantation-based mill had been "delayed by the slower than anticipated progress of the Tasmanian forests agreement".

Managing director Greg L'Estrange told The Australian the successful phase-in of a moratorium on logging high conservation value forests -- due by March 15 as part of the process -- was a "critical date" for the mill.

Announcing a net half-year loss after tax of $4.6 million yesterday, Gunns revealed it had been forced to organise unexpected temporary finance to avoid a cashflow crisis.

It also conceded that its ability to renew overall debt arrangements rested on further successful assets sales.

Mr L'Estrange said a trading halt on Friday had been requested after "an unexpected delay in finalising a financing facility".

"Revised cashflow modelling indicated the need to put in place temporary funding facilities as a result of the delay," he said.

"These temporary facilities are now in place with repayment to be made from the proceeds of asset sales, or the completion of the planned financing."

Mr L'Estrange said this was no cause for concern and that financiers were "more supportive than they were 12 months ago".

He said Gunns' debt repayments would drop after January next year, when the bulk of loan arrangements were renewed, because of asset sales.

Profit and cashflow forecasts suggested Gunns could meet all its repayments until then. "However, it must be emphasised that the timing and value of the remaining asset sales are critical to achieving this outcome," he said.

Shadforth analyst Matthew Torenius said it appeared lenders wanted greater security over assets. "It smacks to me of a bank saying 'we'll roll it over, but we want first dibs on any further asset sales'," Mr Torenius said.

A Gunns briefing said the company -- which has already sold its wine, walnut and retail businesses -- was moving to sell up to $1.53bn in land and forest assets, and continue a progressive exit from its construction business.

Indicative bids were imminent on the sale of Gunns' green triangle pine plantation assets, valued at $254m, while the company was considering options for its $826m Tasmanian plantation estate. These included selling into a joint venture company for the proposed pulp mill, or selling down equity to institutional investors.

Gunns is trying to persuade potential joint venture partners and financiers that it has obtained a "social licence" for the Tamar Valley mill, having decided to exit native forests in favour of plantations. But Mr L'Estrange said a successful deal to end 30 years of dispute over forestry in Tasmania was vital for the future of the entire sector.

He said the other critical hurdle to clinching a deal with potential joint venture partners was final federal approval for the mill to operate. This decision is expected to be announced on March 4. Without such approval, Mr L'Estrange said neither of the two potential partners undergoing due diligence were likely to sign up to a joint venture.

"Although we can build the facility, people would be reluctant and financiers would be reluctant without that critical piece of information," he said.