Bit sloww today,Iassume this is what we are discussing,sorry if...

Bit sloww today,Iassume this is what we are discussing,sorry if not---for me not gump



March 22, 2010 07:09pm Make us your homepage
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print $7m chips deal loss for GunnsNICK CLARK

March 20, 2010 08:58am

GUNNS lost $7 million on a deal to sell four shiploads of woodchips to China late last year, analysts' reports reveal.

The appreciation of the Australian dollar against the US dollar left Gunns exposed because the fixed-price contract was not hedged.

A report by Deutsche Bank said the impact on earnings was $7 million.

Gunns shifted woodchip sales to two Chinese pulp mills in late 2009 because of flagging demand in Japan.

Gunns' woodchip mills have been shut down for several weeks since January 2010 because of low demand.

Analysts' reports obtained by the Mercury: * Warn Gunns is at risk of breaching its borrowing agreements this year.

* Outline how Gunns intends to finance the pulp mill project by selling 60 per cent of its $1 billion plantation assets.

* Claim that Gunns would retain just 40 per cent of the pulp mill. Chairman John Gay told the annual meeting he expected Gunns to retain 60 per cent.

* Claim Gunns is seeking to save $5 million in costs by cutting staff in its woodfibre business.

The reports come as major institutional investors reportedly seek to force Mr Gay to resign as chairman and replace other Tasmanian directors Robin Gray and Richard Millar.

The reports say Gunns' plan is to sell 60 per cent of its plantations to investors. It would use $200 million of the proceeds, plus $200 million already spent, as its 40 per cent share of equity in a separate pulp mill company.

Gunns would also pay $400 million off its present debt of $661 million.

Analysts believe potential pulp mill equity partner, Swedish firm Sodra, may invest in the plantations.

JP Morgan said Gunns was at risk of breaching the debt ratios in its borrowing covenants if it did not reduce debt.

"On our estimates the company has little to no headroom on some of its covenants," Macquarie Equities Research said.

Analysts said Gunns' ratio of debt to earnings before interest, tax and depreciation was specified to be less than 4.5 times the earnings.

Macquarie has predicted the ratio of debt to earnings could rise to 6.5 by June while JP Morgan said earnings would need to be $100 million for the 2009-10 financial year to avoid a breach.