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When will I know how my project/s are performing?
Plantation growth and yield estimates are based on a systematic inventory measurement and analysis program, reconciled with other empirical data and predictive models. Inventory measurements for APT and ABG projects, managed by Elders Forestry, are conducted prior to the commencement of harvest approximately 9 years from planting. For Elders Forestry projects, statistically rigorous inventory assessment commences in plantations at approximately age 5 years, with measurements then undertaken annually until the plantation is harvested.
Mid-rotation inventory for the ITC 1998, 1999 and 2000 projects has been undertaken. The results indicate that standing volumes in these projects are appreciably lower than originally forecast.
Elders Forestry Management Limited has used sampling techniques in determining this inventory data. That is, Elders FM has assessed standing volumes across samples of the plantation estate for the relevant project in order to derive an estimate of actual standing volume for the project. This statistical method, and the resulting inventory data, has been independently reviewed and confirmed as being reasonable by URS. That said, as is the case with all such sampling methodologies, there is a risk that there may be variances between the resulting statistical data and the actual standing volumes.
At this stage, final harvest yields for these projects cannot be reliably estimated, and ultimately will depend upon environmental variables which effect growth rates, particularly rainfall and whether certain plantations access groundwater reserves. Through the annual inventory program and reporting, Elders Forestry Management will be able to provide Growers with more precise and reliable information about yields as plantations grow closer to the time of harvest.
Significantly lower rainfall in particular years, notably in 2002, 2004 and 2006, is clearly a major contributing factor with respect to the lower standing volumes. Also, based on technical information and industry knowledge now available to Elders FM, and the plantation forestry industry generally, Elders FM considers that initial projections of timber yield timber productivity were in excess of the capacity of some project sites. These projections were considered reasonable by Elders FM based on information available to it at the time of establishing the projects, and were consistent with industry expectations at that time. The reasonableness of the projections was confirmed by the Independent Forester in its assessment of the relevant prospectuses.
Elders FM expects that plantation productivity for projects established more recently should generally increase as a result of better quality seedling genetics and advancement in silvicultural management and site selection techniques. This will obviously be subject to the environmental variables which may impact on productivity (particularly rainfall). This is consistent with the conclusions of the International Pulpwood Resource and Trade Review (DANA/WRI, 2005 Edition).
There are other factors beyond fibre yield that will impact on the final harvest proceeds to Growers. Woodchip price will be a major factor but others include the harvesting costs and efficient use of transport and port infrastructure. At mid-rotation these factors cannot be quantified and therefore the impact on harvest proceeds to Growers is not yet known. However, Elders Forestry will continue to ensure that such arrangements are made in the best interests of Growers.
Project Comparisons
When comparing prospective investments, analysts, advisors and investors must distill a lot of information, determine what is important and make their decisions accordingly. As with any investment, the returns to be achieved from forestry are a function of price received for the product (wood in this case) less the costs of production. The analysis is complicated by the lengthy time between outlay of some of the costs and the receipt of the income - the time value of money must be taken into account - and to add further complexity, not all trees (even the same species grown for the same output) grow the same.
Factors that will impact grower returns:
- Establishment and on-going costs throughout the life of the project
- The amount of wood produced per unit investment
- Suitability of product for intended end use
- Distance to port, saw mill or other point of sale (transport costs)
- Size of resource - is the resource owner a price taker or a price setter
- Harvesting and processing costs
- Contracts with end users
Many years of research by Elders Forestry and industry groups have identified the best species to grow for the pulpwood, solidwood and essential oil industries. Elders Forestry has selected the location of its projects in regions close to ports and processing infrastructure and, combined with other managers, controls timber resources of significant scale, giving our investors a direct route to markets and the benefit of considerable negotiating power.
It is reasonably safe to assume that the major forestry managers will have selected the location of their projects to ensure efficient routes to market (although there are some exceptions by some smaller managers). This leaves the cost of production as the major point of difference between projects.
Because the factors that influence the growth of trees vary significantly from region to region, from property to property and even within properties, Elders Forestry has chosen the "Plantation Unit" concept to ensure all growers in our projects are expected to get the same amount of wood for their investment. This means some growers will be allocated a larger area for a plantation unit than others, i.e. where Elders Forestry has assessed the productivity of a property to be lower, the area is larger. The important point is that the cost per unit of wood for all growers is the same because the cost charged to investors for each plantation unit is the same regardless of size.
When comparing forestry projects, if one assumes that species quality, routes to market, etc are similar, it is important to look at the total costs per unit of production (normally a cubic metre of wood), not the total cost per area (normally a hectare) to arrive at a meaningful comparison.
At Elders Forestry we maintain a policy of transparency when it comes to the analysis of our projects - if the information available in our projects needs further clarification to allow you to complete your analysis, let us know. And if you are looking at other managers, make sure you get the same level of information from them - we're confident your analysis will point you back to Elders Forestry. |
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