GUNNS: It promises to be a very interesting week, this last of the financial year.
It’s as if there has been a certain momentum, pressure building. Jig-saw puzzle pieces falling into some sort of place. And yet …? What do we make of the date that Gunns expected the sale of Triabunna to Aprin/Fibre Plus to be finalised by? (This week) And why was there an apparent rush to have the Forest Principles agreement finished in Melbourne last week?
Didn’t Gunns announce that the sale of Triabunna would be conditional on ‘satisfactory progress’ in the negotiations following the Forest Principles agreement. Was Kelty in that much of a rush that he forgot to get the players to sign it?
OK, it’s the end of the financial year. Thursday isn’t it? So, what about the $55m Gunns has to repay to its financiers, by this week, if I’ve got that bit correct?
And the stoush with FT over the take and pay? When does that have to get paid? This week, or no fixed date? Is it $15m to pay, or $7.5m? Is FT selling to Artec at a better price than it sells to Gunns? Is FT ‘punishing’ Gunns for its exit from native forests?
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GUNNS: It promises to be a very interesting week, this last of the financial year. It’s as if there has been a certain momentum, pressure building. Jig-saw puzzle pieces falling into some sort of place. And yet …? What do we make of the date that Gunns expected the sale of Triabunna to Aprin/Fibre Plus to be finalised by? (This week) And why was there an apparent rush to have the Forest Principles agreement finished in Melbourne last week? Didn’t Gunns announce that the sale of Triabunna would be conditional on ‘satisfactory progress’ in the negotiations following the Forest Principles agreement. Was Kelty in that much of a rush that he forgot to get the players to sign it? OK, it’s the end of the financial year. Thursday isn’t it? So, what about the $55m Gunns has to repay to its financiers, by this week, if I’ve got that bit correct? And the stoush with FT over the take and pay? When does that have to get paid? This week, or no fixed date? Is it $15m to pay, or $7.5m? Is FT selling to Artec at a better price than it sells to Gunns? Is FT ‘punishing’ Gunns for its exit from native forests?
EURO INDEX REPLACES GUNNS PRICING: And how important is the commencement on Friday, of new systems of stumpage out of FT (oops) State PUBLIC forest. Yep, is it not the case that stumpage will no longer be determined by the price that Gunns sell their woodchip for, but will be set based on the European woodchip price index. That would change things, wouldn’t it? So it’s shaping up as a big week. And right now, their share price, hovering around 26c. And how will they satisfy their FORESTS holders ((Frankable Optionally Redeemable Equity Settleable Transferable Securities). And Friday’s announcement of a $107m sale ‘to retire debt’ of the company’s Green Triangle interests – will that hold water? Is it true that Gunns or FT are both able to now terminate the wood supply agreements without penalty? Is it possible that FT is seeking to exit the agreement or is charging Gunns for not buying the contracted amounts, while under the contracts, selling pulp/chip wood to Artec, the newly expanding native forest chipper? Is it possible one or other of the two parties has given the other notice of terminating the agreements? What is the nature of FT’s agreement with Aprin-Fibre Plus? Is Gunns trying to get someone to pay for the fact that it wants out of the wood supply agreements? Why did it decide to get out of native forests? - Because as Greg L’Estrange told the Inquiry, its own investors and financial backers viewed its business model, based on chipping native forests, as over. Why is it that in Nov 2008 Gunns and FT signed off on a definition of ‘commencement of construction’? (even though the govt has studiously avoided doing so – consider the oxymoronic ‘Pulp Mill Assessment Amendment (Clarification) Bill) see Nov 2008 below…
Oct 2007 Gunns and FT enter into an ‘in principle’ ‘Heads of Agreement’ for the supply and purchase of pulpwood over 20 years, for use in the proposed pulp mill, but not necessarily for that purpose. The pulp mill is expected to come into operation in the second half of 2009
Dec 2007 The Heads of Agreement is formalised into a contract, the “LONG TERM PULPWOOD SUPPLY AGREEMENT” (LTPSA)
1 Jan 2008 The LTPSA comes into force.
Clause 3 deals with the commencement/non-commencement of construction and or operation of the pulp mill, and provides exit clauses for either party with 6 months notice required.
Clause 4 deals with the quantity of pulpwood subject to the contract, and sets out conditions relating to its sale by FT and its purchase by Gunns.
4.1 sets the Base Quantity to be supplied and purchased at 1.5m green metric tonnes. (GMT)
4.5 “Take or pay” commits Gunns, in the event that they take less than 85% of their yearly contracted ‘entitlement’ (the Base Quantity), to pay an amount of money based on the number of GMT shortfall below 1,275,000gmt (the threshold of 85% of 1.5m gmt base quantity) MULTIPLIED by the average gmt stumpage paid that year under the contract PLUS harvesting/cartage contracting costs incurred by FT as a result of Gunns default.
4.6 If Gunns ‘default’ three years running, FT can reduce Gunns’ entitlement to equal Gunns largest purchase during one of those three years.
Schedule 9 Clause 3 Plantation pulpwood stumpage price $26.50gmt till 30 June 2009
Jun 2008 The LTPSA (3.3(b))was varied to extend from 30June2008 to 30Nov2008 the date before which either party can exit the contract if the pulp mill construction has not commenced. The contract can also be exited if, once commenced, the construction has halted for 6 months.
Nov 2008 The LTPSA (3.3) is further varied to allow either party to also exit the contract (with 6 months written notice) if Gunns announces publicly that it has abandoned plans to build the pulp mill, or announced that construction won’t start before 1 Jan 2011. A similar exit clause which provided either party with the means of termination of the contract if the mill wasn’t producing pulp by 31Dec2010, was extended by two years to 31Dec2012. A definition of ‘commencement of construction’ is added to (3.3): it means: “the carrying out of all construction activities (as the term is defined in the Pulp Mill Permit) which, from time to time, are necessary to construct the Pulp Mill;” [DISCUSSION: It is construction activities which are referred to here as defined in the Pulp Mill Permit, not commencement of construction, so the definition might be read as ‘commencement of construction’ means the carrying out of all construction activities which, from time to time, are necessary to construct the Pulp Mill.’ ‘Pulp Mill Permit’ is given the same meaning as in the PMAA 2007. - gfs]
11.4 The Parties acknowledge that, because the commencement of the construction of the Pulp Mill has been delayed beyond their earlier expectations, they will act reasonably in the interpretation of Clause 11.1 to ensure that the transition to the new arrangements to which it refers occurs at a rate that is fair and reasonable in the circumstances.
... 11.1 Subject to Clause 11.4, the Parties acknowledge their intention to rationalise the ownership of and responsibilities for Forest Roads, such that:
(a) taking account of Clause 8.1, Gunns is responsible for Forest Roads within the Stumpage Supply Zones; [(a) the Stumpage Supply Zones, consisting of: (i) the Inner Stumpage Supply Zone, being Bass District and Mersey District; and (ii) the Outer Stumpage Supply Zone, being Derwent District - East, Derwent District - Central and Murchison District - East; ] and
(b) Forestry Tasmania is responsible for Forest Roads within the Milldoor Supply Zones, consisting of: (i) the North West Milldoor Supply Zone, being Murchison District - West; and (ii) the Southern Milldoor Supply Zone, being Huon District and Derwent District - West.
2008-2009? Gunns incur a $15M debt to FT, probably related to its not using its contracted pulp wood supply entitlement.
1July 2009 The amended WSA changes Plantation pulpwood stumpage from $26.50gmt to an undisclosed sum till 30 June 2011. Native Forest pulpwood stumpage was then undisclosed, and was calculated in relation to, but to be less than the Woodchip Export Price. [$29.44 as calculated by the author in a manner similar to the agreed floor price changes. In other words, WEP less 10% or perhaps divided by 1.1 Is it fair to say that from the eventual sale price paid by the buyer, Gunns paid FT about 90% and kept 10%, from which they would have had to pay a few bills?]
In the WSA, the Woodchip Export Price is the ‘weighted average “free on board” price received by Gunns for export shipments from Tasmania that consist of hardwood woodchips of which 50 per cent or more are derived from native forest ...’
2nd half 2009: According to the ‘Heads of Agreement’ (4a), the pulp mill was expected to come into operation in the second half of 2009 (ie, 1 July with exceptions)
31 December 2010 ‘Heads of Agreement’ deadline (9.) Conditions Precedent: “Mill to commence by December 2010. ... If the conditions precedent are not satisfied by the specified date (or other date as agreed) then the agreement terminates in 6 months, if either party gives notice to the other, ...”
??February2011 FT given a letter of comfort by the government.
25March2011 Scottsdale: Parliamentary Committee convenes, chaired by Kim Booth.
30Apr2011 FT bill Gunns for $15m. $9.8m of that amount is related to the ‘Take or Pay’ clause in the contract. Gunns disputes the amount, claiming it is only $2.2m and that the contract is invalid.
18May2011 Hobart: Bob Gordon appears before Parliamentary Committee chaired by Kim Booth. Says FT is owed $40m by customers.
28May2011 Nick Clark’s Mercury article “Pulp Mill Permit Confusion” (HERE)
2June2011 Launceston: Greg L’Estrange appears before Parliamentary Committee chaired by Kim Booth, [http://www.parliament.tas.gov.au/ctee/House/Transcripts/2%20June%2011%20-%20L’ton%20-%20L’Estrange.pdf]
-says he believes Artec is getting wood from FT cheaper than Gunns, that Gunns pay the highest prices, and are sold the wood at distant zones, while their competitors buy from the nearer zones.
-said Gunns shareholders and equity debt providers view was that Gunns “business model as a public company does not work if you are involved in native forest.”
14June2011 Gunns announcement to ASX: that it…
“...has entered into an agreement for the sale of the Triabunna woodchip export business. Completion of the sale is scheduled for 29 June 2011 and is conditional on satisfactory progress in the implementation of the Tasmanian forest Statement of Principles.”
16June2011 Nick Clark article appears in Mercury “$10m forestry row exposed” Mercury story HERE
Gunns in dispute with FT over
-take-or-pay clause in sood supply agreement
-L’Estrange says FT selling sawlogs to competitors at 10% cheaper price
- FT ‘overcharged’ Gunns $5.4m for China volume
-FT ‘punishing Gunns’
20June2011 TT publishes ‘In full: Forestry Tasmania deals revealed in explosive ‘In-Camera’ revelations as ...’
L’Estrange says Gunns ‘fundamentally disagree’ with FT’s interpretation of the take-or-pay clause.
23June2011 “Peace deal struck in Tasmanian Forests” Round Table Talks ‘independent’ facilitator, Bill Kelty releases draft 9 page deal on the SoP agreement of 2010. ABC Media report that the deal has been signed by the ‘warring parties’.
6:55am: TT reports that TWS Tas Vica Bayley has not endorsed the agreement, and has not signed it, [Vica’s name (not signature) had been included on the released document.]
1:30pm: “Confusion after forest peace deal recalled” ABC reports that the CFMEU, TCA and TFCA hadn’t signed.
?:??pm: Gunns announcement to ASX: that it… “...has reached an agreement with a U.S.-based timber investment management organization on the purchase of the Gunns’ softwood plantation estate in the Green Triangle. The agreement is subject to the buyer securing financing and other customary conditions, and the sale would be expected to close no later that 31 October 2011. Subject to completion adjustments, Gunns expects a net return of approximately $107M from the sale. The proceeds will be used to retire debt.”
27June 2011 TCA Board meeting due this last week of June. (to discuss the forest peace deal.)
29June2011 Completion of sale of Triabunna Mill is scheduled for this day.
The proposed Mill Wood supply Agreement provides for the Base Quantity of pulpwood supplied to Gunns by FT being able to be increased after this date by 100,000GMT, in the eventuality that Gunns commits to construct a rotary peeled veneer mill.
The (Pulp Mill) Long Term Pulpwood Supply Agreement (LTPSA): Stumpage (linked to the Woodchip Export Price) and Plantation Pulpwood Stumpage at an (undisclosed) nominated price – change at the end of the day. From now, both stumpages will be calculated using algorithms based on European woodchip prices, instead of the Woodchip Export Price (WEP) as obtained for domestic woodchip sold abroad.
Plantation stumpage will be derived using an algorithm containing the PPI (that is, Gunns will now pay FT a price based on European woodchip prices, rather than the average price at which Gunns has in the past sold its export chip).
Native Forest: is tied to the Woodchip Export Price (WEP) but according to the LTPSA, the WEP is replaced by a Pulpwood Price Index as a means of determining stumpage. (PPI = PIX/EAUD European Pulp Price Index/Average Euro-$Aust exchange rate.)
Plantation Pulp: an undisclosed price
Native Forest Stumpage: varies to $12.50gmt and then by 12% at the end of 2012
Plantation Pulp Stumpage: varies to $27gmt and then by 12% at the end of 2012
Gunns has to repay its bankers $55m by this day (Nick Clark Mercury June 16)
1July2011 FT-Gunns Wood Supply Agreeements set new (?) Stumpage floor prices at $12.50gmt and $27gmt respectively for native forest pulpwood and plantation till 31 Dec 2012, thereafter increasing every 5 years by c. $3 per gmt in the case of plantations
From this day, (?) under the WSA
(8.1 & 8.2), Gunns become responsible for the harvest of Pulpwood Made Available and the cartage of logs from within the Stumpage Supply Zones (similarly FT become responsible for the Milldoor Supply Zone)
(11.1) Gunns become responsible for Forest Roads within the Stumpage Supply Zones (and similarly FT within the Milldoor Supply Zone)
??July2011 ‘TFCA cannot sign Forest Principles Agreement till July Board meeting.’
31Dec2027 The contract, unless already terminated, terminates.
Disclaimer: info in this article is largely based on information contained in the Long Term Pulpwood Supply Agreement, in the ignorance of other potentially existing arrangements/agreements – G.Stannus