Image for Mayne: Gunns believes pulp mill approval is inevitable ...  as it should be

Tasmanian forestry giant Gunns is working flat stick on its $2.3 billion pulp mill project. A visit to the site yesterday revealed at least 20 trucks and 50 blokes beavering away on an enormous earth works exercise.

While the mainstream media has left the impression the project will fall over, there is a sense of inevitability on site that it will ultimately be delivered.

The company is in final negotiations with an offshore joint venture partner and, when this is announced, the share price is expected to recover, especially if the cash injection allows Gunns to completely repay its $400 million-plus debt.

The Gunns AGM has been shifted to Melbourne for the first time this year, which has sparked accusations from Green opponents that it is seeking to avoid scrutiny.

CEO Greg L’Estrange is offshore negotiating the JV but is aiming to have details released in time for an extensive discussion at the AGM.

The media has made much of legal threats by a couple of groups attempting to have a court declare that Gunns has breached its permit by not satisfying the “substantial commencement” requirement.

Having invested and capitalised more than $200 million of shareholder funds on the project so far, it would be extraordinary if politicians allowed it to fall over on a technicality. Indeed, the many hundreds of suffocating permit conditions have themselves been a bizarre display of business strangling red tape by bureaucrats in Hobart and Canberra.

While Tasmania desperately needs the pulp mill, Gunns really should be commended for embracing sustainable practices and shedding its old growth and re-growth logging practices.

The evidence of this change is clear when you visit the pulp mill site on the Tamar river where Gunns and the old North Broken Hill Ltd used to run neighbouring timber milling plants.

When Gunns bought North Forest Products for $385 million in 2000, it merged the operations and cut a lot of jobs as it entered a golden period of profit growth and strong share price performance.

Only one of those timber mills was still operating at the start of this year, but it was then closed in April as part of the company’s painful move to plantation timber supply.

And this mothballed timber mill is the key to why Tasmania needs the pulp mill, which will be the biggest investment in its history.

The Tasmanian economy is struggling. The public sector has been living high on the hog for many years and, after a $100 million bond issue almost failed during the GFC, the politicians were finally jolted into action. Even with a Labor-Greens coalition government, there are now daily stories about public sector cutbacks in education and health.

Indeed, yesterday’s Launceston Examiner revealed that 10 jobs were being axed from an aged care home in Perth near Launceston because the state government refused to assist with funding.

Tasmanian Greens MP Kim Booth still publicly argues against the pulp mill but many of the other Green activists have exited the field, satisfied with their win over Gunns courtesy of the shift to 100% plantation timber. Even the Wilderness Society privately agrees that Tasmania needs more economic activity to sustain its bloated public sector.

After spending more than two hours on site and discussing the issues with company executives yesterday, I’m more convinced than ever over the merits of the pulp mill.

The Bell Bay region is the major industrial hub in Tasmania with Rio Tinto’s aluminum smelter and BHP’s manganese smelter. It is in no way comparable to Cradle Mountain or Freycinet National Park.

Indeed, with abundant access to water and timber it is the perfect location nationally to value add to Australia’s bulging stocks of plantation timber.

The MIS tax-driven schemes led to enormous over-investment in plantations and prices have plunged with the collapse of Timbercorp and Great Southern and the withdrawal of the ongoing tax subsidies. But the wood is still out there growing and if investors are going to salvage anything from their investment then a viable world-scale pulp mill is exactly what is needed.

The pulp mill also has a strong environmental story to tell. The plant will generate 90mW of additional base load power for Tasmania which will allow the state’s hydro assets to be more effectively deployed to the mainland for peak periods of power demand when prices are high.

One of the last remaining issues is labour productivity on the site. The CFMEU, led by Julia Gillard’s former partner and long-time political mentor Michael O’Connor, is looking for an exclusive single site closed shop arrangement.

While O’Connor has arguably done more than anybody in securing reforms to Tasmania’s logging industry, the ongoing disasters and losses of Victoria’s desalination project loom large. Leighton is head contractor for Gunns and it is understandably nervous about achieving sensible work practices that everyone can afford.

And with Gunns shares through the floor, investors are hoping the mill could be delivered for less than $2 billion, something which should be an outside chance given the strong Australian dollar has made importing the key equipment from Europe that much cheaper.

Crikey, HERE

Gunns Ltd Share Price, HERE