Letter to Fin Review – Gunns Value

John Hawkins

Dear Sir,

After two articles in your newspaper spruking Gunns and their share price, in particular ‘Street Talk’ of 15th July, a few facts based on local knowledge may be in order…

Wednesday, July 16, 2008
Mr G Jones
The Letters Editor
Australian Financial Review
edletters@afr.com.au

Dear Sir,

After two articles in your newspaper spruking Gunns and their share price, in particular ‘Street Talk’ of 15th July, a few facts based on local knowledge may be in order.

Macquarie values Gunns land at $825 million and Gunns have approximately 200,000 hectares under MIS Plantations, these are in effect tenanted by MIS investors who hope for a return on capital after 15 years. The tenant pays virtually no rent so under normal circumstances the asset would be worthless to the owner, in fact it has cost Gunns little, for, it is a form of gift from the MIS Investors.

If, at the time of harvest the timber is priced against native forest accessible to Gunns for 20 years for their pulp mill under the Forestry Tasmania Pulp Mill agreement at an average of $12 per ton it makes the plantations owned by the MIS investor unviable, for he requires $30 per ton to get his money back. I suggest that after harvesting, resale of the coupe with vacant possession will be difficult, especially if the last investor lost 66% of his investment.

If no sale eventuates, to clear the land for its return to farmland will cost more than the land is worth or Gunns can afford, hence, possible bankruptcy in 10-15 years. This non income producing land bank covers the ANZ debt of $1.2 billion on this basis alone.

I suggest that Macquarie’s proposed $3.46 current valuation looks somewhat optimistic.

John Hawkins
‘Bentley’
Mole Creek Road
Chudleigh 7304