Kangaroo Island Plantation Timbers Ltd (ASX:KPT) is in the unique position of being a resource company with an above-ground resource that regenerates and if harvested at the growth rate, lasts forever.
In addressing investors at this month’s Proactive CEO Sessions, managing director John Sergeant said “unlike other resource companies, our resource grows while management sits behind their desks”.
“As it is all above ground, the amount and growth rate of the resource can be measured.”
Managing director John Sergeant addresses investors at a Proactive CEO Session.
Sergeant also likened the company to legendary Australian speed skater Steven Bradbury, who won Winter Olympics gold when all other finalists fell over.
“We are the Steven Bradbury of timberland companies – all others have fallen and we are left standing tall,” he said.
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He was referring to the managed investment scheme “fiasco” of the 1980s and 1990s in which many timberland companies failed, tarnishing the industry.
This was due to these companies being “tax havens” and not being run by timber industry or resources professionals.
Strong asset base
KPT has a strong asset base with $108 million of timber assets on Kangaroo Island, primarily Tasmanian Blue Gum, and a PPE of $58 million.
“Our forestry plantations comprise 80% hardwood and 20% softwood and unlike most others in the resources space, we tend to harvest the lower grades first so that we can replace them with better trees,” Sergeant said.
The company has a sustainable cash flow profile.
Kangaroo Island ideal for trees
The island is the ideal place for the resource as it has above average growth rates.
“Trees on Kangaroo Island perform better than those on the mainland because it is an island and is not as hot,” the MD told investors.
“It has high rainfall with low variability while summers are mild with low evaporation and there are no salinity issues.
“The blue gum growth rate is approaching 25 tonnes a hectare per annum, which is more than 25% more productive than the mainland.”
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He said monetisation of the resource was dependent upon building a deepwater port and this process was underway with the project having been declared of state significance.
KPT requires a deepwater site relatively close to shore with berthing capabilities for large ocean-going vessels.
An EIS for the wharf, which is proposed to be located in the closest practicable sheltered north coast site to the timber resource, is now on public exhibition.
Sergeant said the company expected approval to be received later this year with construction to begin by the end of the year and first timber exports in the first quarter of 2021.
Increasing woodchip demand
Increasing demand for woodchip is boosting the company’s economic prospects.
The long production cycle is resulting in a deficit, particularly in hardwood ship supply, and this has led to strong price growth for hardwood chip, while softwood prices are equally strong.
KPT is well positioned to help meet the supply needs of pulp mills with Kangaroo Island hardwood having the potential to produce about 10% of annual structural shortfall.
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The company is well supported in its endeavours as it has a trading partnership with Mitsui & Co Ltd (TYO:8031) encompassing timber sale and purchase agreements and is being supported by the Commonwealth Bank of Australia (ASX:CBA) to the tune of $57.1 million.
A final debt facility structure is expected following EIS approval, finalisation of the wharf design and execution of a construction contract.