Fitzallen Forestry

1 DESCRIPTION OF BUSINESS

Fitzallen Forestry has been an active participant in the Tasmanian forestry industry since 2006 and owns forestry assets of native and exotic plantations in the State. These assets include standing coupes of commercial trees, sawmills, timber harvesting and transportation equipment and existing contracts for the supply of sawn logs in Tasmania.

Whilst Fitzallen Forestry has, to date, been a Tasmanian producer of timber, the company has entered into a preliminary development contract to harvest and process standing hardwood forests marked for clearing in Far North Queensland. Finalisation of acquisition and harvesting contracts for these Queensland forest assets will significantly add to the business of Fitzallen Forestry and will underpin the expansion plans summarised in this document.

2 FORESTRY ASSETS

2.1 Existing Land and Forest Plantations in Tasmania

Fitzallen Forestry owns land at two properties near Bothwell in central Tasmania totalling 2,466 hectares, each with standing forests available for harvest over the next five years:

  • Osterley
  • Trap Hut
  • 80 hectares of Hardwood plantation
  • 650 ha Native Forest
  • 506 hectares of Hardwood plantation
  • 570 ha Native Forest

Over the course of the next 5 years Fitzallen Forestry anticipates harvesting from the standing timber assets in Tasmania:

1. 143,000 tonnes Sawlogs

2. 45,000 tonnes Peeler Logs

3. 260,000 tonnes Pulp Wood

2.2 Proposed Acquisition of Plantation Assets in Tasmania

The two properties currently held by Fitzallen Forestry are relatively small and will need to be supplemented with forest products from additional sources. Therefore, negotiations are currently being conducted with other government and private holders of forest assets in Tasmania to acquire the standing and/or felled wood resources of these plantations.

According to Forestry Tasmania Annual Report 2015/16, there is approximately 800,000 hectares of forest under management by Forestry Tasmania, and coupes which are not already the subject of contracts to other processors are being sought as harvestable timber by Fitzallen Forestry substantially in the Southern Parts of Tasmania.

1. 30,000 ha Government owned Hardwood Plantation Timber

2. 40,000 ha Private Plantation Timber

3. Native Forest Coupes currently being identified by Southern Forestry Management at the instruction of Fitzallen Forestry

It is anticipated that during 2017 the Tasmanian Government will return 400,000 ha of native forest previously allocated as harvestable resource back to harvestable coupes.

2.3 Forestry Assets in Queensland

Fitzallen Forestry has been invited by the owners of forestry assets on Cape York Peninsula in Queensland to develop a plan to commercialise these forestry assets. There is 1.7 million hectares of Harvestable Native Forest in the Cape York Peninsula of which approximately 600,000 ha is the subject of a Bauxite Mining Lease to Rio Tinto. Each year, 1,500 hectares of land is cleared to prepare for mining. Currently, the native hardwood trees are felled, bulldozed into piles and burnt, yielding no economic benefit at all. The traditional owners, the Wik people, are keen to see their forestry resources not wasted and have sought a commercialisation proposal from Fitzallen Forestry.

In summary, Fitzallen Forestry proposes to establish a harvesting, sawmilling, chipping and export shipping facility on-site in Cape York Peninsula. This facility will harvest a total of around 700,000 tonnes per annum of native hardwood from the Land currently the subject of the mine expansion clearing program. This harvest will include approx. 225,000 tonnes of sawlog, 70,000 tonnes of peeler log and 400,000 tonnes of pulpwood.

Approximately 14% of this resource is high quality Cooktown Ironwood that will command a premium from furniture manufacturers In December 2015 the Board of Rio Tinto announced an expansion of the bauxite mining operations in Far North Queensland committing $2.6 Billion in capital that will include the establishment of a new port south of the existing port of Weipa. Capital investment in Cape York Peninsula forest products works will include wharf and bulk handling facilities adjacent to the existing wharf and the proposed new wharf infrastructures owned and being developed by Rio Tinto.

3 PRODUCTS

Fitzallen Forestry’s 5-year Plan calls for the establishment of separate production and manufacturing facilities to produce at least seven high-value wood products.

1. Sawn Timber, Green – rough-cut sawmill output for building and construction applications.

2. Sawn Timber, Dried – finished sawmill output of much higher market value, such as floorboards, framing timber and furniture stock.

3. Peeler Veneers – higher value, rotary-peeled logs of both pine and hardwood for applications including plywood, or as appearance veneers over MDF or other substrates.

4. Woodchips – the primary use of pulpwood, which represents up to 65% of the felled tree. Woodchips can be sold as bulk chipped product, or used for further value-adding into pellets.

5. Pellets, Industrial – pulpwood that is dried and pressed into pellet form as bio-fuel, feeding the increasing number of power-plants replacing coal-fired generators as a carbon-neutral energy source.

6. Pellets, Domestic – similar product to industrial pellets, but smaller size and sold as bio-fuel for household heaters. Although volumes are smaller than industrial pellets, domestic pellets command a significantly higher market price.

7. Engineered Wood – inputs are wood fibres in various forms and grades. Used to produce Laminated Veneer Lumber (LVL) for either structural or appearance applications. Commands high market prices with low to moderate processing cost. It is anticipated that Engineered Wood will become a key product group for Fitzallen Forestry as demand is high and increasing, as traditional sawn timber is becoming more difficult to source.

4 TIMELINES

Fitzallen Forestry’s implementation timeline calls for the establishment of production facilities for each of its product divisions during its first year of operation. This will be achieved by initially contracting with other established suppliers of each of the products while Fitzallen Forestry’s own manufacturing plants are built or acquired.

As soon as the company’s own manufacturing facilities are operational, the company will produce the products through a combination of its own facilities and, where required, continued sourcing from its other contracted manufacturers.

In every case, supply of input wood or wood-fibre will be from Fitzallen Forestry. These input materials will be either from the company’s own plantations or from other government or private plantations that Fitzallen Forestry has contracts with.

5 SALES AND MARKETING

A key element of Fitzallen Forestry’s Business Plan is the internal resources devoted to marketing and sales of each of the finished products from its manufacturing divisions.

Markets will include domestic and export destinations. Fitzallen Forestry’s associate entities are already active in seeking wood product markets in Vietnam, China and Korea and this will be expanded to other Asian markets during the first two years of operation.

Representative offices are operated in Ho Chi Minh City and Hong Kong to facilitate sales.

Investigations are also being undertaken to establish a Wood Pellet fired power generation plant in Tasmania that would deliver power to the national grid in Australia.

6 FUNDING

Funding to support the CapEx for production infrastructure, divisional operations and international marketing and sales will be via capital loan agreements with Fitzallen Forestry’s associate entity, OenoViva Capital Resources.

Specifically, funding in Year 1 is required for the establishment of:

  • A wood-chipping facility at an industrial site in Hobart
  • A pelletisation plant at a separate site in Hobart
  • Wharf infrastructure and a wood-chipping facility at Weipa, FNQ
  • Capital to acquire title to the standing forest assets of forest owners in Tasmania

Working capital to fund operations for the above.

OenoViva Capital Resources will use the assets of its balance sheet to secure liquidity for such loans to Fitzallen Forestry from one or more international banks.

Serviceability of all loans will come from the commercial trading activities of each product division of Fitzallen Forestry and be secured via Chattel Guarantees over commercial assets of the group.

7 FINANCIAL

Detailed financial modelling for each of the divisions of Fitzallen Forest is currently being prepared and finalised by the company’s advisers and external industry consultants and will be made available as part of the lender’s due diligence process.

8 CONTACT

For all matters related to the funding of Fitzallen Forestry, please contact:

OenoViva Capital Resources

Level 3, 2 Drewery Place

Melbourne 3000 VIC

Australia

M: +61 424 324 135

E:info@fitzallen-forestry.com

Fitzallen Forestry

Started:
4 Feb, 2017

Phase 1 COST

230 Million AUD

Project Total Cost

550 Million AUD

Funding for the establishment of:

  • A wood-chipping facility at an industrial site in Hobart
  • A pelletisation plant at a separate site in Hobart
  • Wharf infrastructure and a wood-chipping facility at Weipa, FNQ
  • Capital to acquire title to the standing forest assets of forest owners in Tasmania
Project Cost
  • 370 M AUD PHASE 1
  • 30 M AUD PHASE 2
  • 50 M AUD PHASE 3
  • 100 M AUD PHASE 4