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Altius Associates December 8, 2010. Topics for discussion. What is the current state of global timberland investments – who, where, how? Where are the major centers of timber production and what is the demand outlook for paper and wood products?

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Altius Associates December 8, 2010

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Altius associates december 8 2010

Altius Associates

December 8, 2010


Topics for discussion

Topics for discussion

  • What is the current state of global timberland investments – who, where, how?

  • Where are the major centers of timber production and what is the demand outlook for paper and wood products?

  • What regions do we believe offer compelling investment opportunities?

  • Q & A


Investment grade timberlands by region

Investment-grade Timberlands by Region


Institutional timberland investments by region

Institutional Timberland Investments by Region

6/30/2010 Market Value


Institutional investments by structure

Institutional Investments by Structure


Investor characteristics

Investor Characteristics

6/30/2010 Market Value


Topics for discussion1

Topics for discussion

  • What is the current state of global timberland investments – who, where, how?

  • Where are the major centers of timber production and what is the demand outlook for paper and wood products?

  • What regions do we believe offer compelling investment opportunities?

  • Q & A


Timber market overview population demand

Timber Market OverviewPopulation = Demand


Timber market overview timber harvests vs paper and wood products production by region 2009

Timber Market OverviewTimber Harvests vs Paper and Wood Products Production by Region, 2009


Timber market overview us forest production by region

Timber Market OverviewUS Forest Production by Region


Key global driver recovery in us housing markets

Key Global DriverRecovery in US housing markets


Changes in trade patterns

Changes in trade patterns

Key Global Driver

Chinademand growth greatly exceeds domestic timbersupplies

Note: As a benchmark, the total pine harvest in the U.S. South in 2008 was ~180 million m3

Sources: China Customs Data and Forest Trends Analysis 2007


Key global driver economic viability of russian timber supplies

Key Global DriverEconomic viability of Russian timber supplies

Topography is challenging with high-cost cold winter logging & high logistics costs to market. Significant capital required for expansion.


Key global driver potential development of energy related markets

Key Global DriverPotential development of energy-related markets


Topics for discussion2

Topics for discussion

  • What is the current state of global timberland investments – who, where, how?

  • Where are the major centers of timber production and what is the demand outlook for paper and wood products?

  • What regions do we believe offer compelling investment opportunities?

  • Q & A


Rms core investment regions

RMS Core Investment Regions


Risk return profile of target countries

Risk-Return Profile of Target Countries

EXPECTED RETURN

(real, net)

LOW

MODERATE

RISK


Brazil forest plantations location species

BrazilForest Plantations: Location & Species

Scale has been developed in many regions, for both pine and eucalyptus

  • Currently:

  • Eucalyptus: 4.3 million ha.

  • Pine: 1.9 million ha.

Eucalyptus region

Pine Belt

Legend

>76% of total plantation area

<24% of total plantation area

Source: ABRAF, Sao Paulo Institute of Agricultural Economics and STCP, 2009


Investment summary brazil

Investment Summary: Brazil

Globally competitive with highly productive hardwood and softwood forests and manufacturing. Growing domestic economy providing demand support.

Markets

  • Softwood markets are transitioning from US export emphasis to globally diversified customer focus. Increasing growth in domestic markets in response to government sponsored infrastructure and housing initiatives.

  • Premier global producer of bleached eucalyptus kraft pulp. Growing domestic MDF consumption, along with energy markets, are generating fiber price pressure.

    Investment Opportunities

  • Wealthy family ownerships reaching generational tipping point. Many are involved in forest products manufacturing and facing financial pressures to monetize timberlands. Significant opportunities to acquire assets in $25 - $50 million USD range.

  • Major pulp and paper companies in early stages of shift from fully integrated model through sale of “non-strategic” assets.

  • Incremental consolidation of small ownerships creating scale can also be achieved.

    Political/Legal

  • It’s Brazil…difficult, but not impossible.

  • Highly regulated labor, environmental, tax and legal systems add process cost.


New zealand forest plantations location species

New ZealandForest Plantations: Location & Species

New Zealand’s forest resource is dominated by radiata pine.

  • Currently:

  • Radiata Pine: 1.57 million ha.

  • Other: 0.18 million ha.

Source: MAF National Exotic Forest Description, 2008


Investment summary new zealand

Investment Summary: New Zealand

Key supplier of sustainable softwood for rapidly growing Asia-Pacific markets.

Markets

  • Well-positioned to supply growing demand in China and India, both countries having large supply deficits. Cost increases of competing supplies will be an incremental price driver:

    • Russia: Increasing remote logistics costs, environmental restrictions and export taxes.

    • Canada: Reduced harvest from mountain pine beetle mortality.

  • Continued demand by New Zealand and Australian domestic economies.

    Investment Opportunities

  • Majority of timberland ownership held by investors, will provide ongoing acquisition opportunities.

  • Remaining medium size companies seeking timberland sales and long-term wood supply agreements as part of strategic shift of capital and management from fully integrated model to focused manufacturing for the supply of domestic and Asia-Pacific markets.

  • Consolidation of regional fragmented forest tracts creating scale can be achieved.

    Political/Legal

  • Very favorable foreign investment climate.

  • Highly transparent regulatory and legal system.


Australia forest plantations location species

AustraliaForest Plantations: Location & Species

Forest plantations are concentrated around coastal regions, providing excellent growing conditions

Legend

Forest Plantation Regions

Source: National Forest Inventory 2008


Investment summary australia

Investment Summary: Australia

Strong domestic softwood market and major hardwood chip exporter.

Markets

  • Strong softwood markets driven by domestic consumption for construction, outdoor and appearance products. Inadequate domestic supply supplemented by imports, mainly from New Zealand.

  • Largest supplier of hardwood chips to rapidly growing Asia-Pacific markets.

    Investment Opportunities

  • Privatization of large public forests has begun and will provide significant opportunities to acquire quality softwood assets.

  • Liquidation of overly leveraged MIS schemes may provide opportunities to acquire eucalyptus plantation assets.

    Political/Legal

  • Very favorable foreign investment climate.

  • Highly transparent regulatory and legal system.


China forest plantations location species

Species Group

Larch

Larch

Larch

Larch

Larch

Softwood

Oak

Oak

Hardwood

Oak

Oak

Oak

Forest Region 1

Ash

Ash

Ash

Ash

Ash

Larch and Birch

Larch and Birch

Birch

Birch

Birch

Birch

Birch

Aspen

Aspen

Aspen

Aspen

Aspen

Forest Region 2

Poplar

Poplar

Forest Region 3

Fibre

Fibre

Pines and fir

Forest Region 4

Eucalypts

Masson

Masson

pine

pine

Masson

Masson

Masson

pine

pine

pine

Spruce

Spruce

Spruce

Spruce

Spruce

Chinese fir

Chinese fir

Chinese fir

Chinese fir

Chinese fir

Pine

Pine

Pine

Southern pines

Southern pines

Southern pines

Pine

Pine

Fir

Fir

Fir

Fir

Fir

Hemlock

Hemlock

Hemlock

Hardwood &

Hardwood &

Hardwood &

Hardwood &

Hardwood &

Hemlock

Hemlock

Rainforest

Rainforest

Rainforest

Rainforest

Rainforest

Source: Pöyry and RMS

ChinaForest Plantations: Location & Species

Four broad forest regions can be identified based on six major species groups.

Guangxi and Guangdong provinces have been the focus for many forest plantation development projects

Source: Pöyry & RMS Analysis 2007


Investment summary china

Investment Summary: China

Strongest growing global forest products market that is sustained by domestic growth with a perennially large and increasing fiber supply deficit.

Markets

  • China’s strong demand growth is pulling increasing imports, equivalent to US Southern pine harvest.

  • Domestic sawlog and pulp log pricing is based on import parity.

    Investment Opportunities

  • Estates accumulated by medium to large size companies to assure fiber supply are becoming available as owners shift capital and management from a fully integrated model to leading edge manufacturing. These former owners will provide market stability as a major customer.

  • Incremental consolidation with smaller acquisitions creating scale can also be achieved.

    Political/Legal

  • Forests can be privately owned with long term leases and are transferable.

  • Sustainable commercial forests and associated rural manufacturing have strong political support.

  • Transparency of the tax and regulatory systems has substantially improved with WTO entry.

  • Legal protection, tax minimization and capital repatriation supported with Hong Kong structures.


Questions

Questions?


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