In September this year, forestry investment trust Bosques del Uruguay aims to raise $50 million by listing shares on the Montevideo Stock Exchange in the first transaction of its kind on the Uruguayan financial market.
The proceeds are to be used to buy 10,000 hectares (24,700 acres) of land in Uruguay to grow eucalyptus trees mainly for export markets, Francisco Bonino, chief executive of forestry management firm Agroempresa Forestal, has said.
Agroempresa Forestal — which already manages more than 100,000 hectares in Uruguay, Chile and Brazil — will manage the tree farms on the trust’s behalf.
Uruguay’s forestry industry has received significant investment in the last decade as investors take advantage of affordable land, favourable growing conditions, and an attractive investment climate.
Today, forestry plantations cover 1 million hectares in Uruguay, supplying local wood pulp mills and foreign markets like Vietnam and India, Bonino said.
“Uruguay is more open [to foreign investment] with reasonably priced land and without major political and social problems that might limit” the forestry industry, he said.
Forestry companies face opposition from indigenous people in some regions of Chile, while Brazil has restrictions on foreign land ownership.
Bosques del Uruguay is a 21-year project that won’t cut its first trees until its tenth year of operations. Agroempresa
Forestal is betting on strong Asian demand for high-quality logs in the next decade.
The project’s long timeframe should allow it to ride out any immediate downturn in the global economy and wood prices, Bonino said.
Bosques del Uruguay aims to produce 2.76 million cubic metres of wood during its 21-year life. About half of that will be shipped to export markets as logs, and the other half will supply pulp and electrical generation plants in Uruguay.
Chile’s Celulosa Arauco y Constitucion SA and Finland’s Stora Enso Oyj are building the massive $1.9 billion Montes del Plata pulp plant, while Metsa-Botnia AB operates a similar project built in the previous decade.
Bosques del Uruguay is expected to provide investors an 8.58% annual return and generate $405 million in sales during its lifetime, according to an investor presentation on its website.
The trust is aimed at institutional investors like Uruguay’s pension funds, but has also attracted interest from foreign investors, Bonino said.
“We think it might be interesting to replicate this in other countries where we operate, like Brazil where today there is a major restriction on foreign investment in land but not on capital that enters [the country] through the stock exchange in Sao Paulo,” he said.
Bosques del Uruguay is the first investment trust to issue shares that will trade on the Montevideo Stock Exchange.
Pulp and paper group anticipates much improved fourth quarter
After a traditionally slow June quarter, pulp and paper group Sappi is expecting a considerable improvement in operating profit in the fourth quarter.
However, while it expects an improvement compared with the third quarter, it is likely to be “well short” of the level achieved in the equivalent quarter last year, it said.
Operating profit in the quarter ended June was affected by planned annual maintenance shuts at the group's major pulp mills, weaker than expected demand for coated woodfree paper in Europe, general economic uncertainty and high input costs.
“High input costs remained a challenge in each of our businesses and are reflected in an increase in variable costs per tonne of 18%. In local currency terms, variable costs per tonne increased 6% compared to the equivalent quarter last year. In order to reduce the impact of high raw material prices, we continue to seek innovations with regard to the sourcing and the use of raw materials,” Chief Executive Ralph Boettger said.
Operating profit excluding special items for the quarter was US$60 million compared with US$75 million in the equivalent
quarter last year. Special items of US$6 million for the quarter included a plantation fair value adjustment and Black Economic Empowerment charges.
“Plans to restructure the paper and packaging business of Sappi Southern Africa in order to improve profitability, in conjunction with the approximately US$340 million conversion of the Ngodwana pulp mill to chemical cellulose production are progressing. We expect to announce details of the restructuring plans before the end of the calendar year,” he said. He noted that Sappi expected savings of US$50 million per annum as a result of the closure of Biberist. “In addition, as previously announced, we will start to benefit from a further US$50 million per annum in fixed and variable cost saving measures towards the end of the fourth quarter.”
Boettger said the group was looking at other cost saving exercises throughout the business and it is continually reviewing and reducing costs. He said he did not envisage any further complete mill closures, but that did not exclude interventions to make these cost efficient.