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Gunns Pulp Mill:  A Strategy document Know your Enemy. Target their Weakness

1. Finance:
a) Gunns operating cash flow is negative. It survives on funds obtained from asset sales, at this stage Gunns should make it into the new Financial Year.
b) Size of debts - Gunns borrowings are $630 million principally to the ANZ. In the last 18 months borrowings have only reduced by $30 million, the rest of the proceeds from asset sales have been used to pay operating expenses.
c) Gunns plantations have not been revalued since 30th June 2009 and should now be based on a value of $1,680 per hectare,  established by the sale of the Great Southern plantations to a Canadian Pension Fund. This reduces Gunns asset backing, calculated over their plantation estate of 220,000 hectares at $1,680 to $369,600,000; say $400 million dollars.
d) Gunns values this forest land in their Annual Report at $760 million, a negative difference of $360 million.
e) Gunns values its roads in native forests at $141 million. With no native forest logging this fictitious asset figure becomes even more fictitious. I suggest that Gunns, with regard to these two matters, has now overstated its assets by $500 million.
f) Gunns only assets of any value are fully encumbered by mortgages to the banks and leases to investors.
g) The length of time taken by Gunns to pay its major creditors has crept out past 90 days, or in the case of Forestry Tasmania, probably never? The company owed its creditors $88 million at balance date 2010.
h) It is now nearly 2 years since Gunns has paid a dividend.

2. Gunns as a Takeover Target:
a) Anybody considering a joint venture with Gunns knows that it would be better to buy Gunns from the liquidators, as per the Great Southern deal recently completed.
b) A Joint Venture partnership via the share market means considerably more expense and a lot of public exposure.
c) Gunns is a speculator’s delight; large profits have been made on the Burke (lite) announcement with movements of over 30% in the share price in the four working days after the announcement.
d) Foreign Investment Review Board approval is far better achieved out of the spotlight, for the purchaser becomes apparent only when the deal is done.

3. FSC:
a) The golden rule for any pulp mill to enable the international sale of its product is FSC approval - no FSC for Gunns means no international sales, no woodchip sales, no pulp sales,  no paper sales and no mill.
b) Gunns is currently only applying for FSC for their plantation holdings in the Green Triangle; not Tasmania.
c) FSC for Tasmanian plantations on converted native forest is unobtainable and would be refused . This means that approximately 100,000 hectares of Tasmanian plantations are not available for the pulp mill.
d) As a result Gunns CEO has stated that 1.6 million tons of Gunns plantation timber will have to be shipped annually from their mainland Green Triangle holdings via Bell Bay to fill the Tasmanian plantation shortfall.
e) The cost of shipping this timber across Bass Strait - the most expensive waterway in the world - is unknown. It is cheaper to send the Green Triangle plantations to China; Australian labour costs combined with triple handling, on to the ship, off the ship and into the pulp mill makes no economic sense.

4. Partners:
South East Asian joint venture partners such as per Asia Pulp and Paper, APRIL and Nine Dragons have an extremely poor track record over logging native forests and a lack of FSC accreditation; these facts can be used legally to discredit their modus operandi. Proper JV partners, particularly the Swedes, have walked away; except as possible equipment suppliers under Government export guarantees.

5. The Directors of Gunns:
a) Shareholdings: The five directors between them control approximately 7.5 million shares.
b) The current Board have been unable to appoint successors to Holyman, Gay and Gray; so undesirable is any form of association with this toxic company.
c) Gunns should have six Directors: “The Board should comprise at least six Directors” as stated in the Annual Report 2010.(The minimum no. of Directors is governed by the Constitution).
d) They have made the CEO, L’Strange, a Director; so he is no longer answerable to the Board but part of the Board,  this is not unusual - what was unusual was that Gay was both CEO and Chairman.

6. Construction:

a) The Construction firm Leighton Holdings in November 2007, with their associate John Holland, held the contracts to build the pulp mill. They have subsequently distanced themselves from the project; CEO Wal King saying: “Leighton did not enter into contracts for construction that would have a significant input on the environment.”
b) Their Swedish consultants, under Timo Piilonen, the pulp mill Director, have gone
c) Pitt and Sherry, one of Gunns Consultant Engineers based in Launceston, has reduced its commitment to the project.
d ) Gunns opponents will target supply contracts, labour, wages , the financial credibility of suppliers, and if supplies are funded by government, blacklist these suppliers.
e) Construction has to be seen as proceeding or Gunns will have to expend $220 million dollars currently capitalised. If the mill doesn’t proceed the $220m will be written down, which will produce a loss and shrink the balance sheet (but it won’t mean insolvency because that is determined by being able to meet debts as and when they fall due).

7. Share price:

a) Those who oppose the pulp mill should target the share price with press statements on the current financial status of the company and its partners, concentrating on the true asset- backed figures. In this area the internet is all important.
b) Google GNS ASX and you can see a listing of the shareholders who control more than 50% of the Company. These shareholders should be made public and the extent of their unethical investment in a non FSC accredited Company made evident.
c) Gunns would appear to have no committed long term institutional shareholders. Most of the shares changing hands are by punters, small funds and short sellers, under the Bank of America or UBS umbrella.

8. The RPDC “a critically non compliant” Mill:

a) No proper Cost/Benefit process was ever carried out;  only the benefits to Gunns have been assessed;  not the costs to the community such as those involved in tourism, fishing, food production, loss of jobs and property losses.
b) No proper assessment into thermal inversion and air quality in the Launceston Tamar Valley air shed or pollution from effluent in state waters has ever been carried out.
c) The original proposal was for a pulp mill to be assessed as a closed loop chlorine free mill; it is now a Kraft bleached chlorine mill. A far less expensive alternative from Gunns’ point of view and the impacts of this change have never been assessed.
d) The corrupted state approval process. The Lib/Lab state politicians could claim no knowledge in the field of pulp mills when they passed the PMAA. They were ill equipped for the task; their collusion allowed Lennon to run the mill through the Parliament in 20 days with no public input, with the result that Democracy was Betrayed.

9. Section 11 Pulp Mill Assessment Act:
a) This is probably the most hated part of the political process; it removes the rights of the individual with the connivance of the courts to gain redress against the mill. Drafted by Gunns lawyers in the Parliament it is a complete and utter Betrayal of Democracy in Tasmania.
b) The philosophy, “Never appoint a judge who will convict you” is the Golden Rule for Tasmanian politicians. It is seen here at its most blatant.

10. Guarantees Federal/State:
a) Any further government guarantees to the pulp mill will bring down either the Federal and or State Labor Governments, for the Greens will vote against them.
b) The Greens and the Independents will see justice done.

11. The Wood Supply Agreement:
a) The mill will burn Tasmanian native forests as a power supply. The 1,250,000 tonnes Wood Supply Agreement with Forestry Tasmania will not be rescinded. It will be used as a pawn in the political play to extract money from Government.
b) When, as a result of public opposition we do not pay them the money, they can then use Tasmania’s native forests to power the Mill; as they could not get out of the contract.

12. A Royal Commission:
a) The people of Tasmania demand a Royal Commission into the corruption of process by Gunns over the Pulp Mill Assessment Act. All those involved should be held to account, particularly Gay, Gray, Lennon, Hornsey and Kons.
b) When Gunns is in Liquidation a Federal Royal Commission should look into the MIS scams, the Forestry Industry and where the money went from the Federal Government under the Regional Forestry Agreement and the corruption of the political system by logging and forestry companies. Thousands of millions of dollars have been lost by the tax payer for no known advantage.

John Hawkins
Chudleigh