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Nov 2, 2011

Mayne: Gunns believes pulp mill approval is inevitable — as it should be

Tasmanian forestry giant Gunns is working flat stick on its $2.3 billion pulp mill project. While the mainstream media has left the impression the project will fall over, there is a sense of inevitability on site that it will ultimately be delivered.

Tasmanian forestry giant Gunns is working flat stick on its $2.3 billion pulp mill project. A visit to the site yesterday revealed at least 20 trucks and 50 blokes beavering away on an enormous earth works exercise.

While the mainstream media has left the impression the project will fall over, there is a sense of inevitability on site that it will ultimately be delivered.

The company is in final negotiations with an offshore joint venture partner and, when this is announced, the share price is expected to recover, especially if the cash injection allows Gunns to completely repay its $400 million-plus debt.

The Gunns AGM has been shifted to Melbourne for the first time this year, which has sparked accusations from Green opponents that it is seeking to avoid scrutiny.

CEO Greg L’Estrange is offshore negotiating the JV but is aiming to have details released in time for an extensive discussion at the AGM.

The media has made much of legal threats by a couple of groups attempting to have a court declare that Gunns has breached its permit by not satisfying the “substantial commencement” requirement.

Having invested and capitalised more than $200 million of shareholder funds on the project so far, it would be extraordinary if politicians allowed it to fall over on a technicality. Indeed, the many hundreds of suffocating permit conditions have themselves been a bizarre display of business strangling red tape by bureaucrats in Hobart and Canberra.

While Tasmania desperately needs the pulp mill, Gunns really should be commended for embracing sustainable practices and shedding its old growth and re-growth logging practices.

The evidence of this change is clear when you visit the pulp mill site on the Tamar river where Gunns and the old North Broken Hill Ltd used to run neighbouring timber milling plants.

When Gunns bought North Forest Products for $385 million in 2000, it merged the operations and cut a lot of jobs as it entered a golden period of profit growth and strong share price performance.

Only one of those timber mills was still operating at the start of this year, but it was then closed in April as part of the company’s painful move to plantation timber supply.

And this mothballed timber mill is the key to why Tasmania needs the pulp mill, which will be the biggest investment in its history.

The Tasmanian economy is struggling. The public sector has been living high on the hog for many years and, after a $100 million bond issue almost failed during the GFC, the politicians were finally jolted into action. Even with a Labor-Greens coalition government, there are now daily stories about public sector cutbacks in education and health.

Indeed, yesterday’s Launceston Examiner revealed that 10 jobs were being axed from an aged care home in Perth near Launceston because the state government refused to assist with funding.

Tasmanian Greens MP Kim Booth still publicly argues against the pulp mill but many of the other Green activists have exited the field, satisfied with their win over Gunns courtesy of the shift to 100% plantation timber. Even the Wilderness Society privately agrees that Tasmania needs more economic activity to sustain its bloated public sector.

After spending more than two hours on site and discussing the issues with company executives yesterday, I’m more convinced than ever over the merits of the pulp mill.

The Bell Bay region is the major industrial hub in Tasmania with Rio Tinto’s aluminum smelter and BHP’s manganese smelter. It is in no way comparable to Cradle Mountain or Freycenet National Park. Indeed, with abundant access to water and timber it is the perfect location nationally to value add to Australia’s bulging stocks of plantation timber.

The MIS tax-driven schemes led to enormous over-investment in plantations and prices have plunged with the collapse of Timbercorp and Great Southern and the withdrawal of the ongoing tax subsidies. But the wood is still out there growing and if investors are going to salvage anything from their investment then a viable world-scale pulp mill is exactly what is needed.

The pulp mill also has a strong environmental story to tell. The plant will generate 90mW of additional base load power for Tasmania which will allow the state’s hydro assets to be more effectively deployed to the mainland for peak periods of power demand when prices are high.

One of the last remaining issues is labour productivity on the site. The CFMEU, led by Julia Gillard’s former partner and long-time political mentor Michael O’Connor, is looking for an exclusive single site closed shop arrangement.

While O’Connor has arguably done more than anybody in securing reforms to Tasmania’s logging industry, the ongoing disasters and losses of Victoria’s desalination project loom large. Leighton is head contractor for Gunns and it is understandably nervous about achieving sensible work practices that everyone can afford.

And with Gunns shares through the floor, investors are hoping the mill could be delivered for less than $2 billion, something which should be an outside chance given the strong Australian dollar has made importing the key equipment from Europe that much cheaper.


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42 thoughts on “Mayne: Gunns believes pulp mill approval is inevitable — as it should be

  1. Jim Reiher

    “After spending more than two hours on site and discussing the issues with company executives yesterday, I’m more convinced than ever over the merits of the pulp mill.”

    You know: I am not sure I would be so strongly defending this particular company after 2 hours of meetings with their spin doctors … I mean … company executives….

    Maybe Gunns has transitioned into a modern, eco-friendly, caring company… maybe….

    But maybe they are not quite as angelic as this article describes. They have had a horrid history and have seemed determined to resist change at every turn… up to now apparantly….

    hmmm… I still remain sceptical. But open to hearing more….

    Have they really switched to 100% plantation timber? If so, I will agree that is a very positive action.

  2. Bo Gainsbourg

    There is a basic and quite reasonable set of requests that people have put to Gunns over the years:
    – source your product from the overabundant mature plantation resources that already exists and stopping woodchipping outstanding native forests.
    -use world’s best clean technology for your pulp mill.
    -site the mill in any one of many suitable spots that is not the current site opposed by residents.
    If they did that they would get support, and its not much to ask from a company that has benefited from millions and millions of dollars of taxpayer largesse in different forms over the years. This is possibly not information you will hear from 2 hours on site with Gunns CEOs however. Strange as that may seem. Looking forward to the results of Stephen’s two hours at alternative sites with leading members of the Wilderness Society for the next installment.

  3. Bo Gainsbourg

    By the way, you will find that all, yes all the major progressive reforms to the Tasmanian forest industry have either been driven by the environment groups or the Greens. In fact go back to around 1995 and you will find that the economic analysis completed by the environment groups and Greens has been completely vindicated, despite being extensively derided at the time. In that period the CFMEU was derisive of the same analysis, to which they are now actually having to adjust having been mugged by reality. Pity in the meantime many jobs disappeared, not through protection of forest, but through ongoing industry collapse. Its great that the CFMEU and O’Connor are coming to grips with this finally, hopefully it will help more workers get jobs in a sustainable plantation based industry. But really, simply reverting to a formulaic dismissal of the environment groups position, when its been proven right time and again over the last 30 years, is lazy analysis.

  4. Liz45

    I’m against the Pulp Mill. I’m disgusted that Gunns wrote the Labor Govt’s Legislation. I abhor the potential danger to Bass Strait, winemakers etc, not to mention the tourism industry. Stuff up Tasmania and what will that do to the economy? We should be using money to recycle paper; save native forests and not add to Co2 emissions. The so-called ‘guarantees’ re the environment are a sham!

    The people of Tasmania don’t want the Pulp Mill! Gunns has already received in excess of $32 million in recent times as ‘compensation’ for not cutting down native forests? How disgraceful!

    The Styx area is a real shambles – it’s just disgraceful. These cowboys don’t give a hoot about the future – they just want money now at any cost! They’ve had it too good for too long!

    They won’t be happy until the last bloody tree is lying on its side – then what?

    Stephen, I suggest you fly to Tasmania and have a conversation with Peter Cundall, wine growers, people with horses, farmers, hospitality people, tourism, Wilderness Society etc.

    You should be ashamed of yourself. If you were doing an assignment at School or Uni, you’d be bawled out for your narrow ‘research’? I expected more from you!

  5. mattsui

    This article dosen’t contain Mayne’s usual footnote about shareholder advocacy etc.
    Are we to assume that SM is not one of the Gunns investors salivating at the prospect of a pulp mill phoenix?
    You wouldn’t know it from this article. I agree with Bo G that the location issue is still unaddressed and ought still to be a deal breaker for any conservationist worth the label.
    I would add that a very large amount of the Great Southern and Timbercorp holdings are in the South West of Western Australia….. not very practical when your pulp mill is in Tassie.

  6. davidk

    Stephen has been supportive of the mill before on economic grounds but has very little to say about the environmental impacts. Is the mill to be world’s best practice now? It wasn’t before and I don’t trust anything Gunns says.

  7. Ruth Groom

    That 90mW of base load power will come from burning native forest…or have Gunns altruistically handed back their wood supply agreement? They will just burn it instead of pulping it to get around the “plantation only” legislation. There are so many elements that have NOT been assessed in this project – airborne n0.1 particulates (highly carcinogenic in an area already suffering high rates of respiratory disease due to the inversion layer over the valley holding in pollution). Marine effects on a tidal estuary – they did hydro dynamic modelling but ONLY FOR COMMONWEALTH WATERS – not for the Tamar River which is a biodiversity hotspot – just to name two. Also that site you visited used to be an environmental buffer zone to protect the residents of George Town – I guess a few more deaths won’t matter there. How naive of you to swallow Gunns’ spin – they must have bought you a damn nice lunch!

  8. Liz45

    @DAVIDK – From what I’ve read, the proposed Pulp Mill is not world’s best practice. Further, SM hasn’t acknowledged the amount of polluted water and god knows what else that will go into Bass Strait on a daily basis. This is just one of the appalling environmental travesties being considered – the overall fact of Gunns writing the rules is just appalling.

    I’m still not convinced that we need such a Pulp Mill? Why? Why go down this path and emit so many toxins into the environment without even justifying the need?

    I’m with you re trusting Gunns – in fact, trust and gunns in the one sentence? Hardly!

    Does Gunns have the financial backing? I haven’t read that they have? I think there should be a Royal Commission into this fiasco – perhaps alongside CSG? Another travesty!

  9. Michael Harvey

    Totally disagree with Stephen Mayne on this one. The infrastructure costs alone will bankrupt the state, let alone the stupidity of manufacturing paper. A huge White Elephant. Thanks Gunns.

  10. mattsui

    Currently Great Southern and Timbercorp logs – Hybrid varieties of the fast growing Tasmanian blue gum species – are chipped in the harbour of King George Sound in Albany WA and shipped to Japan for paper processing.
    While this is an eminently practical process it is not without it’s negative outcomes. Primarily transport cost and associated pollution. Also damage to the marine envorinment due to runnof from the chipping process, clouding the waters and stunting the growth of local fish species including the legendary King George Whiting. This damage is caused by the tanins contained in the wood itself. No chemicals are added during the chipping process. I shudder to think how much more damage could be done by adding bleaching to the process.
    A pulp mill in Tasmania will do nothing to reduce the Transport costs and can only create haedaches for local communities – animal, plant and human communities.
    p.s. is Mayne a Gunns shareholder or not?

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