FOREST INVESTMENTS

Sun (Auckland), Volume I, Issue 256, 19 January 1928, Page 11

FOREST INVESTMENTS

RETURN FOR BONDHOLDERS PROBLEMATICAL VALUE OF THE PINE

igl^V re i Ur j per acre are bon dholders assured in the v New Zealand Perpetual Forests, Ltd., scheme? returawnds orig , inall y confident that their principal their vaim. fr ° m the exploitation of the trees through v ue as marketable timber. Later, however, it has wood t * le forests may be exploited as pulpwood for the manufacture of paper.

..7 he , Sun G u °tes the Melbourne Argus”:—“Many people in Australia liave subscribed to the bonds 7i? e .. bellef that tor an investment of £25 they will at the end of a given period have obtained forest land.which will yield a return of at least £500." Assuming for the moment that the trees being planted by the N.Z.P.F. will be all that the company claims, is it reasonable to suppose that every bondholder will receive anything like £SOO for his £25? The company had by July last purchased 155,000 acres. At £SOO per it is claimed that this plantawiii obtain no less a price than £77,500,000. Now The Sun may believe that under favourable circumstances a certain area of pinus insignia may realise £SOO per acre, but it is not by any means a foregone conclusion that an unlimited area will attain that figure. Quoting the authoritative article In the Dunedin ‘'Star,” to which previous reference has been made, the claim for a Government area of 237,000 acres, or one and a-half times the present area of the N.Z.P.F., is that by 1965 (after 40 years from the commencement of operations) the annual harvest should return £1,125,000 per annum, gradually increasing to £1,500,000. Over a period of 10 years from 1965 to 1975 at an average of £1,250,000 per annum that would give a return of £12,500,000 from 237,000 acres. ESTIMATES COMPARED That is an estimate which, allowing for Government apathy, appears to The Sun to be on a much sounder basis than that of Smith, Wylie and Co. Comparing the two estimates on the same area of 155,000 acres, we get the following results: Smith, Wylie and Co. —Outlay in bonds, £3,875,000. Estimated return, £77,500,000.

New Zealand Government.—Outlay in departmental funds £BOO,OOO. Estimated return, £8,000,000. Thus it will be seen that the outlay under the Smith, Wylie scheme is 41 times the Government estimate, while the glowing possibilities are 91 times the conservative figure quoted.

In other words, if the return on N.Z.P.F. bonds were found to be at the figure given in the Dunedin article, the result per bond would be not £SOO, but £sl. The Sun does not attempt to decide which of these two estimates is correct, but the mere fact of such a discrepancy is sufficient to show that the prospective return on the bonds is highly problematical. So much for the claim that pinus insignia will give every bond-holder £SOO for his “unseen afld unknown acre.” But up to now we have been dealing, with its prospects as a timber tree. Recently, however, and possibly owing to the numerous comments levelled at the scheme, there has been less talk of pinus insignis as a timber tree, and a lot of new propaganda about its prospective value for wood-pulp purposes. Reverting to the poetical article in “N.Z. Golf Illustrated,” The Sun quotes as follows: “Last year Perpetual Forests, Ltd., performed a world’s record in planting over 45,000 acres of pinus insignis trees”— destined to enrich New Zealand in the wood pulp industry. The firm now strongly entrenched throughout the Empire,

has outlived the testing period,” etc., [ etc. PROSPECTS FOR PULP The directors’ report is discreetly ! silent upon the subject, but curiously enough the three deputies of the trustee for the bond-holders, “The Australasian Forestry Bondholders’ Trust Company, Ltd.,” bring up the subject of wood-pulp off their own bat, on the third page of their report to the bondholders. (The Sun is not a' bondholder, by the way.) They speak in these terms: “We believe that these trees could have been pulped, had occasion required, at least seven or eight years ago. (Referring to 22-year trees on another property.) It will be seen, therefore, that bond-holders may look forward with confidence to receiving the proceeds of their bonds, if it is determined to pulp, in anything from 12 to 15 years, and that the estimate of 20 years as the period of growth for other purposes is quite conservative.” So that instead of having to wait a whole 20 years for his £SOO (or £sl), the lucky purchaser of a £25 “bond” may get his money in 12 or 15 years, “if it is determined to pulp.” The gentlemen who signed the report do not aay who is going to determine to pulp, what capital would be required to pulp, who is going to provide the necessary plant for pulping, or who is going to sell' or buy the pulp. N.Z.P.F., Ltd., is not bound to do any of these things. Incidentally The Sun is able to state that the usual capital or one of the North American paper-pulping companies amounts to £2,000,000 (not dollars). The latest prospectus of N.Z.P.F. cheerfully admits that “the establishment of mills for pulping the forests will be a colossal task.” N.Z.P.F. does not even appear to claim that newsprint can be made from pinus insignis. It quotes L. R. Benjamin in Bulletin 25 of the Institute of Science and Industry: “Pinus insignis is well adapted for the manufacture of kraft or strong brown paper pulp.” However, assuming that someone is going to pulp this timber and sell the pulp, what will the bond-holders receive ? VALUE PER ACRE Here The Sun can only quote the “Investment Digest” for September, 1927, as follows: “For our own part we are advised by one of the greatest of the Scandinavian experts that pinus insignis is one of the fastest growing trees in the world, its value for timber work is small but that it makes excellent pulp wood, worth about £IOO (one hundred pounds) per acre standing.” Regarding estimated profits, the latest prospectus admits “on this point there is some diversity of opinion.” Mr. Beckett, the Victorian Minister of Forests, with 45 years’ practical experience of the lumber business, in the yards, as a carpenter, and as a builder and contractor, declared that pinus insignis is worth about £5 per acre, and is only useful-for packing cases and fruit boxes. In view of this conflict of opinion, The Sun would like some further assurance that forestry bonds are a sound investment. (To be Continued.)

[The first four articles of this series appeared in The Sun of January 14, 16, 17, and IS.]