Tuesday, October 5, 2010

Pulp Mill price tag keeps changing. Please Explain Gunns?

Clearly Nick Clark down at the Mercury does not buy Gunns latest claim that the pulp mill will only cost 1.4 billion.

On October 2, just a few days ago Nick Clark reported in the Mercury Newspaper....."TIMBER giant Gunns Limited is confident it can start building its $1.4 billion Bell Bay pulp mill this year.............A Gunns spokesman yesterday said the company didn't expect the mill to cost any more than its previous $1.4 billion price tag and was not considering any significant changes to the mill.".  Here

In today's Mercury, October 5 Nick Clark says.... "Mr L'Estrange is trying to transition Gunns out of old-growth logging and sawmilling and into a plantation-based industry including the $2.2 billion Bell Bay pulp mill". here

Dont feel bad Nick. No one else buys Gunns statements these days.

Further to my earlier query.

On page 15 of the Gunns release to the ASX from September 10 2010, only 3 weeks before a Gunn's spokesperson told the Mercury the mill would only cost $1.4billion  (here) , Greg Lestrange said capital cost of the mill will be $2.3 billion?? ..."This is a large project with some of the facts 1. The facility has a capital cost of $2.3 billion".
Indeed Greg.
Gunns own Southern Star Corporation website agrees saying....... "At a capital expenditure cost of $2.3 billion, Gunns’ pulp mill proposal is the largest-ever investment by the private sector in Tasmania"..

Nowhere in any of Gunns statements to the ASX of the last few years has the company put a cost on the pulp mill of anywhere near as low as $1.4Billion
My question to Gunns is what has changed in the last 3 weeks to drop mill capital costs by $0.9billion or did Gunns attempt to mislead Nick Clark and The Mercury on October 2 by telling him the mill would only cost $1.4Billion?
Fluctuations in the Aussie dollar over 3 weeks cant account for a $900million dollar cost differential.
And Nick Clark is now saying today the project will cost 2.2 billion again?

Please explain Gunns.

Drastic estimate changes on the Pulp Mill's price tag, promised mill jobs and economic benefits seem to change according to the political or otherwise needs of Gunns. This blogger first broke the story that former federal forest minister Tony Burke had supplied (cough, cough) the federal parliement with dodgy overinflated Pulp Mill jobs estimates which his department eventually took the fall for.
It was only in February this years when a Tasmanian Gunnermment media release spruiking Gunns mill told us the mill would cost $2.6billion.


  1. Rick, It could be they have stated the Mill Capital Expenditure in current $A/$US terms. The $A/$US is up 40% since their initial estimate in 2006/07 (so their offshore construction costs are potentially 40% lower).

    Given they will be buying alot of the construction material and prefab stuff for the mill offshore (in Euro or $US) this might acocunt for the much lower cost of construction. If they plan on offshore financing this might also significantly reduce their $A debt (principal and repayments). Note the long term average exchange rate to the $US is around $71c. It could move back to that level within months or years.
    Unless Gunns lock in and hedge all planned capex/financing cost at current Exchange rates, they are not likely to realise these currency gains on the project. Hedging large sums of currency will be very expensive (and almost impossible for very large sums..ie hundreds of millions of dollars) so they wont do this until they are certain they have the financing in place.

    So to claim lower capex costs on the back of currency changes (if this is the case) is misleading and not realistic.

    "Lock it in Eddy"..then we will see some action.

  2. Whishy surely you're not suggesting that Gunns are using rubbery figures?

    That would seem out of character to me (cough cough)