KI Phoenix to persist with purchase attempt of Kangaroo Island Plantation Timber

BURNED PLANTATIONS: Burned blue gum timber plantations and sprouting blue gum seedling off Church Road on western Kangaroo Island. Photo: Stan Gorton
BURNED PLANTATIONS: Burned blue gum timber plantations and sprouting blue gum seedling off Church Road on western Kangaroo Island. Photo: Stan Gorton

The investment company KI Phoenix plans to persist with attempts to purchase Kangaroo Island Plantation Timbers.

KI Phoenix has made a $20 million conditional offer to purchase the land holdings of KIPT with plans to remediate 15,600 hectares of fire-ravaged forests back to agricultural use to benefit the Island environment and economy.

KI Phoenix is part owned by AAG Investment Management, a private account and direct investment manager in the Australian farmland sector, and a specialist in agriculture remediation.

KI Phoenix's plans for transforming the land for agricultural use will eliminate the need for the planned controversial deep-water port at Smith Bay and an economically high-risk wood pellet mill.

AAG Investment Management's Marcus Elgin said even though KIPT rejected the $20 million offer, it was the best outcome for shareholders and KI Phoenix would continue to hold the offer.

Kangaroo Island Plantation Timbers meanwhile is moving ahead with plans to start shipping timber off the Island.

The company says it completed a successful expo of its timber at a yard near Mt Gambier and was now in negotiations with several mills regarding buying logs from the KIPT pine softwood estate.

Yumbah Aquaculture, whose facility is located directly adjacent to the proposed sea port welcomed the KI Phoenix proposal.

"After more than four years paralysed by the possibility of a port in Smith Bay, Yumbah is thrilled to hear a better solution to Kangaroo Island's tree problem," a spokesperson said.

"The prospect of a new neighbour that comes with no logging trucks or biosecurity threats is music to our ears. Add new locally resourced sustainable jobs to a promise of no port in Smith Bay, means KI Phoenix has our strong support."

KI Phoenix proposal 

KI Phoenix says shareholders in Kangaroo Island Plantation Timbers (ASX:KPT) "face a financial black hole of more than $100million if they reject a $20million conditional offer for their fire-ravaged forests and instead forge ahead with 'unpopular and very expensive plans with an uncertain outcome' to build a port, possibly develop a fuel pellet facility, harvest the current fire damaged timber and plant the next generation of trees, says bidder KI Phoenix Pty Ltd (KI Phoenix)."

KI Phoenix has responded to KPT's rejection of its offer, alleging that the timber company consistently inflated its net land value on an assumption that its planned port at Smith Bay has been approved and commissioned.

"Since 2017, KPT has used the possibility of a port to inflate its land value and has failed to represent the financial sensitivity of a development approval denial in its corporate reporting or the 'As Is' valuation of the land," Mr Elgin said.

"Assuming the state government will approve the port circumvents due process and places inappropriate pressure on the minister's decision-making."

He said the seaport had so far cost KPT shareholders $30million against an estimated $40million total cost (revised up from $30million).

And these costs incurred without planning approval having been granted, he said.

"Harvesting existing mature trees - many of which are fire damaged - will cost at least $60 million while replanting the next generation of trees will cost a further $15 million.

"These costs exceed the market capitalisation of KPT - before further investment in the proposed seaport is considered;

"Once harvested, the company has represented that it has plans to make fuel pellets from the fire-damaged timber. Given there is no economic means of shipping trees from Kangaroo Island to a pellet processing plant on the mainland, the company will need to build a pellet facility on Kangaroo Island at a likely cost of around $20 million."

Mr Elgin said the combined estimated cost of these activities is $105million, with no guaranteed offsetting net income for over a decade. "With only about $30million in the bank, how will they pay for it," Mr Elgin said.

In contrast, KI Phoenix has presented an option to shareholders which will provide them a certain cash-positive outcome in the very near term.

"If KPT shareholders accept our $20million offer for the land and if other assets in the business are sold for their book value and added to cash already in the bank, shareholders could be in possession of a cashbox of $66million," Mr Elgin said.

He said the offer from KI Phoenix is also a win-win for the local community, environment, and regional economy.

"If KIPT shareholders accept the offer, KI Phoenix will remove the burnt trees and remediate the land for grazing, cropping and developing farming infrastructure, creating 48 direct, long-term, full-time jobs.

"The wider benefits flowing to the Kangaroo Island community will also be significant. The proposed seaport at Smith Bay will no longer be required; sustained environmental pressures on the adjacent abalone farm will be avoided; and the costly long-term maintenance pressures on roads and other island infrastructure will be eliminated," Mr Elgin said.

"While disappointed by KIPT management's response to date, we remain hopeful that the KIPT Board will put the offer to shareholders, with a sale only able to proceed with their approval in accordance with ASX listing rules and other customary conditions."

Founded in 1997, AAGIM is a private account and direct investment manager focused on the Australian farmland sector. AAGIM provides investors with exposure to a wide variety of agricultural asset classes including cereal and oilseed cropping, sheep (for lamb and wool), dairy, and horticulture. AAGIM currently has $320 million of funds under management and advice.

AAGIM is a specialist in "transformational agriculture" - the process of taking land from a low-productivity use to high productivity. Transformational agriculture value creation can be through the improvement of undercapitalised farmland or through converting land to its highest and best use.

In this capacity, AAGIM has successfully transformed over 100,000 hectares of former blue gum plantation land to farmland in WA, QLD, VIC and NSW to productive farmland.

In 2020, AAGIM committed to carbon neutrality across its actively managed portfolios by 2025. It recognises the role agriculture needs to play in a low carbon future. Our experience is that achieving carbon neutrality is not to the detriment to profitability.

The path to carbon neutrality develops farms which are more resilient, have a healthier biosphere, are better integrated with modern technology and are more productive per unit of input than non-carbon neutral farms. These farms also produce a product that the consumer demands.

KIPT at Green Triangle

Kangaroo Island Plantation Timbers says it has completed a successful expo of its timber at a yard near Mt Gambier and is now in negotiations with several mills regarding buying logs from the KIPT pine softwood estate.

Logs of different size and varying burn classification were shown to representatives of about 10 mills, including logs from an independent grower on the Island.

Buyers were particularly interested in the KIPT wood that had good "resi testing" results, proving its suitability for construction grade lumber.

KIPT is now working with the Master Builders Association to try to address the shortage of timber for construction in South Australia. Industry leaders, including KIPT MD Keith Lamb, met with Primary Industries Minister David Basham recently to discuss potential solutions to the shortage which has left small building companies vulnerable and new home builders facing increased costs and delays.

Kangaroo Island Plantation Timber managing director Keith Lamb said there was enough structural timber on the island to build about 10,000 new homes.

"We've done all the technical specifications on the logs so they know what the quality is like and also the impact of the fire damage," Mr Lamb said. "Hopefully next week we'll get a response from them to say they are willing to take the logs and what price, so we'll negotiate a price, and then we'll start delivering them."

Mr Lamb said about half of the island's 1.3 million tonnes of pine had been blackened by fire but the quality of timber remained unaffected.

KIPT is investigating various avenues to start moving larger timber from the Island but remains committed to its Smith Bay wharf development proposal which awaits approval from the State Government.

"We have very large volumes of timber to move. This is just a start on our 4.2 million tonnes," Mr Lamb said said.

The log expo was a joint effort between KIPT, its contracted harvester Harvestco, contracted forester Rob Heathcote, forest manager PF Olsen and seller's agent Lew Parsons.

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