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OFO maps its future growth in Australia and NZ

OneFortyOne Plantations(OFO) is consolidating its position as a new vertically integrated company, including potentially using bioenergy as it maps future growth in Australia and New Zealand. Source: Philip Hopkins for Timberbiz

The company’s executive general manger – forestry, Cameron McDonald, said the group’s recent two big purchases – the old Carter Holt Harvey (CHH) Jubilee mill at Mt Gambier and Nelson Forests in NZ – were key stages in the growth of the group, formed in 2012 as a pine plantation owner with institutional investors.

OneFortyOne is based in the Green Triangle bordering South Australia and Victoria, which Mr McDonald described as Australia’s premier area for growing trees. It has 350,000 hectares of plantations – a mixture of radiata pine and blue gum – out of a total estate of 1.8 million ha.

“It’s predominantly flat, with good soils, reasonably consistent rainfall,” he told the annual conference of the National Timber Councils Association in Melbourne last week. The large plantation base and diverse processing centre in the region, and the proximity to the Port of Portland, were key advantages.

Mr McDonald said OFO’s immediate aim when established had been to build a strong foundation and “give the investors comfort they made the right decision”.

“The investors are focussed on long-term growth. They see a lot of opportunity for the forestry sector in Australia and New Zealand,” he said.

Mr McDonald said an immediate problem was how to deal with thinnings from pine operations after the pulp section of Kimberley Clark’s Millicent mill closed in 2011. The thinnings were round wood generally used by KC to generate pulp for tissue production.

“That left a big issue for all growers of radiata pine – how to continue thinning given it was critical for sustainability of the estate?” he said.

Exports were the only option, as small round wood had been exported through Portland since 2003. This required OFO to upgrade its Portland port infrastructure, which became muddy in winter.

“There was strong demand out of China for round wood.  That gave us a market that has proven to be consistent and generating positive returns for those exports,” he said.

Mr McDonald said diversifying the customer base was part of the company plan, which led to the acquisition of Jubilee. Jubilee had been consolidated with CCH’s Lakeside mill due to a low point in housing construction in 2011-12, which had taken a significant volume out of OFO’s sales to domestic customers.

The next issue was finding a domestic option for low-end fibre.

“There is ongoing worry about sustainability of selling small round wood to China given the cost of getting that to market. Generally, growers prefer domestic processing – it creates jobs for local community and tends to be a more stabile market in long term,” he said.

Mr McDonald said the company was harvesting 2.1 million tonnes of radiata logs a year – 83% going into the domestic market – but expansion was helped by a few factors.

“The South Australian Government allocated $27m from forward sale proceeds to allow domestic processors to invest in their mills production capacity,” he said.

Secondly, the former Auspine mill at Tarpeena was bought by New Forests, which formed a new company Timberlink, where OFO’s plantation estate is located.

Also, AKD Softwoods in Colac had embarked on expansion, buying other CCH mills on market, and investing a lot of money in their two Colac mills, including $35m in past 12 months in a new high-speed saw line.

“This has been fortunate, with more stability in the main processing sector in the region, which has increased the timber demand,” he said.

The company also cut its final harvest time from 41 years to 32 years – the optimal time to produce more timber.

“So we have been able to increase supply as we have had additional capacity in local market to buy the wood,” he said.

Mr McDonald said other GT companies formed the Association of Green Triangle Growers, which hired consultants to assess whether a processor would set up to use the surplus round wood.

There were no takers, so the OFO board decided to do a feasibility study on spending $250 million on some form of panel production – either particleboard or MDF – using thinnings and waste material.

“We felt we could generate 500,000 tonnes required to feed a modern particleboard mill,” he said.

Ultimately, the OFO board decided instead to buy the Jubilee mill, which received approval from the ACCC in January.

Now, thoughts were to use Jubilee’s residual material – forest waste, bark and sawdust, and offcuts – to alleviate the rising cost of energy.

“Bioenergy is on the agenda to reduce the cost of the facility and use waste material we get little value from,” he said.

“In a sawmill, we use a lot of steam to dry the timber in a kiln. That’s what we can do to be self-sufficient rather than generate surplus energy to the grid, but if that can be done, it adds to the business case. We are in early days in our thinking.”

Mr McDonald said a new opportunity came last October when the asset suddenly came on to the market in NZ – Nelson Forests, on the South Island, with 62,000 ha of radiate pine in an area similar to Mt Gambier.

“Again, OFO always wanted to grow, including in NZ. There is strong focus on domestic processing, with the right environmental and social outcomes – complementary to our existing operations,” he said.

The company was now waiting on the overseas investment approval, with a decision expected in September or October.

Mr McDonald said Australia only generated 75% of structural timber needs for local demand, with 25% imported.

“The Victorian market – housing demand – is still growing strongly. We see the benefit of two sawmills – one producing a lot of clear sections for high use and the other structural for housing. There are more opportunities for us to explore,” he said.

Mr McDonald said OFO’s focus was now on consolidating two big investments, plugging remaining operational gaps and integrating assets.

“Vertical integration allows clear thinking about operations. Continuous ownership of supply chain frees you up to explore new ways of doing things, and how improve operations,” he said. “We are always open to the next big idea.”