Thursday, 30 November 2017

AEG Forestry Update


I thought id do a follow up blog on the crown timber license AEG are currently awaiting from Newfoundland and Labrador.

They entered into an agreement in principle on 22nd May
and handed in all their paperwork on 12th October

So what does this mean in monetary terms to AEG. Investors cant see the wood for the trees!

The last forestry deal AEG tired was to help the native american Metis people monetise their forestry assets. They have about 110,000 hectares of viable forest and AEG had offers of $300mill for this in Jan 2015. That RNS caused a massive spike

Valuation based on previous deal

The current crown timber license is for 1.2mill hectares!
So the first finger in the air valuation could be $3bill based on the last deal.

Valuation based on other forestry management companies

Another way to value it is to look at other forestry management companies and how much forest they manage and what Mcap they command.
Our 1.2mill hectares equates to around 3mill acres for comparison.

Catchmark - CatchMark owns interests in approximately 502,400 acres of high quality commercial timberland located in Alabama, Florida, Georgia, Louisiana, North Carolina, South Carolina, Tennessee and Texas. The portfolio is well diversified by species and product mix (74% pine/26% hardwood by acreage and 50% sawtimber/50% pulpwood by volume).
Market cap $500mill

Potlatch Corporation - a verified leader in sustainable forestry. With approximately 1.4 million acres third-party certified to independent forest management standards, we grow trees, sell timber, and manufacture solid wood products. Since 1903, we have sought the common ground that enables us to unlock the value of our lands while conserving our forests for generations to come.
$2.1bill mcap

Rayonier  -Our 2.7 million acres of working forests, located in eleven U.S. states - focused in the U.S. South and U.S. Pacific Northwest - and New Zealand, provide wood for use in a variety of markets, from pulp to lumber, paper, oriented strand board (OSB) and other wood-based products
$4bill mcap

The list is long. Now these companies have a high value due to higher real estate values as well as a few other things. Im not suggesting AEG should be valued the same as Rayonier due to similar forestry area under management but you get the drift. There is considerable upside to managing a large forest!!

Valuation based on wood

AEG can "utilise up to 140,000 solid cubic metres of wood annually". That is 59328639.8 board feet. That is 59, 328 thousand board feet. tells me a thousand board foot is about $500. So 500 x 60000 = $30mill a year from the wood. The off cuts get turned into coalswitch pellets and sold for $180/tonne. The overall base revenue for x20 years is in excess of $600mill it seems. Add in all the free off cuts to make Coalswitch and you can see its a bit exciting. Im sure there are other monetary value chains other than selling the raw wood.

This broker note
suggests the feed stock for Coalswitch will cost around $15/tonne and you need 2:1 feed stock to Coalswitch pellet. So potentially they can use the forest to take off $30/tonne costs from the Coalswitch product and massively increase margins 

All in all the Crown Timber License is company making when it arrives and if/when understood, AEG is going to massively re-rate.

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