Woodchipper Gunns Ltd says it has less confidence in its ability to influence the development of a controversial $2.5 billion pulp mill in Tasmania.
Gunns said on Monday that it will book an impairment of $700 million to $800 million on some of its forest assets for the 2011/12 financial year, amid a gloomy outlook for the woodchip market.
Gunns announced in July that it was reviewing its asset values after a sudden fall in stumpage prices (the return to the grower, after deducting the harvesting and haulage costs of logs) achieved in the export woodchip market.
Gunns said on Monday, that in recent reporting cycles, it had valued key assets on the basis of a domestic pulp mill being established.
“The impact of the decline in stumpage prices on the company and its asset position has raised material uncertainty regarding the company’s current financing strategy, including for the mill project,” Gunns said in a statement on Monday.
“In that context, the company’s board has been unable to reach a view for the purposes of the company’s 30 June 2012 financial accounts that the mill project is probable to proceed in terms of the concepts defined in relevant accounting standards.”
Gunns said this did not necessarily mean that the mill project would not proceed.
“Rather it is an indication of decreased confidence from the company that it has the ability to influence the mill project proceeding,” Gunns said.
Gunns said that should the mill project succeed, a number of potential impairments would be reversed.
Gunns said the impairments would be made against a range of the company’s forestry-related assets, including its Tasmanian land and plantation estate, its interests in managed investment schemes (MIS) and the development costs associated with the pulp mill project.
Gunns said the current woodchip market, which is largely denominated in US dollars, had continued to decline over the past three months, putting sales and selling prices under pressure.
These conditions were not expected to improve in the near to medium term, due to the significant and growing oversupply of plantation woodchips available from Australia and an expectation that the Australian dollar would remain around current levels compared to the US dollar.
Shares in Gunns have been in a trading halt since March 9 while the company continues talks with potential investors in relation to a potential capital raising, restucturing or alternative transaction.
Gunns said it was not feasible to say at this stage when the suspension might be lifted.
Gunns is seeking to raise about $400 million to cut debt and support the development of the pulp mill.
Gunns also said on Monday that it expects to report underlying earnings before interest and tax (EBIT) – and before the impairment and other non-cash items – of about $26 million for the year ended June 30, 2012.
“Given the state of the current woodchip markets, 2012/13 earnings are likely to be materially less than 2011/12 earnings,” Gunns said.
Shares in Gunns last traded at 16 cents per share.
