15 Aug 2011

ForestrySA Cuts Log Supply To Gunns

Tarpeena Mill

From The Border Watch

Posted on August 15, 2011, 8:08am
Government-owned timber supplier ForestrySA has suspended the allocation of softwood logs to milling operations owned by Gunns Limited.
It is understood ForestrySA has stopped log supply to the Auspine Tarpeena mill and the smaller operation at Kalangadoo.
The news follows the Tasmanian timber giant suspending share trading last week. While ForestrySA would not confirm if and why it had suspended log supply, The Border Watch understands it surrounds the issue of non-payment by Gunns over some time. The Tarpeena Auspine facility — which is listed for sale by the timber giant — employs 160 workers and is one of the region’s largest milling operations. While  the suspension of supply will affect the Tarpeena mill, it is understood Gunns Limited has access to logs from private sources. “Gunns are a significant contributor to the South East industry and a major customer of ForestrySA,” ForestrySA chairman John Ross said. “We are waiting to see what evolves — it is a difficult time for them.” He said Gunns Limited traditionally  purchased a large volume of logs from ForestrySA. The ForestrySA chair would not be drawn into commenting on whether the corporate entity had suspended log supply to Gunns. Meanwhile, a spokesperson for Gunns would not comment on the log suspension issue yesterday. “We don’t comment on our commercial relationships and the (Tarpeena) mill will be operating business as usual,” the spokesperson said. Construction, Forestry, Mining and Energy Union SA district assistant secretary Brad Coates said he was confident the mill would continue to operate. “We’re pretty hopeful that there won’t be any job losses, but we can’t guarantee that,” Mr Coates said. He argued the Tarpeena mill was likely to continue to operate because it had supply from private plantations. “My understanding is that those logs are still coming in,” the union leader said. But Mr Coates conceded the situation was “disconcerting”.
“People are a little bit nervous about what may happen, however at this stage it’s business as usual,” he claimed. Following news of the log suspension, Mr Coates said he was “not really” surprised.
“We’ve been aware for some time that Gunns has had a cash flow problem,” he said.
“I don’t know how much money they owe ForestrySA, but obviously there’s an issue there — if you don’t pay you’re bills, you don’t get supplied with products.
“We’ve had no real cause for concern up until this stage because wages are being paid and entitlements are being met.” Mr Coates argued the future of the company was reliant on a compensation package being negotiated between Gunns and the Commonwealth and Tasmanian governments. “It all hinges on compensation packages that are being currently negotiated with Gunns in Tasmania with regards to exiting the native timber industry in Tasmania,” he said. “If that compensation package gets ticked off, my understanding is that they will have some cash flow to perhaps get themselves out of this situation that they’re in.” He argued Gunns operations in the South East should remain profitable.
“We’re pretty hopeful that the South Australian operations here in the South East will be maintained because they are profitable operations, they’re not hugely but they’re still making a small profit,” Mr Coates said. “They’re currently up for sale at the moment and we’d be pretty confident that a buyer will be found pretty quickly for those sites. “We understand that there are several parties that have shown interest in buying the site, but with the uncertainty at the moment with the financial situation globally people are holding off.”
Mr Coates said the downturn in the building market should help Gunns with their log supply issue.
“That’s the only good thing about the downturn in the market, they don’t need the amount of logs they’d normally need to maintain full production,” the union boss said. In a move to drive down debt, Gunns Limited sold its 50,000ha Green Triangle plantation estate for $107m to an American buyer in June. The company plans to exit the Green Triangle and open a $2b new pulp mill in Tasmania.

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