GROWER UPDATE GPL Woodlot Projects & ex-GSMAL Plantation forestry schemes 26 November 2010 The woodchip export market in Australia is operating in a rapidly changing environment. Gunns Plantations Ltd (GPL) would like to update growers of recent developments in this area that are likely to have an impact upon grower's investments, particularly in the GPL Woodlot Projects. Gunns Limited has recently announced that it would close several northern Tasmanian woodchipping sites as part of a major operational restructure of its forest products division. I would specifically refer Growers to the ASX announcement of Gunns Limited (GNS) dated 24th November 2010. The announcement states that, "The recent rise in the value of the $AUD has made our products very uncompetitive in Asian markets. There is also increased competition from plantation fibre as the vast areas planted in Australia over the past 15 years reach maturity." Although much of the impact is being borne by the natural forest (i.e. native forest) woodchip export sector, as Australia's historical major trading partner Japan moves away from woodchips sourced from natural forests, the exports of plantation grown woodchips are also being heavily impacted. Japan is reducing its pulp and paper processing capacity as a consequence of the ongoing effects of the global financial crisis and due to supply coming on-stream from newer, more efficient pulp mills in China, South Africa and South America. Customers for ocean traded woodchips are also showing a strong preference for woodchips sourced from FSC certified sources. As you are aware GNS is devoting considerable resources to a project aimed at achieving FSC certification for its managed plantations (including those of Growers in both the GPL Woodlot Projects and the ex-GSMAL plantation schemes) in Tasmania, the Green Triangle and Western Australia. The availability of high quality eucalypt plantation grown woodchips exceeds current market demand due to the depressed markets and the large areas that were planted in Australia on the back of MIS investment, particularly plantations that were planted in 1997-2000 and are now available for clearfall harvesting throughout Australia. Further to the GPL update of the 22nd October 2010, after considerable deliberation, the Board of GPL has recently decided to accept a stumpage price for thinnings from plantations comprising GPL's Woodlot Projects 2000, 2001 and 2002 (planting Options 1 and 2). The price was disappointing but deemed by the GPL Board, management and independent expert advice to be the best price available given the market conditions at the time. The continuing deterioration of the markets for export woodchips, as evidenced by GNS' announcement of the 24th November, however has now put GNS' ability to conduct thinning operations in doubt. Clearfall harvesting of E.globulus plantations in mainland Australia are continuing but are also suffering from the same market pressures. In this environment of surplus supply, GNS' Japanese customers are showing a preference for higher basic density, lower moisture content wood from E.globulus clearfall operations than from younger, higher moisture content wood from the thinning of E.nitens plantations in Tasmania. In addition, both Japanese and Chinese customers are showing a strong preference for cheaper wood sourced from competing countries. The long term best interests of Growers in GPL's Woodlot Projects are served by Gunns Limited being successful in establishing a modern, efficient and globally competitive pulp mill at Bell Bay. In addition, GNS has recently announced its plans to divest itself of its natural hardwood (native forest) processing operations including the Somerset Veneer Mill, being one of the potential markets for Grower's wood in Planting Option 2 (Veneer and Pulpwood Option) of GPL's Woodlot Projects. Both the Board and management of GPL is giving particular attention to the implications of the above information for Planting Option 2 (Veneer and Pulpwood) investors in GPL's Woodlot Projects as timely thinning (harvesting) is essential for the successful achievement of the aims of the Veneer and Pulpwood investment option. Without timely thinning of the unpruned stems, the successful growing of veneer logs is jeopardised. The Board of GPL will continue to provide regular updates for Growers on the market situation affecting Grower's plantation forestry investments, however, it must be noted that GNS' ability to commercially thin Grower's plantations is currently looking considerably doubtful. Ian Blanden Chief Executive Officer
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