Friday, January 04, 2008

 

Profitable Island Timberlands to become part of Bermuda-based partnership, a "global, pure-play public issuer" ...

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BROOKFIELD TO SPIN OFF TIMBER ASSET

Gordon Hamilton
Vancouver Sun - Friday, January 04, 2008

Brookfield Asset Management, which owns 50 per cent of one of Vancouver Island's largest forest companies, Island Timberlands, is spinning off its timber and power assets into a Bermuda-based partnership to create an offshore investment vehicle.

Toronto-based Brookfield intends to issue 60 per cent of the new firm, called Brookfield Infrastructure Partners LP, as a special dividend to its existing shareholders. Brookfield will retain the remaining 40 per cent.

Brookfield Infrastructure Partners will initially own five electricity and timber operations in North America, Brazil and Chile. It is to begin trading on the New York Stock Exchange Jan. 31.

Being based in Bermuda, the new company will have an international board of directors and is expected to be exempt from certain Canadian taxes and the enforcement of Canadian civil judgments.

In its prospectus, Brookfield Infrastructure Partners lays out the purpose of the spinoff as a strategy to create a global pure-play public issuer "that should be well positioned to pursue an infrastructure and acquisition growth strategy."

It defines infrastructure as "long-life, physical assets that are the backbone for the provision of essential products or services for the global economy." The partnership will be the primary vehicle for future large-scale infrastructure acquisitions by Brookfield, which has $90 billion in assets worldwide.

Island Timberlands is one of its more profitable assets, the prospectus reveals.

Brookfield, along with two Canadian institutional partners, created Island Timberlands in 2005 from Weyerhaeuser Co.'s private lands after purchasing Weyerhaeuser's coastal assets. Weyerhaeuser's sawmills and Crown timberlands were later merged into Western Forest Products.

Island Timberlands owns 258,000 hectares of land on Vancouver Island, the largest chunks being in the regions of Courtenay, Port Alberni, Nanaimo and Duncan. There are 58 million cubic metres of timber on the properties, mostly high-value Douglas fir, cedar and hemlock. Island Timberlands harvests 1.8 million cubic metres a year, which is mostly exported to markets in the U.S. Pacific Northwest and Asia.

The prospectus provides a rare glimpse into privately held Island Timberlands, revealing it to be one of the most, if not the most profitable forest company in the province based on net income.

Income statements show that despite the generally depressed forest economy in B.C., Island Timberlands posted net income of $32.1 million on log sales of $184 million for the nine months ending Sept. 30, 2007. By comparison, Western Forest Products, a company under common control of Brookfield that operates sawmills and logs Crown land in the same region, lost $12.9 million over the same nine-month period.

The prospectus also sheds light on Brookfield's strategy for Island Timberlands.

n Log exports: The U.S. Pacific Northwest has made significant investments in modernized sawmills, resulting in a three billion board-foot, or 29-per-cent increase, in regional sawmilling capacity over the last five years. "This increase in capacity, combined with conservation-related reductions in harvest levels, has made the U.S. Pacific Northwest an attractive timber market." Because of their high fixed costs, the U.S. sawmills continue to operate in depressed markets, such as the one the industry is now experiencing.

n Looming timber shortages: Brookfield foresees a global scarcity in timber supplies, the result of the mountain pine beetle's drastic effect on future timber production in B.C. and Alberta, Russian log export restrictions, the continued withdrawal of timberlands for conservation or real estate development, and competition for wood fibre from bio-fuel producers.

n Real Estate: Island Timberlands has 14,000 hectares of Vancouver Island identified as "higher and better-use" properties that could be developed or sold for conservation purposes. It values those lands at $104 million. In the nine months ending Sept. 30, 2007, it sold $14 million of those properties for a net gain of $7 million. Two other forest companies, TimberWest Forest, and Western Forest Products, have attracted broad public concern on the Island for selling off parcels of their own timberlands.

ghamilton@png.canwest.com

http://www.canada.com/vancouversun/news/business/story.html?id=08c58048-2ed1-401c-8328-1cfc9da20219

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Another perspective is published in today's Times Colonist (with their warning at the end of this article about the author's credentials):

COASTAL FOREST INDUSTRY IS IN A STATE OF CRISIS
Companies are creating carnage in the woods, closing mills and killing jobs

Ben Parfitt
Special to Times Colonist
Friday, January 04, 2008

Anyone who has paid attention knows that things are wrong, horribly wrong, with what was once the dominant industry on Vancouver Island and coastal B.C.

Forest companies are shutting down mills. Log exports are at or near record levels. Wood waste is so rampant that two or more large sawmills could run flat out on just the usable logs left to rot or burn at coastal logging sites.

Meanwhile, little if any of the almost $1 billion turned back to B.C. forest companies following the softwood lumber dispute has been invested in new or upgraded mills in the province. And don't expect any future financial windfall -- like the tens of millions of dollars soon to be pocketed by Western Forest Products after it sells some of the most productive forest land in the province to real-estate developers -- to be spent here either. {Snip} ...

... logging of remnant old-growth forests on steep, unstable slopes like those at Nootka Island continues apace. And in the mess left behind, fully a 10th of the usable wood is left to rot near where the ancient cedar, hemlock and fir were felled. Meanwhile, the company responsible for the carnage is closing mills, not opening them.

Or take the action plan's astonishing language on log exports. Exports, we're told, "play an important role in the coastal economy by providing jobs in the logging and transportation sectors."

Excuse me? Surely the issue is that raw, unprocessed logs from B.C. play an increasingly important role in thousands of sawmilling jobs outside of the province. In 2006, nearly five million telephone poles worth of logs were exported from coastal B.C. Had they stayed here, the local economy would have benefited to the tune of another 3,700 milling jobs.

The "action" proposed to counter this? Only on the South Coast and only on public land will B.C. logs destined for export be subject to taxes equivalent to the export charges on U.S.-bound softwood lumber.

Yet most logs exported from the south come from private lands where the tax won't apply.

Meanwhile, government is giving the green light to increased log exports from public lands farther to the north, spelling added disaster for coastal communities.

One area where the plan does get things right is that the future of the coastal forest industry lies in the expanding base of second-growth forest. {Snip} ...

The crux of the problem is this: Our atrophying coastal forest industry is dominated by a handful of companies that have made virtually no investments in new and refurbished mills and show no inclination to do so. Meanwhile, government watches from the sidelines as if it is powerless to do anything about it, when in fact it has enormous powers as landlord of our public forestlands.

It is long overdue to call the government's performance on the forestry file what it is -- a failure.

It's time for an independent inquiry or royal commission to draw up a badly needed roadmap for a new way forward.


Ben Parfitt is a resource policy analyst with the B.C. office of the left-leaning Canadian Centre For Policy Alternatives and author of Wood Waste and Log Exports on the B.C. Coast available at www.policyalternatives.ca.

http://www.canada.com/victoriatimescolonist/news/comment/story.html?id=d414497b-586b-485a-a662-a907e9341f1a

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Comments:
Thanks for this, Mary - I think you're right on when you say this "all ties in."

It just makes me so sad and mad at the same time.....and "carnage in the woods" is a good choice of words by Parfitt.

It is commonplace now for me to see a grim parade of five or six big logging trucks hurtle by as I drive home from my weekly grocery run. In all the years of living here I have never seen so much logging. Everywhere, from in town to our more remote area, one can see that ominous sign - a single long and lonely stand of trees left behind - a sly curtain desperately trying to hide all the mess and dreadful damage that has been done.

Two or three years ago, an american company logged the right of way on both sides of our main highway. Big, tall, healthy Douglas fir fell like pick-up sticks. Miles and miles of them, loaded up and taken away. We were told that they were logging because the highway was about to be widened but years later, nothing, absolutely nothing has happpened in this regard - except that the highway has become much more treacherous to drive during windstorms as all the natural forested wind breaks are all gone now.

It occurred to me that if this same scam was happening all over the province, that it would amount to quite a lot of timber acquired through "means not normally considered." (Which is what I think is going on here, land acquisition by every sneaky means possible, a cocky game of subterfuge - the stealing of public lands through hidden back door access to the ALR, through the abuse of the First Nations Treaty process, through port "development" etc. One big "sneakily legislated" real estate agency that is literally stealing the public land, water, and assets of BC.)

I mean it gives new meaning to Land and Water BC. Now those must be "the" files to access! .... and think of the cabinet ministerial aides that had access to those files - and their subsequent connection to lobbying firms like Pilothouse.
 
I too am outraged by forestry practices allowed in BC. Island Timberlands, owned by Brookfield Holdings, with assets of $90 billion worldwide, would not pay an extra $4000 to manually groom their young Douglas Fir, instead of applying an herbicide that could enter our water supply. After much protest from us, they relented and didn't do anything, and in the following year their trees had grown nicely, and nothing had to be done anyway. So much for forest management.
Nanaimo, BC
 
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