Manjimup mill sale stalled over log supply

Negotiations between the state government and timber processor Auswest appear to have hit an impasse, placing uncertainty over Auswest’s plan to buy the Gunns timber mill near Manjimup.

Auswest told WA Business News last month it was keen on buying Gunns’ mothballed Manjimup mill, but a long-term log supply deal needed to be sorted to finalise the sale.

Under the previous Labor government, major sawlog buyers were given investment security guarantees that placed them at the front of the queue for saw-log contracts from 2014-2023.

Auswest is seeking such a guarantee to invest up to $6 million in the Manjimup mill, although the company wants less timber than the volume allocated under Gunns’ current supply agreement.

Agriculture Minister Terry Redman said in a statement released today the government would only be willing to negotiate the additional security if Auswest is offered and accepts a new jarrah contract under the state government’s new forest management plan, to be released for public comment next year.

The current forest management plan runs until the end of 2013, and the Forest Products Commission’s 10-year log-sale contracts also expire at that time.

“This decision supports a sale/purchase going ahead but there has to be a commercial negotiation between the parties,” Mr Redman’s statement said.

“One outcome of the proposed sale is that the quantity of jarrah logs contracted to Auswest and the associated investment security guarantee will be substantially less than the current arrangement with Gunns.”

Mr Redman said no decision had yet been made about the volume of native sawlogs that will be available under the new forest management plan.

“The Minister believes that a level of future harvest similar to the current level is consistent with sustainable forest management practices,” Mr Redman’s statement said.

Minister Redman’s statement is below:

Forestry Minister Terry Redman expects a draft of the next Forest Management Plan (FMP) will be out for public comment during 2012.

The current FMP, which guides the sustainable harvesting of native forests and sets the quantity of sawlogs that can be harvested - runs to the end of 2013. The Forest Products Commission has 10-year log sale contracts that end at the same time.

No decision has been made about the volume of native sawlogs that will be available under the 2014-23 FMP, although the Minister believes that a level of future harvest similar to the current level is consistent with sustainable forest management practices.

The previous Labor government gave major native sawlog buyers investment security guarantees that put them in the front of the queue for 2014-23 sawlog contracts.  Auswest Timber Pty Ltd and Gunns Ltd both hold such guarantees.

Mr Redman understands Auswest - currently milling karri in Western Australia - is in discussions with Gunns with a view to purchasing the latter’s Manjimup jarrah business. The State Government was asked if it would be willing to negotiate future additional investment security with Auswest, should it be successful, and has indicated it would.

This additional security can only be provided if - after the next FMP is finalised - Auswest is offered and accepts a new jarrah contract. This decision supports a sale/purchase going ahead but there has to be a commercial negotiation between the parties.

One outcome of the proposed sale is that the quantity of jarrah logs contracted to Auswest and the associated investment security guarantee will be substantially less than the current arrangement with Gunns.