david brandtalksabouthancocknaturalresourcegroup

World Forestry Center 21-23 January 2003

Hancock NaturalResource GroupAustralia Pty Ltd ®

David G. Brand, Ph.D.Director, New Forests ProgramHancock Natural Resource GroupLevel 19, 821 Pacific HwyChatswood 2067

(02) 9884-8202(tel)(02) 9411-1315 (fax)[email protected]

6 May 2004

Hancock Natural Resource Group (Australia)Institutional Investment in Forests in Australia



2

Important Note

The material in this presentation is provided for information purposes only. While the information comes from sources believed to be reliable, Hancock Natural Resource Group (Australia) does not warrant the accuracy or completeness of the information provided.

Any projections, forecasts or forward looking statements in this presentation are a function of many assumptions and may in fact be wrong.

This presentation is not an offer of investment advice or an offer to sell securities



Hancock Natural Resource Group (Australia)

Australian arm of HNRG Inc., a subsidiary of Toronto-based Manulife Financial Services (NYSE/TSE:MFC). HNRG is part of the Global Investment Management Group, which manages approx. $200 billion for both in-house and third party clients

HNRG currently manages $US 3 billion in assets on behalf of over 50 institutional clients (1.2 million ha of forest in USA, Australia and Canada)

HNRGA established in 1998 with acquisition of Hancock Victorian Plantations (HVP) from Victorian Gov’t. Further acquisition of plantations from Paperlinx in 2000.

HNRGA awarded first Forest Stewardship Council Certification for HVP in February 2004

HNRGA received AFSL licence in March 2004

Our business model is to provide excellent risk adjusted returns from the forestry asset class to our institutional investor base



The New Forests Program

Established in 2001, based in Sydney Aim is to extend the forestry investment model to encompass

emerging opportunities to commercialise environmental services and support reforestation-based investment

Need to establish a ‘made in Australia’ business model for investment in the forestry sector— Tax system and government policies are oriented to support

expansion of plantation forestry base— Limited deal flow in mature plantation estates (only 3 or 4

government assets) that are analogous to US Timberland Investment Model

— Critical national issues of climate change, dryland salinity and biodiversity loss need systematic commercial solutions—forests can contribute to these issues

We are beginning to find investment structures that can support growth in institutional forestry investment in Australia



Many regions have wood supply deficits…

-1600

-1400

-1200

-1000

-800

-600

-400

-200

0

2002 2005-09 2010-14 2015-19

Pred

icte

d ov

ersu

pply

(+iv

e) o

r de

ficit

(-iv

e) (0

00's

m3

pa)

sawlog chiplogSource: URS Forestry

Projected supply deficit for Murray ValleyRegion to 2019 if all planned mill expansions proceed



0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

1997 1998 1999 2000 2001 2002Year

Impo

rts

(RW

E 1,

000

m3 )

Timber Products Pulp Paper & Paperboard

Chinese Timber Imports are expanding rapidly, exhausting SE Asia and the Russian Far East…

Source: Xiufang Sun, Forest Trends



Add to this the need for reforestation…



Land clearing is leading to a substantial

decline in water quality in Australia….



Need for commercial solutions

Major environmental issues are a result of the failure to ‘price’ environmental externalities

Forests provide key environmental benefits— Absorption of carbon dioxide— Regulation of hydrological cycle to reduce spread of

salinity— Biodiversity conservation and enhancement

These markets are emerging steadily, as the public, governments and business understand the costs associated with business as usual

But can this be profitable…..?



Carbon Markets are expanding…

• Carbon markets are emerging in Europe, Japan, Canada, USA, even NSW• Growing moves by business, including voluntary measures, pre-compliance, and retail carbon trade

Global Carbon TradeTo 2003

Source: Natsource LLC, The World Bank



$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00 NGAC Pricing ($AUD/tonne CO2e)

And market prices are firming…

Source: NextGeneration Energy 2004

Approximately 1,000,000 tonnes of NGACs have now been transacted



--60

--40

-20

0

20

40

60

80

100

Originalinvestment

-60

Figures in AUD$ (Assume NPV based on 9% real discount rate, hypothetical case)

60

50

Renewableenergy

Carbon Credits

Timber& Pulp

Landleasing

XX

X

Water credits

/ salinity

Potentialnet gain

Source: Swiss Re

Capitalizing on environmental externalities in forestry investment



Forestry CoCarbon Buyer Investor Equity

Forest Product

Buyers

Debt

Generalized investment Model

Water Quality

buyer

Wind Rights,

Bio-energy

Land Leases



Investment Opportunities

Everything we do is private equity and all our investments are targeted to qualified wholesale investors

These investments, like all forestry investment, should be considered relatively illiquid

We have a range investment structures to serve investor needs:— Separate Accounts

• These New Forests Investments are limited, but there is room for more investors

• Another approach is an investment that combines both traditional timberland with a portion of New Forests investments

• We can establish portfolio’s within Australia or internationally diversified

— Commingled funds• HNRGA is acting as asset manager for ASIF• Other possibilities may emerge



Summary

The New Forests Program represents a new class of Forestry Investment—designed to reflect the investment environment and specific opportunities of Australia

This is an emerging sector, but likely to see substantial growth in coming years.

Returns will be competitive with traditional timberland and infrastructure area, but with unique linkages to areas of sustainability, new markets and sectoral rationalisation

david brandtalksabouthancocknaturalresourcegroup

Documents

forestry investment

investment environment

range investment structures

offer of investment

forestry investmentfigures

urs forestry

australia business model

carbon markets