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
World Forestry Center 21-23 January 2003
Hancock NaturalResource GroupAustralia Pty Ltd ®
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
World Forestry Center 21-23 January 2003
Hancock NaturalResource GroupAustralia Pty Ltd ®
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
World Forestry Center 21-23 January 2003
Hancock NaturalResource GroupAustralia Pty Ltd ®
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
World Forestry Center 21-23 January 2003
Hancock NaturalResource GroupAustralia Pty Ltd ®
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
World Forestry Center 21-23 January 2003
Hancock NaturalResource GroupAustralia Pty Ltd ®
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
World Forestry Center 21-23 January 2003
Hancock NaturalResource GroupAustralia Pty Ltd ®
Add to this the need for reforestation…
World Forestry Center 21-23 January 2003
Hancock NaturalResource GroupAustralia Pty Ltd ®
Land clearing is leading to a substantial
decline in water quality in Australia….
World Forestry Center 21-23 January 2003
Hancock NaturalResource GroupAustralia Pty Ltd ®
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…..?
World Forestry Center 21-23 January 2003
Hancock NaturalResource GroupAustralia Pty Ltd ®
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
World Forestry Center 21-23 January 2003
Hancock NaturalResource GroupAustralia Pty Ltd ®
$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
World Forestry Center 21-23 January 2003
Hancock NaturalResource GroupAustralia Pty Ltd ®
--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
World Forestry Center 21-23 January 2003
Hancock NaturalResource GroupAustralia Pty Ltd ®
Forestry CoCarbon Buyer Investor Equity
Forest Product
Buyers
Debt
Generalized investment Model
Water Quality
buyer
Wind Rights,
Bio-energy
Land Leases
World Forestry Center 21-23 January 2003
Hancock NaturalResource GroupAustralia Pty Ltd ®
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
World Forestry Center 21-23 January 2003
Hancock NaturalResource GroupAustralia Pty Ltd ®
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