Pension Funds Rev Up Their Chainsaws – Prima Colombia Hardwood
On April 11, 2011 two Canadian pension plans announced that they have signed a deal to buy TimberWest Forest Corp. (TSX:TWF.UN) for $1.03 billion in cash reports Mineral Stox.com.
TWF owns about 800,000 acres of private land on Vancouver Island, focusing on second growth Douglas Fir and Hemlock.
“From our perspective it is a very attractive asset,” said Mark Boutet - a spokesman for the Public Sector Pension Investment Board, “it is like real estate that is sensitive to inflation.”
TimberWest now has 60 days to shop the company around to see if it can get a higher bid.
The pension fund offer is a 25% premium over the 20-day weighted average price of TimberWest units.The two funds have assets-under-management of over $80 billion.
A few months ago, the Alberta government invested $400 million in the New Zealand Forest Fund.
The synchronicity between pension funds and timberland is partly aboutdiversification: timberland companies do not typically rise and fall with the rest of the market.
But the generally long time horizons of pension funds also make it a good match.
If timber prices are low - a timberland company can simply elect not to sell into that market. When prices rebound, the trees are bigger and more valuable. Pension funds - with their predictable payouts - can afford to ride out these cycles.
Predicting the next timberland pension fund target isn’t dead easy, but there is one early stage tropical hardwood company that seems a likely candidate.
Prima Colombia Hardwood (TSX Venture:PCT) has just finished negotiating an exclusive 15 year lease to selectively harvest 3 million cubic meters of tropical premium Colombian hardwood.
The company is headed by CEO, Donald P. Hayes and COO, Harold F. Hayes both principals of Hayes Forest Services Limited - a 3rd generation British Colombia logging dynasty.
Over the last 20 years the Hayes family have become one of the world’s leading experts in helicopter logging - a low impact method of removing high value trees.
PCT has 70 workers on the ground in Colombia and expects to be in production within a couple of months.
Operational timelines forecast helicopter harvesting by July 2011, and log sales by August 2011.
Global demand for hardwood has increased 2,500% over the last four decades.
A self-replicating inventory with no expiry date makes companies like Prima Colombia attractive to conservative pension funds.