IT'S BACK. One of Australia's most divisive development projects, Gunns' $2.2 billion Bell Bay pulp mill in Tasmania, will be under construction by September if the company secures backing from predominantly offshore investors.
That's looking increasingly likely as the first shoots of recovery in capital markets appear with equity prices rising, debt funding obtainable and a re-emerging appetite for risk.
The Bell Bay project will test the sustainable finance sector in Australia.
No self-professed green share fund would invest in Gunns, sworn enemy of the environment movement for more than a decade.
Remember the Franklin Dam? That was then Tasmanian premier Robin Gray's idea. He's been on the Gunns board since 1996.
What about the superannuation and share funds managed by signatories to the UN-mandated Principles for Responsible Investment? They will (or should) run a mile.
Major banks won't lend to Gunns' project either ！ not since new ANZ chief Mike Smith finally withdrew finance for the project in May 2008.
The reputational issues were too serious for ANZ, Gunns' banker for 20 years, and the other big banks had to follow suit to shore up their green credentials.
Even Gunns' backers thought the project was finished last year ！ by a combination of community opposition, regulatory uncertainty and the financial crisis.
Wal King, legendary chief executive of Leighton Holdings ！ whose John Holland arm is engaged to build the pulp mill ！ doubted last August the mill was "ever going to happen".
But at Gunns' profit result in February, after an extended trip overseas, chairman John Gay said an offshore partner would take a minority stake in the Bell Bay project, with an announcement expected this month. Finance would follow soon after.
Speculation has focused on Scandinavian forestry companies Sodra and Stora Enso. Both scrupulously avoided comment this week.
Sodra has not invested outside Sweden or Norway, but spokesman Per Braconier says the company would "never say never" to the possibility of an Australian venture.
Stora Enso does own half an offshore pulp mill ！ in Brazil ！ but the company was extremely guarded about any Australian interests on Thursday.
There has also been speculation Gunns may have found a Chinese partner. That's a tender spot for the Rudd Government which is weighing a perception it is too close to China, as Treasurer Wayne Swan considers Chinese bids for Australian resource companies including a 19.5 per cent stake in Rio Tinto.
One Hong Kong-based company, Nine Dragons Paper (Holdings), has been touted as a possible Gunns partner but a representative told BusinessDay it was "not actively pursuing investment in any pulp mill in Australia".
Wilderness Society campaigner Paul Oosting says approval for a foreign investment in the Bell Bay mill will have other repercussions. "Along with the mill comes 20 years access to Tasmania's native forests, and 40 million litres of water a year," he says.
Gunns will not reveal its offshore partner and nor will it identify the European bank that is arranging its debt and equity funding for the Bell Bay project.
Even so, several Australian institutions will need to decide whether to support Gunns, and they could make a difference if they do.
Like Perpetual, a major Gunns shareholder for almost 20 years and holding almost 16 per cent of the company. Perpetual manages an "Ethical and Socially Responsible Investment Fund" but has not even signed the UN's PRI.
Perpetual's chairman Bob Savage ！ a director of Fairfax Media, publisher of The Age ！ and managing director David Deverall have been put through the wringer over the Gunns holding before but will face a new level of shareholder angst once building starts.
Or take IOOF, which owns another 9 per cent of Gunns, whose Perennial Investment Partners arm is a UN PRI signatory.
Or take Macquarie Group, which joined foreign-owned banks J.P. Morgan and Credit Suisse as underwriters to Gunns' $336 million, $1.50 a share equity raising last September.
(Gunns shares last traded at 89¢, but that's 40 per cent off their February low of 64¢.)
Apparently Macquarie has no advisory role with Gunns. Macquarie will not say if it will lend money to the Bell Bay project as a member of a syndicate that could include 15 or more banks contributing upwards of $1 billion combined. This means it might.
A Gunns representative said financing would fall into place once the JV partner was identified, and construction could start immediately, without waiting for the last hydrodynamic studies required by Federal Environment Minister Peter Garrett.
In Melbourne on Thursday the Federal Court dismissed a legal challenge from Lawyers for Forests to the Federal Government's approval of the mill.
In a statement John Gay said the judgement "reinforces the diligent and comprehensive process underlying the project approval".
"Every challenge against the project to date has been proven to be ill-founded and failed."
Now, as soon as the funding cheques are signed, the dozers move in. And as a recent letter writer to this paper noted, once the mill is built, which government will prevent it from operating?
Oosting says campaigners are "battling a challenging public perception the project is dead and buried (but) that's not what we're hearing. Things are progressing, unfortunately." |
