Kangaroo Island Plantation Timbers committed to new seaport at Smith Bay as it kicks off plans to harvest fire-damaged plantations

Kangaroo Island Plantations Timbers Ltd (ASX:KPT) remains committed to developing a new deepwater wharf and is working closely with local and state governments, as well as other timber producers on Kangaroo Island as it continues to pursue its principal activities of forestry and the production of timber for export. The group, which was hit by the devastating late 2019/early 2020 bushfires in Australia, said plans to harvest the fire-damaged plantations on Kangaroo were taking shape. KPT believes there is sufficient residual value to justify the cost of harvest and transport, as well as building the Kangaroo Island Seaport at Smith Bay. The seaport, which is subject to approval from the South Australian Government after an extensive consultation and review process, would allow for the export of timber and timber products from the company’s plantations. Kangaroo Island Seaport Following the wildfires between December 20, 2019 and January 21, 2020, KPT had to review its business plan, relooking at the market positioning of the fire-affected products and the business case for the seaport. With the new level of commercial risk and uncertainty, KPT has developed new finance strategies for construction of the seaport and ongoing operations, taking into account the change to the resource, as well as options to cut cost in the supply chain. The ultimate aim is to restore the productive capacity of the estate as quickly as possible by removing the fire-affected trees in the most commercially efficient manner available. It believes that commercially harvesting and exporting the fire-affected product is a better overall option than chaining and burning, which would also cause ongoing environmental impact to neighbours in the area and the mainland. While the approvals and construction process for the seaport continue, the company looked at several options, including barging to the mainland or transhipping to export, as well as on-island processing. However, none of the options could handle the entire volume of forest products from Kangaroo Island or provide a margin better than the proposed seaport at Smith Bay. KPT, therefore, will continue to engage with third-party providers for permitting requirements and the capital investment required for barging services until the seaport is ready. The company is awaiting advice from the State Government on its decision to approve the development application of the seaport following the submission in March 2020 of the response document to the two rounds of public consultation. Pending the advice, it is progressing with planning for the additional secondary approvals for the construction and operation of the seaport, which includes Native Title of the seafloor, road and traffic management plan, an environmental management plan, and industry-standard workplace health and safety measures. Detailed design and construction are also progressing, in anticipation that they will be adopted, together with any conditions required by the state and federal governments for approval of the seaport. Early Contractor Involvement for seaport In September, KPT signed an early Contractor Involvement deal with Maritime Constructions Pty Ltd of Port Adelaide, taking it a step closer to developing the seaport. KPT managing director Keith Lamb said: "A feature of the Alliance Agreement model is that it allows KPT and Maritime Constructions to share the risks and rewards of constructing the KI Seaport. Salvage harvest Salvage harvesting will begin in the area of fire-damaged pine trees, which is most at risk of decay, to recover the higher value logs. Early work is expected to kick off this year, prioritising trees along power lines, in consultation with SA Power Networks. Pine harvest expected to start early in 2021. The stockpiling strategy will be managed carefully, taking into account company cash reserves and value-at-risk, while the approval process for the seaport is completed. Initial salvage harvesting plans follow advice to the company that these logs must be harvested within two years of the bushfires and stored in water or under sprinklers, to preserve value. This strategy will allow the company to maximise recoverable volume, while awaiting approval for seaport facility. Harvest and haulage proposals The company has received proposals from a number of operators to start initially in the pine and then move to the bluegums. KPT is also in talks with independent growers on the island pertaining to the harvest of their fire-damaged trees. The company expects to salvage a total of three million tonnes of timber with sufficient value to support the building of the seaport. Other uses are contemplated for a further 1.5 million tonnes of timber not considered suitable for log export. The salvage harvest is expected to generate in excess of $200 million in economic activity for the island over the next four years, excluding the beneficial impact of the port. Insurance payments On July 16, 2020, the company received insurance progress payment of $19.6 million, of which $17.5 million relates to timber and $2.1 million to extras. As of June 30, 2020, it had received $30 million in progress payments for the tree crop insurance and $5.92 for farm pack insurance. The majority of the payout received to date went towards reducing debt, with a small amount kept aside for ongoing operations.