Tasmanian Plantations

James Davies • Head of Funds Management, New Forests Asset

Management. New Forests Asset Management Pty Ltd • Chairman – Timberlink Australia • Chairman – Forico www.newforests.com.au

The Beginning of a New Era

Slide 2

Disclaimer

© New Forests 2014. This publication is the property of New Forests and is intended for the sole use of our wholesale clients, consultants, professional investors and other intended recipients. It should not be forwarded to any other person. Contents herein should be treated as confidential and proprietary information. This material may not be reproduced or used in any form or medium without express written permission. The information contained in this publication is of a general nature and is intended for discussion purposes only. The information does not constitute financial product advice or provides a recommendation to enter into any investment. This presentation has been prepared without taking account of any person’s objectives, financial situation or needs. This is not an offer to buy or sell, nor a solicitation of an offer to buy or sell any security or other financial instrument. Past performance is not a guide to future performance. Past performance is not a reliable indicator of future performance. You should consider obtaining independent professional advice before making any financial decisions. The terms set forth herein are based on information obtained from sources that New Forests believes to be reliable, but New Forests makes no representations as to, and accepts no responsibility or liability for, the accuracy, reliability or completeness of the information. Except insofar as liability under any statute cannot be excluded, New Forests, including all companies within the New Forests group, and all directors, employees and consultants, do not accept any liability for any loss or damage (whether direct, indirect, consequential or otherwise) arising from the use of this presentation. The information contained in this publication may include financial and business projections that are based on a large number of assumptions, any of which could prove to be significantly incorrect. New Forests notes that all projections, valuations, and statistical analyses are subjective illustrations based on one or more among many alternative methodologies that may produce different results. Projections, valuations, and statistical analyses included herein should not be viewed as facts, predictions or the only possible outcome. Before considering any investment, potential investors should conduct such enquiries and investigations as the investor deems necessary and consult with its own legal, accounting and tax advisors in order to make an independent determination of the suitability, risk and merits of any investment. New Forests Advisory Pty Limited (ACN 114 545 274) is the holder of AFSL No 301556. New Forests Asset Management Pty Limited (ACN 114 545 283) is registered with the Australian Securities and Investments Commission and is an Authorised Representative of New Forests Advisory Pty Limited (ACN 114 545 274, AFSL 301556). New Forests Inc. has filed as an exempt reporting adviser with the Securities and Exchange Commission.

Outline Introduction to New Forests Why the Beginning of a New Era? Key Trends in Global Forestry New Forests’ Estate Towards the Future

Introduction to New Forests

Slide 5

New Forests – who are we? Privately owned institutional investment management firm established 2005 AU$2.3 billion FUM, 42 employees in Australia, New Zealand, Singapore, and

US managing over 420,000 hectares of foresty assets + Timberlink Australia 1. Specialist Asia Pacific timberland manager – ANZFF and TAFF 2. Leader in land-based environmental offset investment – EPF and FCP

Financial returns driven by sustainable management

Slide 6

Products

Australia New Zealand Forest Fund (ANZFF) AU$490M; 2010 Fully invested

Australia New Zealand Forest Fund 2 (ANZFF2) AU$707M; 2014 Currently being invested

Direct Investment

Australia & New Zealand

Sustainable forestry investment in Australia and New Zealand

Slide 7

Products

Tropical Asia Forest Fund (TAFF) US$171M; 2013 Currently being invested

Direct Investments Malua Biobank

Southeast Asia

Sustainable forestry in emerging markets of Southeast Asia

Slide 8

Products Eco Products Fund (EPF)

US$50M; 2007 Forest Carbon Partners

(EPF) Undisclosed; 2011 Targeting 1M+ acres

Mitigation Partners US$200M; in market

United States

Conservation Forestry & Environmental Markets in the United States

Why the Beginning of a New Era? Key Trends in Global Forestry

Slide 10

1. New owners 2. Markets are Restructuring

1. Asia driving growth 2. Shifts in pulp & paper markets 3. Bio-energy/fuels/products

3. Shift to plantations 4. Higher productivity 5. Sustainability imperatives 6. Pricing of ecosystem services

Why is this the Beginning of a New Era?

Biodiversity corridor through radiata pine plantation Green Triangle, Australia

Why the Beginning of a New Era? New Owners

Slide 12

What does the new era look like?

Chart Data Source: ABARES, Australian Plantation Statistics Update 2013 2014 – as at April

Plantation Ownership is Changing

0

10

20

30

40

50

60

70

80

90

Institutional CorporateTimber

MIS Government Farm Forestry &Other Private

2005 2014 2018

2018 – NF Estimate

Slide 13

Institutional Investors are steadily expanding their timber plantation ownership

Institutional Ownership of Forests

0

2

4

6

8

10

12

14

16

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Mill

ion

Hect

ares

Area of Institutional Timberland Ownership

Global Area Area in US only

Source: New Forests’ analysis and DANA, RISI

Slide 14

Large pension funds, super funds, sovereign funds and endowments

Long-term view/liabilities ‘Real’ asset Stability: biological growth = capital growth Asian (esp. Chinese) growth exposure Australia and NZ

low political risk, good business climate infrastructure, technical know-how high-quality assets available over the past

decade

Sustainable economic activity

Who is Investing in Forestry and Why?

E. Nitens at Somerset Nursery

Why the Beginning of a New Era? Markets are Restructuring

Slide 16

Global Timber Production & Trade

Source: FAOstat (2005-2012) and Poyry (for 2013 data)

Asia is supplanting traditional markets

0

20000000

40000000

60000000

80000000

100000000

120000000

140000000

160000000

180000000

2005 2006 2007 2008 2009 2010 2011 2012 2013

North America

South America

Asia

Europecubi

c m

eter

s

Global Sawnwood Consumption by Region (million cubic metres)

Slide 17

Market Conditions – Global Timber Trade

Timber consumption is linked with per-capita GDP growth. China has emerged as a key source of wood products demand.

0

50

100

150

200

250

300

1997 2002 2007 2012 2017F 2022F 2027F

Mill

ion

Cubi

c M

etre

s China Timber Deficit and Forecast

WoodchipsPulpWood PanelsLumber

Source1: WWF 2013, “Living Forests Report.” Source2: RISI 2013. China Timber Supply Outlook.

Slide 18

China: Hardwood Chip Import Forecast, 2001-2018. BDMTm

Sources: RISI International Pulpwood Trade Review 2012 & 2013

Australian Hardwood Market

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 (F) 2013F 2014F 2015F 2016F 2017F

Exports Imports - 2012 Forcast Imports - 2013 Forcast

Slide 19

Australian Hardwood Market

Japan: Hardwood Chip Import Forecast, 2001-2017. BDMTm

Sources: RISI International Pulpwood Trade Review 2012 and 2013

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011(F)

2012F2013F2014F2015F2016F2017F

2012 Forecast

2013 Forecast

Slide 20

Australian Hardwood Market

China and Japan: Hardwood Chip Imports Volume, 2008-January 2013 BDMTk

Sources: RISI International Pulpwood Trade Review 2013

0

200

400

600

800

1,000

1,200

1,400

ChinaJapan

Slide 21

Australian Softwood Market

Annual cut 15 million m3 Future cut remain flat

Market predominately domestic with long term supply contracts

End use Construction Pulp & Paper products

Demand Closely correlated to housing

starts Chronic Supply Deficit

60%

9%

21%

8%

2%

Product breakdown

Saw and veneer logs

Wood-based panels d

Woodchips for domesticpaper Woodchips for export

Slide 22

Australian Softwood Market

Australian Housing Starts

Sources: Australian Bureau of Statistics

Slide 23

Australian Softwood Market

Slide 23

Slide 24

Australian Softwood Market

75% of wood products used in Aust is softwood Construction main driver of softwood use Population growth

Last 10 years 1.9% Immigration driving growth

Source: ABS Population Projections, Australia, 2006 to 2101 (cat. no. 3222.0)

Slide 25

Supply from Russia is Declining

Russian softwood exports have hit a wall…

Source: FAOstat (to 2012), International Wood Markets Group for 2013.

Following the introduction of a log export tax in 2007, Russian log exports have fallen dramatically while lumber exports have been flat to slightly increasing.

0

10

20

30

40

50

60

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Roundwood

Sawnwood

Mill

ion

cubi

c m

eter

s

Why the Beginning of a New Era? Shift to Plantations

Slide 27

Australian Plantation Harvest Rising Australian hardwood plantations are steadily replacing

a declining supply from native forests

Source: ABARES, 2014

Native and Plantation Harvest

0

2

4

6

8

10

12

14

16

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Plantation Softwood Native Hardwood Plantation Hardwood

Mill

ion

cubi

c m

etre

s

Slide 28

Natural Forest Harvest in SE Asia in Decline

Steady Decline in Natural Forest Logging in Malaysia and Indonesia

Sources: Malaysia Timber Council and personal communication with Yayasan Sabah; ITTO; Indonesian Forestry Department Annual Report, 2008.

5

10

15

20

25

30

35

40

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Log

Prod

uctio

n (M

m3 )

Malaysian Log Production

0

5

10

15

20

25

1994 1996 1998 2000 2002 2004 2006 2008

Annu

al h

arve

st le

vels

(m3 m

illio

ns)

Indonesian Log Production

Natural forests Plantation forests

Slide 29

Natural forest supply will continue to decline Almost all incremental supply will come from timber plantations—

productivity enhancement and plantation area will need to increase Investment needed could range between $100 and $500 billion to

meet forecast levels of demand

Increasing Importance of Plantations

Source: FAO, 2010. Global Forest Resource Assessment.

Why the Beginning of a New Era? Higher Productivity

Slide 31

0

200

400

600

800

15

20

25

30

2012 2025 2035 2045 2055 2065

TRV

- Tot

al R

ecov

erab

le V

olum

e (m

3/ha

)

Base Management NutritionGenetics TRV

Aver

age

Grow

th R

ate

(m3 /

ha/y

r)

Land is finite. Timber demand is growing.

Plantation Productivity will Increase

*Source: Timberlands Pacific Pty Ltd

Land is finite and competes for alternative use

Productivity will have to increase

Focus on silviculture, nutrition, risk management and genetics

50-100% increase in productivity in next 50 years

Slide 32

Shift to plantations to drive productivity increase as it has with agriculture

Plantation Productivity will Increase

100%

120%

140%

160%

180%

200%

220%

240%

260%

280%

1949

1951

1953

1955

1957

1959

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

Growth in US Agricultural Productivity Over 60 years

Source: Timberlands Pacific; OECD-FAO. June 2013.

Why the Beginning of a New Era? Sustainability Imperatives

Slide 34

Sustainability

Institutional investors require: sustainability policy labour policy corruption and bribery standards use of certification

Consumer driven Headline risk NGO and beneficiary pressure Legislation – Lacey Act, FLEGT Climate Change

Legally Pension Fund Trustees Need to be Addressing these Issues in Order to be Fulfilling their Fiduciary Responsibility

Why the Beginning of a New Era? Pricing of Ecosystem Services

Slide 36

Forests/ecosystems provide myriad of benefits related to freshwater, carbon cycling, biodiversity conservation, human health, recreation, and well being

Ecosystem services have not been priced and therefore are used wastefully and disregarded in land conversion decisions

Leads to industry using more land rather than increasing productivity per hectare Pricing externalities is part of the solution Examples of regulated markets in the US show how timberland asset class is

expanding to include ecosystem services

Investment Strategies in Ecosystem Services

Wetlands, stream, and species banking

Forest carbon for California cap-and-trade market

Slide 37

Price signals work The finance and investment sector can facilitate change Stability is necessary, but fine-tuning is also necessary It needs to cost more to remain outside rather than inside a

scheme

Environmental Markets Lessons Leaned

Region Value of Natural Vegetation Value When Converted to Agricultural Land

Malaysia US$500 (logging concession after 1st harvest)

US$20,000 - $25,000 (oil palm)

Brazil US$155 (Amazon frontier land) US$450 (grazing)

US South US$2,500 (mixed timberland properties)

US$6,250 (cropping)

Australia US$ 1,900 (woodland properties) US$4500 (mixed cropping and grazing)

New Forests’ Investments

Slide 39

New Forests Investments – Green Triangle

Slide 40

New Forests Investments – Western Australia

Slide 41

New Forests Investments - Tasmania

Slide 42

Acquired February 2013 2 sawmills – Bell Bay & Tarpeena NF manages forest resource that

is the major supplier to each mill Vertically integrated model

Good businesses needing fresh energy

Ongoing investment ~$30m ‘Towards 2020’ strategic plan Stability Driving significant value creation

Slide 43

Talented team Scale Long operating history Established transport and processing infrastructure Opportunity to invest and increase value Create a world class and fully integrated forestry estate

The Gunns Timberland Assets - What Attracted us?

Companion Hill Fire Tower, Surry Hills estate (average weather conditions, 21oc and sunny!!)

Slide 44

World leading wood products business

Our Goal – Across our Portfolio

Surry Hills harvesting operation

• Productivity • Efficiency • Innovation • Customer Satisfaction • Social and Environmental Management

Slide 45

What does the new ownership mean? A new company will be established New owners ANZFF2 investors ANZFF2 is a limited life fund Target sale in 10-14 years Focus is for the very long term Cash-flow is nice but value is paramount Core debt level will be nil There will be further money to invest if it makes commercial sense Board of Directors:

James Davies (Chair) – Head of Funds Management, New Forests Asset Management

Keith Lamb – Director Operations

Gavin Le Roux – Chief Financial Officer

Bryan Hayes

Independent

And the new company will be…

Tamar South Woodchip Facility

Towards the Future

Slide 48

Global roundwood demand will rise to a plateau of 2.3-2.5 billion m3 per annum in 2030.

100 to 150 million hectares of commercial plantation area could supply most of this timber.

This would represent only 2.5-3.75% of world forest cover

Towards the Future

Pricing and trading ecosystem services REDD, Carbon Schemes

BioBanking

Water and watershed protection

Production and conservation functions of forests and land find their equilibrium

Alignment of public policy, industry initiatives and community interests

Ultimately driven by private capital and investment

Canopy view of New Forests’ Malua Biobank in Sabah, Malaysia.

Estimates from RISI, Indufor, FAO

Can Forestry Become the “Natural Infrastructure” Asset Class?

Slide 49

What Might the Future Look Like?