Midway Limited has signed an agreement to sell its existing 17,000 hectare plantation estate in south-west Victoria. MEAG, a wholly owned subsidiary of Munich Re, has established a special purpose vehicle (SPV) for a client, and the SPV will acquire the existing 17,000 hectare plantation estate from Midway for A$154.1 million.
As part of the transaction, the SPV has also committed to invest an additional A$200 million for land purchases for the development of new hardwood plantations in southwest Victoria over the next five years on land to be sourced by Midway Limited and managed by Midway Plantations Pty Ltd. The transaction is subject to and conditional upon approval by the Foreign Investment Review Board (FIRB).
The sale of the Midway plantation estate, and Midway’s receipt of the transaction proceeds, will settle in scheduled tranches as Midway unwinds its existing timber supply arrangements with Manulife Investment Management (the ‘Strategy’ financial liability on the Midway balance sheet). Subject to regulatory approvals, the first tranche is provisionally expected to settle in mid-2022 and the last in or around September 2024.
The use of the net proceeds of the transaction will be considered further and will include paying the existing contractual arrangements under the `Strategy’ financial liability, reduce bank debt, investment in growth initiatives and returns to shareholders. The allocation of sale proceeds will be determined by the Midway Board of Directors following the conclusion of subsequent stages of the current Strategic Review announced on 14 March 2022.
As part of the transaction, the SPV will engage Midway Plantations Pty Ltd to manage the combined assets under a long-term management agreement and supply Midway Limited with all hardwood log harvested from the combined estate under a long-term offtake agreement, each on arm’s length commercial terms.
Managing Director for Midway, Tony McKenna, said the sale of the existing plantation estate and the greenfield plantation development is an excellent outcome for Midway shareholders.
“Midway will realise more than book value from plantation assets. We will generate revenue from the management and offtake agreements and we will secure future additional volume for our processing operations at North Shore.
“When complete, the change in ownership and control of the plantation estate will simplify the Midway balance sheet and remove annual valuation changes in biological assets that have previously created volatility in the valuation of company held assets.
“The proceeds of the transaction and the ongoing management revenue will support our existing business and allow Midway to develop initiatives that will reposition the company for long-term growth.”
Holger Kerzel, member of MEAG’s Board of Management, stated that MEAG was very pleased to enter into a long-term commercial relationship with a significant Australian forestry company such as Midway.
“On behalf of our clients, MEAG identified the Australian hardwood production sector as a key growth opportunity in global forestry and Midway is one of the few companies that could create a platform for significant new commercial hardwood forestry investment that meets our criteria especially for sustainable investments”, Holger Kerzel said.
The Midway project team was led by the General Manager of Business Development, Mitch Morison and the General Manager, Plantations, Glen Samsa, and was advised by Azure Capital and SBA Law for this transaction.
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Forestry Australia, the peak organisation representing over 1,000 professional and scientific forest land managers and growers in Australia is celebrating the critical role of forests in sustainable production and consumption for Australians, and millions of people across the world.
As part of International Day of Forests, Forestry Australia is shining a light on the importance of forest science, and the skilled, experienced forest managers, growers and professionals who drive positive sustainable forest outcomes across the country. Rayna Barr, Midway Logistics Admin and Compliance Manager in Western Australia, said ensuring forests could be enjoyed by generations to come was an important outcome of active forest management.
“I have had a varied career in forestry, from native forest management in New Zealand, to pine log export in Western Australia and Safety and Environmental Compliance with Midway.
“Throughout this career I have learned that active management of forests provides us with an opportunity to improve forest health, ensuring that my children will be able to continue to use them and enjoy them in the future, just as we enjoy them now as a family.
“Managing forests to ensure they are resilient to fire, drought and disease, and open and available for the community to enjoy should be everyone’s goal.”
The United Nations General Assembly proclaimed 21 March the International Day of Forests (IDF) in 2012.
The Day celebrates and raises awareness of the importance of all types of forests, with this year’s theme “Forests and sustainable production and consumption”.
The Australian forestry sector is one of the most highly regulated and well regarded in the world. Australia has a total forested area of 134 million hectares (Ha), about 17 per cent of the total land mass. Of this plantation is 2 million Ha (1.5 per cent of total forest area) and provides over 87 per cent of total wood production.
Plantation commenced in the 1960s as part of government investment in nation building, in recognition of our native forests being incapable of meeting the needs of Australia’s rapidly growing population. Importantly, plantations were always meant to complement, not replace existing native forest.
The plantation estate is split roughly 50 per cent softwood (mainly radiata pine, used for residential housing construction) and 50 per cent short-rotation hardwood (mainly eucalypt, used predominantly for wood chip production).
Of the 132 million Ha of native forest, the area where it is legal to conduct forestry is only 5 million Ha, approx. 3.7 per cent of native forest area. Almost all of this is selective harvesting of regrowth forest; there is virtually no harvesting of old growth forest in Australia.
Furthermore the native forestry sector is predicated on growing timber for the highest possible economic return. Native species such as Tasmanian Oak, Blackbutt and Spotted Gum (to name but three) cannot be grown in monoculture plantation, and are used primarily for high-value architectural and furniture-making applications. They are not grown purely for the production of high-volume low-value wood chip (as has been suggested), a market far better served by the hardwood plantation estate.
There are vast tracts of native forest where it is illegal to harvest trees, including a 46 million Ha (35 per cent of Australia’s native forest) that is on land protected for biodiversity conservation, or where biodiversity conservation is a specific management intent.
As for claims of widespread deforestation, it might come as a surprise to learn that Australia’s forest area has increased since 2008, with a net increase in forest area over the period 2011 to 2016 of 3.9 million Ha.
Of course a key requirement is to use certified timber, sourced from either native forests or plantations. Forest certification has developed as a way of demonstrating the implementation of sustainable forest management practices. To enable a forest to be certified as being sustainably managed, an audit is undertaken by an independent, third party certification body. The audit assesses the forest management practices of a forest manager or owner against the standard for certification.
Certification ensures that when a tree is harvested another is planted in its place. Well over 95 per cent of Australian plantations and state forests are certified, and the significant majority of the wood used in the construction sector has chain-of-custody certification.
So why is wood so good? Well, building and construction accounts for about 40 per cent of global greenhouse gas emissions. Using wood as a construction material actually helps to mitigate climate change. Here’s why:
Wood is the only major building material that is renewable. An average Aussie house will use about 12 cubic metres of radiata pine in its structure. This will be regrown in Australian plantations in less than a minute.
As trees grow they absorb carbon dioxide (trees grow from the air, not from the ground!). Consequently about half of the dry weight of wood is carbon – so-called biogenic carbon – which is stored for as long as the building exists. A typical Australian frame and truss house – again 12 cubic metres of radiata pine – equates to about 2.8 tonnes of biogenic carbon (a solid) stored in the wood, and about 10 tonnes of carbon dioxide (a gas) which has been sequestered from the air to produce the wood.
Timber consumes minimal energy in its production – so-called embodied carbon – so it can be used as a low-emission substitute for materials that require larger amounts of fossil fuels to be produced, such as concrete and steel. (Concrete and steel are each responsible for about 7-8 per cent of global greenhouse gas emissions.)
It’s an irrefutable fact that Australians like wood, particularly in the houses they live in and the furniture they use. However, the traditional supply of hardwood timber from native forests has been progressively and significantly eroded. The diminishing local supply obtainable from our own forests does not mean that we don’t use wood anymore, it has inevitably forced our demand for hardwood to be increasingly met by imported timbers, often derived from the tropical rainforests of Asia-Pacific nations. We need to be careful that seemingly well-intentioned ‘save-the-forests’ preservation agendas championed by environmental activism don’t result in adverse, unintended consequences.
About Planet Ark Environmental Foundation
Planet Ark Environmental Foundation is an Australian not-for-profit organisation with a vision of a world where people live in balance with nature. Established in 1992, Planet Ark has become one of Australia’s leading environmental behaviour change organisations with a focus on working collaboratively and positively. The Make It Wood campaign aims to increase the use of responsibly sourced (certified) wood as a building material.
David Rowlinson, Planet ArkLearn more
Last week a number of staff from across the Midway group attended the hybrid Forestry Australia 2021 National Conference in Launceston. A big thanks go to Jinglan Wang for preparing Midway’s media package for the conference and also for her role on the conference organising committee.
Our Midway Tasmania Resource Manager, Michael Schofield, spoke at the National Conference about native regrowth thinning along with Jarrod Burn from Sustainable Timber Tasmania (STT). Michael also helped facilitate the field trip day at an STT site in Cluan State Forest. Midway Tasmania is responsible for the planning and harvest management of this coupe which was also assessed for the Harvest Excellence Award of 2021 Tasmanian Timber Awards. Our harvest and haulage contractor, Orana Enterprises, has won the Harvest Excellence Award.
Midway was a proud major sponsor for the conference and was pleased to see the conference attracted a record of 453 delegates. Please see below to the Midway promotional video for the conference.