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Boost for Fletcher Forests

By Nicholas Bryant

Friday 14th July 2000

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Fletcher Challenge Forests has a fresh opportunity in its joint venture with Argentine forester Forestada Tapebicua.

It has come from the Argentine government in the form of a pledge to spend $US20 billion on home, road and sewer construction in a bid to boost its ailing labour market. The works are forecast to create 400,000 jobs.

Fletcher Forests spokesman Ginny Radford said it would help stabilise the joint venture's domestic base market so it could continue with market development of more lucrative high-grade products.

"The green, undried lumber used in the Argentine domestic market, which our mill processes a lot of, is the stuff we use to keep cashflow coming. That's an area that's been knocked about by the recent downturn in the Argentine economy," Ms Radford said.

The joint venture began in 1995 with the birth of the Supertree concept, genetically superior eucalyptus grandis trees capable of being turned into valuable fibre board and appearance products, such as furniture, for the US market.

"Forestada Tapebicua was sort of a large-scale R&D facility with the full step-out constrained by lack of capital [because of the Asian crisis]," she said.

"But since 1995, our plywood plant has been commissioned, we've test marketed and we're moving into planting commercial volumes of forests with good-quality genes."

She said the venture had been in "positive cashflow territory" for 10 months and that, along with cashflow from the government-decreed building boom, was making progress in targeting the US market.

Fletcher Forests has an employee based in the US who test-markets eucalyptus grandis products.

But uncertainty remains over the future of the joint venture because Fletcher Forests is likely to be the next Fletcher Challenge Group division to be sold, merged or recapitalised.

Analysts say time is running out for the group to move with frozen interest payments on its Central North Island Forests (Citic) partnership to be paid again.

Its 50% share of the Citic debt, about $850 million, then must be added to the $714 million sole company debt, making about $1.56 billion.

Fletcher Forests has a forecast annual profit of $23 million.

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