US automobile production may have risen at its fastest in five
years last month.
But it is not enough to help out struggling Phaunos Timber
Fund, for which a wet Brazilian soybean harvest, would also help reverse its somewhat
The first public report by forestry consultancy Stafford Timberland
of Phaunos's assets, which recommends the sale of at least one of the
investments, has revealed the breadth of the influences on the performance of
These include well-recognised drivers, such as the performance
of China's construction industry, a well-documented, major timber consumer,
likes its peer in the US, but whose slowdown prompted a 16% drop in lumber
imports in the January-to-March period, compared with the quarter before.
The impact, thanks to raised log inventory levels at Chinese
ports, has been a 20-30% slump in log prices in the April-to-June quarter in
New Zealand, a major timber exporter, where Phaunos Timber Fund owns 35% of
forestry group Matariki.
Still, Matariki - valued at $450m, which owns 184,000
hectares of timberland – faces somewhat better times to come, with Stafford
forecasting "small increases" in log prices over the second half of 2014.
Other factors influencing Phaunos's fortunes include the
fate of the soybean harvest in Brazil, where it owns outright Eucateca in the
major corn and soybean growing state of Mato Grosso.
Eucateca, besides owning teak plantations, which it has
failed in an effort to sell, provides eucalyptus as a biomass fuel for drying
And US auto production is also a driver, through its
consumption of pig iron which has, historically, been largely sourced from
Phaunos's 19,000-hectare Mata Mineira operation in Minas
Gerais, a state better known for coffee production, provides eucalyptus logs
for converting into charcoal, in turn a major component of pig iron.
"[Brazilian] pig iron produced from charcoal has declined by
approximately 33% since 2007, due in part to decreasing US demand and
unfavourable exchange rates," Stafford said.
While the important demand source of the US car industry "has
rebounded since 2009", seeing a 10.1% jump in output last month on Federal
Reserve figures, "Brazil's market share of US pig iron imports is yet to recover".
Stafford gave its insight into the Phaunos portfolio as it
recommended the sale of some investments deemed "higher risk", including some
which comprised immature trees too young to harvest.
"The company is carrying too many of these investments and
they represent too high a proportion of the total portfolio value," the
"At least one disposal is desirable and this will be
Phaunos, which is planning an emergency share sale to
bolster its cash reserves and ensure it remains a "going concern", reported a net
operating loss of $3.3m for the first half of the year.
Its net asset value per share as of the end of June rose was
pegged at $0.81, up $0.03 from the value at the close of 2013, by down from the
$0.85 at the close of June 2013.
Sir Henry Studholme, the fund's chairman, said that the support
of the cash raise would be "sufficient to move the company to operating
profitability, based on the current revenue levels, within the next 18 months".
Phaunos shares stood at $0.36 in lunchtime deals in London,
down 2.6% on the day.
The shares touched a record low of $0.305 earlier this