Date: Thu, 7 Feb 2008 09:54:37 -0800
From: Scott Frederick <scott451@gmx.net>
Subject: [KCUTS] Why are so many rich guys buying into forest firms?
Hello Kootenaycuts,
Why are so many rich guys buying into forest firms?
Nathan Vanderklippe Canwest News Service
Wednesday, February 06, 2008
VANCOUVER -- The day before the loonie soared to $1.10 US, Jimmy
Pattison kicked off a month-long buying spree. From Nov. 6 to the
first week in December, he shelled out a cool $38-million for 4.5
million shares in Canfor Corp.
All this as the loonie was committing murder on the bottom lines of
forestry companies across Canada -- not least Canfor, which has
struggled to slash costs in the face of what many are calling
history's worst forestry downturn.
What was he thinking?
Stephen Atkinson, a BMO analyst, doesn't get it. "My personal view is
you have to be brain-dead to go into this industry," he said. "It is
losing huge amounts of money, while government hasn't figured it out
and they're still trying to tax it to death."
But if Jimmy Pattison -- one of Canada's pre-eminent billionaires --
is brain-dead, he's in good company. Over the past year, and
especially in recent months, some of the names in the pantheon of
Canadian and global investing have quietly parked their cash in an
industry that has not generated a positive headline in a very long
time.
Peter Kellogg, a New York investing legend Forbes ranks the
108th-richest man in the United States, is one. He has been buying
shares in Mercer International Inc., a U.S.-headquartered pulp
producer with assets in Canada. Kellogg's latest splurge came in
mid-December.
That's not to mention the funds that are surprisingly overweight in
forestry: Paper and forest products make up 17 per cent of the
holdings in Brandes' Canadian Equity Fund -- well over double the
weighting in the next-highest sector -- while the Mackenzie Cundill
Canadian Security Fund has a 12.8 per cent exposure to lumber.
All of which may prompt one question: Huh? Why so much buying into
forestry at a time when, according to the latest Natural Resources
Canada numbers, the past 12 months brought a staggering 12,116
forestry layoffs and 112 closures of production capacity?
"Because they're going to make so much money in 2008," Wade Burton,
Cundill's vice-president for investments, said with a sarcastic laugh.
He has grown used to explaining the company's strategy to worried
investors who have watched his security fund drop five per cent last
year.
The reasoning is simple enough: Buy when the industry is in the
basement, and wait for it to climb higher. But there's an added bonus.
A number of companies won't make it out of the cellar, meaning there
will be more to go around for those who do.
"Canfor and West Fraser [Timber Co. Ltd.] have 12 to 15 per cent of
the North American lumber market today. If they do nothing and just
survive the cycle, they will have significantly more of the market
share of structural lumber in 2010, and they'll get that at no cost,"
said Burton.
"The concern is that they die before the cycle turns. But we know
they're not going to because of their balance sheets. Concern No. 2 is
that people won't need structural lumber any more ever again in North
America. And that's not a concern because houses depreciate."
That's not to mention the mountain pine beetle, which is expected to
kill a third of B.C.'s softwood harvest.
"People like to talk about [this downturn] as if the end is nigh,"
said Greg Fairburn, one of the province's top sawmill consultants.
"But when the pine beetle-killed wood is gone and there's a reduction
in the cut, there's not going to be enough lumber to go around.
Imagine what the price of lumber will do then. It will be a tremendous
opportunity."
Add that growth potential to a group of shares currently trading at
some of their lowest historical prices relative to their book value,
and you've got an opportunity that such big-name investors as Pattison
have already worked very hard to seize.
He now owns fully 29 per cent of Canfor. It is a convention-flouting
move. Not a single one of the analysts covering Canfor rates it a
"buy." In fact, two-thirds rate it a "sell," and the West Coast
titan's continued stock-buying has plenty of people scratching their
heads wondering what he knows that the rest of us don't.
One thing they do know: When Pattison moves, it's worth noticing.
"He's a smart guy and I think that's certainly something we should be
paying attention to," said Cory O'Krainetz, an analyst with Odlum
Brown Ltd. in Vancouver. "He's an impressive investor. Plus, he has
control there now and any time you have a strong management team, it's
a positive."
Also on the plus side, there may be gold of another kind in the woods.
Lumber companies are typically valued for their lumber. But there are
a growing number of things you can do with a forest: Think biofuels,
carbon credits, even water rights.
"These are some very intriguing investment opportunities," said Kevin
Mason, an analyst with Equity Research Associates.
© Times Colonist (Victoria) 2008
--
Only 465 organising days until the next BC provincial election.
Best regards,
Scott mailto:scott451@gmx.net
--