Matthew Haertzen, a lumber portfolio manager for Cogent Partners, the fund manager for Cambium Global Timberland (a UK listed timber investment fund), was tasked with the analysis of a handled teak plantation in Honduras for potential accumulative investment in the total amount of $21-25 million. Matt was assessing a chance from Beyond Forestry, a Honduran Business that used a accelerated unique teak growth model. This accelerated growth model allowed for harvesting of teak wood in as few as 7-12 years compared to 20-30 years for conventional commercial plantations.
The demand for teak was growing as well as the supply was dwindling due to significant limitations regarding the harvest of native teak woods, which have a very long development cycle of 70-80 years. The present supply/demand conditions led to a lack of teak and created an opportunity for investment in firms who could grow teak in an ongoing, sustainable basis with wieldy harvest rotations. Mr. Haertzen needed to perform a capital budgeting analysis, including deriving an appropriate risk-adjusted cost of capital, to use in his investment evaluation. He obtained data from Beyond Forestry in Honduras including teak pricing, growth rates of managed teak plantations, and operational expenses necessary to estimate cash flows related to the managed teak plantations. Of equal significance was an evaluation of the many risks linked to the teak plantation investment, given the economic and political environment in a developing market such as Honduras.
PUBLICATION DATE: January 01, 2014 PRODUCT #: NA0282-HCB-ENG
This is just an excerpt. This case is about FINANCE & ACCOUNTING
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