When we were appointed receivers over a 1,866 hectare sheep station in the remote King Country valley our reaction was, 'What value can we realise from this?'

It was a cold, wet winter's day last year when McDonald Vague arrived at the property. It had very little stock and no cashflow, but it did have trees, and plenty of them. In 2010, 283 hectares of GF16 pine tree saplings had been planted at 1,100 trees per hectare, with another 432 hectares planted the following year. A total of 715 effective hectares of potential carbon/framing/clear wood forest.

Carbon Forest vs Clear Wood Forest

There are many different mechanisms to maintaining a forest.

There are a number of ways to manage the forest ranging from a carbon forest (low maintenance, solid cash flow, low residual return) through to clear wood (high maintenance, solid cash flow, high residual return). The difference is the amount of pruning and thinning that occurs from the original 1,100 stems per hectare.

When the forest is young, the owner has the choice. If a farmer chooses the carbon forest option a site survey is completed, and the hectares allocated as carbon forest are registered with the Ministry of Agriculture and Forestry (MAF).

Once the forest is registered, the account holder is free to sell the allotted carbon credits to the market. Each year as the trees grow a series of surveys are conducted at random points throughout the forest which indicate the incremental growth of the trees. The account owner will receive credits according to the growth. Once the credits are in the account there are numerous ways to trade them.

What Are Carbon Credits?

Carbon credits are certificates that represent a reduction of greenhouse gases in the atmosphere. Projects that prevent the generation of greenhouse gases earn credits which can be sold to businesses to offset emissions. One carbon credit is equivalent to one tonne of carbon dioxide.

In this case the receivers were able to market the value of the future credits from the carbon forest to maximize the return for the secured creditor.

The sale negotiations were concluded after the carbon credits had been valued by a carbon consultant engaged by the receivers.

Managing a Receivership in a Remote Location

In order to minimise overheads on such a remote property, the directors were employed by the receivers to arrange and manage the grazing of stock and eradicating pests (goats and deer) which continuously popped out of the neighbouring Whanganui National Park.

The receivers ran a number of marketing campaigns promoting the livestock and had a series of 'on the farm' sales for the different types of "capital stock" (sheep and beef). These were successful due to the high commodity prices and resulting market demand within the farming community for livestock. This resulted in a far greater return to the secured creditor as we did not have to pay commission and yard fees, or the huge transport costs involved in trucking the livestock out of a remote location and into the market.

As soon as the "capital stock" was off the farm, the continual risk of the stock being "lost" from the farm was removed. We then loaded the farm up with grazing stock from other farms, which provided cash flow while the property was marketed.

The Result

By actively promoting the carbon aspect and its potential benefits to investors, and by minimizing costs by utilizing key personnel and using initiatives to increase value we attracted a significant amount of interest in the property and other assets which has resulted in a substantial repayment to the secured creditor.

DISCLAIMER
This article is intended to provide general information and should not be construed as advice of any kind. Parties who require clarification on issues raised in this article should take their own advice.