Sawmill ambitions advancing

ECT updates developments.

ECT updates developments.

Far East Sawmill's CEO Gavin Murphy, ECT chairman Michael Muir and Far East Sawmill's managing director, Wade Glass. Picture by Paul Rickard

Investment in the establishment of a wood processing cluster in Gisborne is gaining traction at the former Prime sawmill — and with potential funding support of up to $20 million from the Provincial Growth Fund.

Eastland Community Trust chief executive Gavin Murphy said the trust’s financial support to establish Far East Sawmills would result in economic benefits and job growth for Gisborne.

WET Gisborne Limited (WGL), a joint venture with ECT, was about to produce an innovative new engineered wood, which would require skilled and well-paid jobs.

The Labour Party’s pre-election pledge of $20 million for a joint venture with local entities in a pre-fabrication plant, to support its KiwiBuild programme, did not fit with the existing mill ECT had invested in — it was too advanced for what the mill site was then capable of, said Mr Murphy.

A Tairawhiti-based prefabrication plant would be fantastic, but it would be a long way from the market.

“If the opportunity really exists, I think the market would move anyway.”

After the election, ECT asked the Government how the $20m might be realigned to assist ECT’s goal of creating a wood processing cluster.

They had gone on to put in a $20m funding application to the Provincial Growth Fund (PGF), consisting of a series of initiatives in support of the cluster.

“That resonated with them.

“They picked that up and had $20m in principle in support of the wood cluster, subject to a business case.”

At the launch of the PGF in Gisborne in February, the Government announced $200,000 of funding to support the business case.

“We are now starting to see some of that $20m come through.

“We are just in the process of agreeing a funding contract for the first half-million-dollar tranche of that $20m and are working on the next chunk.”

Discussions ongoing

ECT wanted to stimulate growth, jobs and GDP by investing in response to “market failure” in the wood processing sector, and the potential this sector had for the region.

The Government had similar goals through its billion-dollar-a-year PGF.

“If we can justify the business case, we should be able to justify it to them.”

ECT discussed some details and their objectives for the wood cluster with the PGF’s independent advisory panel which visited Gisborne last week.

Mr Murphy said discussions were ongoing as to whether the funding would be in the form of grants, loans or equity.

ECT funding was distributed by a mixture of grants, loans — such as with Far East Sawmills — and equity. “We have taken some risks with WGL ”.

The PGF could mirror the approach taken by ECT.

“How do you get the right balance between community, economic development and some start-up riskier stuff?’’

The PGF was “grappling with the same issues’’.

As for supplying into the KiwiBuild programme, Mr Murphy said the WGL wood engineering business had the potential to do that in time, but it’s a “high level discussion”.

“We told the Minister that a $20m investment in a pre-fabrication factory was not the preferred solution.

‘‘We would have been more interested in a KiwiBuild contract because we could have found, at that point, the private sector people to fund and build a mill if they had a supply contract.

“But not right now.”

Mr Murphy said one of the possible cluster partners they were talking to could be interested.

“We’re not. We’re trying to get the cluster going.”​

Sawmill sold for $1.7m, with loan

Notes to Eastland Community Trust’s annual accounts reveal that the sale of the former Prime Sawmill and associated buildings in March 2018 was for $1.732 million and was facilitated by a $1.232m interest-free loan to the purchaser Far East Sawmills, repayable over three years.

The transaction resulted in a loss of $744,544 recorded in the 2017/18 year, following a $3.6m impairment recorded in the 2016/17 year.

​ECT subsidiary Prime SPV Ltd bought the former Prime Sawmill for $7.4m in 2015. It retains ownership of the 22-hectare site, which is now valued at $1.3m.

Mr Murphy is confident the trust’s financial support to establish Far East Sawmills as operator of the mill will reap economic benefits and job growth for Gisborne.

“There are 40 people employed at the mill already, with more planned, and 40 families who have employment that otherwise wouldn’t — 23 of them originally from Juken New Zealand,” said Mr Murphy.

“Go and ask those families. I’m pretty sure they would say it’s worth it.”

Mr Murphy said trustees were prepared to accept a lower value than the original purchase price recorded in the financial statements.

“This impairment is linked to the economic benefits and job opportunities that are expected to be derived.”

Support for Far East Sawmills had “addressed a market failure”, said Mr Murphy.

“It’s an essential component and central point to the wood cluster initiative.

“We are confident and on track to build around that to make the whole project worthwhile.

“We are working with a couple of possibilities for downstream processing of the stuff out of the mill.

“So you need the mill operating.’’

Far East had plans around “expansion, increasing efficiency and productivity, double shifts and more jobs”.

'An efficient, sustainable and economically-viable mill'

Mr Murphy said economic studies showed an efficient, sustainable and economically-viable mill, as part of the wood processing centre of excellence, could inject $7.7m into the economy each year and up to 120 jobs were also forecast at the site, once developed.

ECT had taken a conservative position concerning the accounting of the sale to Far East Sawmills.

Far East would potentially pay more to ECT, nearly double the current price up to a further $1.7m, depending on the success of the mill over the first three years.

ECT had successfully sold a sawmill that had been closed for eight years, and in doing so created an intial 40 jobs.

The mill was now scaling up, said Mr Murphy.

Success from a viable mill could lead to value-added products being made downstream.

Mr Murphy said the land was likely to be sold eventually to the cluster partners.

That would happen in the medium to long-term, depending on the success of the cluster.

If the market was “re-stimulated”, if the private sector was investing and the market was active, “we should be able to exit stage left”.

ECT could would also likely support cluster partners with more buildings through loan mechanisms and possible expected support from the PGF.

Mr Murphy also discussed an earlier direct investment by ECT, the light-commercial business park Commerce Place which it bought most of in 2013 for $1.7m.

The site beside the Poverty Bay Golf Club course and Gisborne Speedway had one development on it then, which ECT has since expanded for Sonic Surf Craft. Allen Trading Company has also relocated to Commerce Place.

It already owned a section there, as did three other businesses, before ECT bought the rest of the business park. ECT's interests in Commerce Place were valued at $3.279m in March 2016.

“That is not the reason we did it,’’ said Mr Murphy.

The aim was to intervene “in what appears to be a market that was not succeeding as well as it could”.

Enabling infrastructure in the area such as power and buildings meant businesses could direct capital into growth, not bricks and mortar.

ECT talking to many parties

ECT was talking to many parties about the site, with most of them being local businesses looking to grow.

“We would hope to land a couple of those in the current year.”

Wet Gisborne Limited (WGL), a $9.4m joint venture ECT invested $4.7m into in 2015, was operating at the Prime site as well. It had been set up to produce an innovative new engineered wood product in the form of glulam laminated lumber. That would replace structural framing made from optimised, engineered pine lumber, and had the potential to “disrupt” the market, said Mr Murphy.

WGL had New Zealand Building Code compliance signed off for the product now.

‘‘That’s huge. If you haven’t got it, you can’t be in business.”

A shipment of the product had been delivered to a site for installation in a trial house.

The installation process would be “measured and monitored” for efficiency and value to the builder and end-customer.

The product would be competitively priced to meet the market. There were also advantages in using glulam because less wood was required and installation costs were lower, because glulam was “stronger, straighter and more dimensionally accurate”, said Mr Murphy.

Other benefits were the fact the production process used Industry 4.0 principles, it was a “smart factory” and it required skilled, highly-paid staff to run the process.

“That in itself is a great outcome for the region, adding value to the forest supply chain and requiring skilled, well-paid, roles set up for the future of work.”

WGL had to now prove they could make the product in a ‘‘continuous, high-yield way”.

“Then you know you can make it and scale up.

​‘‘At that point you go to investors.”

With a business case, compliance, and customers who want the product, “then you go and build it”.

“We are pleased with progress to date, and cautiously optimistic we can scale this business up with our joint venture partners,” said Mr Murphy.

“It’s coming along.”

  • ECT’s annual meeting, which is open to the public, is tomorrow at the Waikanae Surf Life Saving Club from 5.30pm. ​

Investment in the establishment of a wood processing cluster in Gisborne is gaining traction at the former Prime sawmill — and with potential funding support of up to $20 million from the Provincial Growth Fund.

Eastland Community Trust chief executive Gavin Murphy said the trust’s financial support to establish Far East Sawmills would result in economic benefits and job growth for Gisborne.

WET Gisborne Limited (WGL), a joint venture with ECT, was about to produce an innovative new engineered wood, which would require skilled and well-paid jobs.

The Labour Party’s pre-election pledge of $20 million for a joint venture with local entities in a pre-fabrication plant, to support its KiwiBuild programme, did not fit with the existing mill ECT had invested in — it was too advanced for what the mill site was then capable of, said Mr Murphy.

A Tairawhiti-based prefabrication plant would be fantastic, but it would be a long way from the market.

“If the opportunity really exists, I think the market would move anyway.”

After the election, ECT asked the Government how the $20m might be realigned to assist ECT’s goal of creating a wood processing cluster.

They had gone on to put in a $20m funding application to the Provincial Growth Fund (PGF), consisting of a series of initiatives in support of the cluster.

“That resonated with them.

“They picked that up and had $20m in principle in support of the wood cluster, subject to a business case.”

At the launch of the PGF in Gisborne in February, the Government announced $200,000 of funding to support the business case.

“We are now starting to see some of that $20m come through.

“We are just in the process of agreeing a funding contract for the first half-million-dollar tranche of that $20m and are working on the next chunk.”

Discussions ongoing

ECT wanted to stimulate growth, jobs and GDP by investing in response to “market failure” in the wood processing sector, and the potential this sector had for the region.

The Government had similar goals through its billion-dollar-a-year PGF.

“If we can justify the business case, we should be able to justify it to them.”

ECT discussed some details and their objectives for the wood cluster with the PGF’s independent advisory panel which visited Gisborne last week.

Mr Murphy said discussions were ongoing as to whether the funding would be in the form of grants, loans or equity.

ECT funding was distributed by a mixture of grants, loans — such as with Far East Sawmills — and equity. “We have taken some risks with WGL ”.

The PGF could mirror the approach taken by ECT.

“How do you get the right balance between community, economic development and some start-up riskier stuff?’’

The PGF was “grappling with the same issues’’.

As for supplying into the KiwiBuild programme, Mr Murphy said the WGL wood engineering business had the potential to do that in time, but it’s a “high level discussion”.

“We told the Minister that a $20m investment in a pre-fabrication factory was not the preferred solution.

‘‘We would have been more interested in a KiwiBuild contract because we could have found, at that point, the private sector people to fund and build a mill if they had a supply contract.

“But not right now.”

Mr Murphy said one of the possible cluster partners they were talking to could be interested.

“We’re not. We’re trying to get the cluster going.”​

Sawmill sold for $1.7m, with loan

Notes to Eastland Community Trust’s annual accounts reveal that the sale of the former Prime Sawmill and associated buildings in March 2018 was for $1.732 million and was facilitated by a $1.232m interest-free loan to the purchaser Far East Sawmills, repayable over three years.

The transaction resulted in a loss of $744,544 recorded in the 2017/18 year, following a $3.6m impairment recorded in the 2016/17 year.

​ECT subsidiary Prime SPV Ltd bought the former Prime Sawmill for $7.4m in 2015. It retains ownership of the 22-hectare site, which is now valued at $1.3m.

Mr Murphy is confident the trust’s financial support to establish Far East Sawmills as operator of the mill will reap economic benefits and job growth for Gisborne.

“There are 40 people employed at the mill already, with more planned, and 40 families who have employment that otherwise wouldn’t — 23 of them originally from Juken New Zealand,” said Mr Murphy.

“Go and ask those families. I’m pretty sure they would say it’s worth it.”

Mr Murphy said trustees were prepared to accept a lower value than the original purchase price recorded in the financial statements.

“This impairment is linked to the economic benefits and job opportunities that are expected to be derived.”

Support for Far East Sawmills had “addressed a market failure”, said Mr Murphy.

“It’s an essential component and central point to the wood cluster initiative.

“We are confident and on track to build around that to make the whole project worthwhile.

“We are working with a couple of possibilities for downstream processing of the stuff out of the mill.

“So you need the mill operating.’’

Far East had plans around “expansion, increasing efficiency and productivity, double shifts and more jobs”.

'An efficient, sustainable and economically-viable mill'

Mr Murphy said economic studies showed an efficient, sustainable and economically-viable mill, as part of the wood processing centre of excellence, could inject $7.7m into the economy each year and up to 120 jobs were also forecast at the site, once developed.

ECT had taken a conservative position concerning the accounting of the sale to Far East Sawmills.

Far East would potentially pay more to ECT, nearly double the current price up to a further $1.7m, depending on the success of the mill over the first three years.

ECT had successfully sold a sawmill that had been closed for eight years, and in doing so created an intial 40 jobs.

The mill was now scaling up, said Mr Murphy.

Success from a viable mill could lead to value-added products being made downstream.

Mr Murphy said the land was likely to be sold eventually to the cluster partners.

That would happen in the medium to long-term, depending on the success of the cluster.

If the market was “re-stimulated”, if the private sector was investing and the market was active, “we should be able to exit stage left”.

ECT could would also likely support cluster partners with more buildings through loan mechanisms and possible expected support from the PGF.

Mr Murphy also discussed an earlier direct investment by ECT, the light-commercial business park Commerce Place which it bought most of in 2013 for $1.7m.

The site beside the Poverty Bay Golf Club course and Gisborne Speedway had one development on it then, which ECT has since expanded for Sonic Surf Craft. Allen Trading Company has also relocated to Commerce Place.

It already owned a section there, as did three other businesses, before ECT bought the rest of the business park. ECT's interests in Commerce Place were valued at $3.279m in March 2016.

“That is not the reason we did it,’’ said Mr Murphy.

The aim was to intervene “in what appears to be a market that was not succeeding as well as it could”.

Enabling infrastructure in the area such as power and buildings meant businesses could direct capital into growth, not bricks and mortar.

ECT talking to many parties

ECT was talking to many parties about the site, with most of them being local businesses looking to grow.

“We would hope to land a couple of those in the current year.”

Wet Gisborne Limited (WGL), a $9.4m joint venture ECT invested $4.7m into in 2015, was operating at the Prime site as well. It had been set up to produce an innovative new engineered wood product in the form of glulam laminated lumber. That would replace structural framing made from optimised, engineered pine lumber, and had the potential to “disrupt” the market, said Mr Murphy.

WGL had New Zealand Building Code compliance signed off for the product now.

‘‘That’s huge. If you haven’t got it, you can’t be in business.”

A shipment of the product had been delivered to a site for installation in a trial house.

The installation process would be “measured and monitored” for efficiency and value to the builder and end-customer.

The product would be competitively priced to meet the market. There were also advantages in using glulam because less wood was required and installation costs were lower, because glulam was “stronger, straighter and more dimensionally accurate”, said Mr Murphy.

Other benefits were the fact the production process used Industry 4.0 principles, it was a “smart factory” and it required skilled, highly-paid staff to run the process.

“That in itself is a great outcome for the region, adding value to the forest supply chain and requiring skilled, well-paid, roles set up for the future of work.”

WGL had to now prove they could make the product in a ‘‘continuous, high-yield way”.

“Then you know you can make it and scale up.

​‘‘At that point you go to investors.”

With a business case, compliance, and customers who want the product, “then you go and build it”.

“We are pleased with progress to date, and cautiously optimistic we can scale this business up with our joint venture partners,” said Mr Murphy.

“It’s coming along.”

  • ECT’s annual meeting, which is open to the public, is tomorrow at the Waikanae Surf Life Saving Club from 5.30pm. ​
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