Dispute threatens mill sale

By PAULA OLIVER

Norske Skog's attempt to sell its pulp operations at Kawerau could be caught up in the acrimony between Fletcher Forests and Chinese Government-owned Citic.

The pair are battling over control of the giant Kaingaroa Forest through their Central North Island Forest Partnership.

The Kaingaroa Forest is the big source of trees for Norske Skog Tasman's pulp and paper mill at Kawerau.

But the future ownership of Kaingaroa is in doubt, after the partnership's well-publicised breach of its banking covenants at the end of last year.

Banks are deciding whether to put the partnership into receivership, let it continue with a new agreement, or seek a buyer for the assets.

Analysts the Business Herald spoke to yesterday suggested Carter Holt Harvey as a potential buyer for the kraft pulp part of Norske Skog's mill.

But they said the partnership's problems could play a part because buyers would want a guaranteed supply of raw material.

Norwegian-based Norske Skog took over the mill when it bought the assets of Fletcher Paper last year.

It said last week that it intended to sell the kraft pulp asset so that it could focus more on its core business of newsprint.

The mill, which was built in 1952 to take the bulk of the output of the then state-owned Kaingaroa Forest, produces 280,000 tonnes of pulp a year.

Much of the pulp, which is used to make paper, is exported to Australia and North America.

Dennis Lee, of broker ABN Amro, said the logical buyer for Norske Skog's pulp asset would be Carter Holt Harvey. But one of the problems Norske Skog might encounter was that the uncertain forestry partnership was a big supplier.

"Carters are a logical buyer - they're close by, and have the resources," Mr Lee said. "But nobody knows what will happen with the partnership, so it might be a factor."

Fletcher Forests spokeswoman Ginny Radford has said the supply contracts could be met even if Forests lost half the wood from the settlement of the partnership's problems. Whoever owned the forest estate would need the contracts because they took big volumes of lower-value pulpwood.

Mr Lee said Norske Skog would be on strong ground if it could guarantee the contracts. He suggested that the Norwegian paper giant was keen to quit the pulp market because it was so cyclical it was not easy to make money.

"It's dependent on how cheap you can get your raw materials," he said.

Another forest industry insider said Carter Holt was bound to have a close look at the asset, because it appeared keen to dominate markets.

Securing the Kawerau mill would be a big step towards market pulp domination, and it would be logical after recent moves to dominate the log market.

But its Kinleith pulp and paper mill had been upgraded, giving it a similar capacity to Kawerau, said the insider.

Analysts were divided on how difficult the asset would be to sell.

Norske Skog Australasian regional president David Kirk said this week that the new owner would have to agree to share the services, because of the obvious link between pulp and the mill's paper division.

The buyer would get existing pulpwood contracts with Fletcher Challenge and other contracts with Norske Skog.

"It's not a bad time to be selling a mill," Dr Kirk said. "Pulp prices are at historically high levels, certainly well above their long-run average, while the mill is producing well and is highly profitable."