Clean | Green | Sustainable

Did We Pay $302 Million Extra for Plum Creek’s Cut-Over Lands?

Posted by Matthew Koehler on August 11, 2009

An article today in Barron’s contains a bunch of great information regarding the fact that “US timberlands may be one of the world’s most overvalued asset classes.”

Here are some snips from the article:

“Compared with the outlook for key commodities such as oil, copper or aluminum, the outlook for most forest products isn’t strong. Demand could weaken as the world goes digital and uses less paper.”

“Timber is one of those overhyped investments whose supposed virtues don’t hold up well under closer scrutiny. It is hard to find an asset that has appreciated so much, even as the products created from it are so weak. This doesn’t bode well for private holders of timber and investors in timber REITs. For those seeking commodity investments and inflation hedges, look elsewhere.”

The article also include a specific, in-depth look at Plum Creek Timber Company.

According to the article: “In outlining the bear case for Plum Creek in the Midyear Roundtable, Schafer noted it was valued at about 30 times estimated 2010 earnings and nearly 20 times projected pre-tax cash flow. Plum Creek’s seven million acres of timberland are now valued at more than $1,100 an acre. He said $600 an acre is a more realistic value.”

If this $600 per acre estimate is the correct/realistic value of Plum Creek’s timberlands, it’s worth noting that 312,000 acres of mostly cut-over Plum Creek Timber Company lands were purchased as part of the Montana Legacy Project for $490 million (including $250 million which came directly from the federal government…ie US taxpayers).

That translates to $1,570 per acre.  This could mean that US taxpayers and the Montana Legacy Project partners paid Plum Creek Timber Company $302,640,000.00 over and above what their timberlands were really worth.

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One Response to “Did We Pay $302 Million Extra for Plum Creek’s Cut-Over Lands?”

  1. Timber valuations are being given a serious boost right now by carbon credits and biomass. If the US Emissions standards tighten further under Obama, a near certainty, then Coal will be replaced with ….., drumroll please, wood waiste and biomass from plantation grown forests. Right now the US consumed almost a Billion tons of coal every year. If Biomass is to replace any appreciable amount of that massive consumption, then wood product demand will soar along with valuations. Biomas Magazine is a good source of data on this market that is truly exploding right now in the US and has already been growing in Europe exponentially for over twenty years.

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