Eucalyptus Plantation Forestry Investment in Uruguay shows impressive returns
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Uruguay has significant geographic, climate and competitive environmental advantages in modern Eucalyptus timberland plantation forestry, making it one the world’s lowest base cost Eucalyptus producers. The Uruguay forestry model driven by the state-of-the-art world, class pulp plant investments in Uruguay by UPM and Stora Enso/ Auraco has created a vigorous, sustainable and ultimately disruptive forestry model which is changing the dynamics of traditional timber markets on a worldwide basis on a scale last seen in the 1970s with the then disruptive emergence of Chilean and New Zealand plantation grown Radiata Pine on world timber markets.
Uruguay has significant competitive advantages over the more traditional forestry areas in North America and Europe due to higher overall biological productivity (~100%) due to favourable environmental factors such as tree species, climate and geo-topography whilst having a lower overall (~30%) factor cost over the production life-cycle due to lower average costs in land, labour and technology.
Eucalyptus species are optimized for growth in Uruguay. The eventual marketable fibre benefits from a well-established and diversified global off-take network ranging from high-value export-grade sawlogs to a strong domestic pulp log market and a rapidly growing market for top-grade sawn timber.
Based on current market valuations, a forestry investor in Uruguay can reasonably expect to acquire and build a well-structured and diversified Eucalyptus forestry portfolio capable of producing a sustainable un-leveraged IRR of between 8% and 9%. These financial return expectations are primarily driven by the inherent biological growth dynamic of the marketable fibre rather than future timber prices or land price metrics, which have traditionally driven the valuations of timber investments in North America and Europe. Due to this unique dynamic, investment returns in Eucalyptus fibre have historically not shown, nor are they expected to show in future, any significant financial correlation to the wider equity, commodity or traditional forestry industry sectors.
Contact Hector for more in-depth investment information and more answers to these questions.
Source: Hector Laca-Viña (MSc., PhD)
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