A team of veteran foresters and investors has traded in B.C.’s well-trodden forests for the pristine jungles of Colombia in a bid to be the first company to tap an old industry in a new place.
“The market for tropical hardwood is a very strong market, and the industry in Colombia is just beginning,” said Donald Hayes, CEO of Prima Colombia Hardwood Inc. (TSX-V:PCT).
The company formed September 23 after it bought REM Forest Products Inc. and closed a $5.5 million financing.
The move came with a timber agreement that provides access to four-years’ worth of tropical hardwood.
Even though Prima is still an infant among global forestry companies, its management team has decades of experience.
Hayes will lead the company with brother Harold, both of B.C.’s Hayes Group, which was once one of the province’s largest timber service providers.
Prima’s board includes such Vancouver business veterans as:
- Harald Ludwig, co-chairman of Lions Gate Entertainment Corp. (NYSE:LGF);
- Grant Stonehouse, founder of the Davis Strait Group of Companies; and
- Gordon Keep, executive vice-president of Fiore Financial Corp.
To top it off, Goldcorp Inc. (TSX:G) chairman Ian Telfer has been appointed a senior adviser, and Prima’s largest shareholder is billionaire mining mogul Frank Giustra.
Despite the heavyweight management team, Hayes said the real opportunity is Colombia.
“It’s very business friendly,” he said. “There’s a lot of Canadian businesses down there, and they’re anxious to have an active forest industry.”
Although there may not be any other Canadian forestry companies in Colombia, the South American nation has attracted a number of resource explorers, including Vancouver’s Greystar Resources Ltd. (TSX:GSL) and Ventana Gold Corp. (TSX:VEN).
Prima’s inception came just weeks after Colombia’s new president, Juan Manuel Santos, took office.
On September 22, the business-friendly president dealt a crushing blow to the rebel Revolutionary Armed Forces of Colombia (FARC) when soldiers killed top commander Mono Jojoy during a jungle raid.Jojoy’s death effectively cut the head off an organization that has steered investors away from the country for years.
Prima will operate with a security plan for employees, but Hayes said there are more potential rewards than risks.
Not only is Prima among the first companies to look at tropical log harvesting in Colombia, but its fibre basket on the country’s Pacific Coast also provides access to Asian markets.
“The largest importer of tropical hardwood is the Chinese markets,” Hayes said, “and most of our customers for trial orders are in China.”
The logs will be shipped to China where they will be used to manufacture hardwood flooring, exotic wood panelling or veneers.
Hayes said Prima has the cash on hand to get operations underway and expects its first logs to ship in early 2011.
Financial forecasts peg 2011 revenue at $32.6 million with an after-cost margin of $5.6 million.
Those numbers are projected to increase in 2012 to $71.6 million and $20.5 million, respectively.
An analyst who asked to remain anonymous agreed that China continues to show huge demand for tropical hardwood, but the Colombian forestry sector is too new to bet on substantively.
“There’s not a lot of guys doing it, so it’s hard to get your head around it,” the analyst said.
“I’ve seen the presentation; the numbers look good. If they can deliver it’s a good opportunity.”
David Cohen, a professor in the faculty of forestry at the University of British Columbia, said China could be interested in Colombian hardwood now that it’s turned its attention away from tariff-heavy Russian logs.
But Cohen added that it won’t be the only place the Asian giant looks.
“There is a market, but it’s not nearly as attractive as everyone thought it would be, and the reason is very simple: China does what Japan used to do – they ensure they develop multiple sources of supply.”
That means Prima needs to compete with producers in well-known tropical hardwood jurisdictions such as Indonesia, Brazil and India.
Still, Hayes believes Colombia’s investment quality will soon speak for itself.
According to the World Economic Forum’s latest Global Competitiveness Report, Colombia is the world’s 68th most competitive region with “competitive strengths in the quality of its macroeconomic environment (50th), large market size (32nd) and fairly sophisticated businesses (61st).”
Cohen said efforts to limit the influence of drug cartels and insurgent groups have also helped Colombia’s economy, but it’s too soon to say if it will last.
Said Cohen: “A lot of people say whether it’s going to grow or not will depend on how well they distribute the wealth … but it’s definitely had tremendous economic growth in the last three or four years.”
Vancouver
CEO: Donald Hayes
Employees: N/A
Market cap: $74.2m
P/E ratio: N/A
EPS: N/A
Sources: Stockwatch, TSX