RusForest AB signs letter of intent to merge with Nord Timber Group

May 24, 2010 by timbercommunity

RusForest has signed a letter of intent with Nord Timber Group’s principal owners with the aim of merging the two companies by way of a directed share issue in RusForest, payable in kind. The combined entity will have an AAC of over 2.2 million m3 – positioning the merged entity as one of the top 5 forest-controlling companies in Russia in terms of cutting rights, and making it a significant forestry player in a global comparison. Behind the two merging companies are Swedish interests and partly Swedish owners.

Nord Timber Group (NTG) is a company with a significant and dynamic forestry and sawmilling business located in the Arkhangelsk region in the North West of Russia. NTG currently has access to more than 1.0 million hectares of forestland, with an annual allowable cut (AAC) of 817,500 m3. NTG additionally owns a sawmill in the region and a planing mill in the city of Arkhangelsk. Arkhangelsk is the most developed forestry and pulp-producing region in Russia, allowing NTG to sell all main products from its harvesting operations at full market prices.
The new company formed through the merger will be ideally placed to supply the domestic Russian market and the European market from North West Russia as well as the fast growing Asian and Central Asian markets from Siberia. The merger will additionally strengthen the management team, with NTG bringing in a number of experienced forestry industry professionals.
“This merger will transform RusForest into a major integrated Russian forestry company able to supply the global market with first class timber products from its unique forest resources in Siberia and in the Arkhangelsk region. Through the combination of RusForest and NTG we will achieve important synergies, which should increase profitability substantially and make the Company very attractive to the global investment community”, says Sven Hirdman, chairman of the board of RusForest AB.
The merger is expected to lead to a significant reduction in administrative expenses as a percentage of total revenues.
The combined entity plans to grow to become Russia’s leading independent forestry and sawmilling company, with a mid-term harvesting target of 1.6 million m3 of roundwood, and sawnwood volumes of over 600,000 m3. The combined entity intends to secure external financing in order to finance its ambitious growth plans.
RusForest offers a unique opportunity to invest in Russian forestry: www.RusForest.com
RusForest AB’s Certified Adviser on First North is HQ Bank
“The challenge for Finnish and Scandinavian sawmills is to secure enough raw materials at competitive prices in order for them to continue to run their mills. If they can’t do that, they will simply have to close down. One of the main opportunities for the new combination of RusForest and NTG is to employ modern, state-of-the-art equipment from those European mills that has been forced out of business to increase our production. In a market where all main actors are price takers, our ultimate advantage is lower production costs and the fact that we control the essential raw material flows through a combination of own forest leases and harvesting capacity”, says Martin Hermansson, founder and shareholder of Nord Timber Group, Arkhangelsk.
Vostok Nafta Investment Ltd, the largest shareholder of RusForest with an ownership of 49,9 percent, give their strong support to the proposed transaction and intend to work together with RusForest to raise the capital needed to develop the Company into one of Russia’s leading forestry players.
“Vostok Nafta is excited about the proposed merger, which will create one of the largest Russian forestry entities. RusForest is one of Vostok Nafta’s core holdings and we look forward to investing further in the merged entity to create a Company that will compare favourably to its global peers not only in size – but also when it comes to profitability and operational excellence”, comments Vostok Nafta’s Managing Director, Per Brilioth.
The proposed merger is subject to the parties signing a binding Sale and Purchase Agreement (SPA), and to the shareholders of RusForest voting in favour of the merger at an EGM to be held within the coming months. The merger may also be subject to regulatory approvals.
About RusForest AB (publ)
RusForest is the only listed Russian forestry and sawmilling company, with operations based in Eastern Siberia and long term leases covering over 850 thousand hectares of forest land. Russia has the world’s largest forest reserves by a significant margin, and Eastern Siberia is world renowned for its Pine and Larch of exceptional quality.
Through a series of acquisitions and development projects RusForest increased sawnwood production by 37.9% in 2009, to 166,333 m3, in spite of weak market conditions. RusForest has a number of exciting development projects, in particular the turn-key sawmill in Magistralny which is expected to add a further 50% to RusForest’s sawnwood volumes upon completion.
About Nord Timber Group (NTG)
Nord Timber Group has a large presence in the Arkhangelsk region of North West Russia, with a leased forest area of more than 1.0 million hectares of quality Spruce and Pine forests similar to those in Northern Sweden. NTG’s forest districts are all secured with quality roads constructed during the existing owners, with own rail terminals as a way to both secure logistics and control costs. Harvesting in NTG is expected to reach 400,000 m3 in 2010, where the log outtake from the forests was close to 100,000 during the first quarter of 2010.
NTG is about to finalize the installation of new drying capacity totalling some 80,000 m3 at its sawmill during the coming months. This will increase NTG’s total drying capacity towards 120,000 m3. The port of Arkhangelsk is operational year round and provides the logistical hub needed in order for a growing forestry company to be able to increase exports and get closer to the end customer.
RusForest offers a unique opportunity to invest in Russian forestry: www.RusForest.com
RusForest AB’s Certified Adviser on First North is HQ Bank
The principal shareholders of NTG are Mr. Martin Hermansson with family, the Jersey-based venture capital fund “The Greater Europe Deeper Value Fund II” (advised by Wermuth Asset Management) and Danish-based forestry fund “The Capricorn Forest Fund”.
For further information please contact:
Alex Williams, CEO, phone: +7 495 787 5872