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Altius Associates December 8, 2010

Altius Associates December 8, 2010. Topics for discussion. What is the current state of global timberland investments – who, where, how? Where are the major centers of timber production and what is the demand outlook for paper and wood products?

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Altius Associates December 8, 2010

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  1. Altius Associates December 8, 2010

  2. Topics for discussion • What is the current state of global timberland investments – who, where, how? • Where are the major centers of timber production and what is the demand outlook for paper and wood products? • What regions do we believe offer compelling investment opportunities? • Q & A

  3. Investment-grade Timberlands by Region

  4. Institutional Timberland Investments by Region 6/30/2010 Market Value

  5. Institutional Investments by Structure

  6. Investor Characteristics 6/30/2010 Market Value

  7. Topics for discussion • What is the current state of global timberland investments – who, where, how? • Where are the major centers of timber production and what is the demand outlook for paper and wood products? • What regions do we believe offer compelling investment opportunities? • Q & A

  8. Timber Market OverviewPopulation = Demand

  9. Timber Market OverviewTimber Harvests vs Paper and Wood Products Production by Region, 2009

  10. Timber Market OverviewUS Forest Production by Region

  11. Key Global DriverRecovery in US housing markets

  12. Changes in trade patterns Key Global Driver Chinademand growth greatly exceeds domestic timbersupplies Note: As a benchmark, the total pine harvest in the U.S. South in 2008 was ~180 million m3 Sources: China Customs Data and Forest Trends Analysis 2007

  13. Key Global DriverEconomic viability of Russian timber supplies Topography is challenging with high-cost cold winter logging & high logistics costs to market. Significant capital required for expansion.

  14. Key Global DriverPotential development of energy-related markets

  15. Topics for discussion • What is the current state of global timberland investments – who, where, how? • Where are the major centers of timber production and what is the demand outlook for paper and wood products? • What regions do we believe offer compelling investment opportunities? • Q & A

  16. RMS Core Investment Regions

  17. Risk-Return Profile of Target Countries EXPECTED RETURN (real, net) LOW MODERATE RISK

  18. BrazilForest Plantations: Location & Species Scale has been developed in many regions, for both pine and eucalyptus • Currently: • Eucalyptus: 4.3 million ha. • Pine: 1.9 million ha. Eucalyptus region Pine Belt Legend >76% of total plantation area <24% of total plantation area Source: ABRAF, Sao Paulo Institute of Agricultural Economics and STCP, 2009

  19. Investment Summary: Brazil Globally competitive with highly productive hardwood and softwood forests and manufacturing. Growing domestic economy providing demand support. Markets • Softwood markets are transitioning from US export emphasis to globally diversified customer focus. Increasing growth in domestic markets in response to government sponsored infrastructure and housing initiatives. • Premier global producer of bleached eucalyptus kraft pulp. Growing domestic MDF consumption, along with energy markets, are generating fiber price pressure. Investment Opportunities • Wealthy family ownerships reaching generational tipping point. Many are involved in forest products manufacturing and facing financial pressures to monetize timberlands. Significant opportunities to acquire assets in $25 - $50 million USD range. • Major pulp and paper companies in early stages of shift from fully integrated model through sale of “non-strategic” assets. • Incremental consolidation of small ownerships creating scale can also be achieved. Political/Legal • It’s Brazil…difficult, but not impossible. • Highly regulated labor, environmental, tax and legal systems add process cost.

  20. New ZealandForest Plantations: Location & Species New Zealand’s forest resource is dominated by radiata pine. • Currently: • Radiata Pine: 1.57 million ha. • Other: 0.18 million ha. Source: MAF National Exotic Forest Description, 2008

  21. Investment Summary: New Zealand Key supplier of sustainable softwood for rapidly growing Asia-Pacific markets. Markets • Well-positioned to supply growing demand in China and India, both countries having large supply deficits. Cost increases of competing supplies will be an incremental price driver: • Russia: Increasing remote logistics costs, environmental restrictions and export taxes. • Canada: Reduced harvest from mountain pine beetle mortality. • Continued demand by New Zealand and Australian domestic economies. Investment Opportunities • Majority of timberland ownership held by investors, will provide ongoing acquisition opportunities. • Remaining medium size companies seeking timberland sales and long-term wood supply agreements as part of strategic shift of capital and management from fully integrated model to focused manufacturing for the supply of domestic and Asia-Pacific markets. • Consolidation of regional fragmented forest tracts creating scale can be achieved. Political/Legal • Very favorable foreign investment climate. • Highly transparent regulatory and legal system.

  22. AustraliaForest Plantations: Location & Species Forest plantations are concentrated around coastal regions, providing excellent growing conditions Legend Forest Plantation Regions Source: National Forest Inventory 2008

  23. Investment Summary: Australia Strong domestic softwood market and major hardwood chip exporter. Markets • Strong softwood markets driven by domestic consumption for construction, outdoor and appearance products. Inadequate domestic supply supplemented by imports, mainly from New Zealand. • Largest supplier of hardwood chips to rapidly growing Asia-Pacific markets. Investment Opportunities • Privatization of large public forests has begun and will provide significant opportunities to acquire quality softwood assets. • Liquidation of overly leveraged MIS schemes may provide opportunities to acquire eucalyptus plantation assets. Political/Legal • Very favorable foreign investment climate. • Highly transparent regulatory and legal system.

  24. Species Group Larch Larch Larch Larch Larch Softwood Oak Oak Hardwood Oak Oak Oak Forest Region 1 Ash Ash Ash Ash Ash Larch and Birch Larch and Birch Birch Birch Birch Birch Birch Aspen Aspen Aspen Aspen Aspen Forest Region 2 Poplar Poplar Forest Region 3 Fibre Fibre Pines and fir Forest Region 4 Eucalypts Masson Masson pine pine Masson Masson Masson pine pine pine Spruce Spruce Spruce Spruce Spruce Chinese fir Chinese fir Chinese fir Chinese fir Chinese fir Pine Pine Pine Southern pines Southern pines Southern pines Pine Pine Fir Fir Fir Fir Fir Hemlock Hemlock Hemlock Hardwood & Hardwood & Hardwood & Hardwood & Hardwood & Hemlock Hemlock Rainforest Rainforest Rainforest Rainforest Rainforest Source: Pöyry and RMS ChinaForest Plantations: Location & Species Four broad forest regions can be identified based on six major species groups. Guangxi and Guangdong provinces have been the focus for many forest plantation development projects Source: Pöyry & RMS Analysis 2007

  25. Investment Summary: China Strongest growing global forest products market that is sustained by domestic growth with a perennially large and increasing fiber supply deficit. Markets • China’s strong demand growth is pulling increasing imports, equivalent to US Southern pine harvest. • Domestic sawlog and pulp log pricing is based on import parity. Investment Opportunities • Estates accumulated by medium to large size companies to assure fiber supply are becoming available as owners shift capital and management from a fully integrated model to leading edge manufacturing. These former owners will provide market stability as a major customer. • Incremental consolidation with smaller acquisitions creating scale can also be achieved. Political/Legal • Forests can be privately owned with long term leases and are transferable. • Sustainable commercial forests and associated rural manufacturing have strong political support. • Transparency of the tax and regulatory systems has substantially improved with WTO entry. • Legal protection, tax minimization and capital repatriation supported with Hong Kong structures.

  26. Questions?

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