In the Notice of Extraordinary General Meeting Great Southern outlines to investors why they seek to exchange shares for woodlots and cattle droves. What follows is just my notes and in no way a recommendation for anyone. The deal appears to be reasonable for MIS holders, whose real mistake was originally investing in the MIS projects. MIS investors should be angry at themselves for believing a new financial product was going to be profitable for them. New financial products are designed to make promoters, advisors and banks wealthy. None of the aforementioned care whether investors profit. If MIS investors feel compelled to blame someone then perhaps they should look at their financial advisors who profited handsomely from recommending these schemes of dubious nature. However, that is all in the past and crying over split milk will not help. I encourage all participants to personally examine the offer documents and decide what is best for them going forward. As a GTPGA and GTPGB holder I note the following key points:

• proforma net debt will fall from 39% to 33% if scheme approved
• if maximum shares issues NTA would be $0.94 (company appraisal) With some conservative, but not ultra-low estimates I arrived at an NTA of around $0.50
• freehold forestry estate of 179,00 hectares
• if scheme is rejecting company will embark on sale of non-core assets and will be heavily reliant on 2009 MIS sales (cough, cough)
• TREES2 799,000 reset 31/10/09 and TREES3 1,247,000 reset 31/10/10
• scheme proposal will not trigger conversion or redemption rights for TREES. (Humm, is that so, I better double check that)

If the scheme is rejected  the company will find the future very tough. Proejct management and debt costs will continue and MIS sales will more than likely be poor, as few financial planners or investors will want to risk further funds. With GTP currently trading $0.325 when the floor price of the exchange set at $0.50 and many irate MIS investors looking to point fingers rather than look within it appears likely the deal will not easily be approved. Many financial advisors must surely feel embarrassed for taking their generous original commissions and may be reticent to advice their clients to surrender their lots and droves for shares. However, the scheme does appear to be the bet deal for all parties, so perhaps it has a chance of being passed. If it is passed then TREES holders are more assured of redemption. The risk for TREES holders is clearly with rejection of the proposal, so time for a close inspection of the balance sheet. GTP balance sheet snapshot. From the meeting notice linked above.

• The major asset is 179,000 hectares of land, which they value at $1.1B unencumbered or $6145 a hectare. *all land currently held on books at $812M or $835M as of 30 June 2008. (see original offer)
• cattle land independently valued at $130M
• 1.4M GMt of woodchips over next five years - (1.4*180*.52= 130M) Over the last two years prices of per bone dry metric tonne have ranged from $180 - 210. Company estimates dry conversion of 52%.
• 5.5% of 6M GMt over next 6 years - (6*180*.52*.055= 30M)
• PPE currently held on books at 215M

Quick valuation of assets around $1.4B In the original offer document the company said $1.984B in assets and $770M in debt. There is also cash ($83M from half year report) and deferred tax assets ($70M) and other bits and bobs. The debt of $770M comprises:

• TRRES2 - $80M
• TREES3 - $125M
• Bank debt - (770-205= $565M)

Bank debt has first claim and the TREES can be exchanged by company for shares. So it appears unlikely that the bank debt could be greater than assets. While I have included the wood chips at life value rather than net present value that makes no significant difference. The main question is the value of the land. Giving all the other assets a value of $300M, could the land be worth less than $300M or $1,700 per hectare? If it is, the independent valuers and the auditors will certainly be in a world of trouble. At first blush, it appears GTP will survive even if the swap scheme is not approved. While times will be extremely tough holders of GTPGA are likley to see their notes converted to GTP shares. It’s time for a spreadsheet! If GTPGA and GTPGB return nothing of value I will only blame myself for not clearly appreciating the possible downside.

More Notes

• Swap document for 1998 plantations.
• Original offer document has excellent financial summaries.
• If swap, likely to be $1.15B shares on issues.