Forestry

Tree Age Number of Trees Before Harvest Notes:1-3 1-7 8 12 16 20 25 Number Useable of Trees Tree Harvested Height Feet 3, 4 Tree Volume Marketable Value Gross Harvest Diameter - per Tree - Wood per per Tree Harvest and Inches Cubic Tree Proceeds ProcessFeet Board Feet ing Costs 6 4.5 11.6 22.2 35.9 55.3 22 76 187 301 465 7 8 9 10 $521 $2,307 $3,559 $3,623 $44,861 100 85 65 45 35 30 15 20 20 10 5 30 5 5 (mortality and cull loss) 20 8 27 11 32 14 35 17 39 20 $174 $3,472 $769 $15,382 $2,372 $23,724 $4,830 $24,151 $9,969 $299,077 Assumptions Initial price per board-foot: Price growth rate: Harvest costs: Management fee: Required rate of return: Riskfree Beta Market risk premium Country risk premium Total from CAPM: Initial cost per 100 Premium Mix: IRR: $ Forestry Profits per 100 Trees $5 6% 15% 6% 17 300000 250000 Profit in Dollars 200000 150000 100000 50000 5% 0.58 5.50% 5.50% 13.69% 2,300 27% 18 19 0 20 21 1-7 8 12 16 20 Year of harvest Net Care and Net-Profit Cumulative Present Harvest Manageper Net Value Proceeds ment Fee Harvest Proceeds 11 $2,951 $13,074 $20,165 $20,529 $254,215 12 13, 14 15 $2,774 $15,064 $34,019 $53,316 $292,279 16 $ 994 $ 2,636 $ 2,433 $ 1,483 $ 9,667 $ 17,212 $177 $2,774 $784 $12,290 $1,210 $18,956 $1,232 $19,297 $15,253 $238,962 ofits per 100 Trees Profit Present value 25 Usable Gross Net Trees wood harvest harvest Year harvested board feet proceeds proceeds 0 -100 $ (2,300) 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8 20 436 3472 $2,774 9 0 10 0 11 0 12 20 1529 15382 $12,290 13 0 14 0 15 0 16 10 1868 23724 $18,956 17 0 18 0 19 0 20 5 1506 24151 $19,297 21 0 22 0 23 0 24 0 25 30 13937 299077 $238,962 IRR 27% Notes to Projections 1. Method taken from TATF, a hardwood forestry company in Costa Rica. See http://tropicalhardwoods.com/htm/main/projections.htm. These projections are based upon a beginning price of $5.00 per board foot of premium hardwoods. Information taken from http://www.cheyennesales.com/hardwood/alvaprices.htm (year 2000 prices). Examples: Bocote $13, Cocobola $21, Purpleheart $5, Mahogany $5.50. 2. The projections in the table are based upon the price of hardwoods increasing at 6% per year. However, according to the FAO Forest Products Prices, the median export/import prices of teak actually rose at an average rate of 9.7% per year for the 18 years from 1970 to 1988 (the last year of the report), and 13.2% per year for the last four years of the report. Hardwood prices have been rising at a rate much greater than the 6% 3. Both the timing and number of trees harvested are based upon the latest silvicultural practices derived from years of experience in teak plantations. The actual harvests of your trees will be determined by professional foresters, who monitor the growth profiles of trees in each plantation. 4. These projections include a mortality and cull loss of 15%. The most likely period of mortality or cull loss is during the first years after field planting. 5. Height and diameter growth estimates are based upon growth rates obtained in plantations in the Caribbean and Central America. 6. Estimated volume per tree is arrived at by multiplying the basal area of the tree (Pi x (1/2 diameter) 2) times the usable height of the tree, and then reducing the result by 35%, since a tree trunk is not a true cylinder. These projections are based upon the volume of the trunks and do not include the additional wood volume that may be obtained from the larger branches in the later harvests. 7. The estimated amount of marketable wood per tree is stated in board feet, a standard measure of wood used in the U.S. One board foot of wood is one foot square by one inch thick (1' x 1' x 1"). There are 12 board feet in a cubic foot of lumber and 424 board feet in a cubic meter of lumber. The estimate of marketable wood is based upon the estimated volume per tree in cubic feet, multiplied times 12 to obtain the number of board feet, and then reduced by the estimated amount of processing waste, which is sawing losses and damage to the logs while being harvested, transported and processed. The inefficiency of smaller diameter logs results in greater sawing loss on younger, smaller trees. Accordingly, we have subtracted a processing waste of 60% for the 6 to 9 year old trees harvested, 45% for the 12 year old trees, and 30% for those 16 years old and older. 8. The value per tree is the estimated value of the lumber from each tree. This is arrived at by multiplying the estimated number of marketable board feet per tree, times the projected price per board foot at the time of harvest, using the beginning price per board foot (note 1) and annual increases of 6%. See Notes 1 and 2 above. The projected values per tree are based only upon the value of lumber the tree may produce and do not include any estimate of the premium value which veneer logs may bring. 9. Gross harvest proceeds, the estimated gross proceeds from the sale of the lumber from each harvest, is arrived at by multiplying the estimated value per tree times the number of trees harvested in that thinning or 10. Harvest and processing costs are the direct costs of harvesting the trees, transporting logs to the sawmill and having them sawn into marketable lumber. For these projections we have assumed that the harvest and processing costs will be 15% of gross harvest proceeds and will increase at the same rate as the increases in 11. Net harvest proceeds are arrived at by subtracting the estimated harvest and processing costs from your gross harvest proceeds. 12. The care and management fee is the TATF charge for managing the care and maintenance of your trees and the harvest, processing and sale of your hardwoods. Our care and management fee is 6% of the net harvest 13. Net profit per harvest is estimated net cash flow from each harvest, arrived at by subtracting TATF care and management fee from the net harvest proceeds. 14. Especially for the earliest thinnings, it would be good to anticipate as much as a year or more delay from the time of the thinning harvest until your lumber is milled, dried, and marketed, if that is your wish. This anticipated delay is incorporated into the calculations of the IRR for the first and second thinnings. 15. Cumulative net proceeds is a running total of estimated cash flow from the harvests of the trees. 16. Value today based on CAPM rate of return 17. See note 1 18. Deleveraged, decashed beta of "paper and forest products" fims from http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/Betas.html 19. Country risk premium from comparing Costa Rica Brady bond yields with US Treasury yields, 2000 20. Actual price per 100 with 500 minimum, January 2003 21. The internal rate of return, or IRR, is the calculation of the annual compound yield of the projected cash flow. TATF Premium Mixture of Costa Rican hardwoods Mahogany Considered by many to be the world's premier wood for fine cabinetry and fine furniture, mahogany is becoming increasingly scarce as loggers go deeper and deeper into the natural forest to find Cocobolo One of the true tropical rosewoods, cocobolo is an extremely beautiful, heavy oily wood that has become so scarce in parts of its original range that it is sometimes sold by the pound. Primavera Also called white mahogany because of its beauty and similarity in appearance to mahogany, only lighter in color, primavera is a premium blonde wood sought for fine furniture and cabinetry. Trebol or Macacauba A beautiful red to red-brown hardwood sought for fine furniture and cabinetry, trebol is nearing extinction in many parts of its original range. Brazilian Cherry Prized for its beauty and sought for fine furniture, cabinetry and flooring, Brazilian cherry has been harvested nearly out of existence outside of parks and reserves. Bocote A particularly beautiful hardwood, bocote is light to golden brown. Used for fine cabinetry, fine furniture and boat decking, bocote is becoming scarce in many parts of its original range. Purpleheart A uniquely beautiful purple wood, prized for inlay work and fine furniture and cabinetry, purpleheart is nearing extinction in many parts of its original range. Goncalo Alves Sought for its outstanding honey-brown striped wood for fine furniture, cabinetry, and beautiful turned bowls, goncalo alves is becoming increasingly scarce outside of parks and reserves. Ipe or Lapacho This beautiful olive-brown wood is used for furniture and flooring, and also for boardwalks because of its durability. Ipe is becoming increasingly scarce in many parts of its original range. Peroba Rosa Heavily exploited in the past because of its durability, and now for its beautiful pinkish wood, peroba rosa is now very rare in parts of its original range. Roble Roble's beautiful chestnut-brown wood is used for boat building and for fine furniture and cabinetry. Roble is becoming increasingly scarce outside of the protection of parks and reserves. Santa Maria Pinkish to reddish-brown, Santa Maria is sought for beautiful cabinetry and veneers. Santa Maria is listed as occasional to rare, even in parks and reserves. Madero Negro This beautiful flecked dark brown to black wood is not yet well known in the U.S. Madero negro used to be used for its durability, but now is sought for furniture, cabinetry and artisanry, and now occurs only occasionally naturally. Wild Tambran Wild tambran's excellent, dark reddish-brown wood is sought for furniture, cabinetry and figured veneers. Wild tambran is now increasingly rare outside of parks and reserves. Swietenia macrophylla Dalbergia retusa Cybistax donnellsmithii Platymiscium spp. Hymenaea courbaril Cordia alliodora Peltogyne spp. Astronium graveolens Tabebuia spp. Aspidosperma Spp. Tabebuia rosea Calophyllum brasiliense Gliricidia sepium Pithecellobium arboreum