Green Resources’ objective is to be Africa’s best plantation company and a driving force in developing the continent’s large potential for tree plantations. The company believes the world will see an increasing shortage of wood fibre at a time when higher energy and oil prices and an increased desire for renewable products will accelerate the demand for wood fibres. The global shift from northern slow growing natural forest to fast growing southern plantation forestry will continue.

Deforestation and illegal logging is increasingly viewed as unacceptable, increasing the demand for wood grown in plantations. The company will convert low-yielding grassland and degraded forest to grow the highest-yielding crops suitable for the land areas under the company’s management. The focus is on forestry, including exotic and indigenous species, but also other crops that make appropriate and profitable use of the available land. The lack of long-term investors in Africa has resulted in modest competition for land suitable for long-rotation crops and this should enable Green Resources to reap good returns.

Green Resources will diversify the species planted and the geographic locations in order to reduce the risk. At the same time, the company will conserve and expand the natural forest and other valuable vegetation within its areas of operation and will obtain FSC certification for all its forests. It will reach out to the local communities to establish Farm and Village Forest Schemes, maintaining a strong focus on sustainable development, environmental protection and social development.

Green Resources’ objective is to establish different types of forest plantations aimed at a number of different markets:

• Energy and pulpwood plantations for the regional and global markets feeding charcoal and pellet production, panel board and pulp and paper mills, as well as new-style wood refineries producing a mix of biofuel, chemicals and fibre.
• Softwood sawlog plantations for sawn timber and processed building products for local use and export to the Middle East and the Indian Ocean region, as well as high-value clear wood for the global markets.
• Eucalyptus saw- and peeler logs and transmission pole plantations for the African and Indian Ocean markets.
• High-value hardwood (teak or indigenous trees) sawlog plantations for the global market.
• The waste wood from these plantations will also be used for the production of electricity and steam for internal consumption and external sale.

Diversification

Green Resources is selecting forestation regimes based on the potential profitability of the projects, within the environmental and social framework that is a key part of the company’s strategy. In order to diversify the risk of the investments, Green Resources employs the following investment policy:

• Select a number of different species and provenances
• Operate in a variety of climatic zones
• Target different end markets with the same species
• Operate in a number of countries

Large East African potential in forestry

East Africa has some of the best conditions in the world for plantation forestry. Long term, both Mozambique and Tanzania should develop a forest sector similar or larger in size to that of South Africa, New zealand or Uruguay, and possibly challenging Chile and Australia. This will only require the use of 2% of Mozambique’s land area of 80.2mn ha (801,590 km2) and Tanzania’s 94.5mn ha of land. Mozambique and Tanzania can position themselves among the world’s largest exporters of forest products after Brazil and Indonesia, the two largest southern hemisphere wood products companies, and enable the countries to make a large contribution towards the global fight against climate change.

Uganda can build a prosperous forest industry based on domestic sales and exports to the Great Lakes’ markets. In South Africa, 1.1% of the land is used for forestry, covering 1.37mn ha of a total of 122mn ha. The annual value of the forestry sector in South Africa is about USD500mn, while the ex-mill value of the forest products is more than USD2bn. Green Resources expects to be a driving force behind the development of the forest industry in East Africa to reach similar and/or higher levels.

A place for agricultural crops

Where the growing conditions are suitable, Green Resources will allocate part of the plantation to grow a range of agricultural crops. There are several reasons for growing agricultural crops along with forest plantations:

• to provide food security for the local communities and increase local food production to add biodiversity to the plantation
• to contribute to fire and disease protection
• to create continuous employment opportunities for the local community
• to maximise the financial return on the overall investment

The value of long-rotation plantations, in the form of carbon sequestration and final harvest value, is driven by a number of factors. Green Resources is working hard to improve operations in order to optimise performance relating to these factors and therefore maximise the value of the company to its shareholders, employees and other stakeholders.

Biological growth

Biological growth traditionally accounts for the bulk of the value creation. Growth rates vary widely, depending on rainfall, temperature, soil conditions and a number of other factors. Green Resources operates in areas with favourable growing conditions.

Establishment cost

For plantation forestry, the cost of establishing new plantations is vital for the return on the investment and is often underestimated by the main industry operators. The costs differ sharply across the world, driven most importantly by efficient operations, cost of equipment, labour costs, organisational overheads and land acquisition costs. Green Resources aims to be a global low-cost operator in all parts of the value chain.

Timber/end-market prices

Rising end-market prices have, over time, added to the value of forests. Following a flat decade, timber prices started rising again in 2003/04. Green Resources aims to sell wood fibres into a variety of uses based on the prices of the various markets, as well as developing products for non-traditional markets in order to maximise the value of the company.

Higher-value end use

The value of trees differs based on size, age, class or end use. Clear sawlogs are, for example, much more valuable than pulpwood. The progression of timber into higher-value uses opens an exponential increase in the value of the trees as they grow older. It is an integral part of Green Resources’ strategy to ensure downstream value creation, which has normally not taken place in Africa.

It is one of Green Resources’ main aims to fight climate change through highly efficient afforestation projects that capture and store carbon, and to conserve natural forest and end deforestation. Carbon finance is a key part of the funding of the company’s plantations, which are located in areas where there are no commercial-scale forestry operations. At the same time, the carbon strategy provides major benefits to some of the poorest people in the world. The company is also engaged in renewable energy projects and aims to be Africa’s leading provider of carbon credits.

Social carbon credits

Green Resources will reinvest 100% of the carbon income in further tree planting into the African villages where the carbon revenues were originally generated, thereby continuing to provide significant employment and development. It also aims to capture the largest possible share of the carbon value chain for its African operations by developing and selling projects of a high standard, rather than relying on intermediaries that have traditionally extracted up to half of the carbon value.

Avoiding deforestation

Africa is a modest emitter of traditional greenhouse gases. However, deforestation in Africa and other areas of the world is responsible for about 20% of the global greenhouse gas emissions. The need for firewood and charcoal is a major driver of deforestation, along with timber logging and agricultural clearing. Green Resources conserves natural forest, while the forestation activities ensure that building materials and firewood can be supplied from sustainably managed forests. Deforestation will only stop if there are alternative sources of wood from plantation forests.

Efficient carbon credits and sustainable forests

For every 1m3 of growth in the forest, 1-1.5 tons of carbon dioxide is consumed (or removed from the atmosphere) and stored in the wood. It is Green Resources’ intention to maintain its forests as carbon sinks (stores) forever. The forest will be managed on a sustainable basis, with the annual harvest matching annual growth when the trees reach maturity. The wood is used for bioenergy, building materials, paper pulp, chemicals or other end products. The forests will generate renewable products that often replace non-renewable carbon emitting products, like fossil fuels or metals and plastics in building materials and packaging.

Green Resources’ industrial subsidiary, Sao Hill Industries (SHI), is one of the top three forest products companies in East Africa. The local market provides a stable income base for forest products and sawlogs. Green Resources aims to be the leading forest products, building materials and transmission pole company in East Africa. The company also aims to develop into a significant exporter of forest products to the Persian Gulf, Indian Ocean and Red Sea regions, and an exporter of wood components to the global markets. East Africa has a unique location close to some of the world’s largest and fastest growing markets for wood products. It is located closer to China than most of the world’s large forest regions.

Rationale for industrial operations

Green Resources is primarily a forestation and carbon offset company, but it does also aim to have a major involvement in industrial processing because it wants to:

• Provide the best possible market for, and increase the value of, the company’s own plantations.
• Ensure that the company can successfully process the wood it produces within the region.
• Create development and employment in the countries where it operates.
• Generate superior returns by applying improved processing technologies, compared to what is commonly used in the region.
• Capitalise on the rapidly developing regional building materials markets, some of the fastest growing in the world.

Building materials

The core products include sawn timber, joinery products and other wood-based building materials for the rapidly growing East African markets. Green Resources also aims to be a leading regional exporter of building materials, being ideally located for supplying the Persian Gulf, Red Sea and Indian Ocean markets, and believes it can be a low-cost manufacturer of wood components to the world market.

Green Resources will convert its entire production of sawn timber from ‘green’ timber into high-quality kiln-dried timber, using steam produced from its own waste materials. This will lead to better prices in the export markets, while also providing the local market with improved quality timber and the local processing industry with excellent raw materials required for expansion of the local furniture industry. Green Resources will remanufacture some of the timber into products where the company will have a competitive advantage, for example, pallets, doors and glue-laminated sheets and products.

Transmission and building poles

Green Resources’ objective is to become Africa’s largest transmission pole producer, manufacturing high-quality poles that adhere to the highest international specifications. The company has replaced imports from Europe and South Africa with poles produced within the East African region. The company also aims to become the leading producer of building and fencing poles.

Increasing wood utilisation

Most sawmillers in East Africa have a recovery rate of harvested wood from one-quarter to one-third, with the remaining raw material being wasted, burnt or left to rot. SHI also has a low recovery rate and is determined to increase the wood utilisation rate by about a third to an international level of 100% by processing the available wood waste into small-sized timber, energy and panels. The wood residue is already paid for and logged, and about half of it is transported to the mill. This represents a unique, low-cost source of raw material ready to be used by SHI.

To Green Resources, energy means bioenergy in two main forms: solid fuel and combined heat power (CHP) plants. The company has also a small hydro-energy project, which may be developed in the future. Energy is still a small business for Green Resources, but several projects are under development, and the first revenues were recorded during the first half of 2009.

CHPs produce steam and electricity for internal and external uses based on waste wood, typically using the lowest-quality waste from the industrial wood processing and from forest waste. A heat and power plant makes up the heart of many forest industrial operations, and Green Resources is developing a solid wood products concept, which is based on a 15MW CHP, the first to be built at Sao Hill, Tanzania.

Solid fuel takes the form of firewood, chips and pellets, as well as charcoal. Pellets are the highest value-added solid biofuel, and are well suited for East Africa because of the lower logistics costs and the superior handling qualities. Green Resources is developing two pellet projects, one in Mozambique and one in Tanzania. Pellet production fits well with a future pulp mill or ‘wood refinery’ because most of the equipment can be used in a future pulp mill, while the non-related investments will be written off by the time of a pulp mill start-up.

Industrial charcoal production plays a major role in the metal industry in Latin America and for certain high value metal applications around the world. Green Resources is developing a charcoal business that primarily supplies the consumer market, in competition with charcoal produced from natural forest.

Green Resources wants to be self-supplied in energy from renewable resources, whilst at the same time supplying electricity to the local community and the regional market, as well as solid bioenergy to the regional and international markets.

Green Resources is initially expanding the renewable energy business by increasing the supply to the local market. It has established what is believed to be Tanzania’s largest charcoal operation based on renewable resources. In the long term, Green Resources expects to be a major supplier to a new local and growing global biofuel industry.