TFS becomes investor in WA Sandalwood Plantations

Private forestry group WA Sandalwood Plantations has signed bigger rival TFS Corporation as a significant investor in a landmark deal aimed at increasing its exposure to institutional investors.

WA Sandalwood, founded in 2001 by owners Ron Mulder and Keith Drage, operates an investment model similar to a managed investment scheme to finance its Australian Sandalwood plantations across the State.

However, instead of MIS, investors buy shares in an entity set up by WA Sandalwood to house each plantation project. WA Sandalwood also takes a stake in that company and investors share the management costs and returns.

The first harvest from its sandalwood plantations is expected in 2015.

But in a surprise move, TFS Corp - which grows Indian Sandalwood on behalf of MIS and wholesale investors - has signed on as an investor in its unlisted counterpart's plantations.

Under the binding deal to be announced this morning, TFS will raise at least $4 million and up to $16 million in new MIS investment, which it will then "invest" with WA Sandalwood. The funds will be used for the purchase, establishment and management of a new plantation in the Wheatbelt. A $16 million, 1000ha investment represents about 40 per cent of WA Sandalwood's planting capacity for 2011.

Mr Drage said yesterday the deal represented a significant opportunity for WA Sandalwood, with the potential for a repeat of the deal if it proved a success.

It would also boost TFS's revenues this year, which has been a tough environment for MIS products.

"In terms of forestry as an asset class, there's no doubt in my mind or my investors' minds that it still very much has a place and a decent future," Mr Drage said.

TFS chief financial officer Quentin Megson said the investment would produce synergies with TFS subsidiary Mt Romance, which processes Australian sandalwood oil products for use in cosmetics and fragrances. Mr Drage confirmed his company had lodged an expression of interest with the administrators of failed MIS operator Rewards Group for its sandalwood plantation assets in WA.