Plum Creek CEO Rick Holley - Keynote Speaker

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  • 1989 The first pure-play timber investment available1999 Pioneered the timber-REIT1999 First to have all lands third-party certified as managed sustainably2002 Leader in timberland portfolio management2012 Positioned to serve emerging renewable power customer base
  • Price upside on future contractsSupport grandfathered for 20 years1 ROC equals about $45 per green ton of fiberBy 2016, UK coal fired plants will be paying a carbon tax of around $40 per MwhEffect of the carbon floor is that most coal fired generation will be uneconomic within a few years unless biomass conversion or CCSCoal uneconomic by 2016 unless conversion to biomass or install carbon capture and storage (CCS) technologyOne of the cheapest ways to go about meeting these targets was to take existing coal capacity and either co-fire with wood pellets or convert it to burn wood pellets,” said Seth Walker, an associate bioenergy economist at RISI.Penalties: Carbon price floorBy 2016, UK coal fired plants will be paying a carbon tax of around $40 per Mwh; making most coal fired generation uneconomicEuropean demand for wood pellets to produce electricity is seen rising more than three-fold by 2020, as governments offer subsidies for greener energy sources, a report said on Friday.Wood pellets, which can replace dirtier coal in electricity generation, can be part of a pro-environmental policy given their burning results in no net carbon emissions compared with fossil fuels.need to reach legally-binding targets to cut carbon emissions, have granted subsidies for the use in power plants of biomass - mainly wood pellets but also some crops - most notably Britain, Nordic countries and the Netherlands.Europe is importing a good proportion of its energy anyway
  • Plum Creek CEO Rick Holley - Keynote Speaker

    1. 1. Plum Creek: Forest Products Recovery Underway Arkansas Forestry Association Annual Meeting Rick Holley Chief Executive Officer October 2, 2013
    2. 2. Safe Harbor THIS PRESENTATION CONTAINS FORWARD-LOOKING STATEMENTS. Some of the forward- looking statements can be identified by the use of forward-looking words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” “projects,” “strategy” or “anticipates” or the negative of those words or other comparable terminology. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those described in the forward-looking statements. Some of these factors include, but are not limited to: changes in governmental, legislative and environmental restrictions; catastrophic losses from fires, floods, conditions and competition in our domestic and export markets; our failure to qualify as a REIT or a reduction in the demand for timber products and/or an unanticipated increase in the supply of timber products; our failure to make strategic acquisitions or to integrate any such acquisitions effectively; the market for and our ability to sell or exchange non-strategic timberlands and timberland properties that have higher and better uses; and other factors described from time to time in our filings with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the Securities Act of 1933, as amended. Forward-looking statements are not guarantees of performance, and speak only as of the date made, and neither Plum Creek nor its management undertakes any obligation to update or revise any forward looking statements. 2
    3. 3. Plum Creek 3 U.S. Holdings: 6.3 million acres • Timber • Land • Subsurface assets
    4. 4. About Plum Creek • Largest independent seller of wood fiber in the United States • Operate in every major wood producing region • More than 2,200 truckloads of logs on the road each day • Established customer relationships with more than 700 customer facilities in 19 states 4
    5. 5. Nearly 25 Years of Innovative Timberland Management 5 1989 • First pure play timber investment available 1999 • Pioneered the timber-REIT • First to certify all timberland as sustainably managed 2002 • Leader in portfolio management, optimizing HBU identification and dispositions 2012 • Serving the emerging bioenergy customer base
    6. 6. 6 Sustainable Forestry is at the Heart of our Land Management • Balances timber growth and harvest while protecting wildlife, plants, soil and water quality All timberlands SFI® certified since 1999 Conservation outcome on 1.4 million acres since 1989 Habitat Conservation Plans protect endangered species on over 1.1 million acres
    7. 7. Value in Every Acre in our Portfolio Timber • Growing harvest, sustainably managed • Unmatched diversity, unique market insight Land • Capture premium recreation and conservation values • Create value through entitlement of select lands Non-Timber Resources • Valuable subsurface and surface resources • Ongoing royalty streams 7
    8. 8. Broad Timberland Portfolio Creates Advantages 8 Superior Risk Management • Diversify local market and end-market risk • Mitigate physical risk of catastrophic loss Unique Market Insight • National perspective on timber and timberland markets • Sharing of market information and best practices to improve market intelligence and performance Greater Operational Flexibility • Ability to shift activity to most attractive geographies • Ability to modify harvest mix to serve most attractive end-use markets
    9. 9. Plum Creek in Arkansas 9 Acreage • Plum Creek 720,000 • Forest Industry 5,454,000 • Total Timberlands 18,830,000 Statistics • Employees 46 • Contractors Employed 43 • Customers/Mills 43
    10. 10. Media Headlines • Housing Starts Up in August • U.S. Economy Grows Faster than Expected • Building Permits Up in Country • Beetle Whittles Down Timber Supply • Beetle Infestation Drives Up Lumber Prices • Northwest Wood Products Feed Hungry Asian Market • Georgia Pacific Investing $400 Million in Plants • New Klausner Sawmill to be Built in Florida • Plum Creek to Reopen Evergreen Sawmill as Lumber Prices Double • Lumber Sector Enters ‘Super Cycle’ as U.S. Housing Recovery Gains Steam • Lumber Prices Could Rise 25% in 2013 Arkansas: • Northwest Arkansas Construction Stays Hot • Cash Investors Helping to Drive Northwest Arkansas Housing Market • Building Worth $1.1 Million Set in City: Includes Church, Residences, Other Projects 10
    11. 11. Average Annual U.S. Housing Starts U.S. Housing Starts on the Rise - 500 1,000 1,500 2,000 2,500 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 Millionunitsperyear 11 Source: US Census, Harvard Joint Center for Housing  Long-term demographic demand projected to drive to 1.5 million + annual housing starts
    12. 12. North American Lumber Production 0 10 20 30 40 50 60 70 80 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 BillionsofBoardFeet 12 Source: RISI
    13. 13. Shrinking Canadian Supply 13 Source: Natural Resources, Canada; BC Ministry of Forests: 2012 Summary of Forest Health Conditions in British Columbia • B.C. has produced 25% of North America’s lumber More than half of pine trees in B.C. are dead due to infestation from the Mountain Pine Beetle 60+ years before B.C. forests will fully recover Harvests and production will likely decline by 20% • Eastern Canada also expected to lower harvest levels by 20% to achieve sustainable rotations • Canada has supplied up to 35% of the lumber used in the United States - this market share will likely shrink below 25% Extent of Mountain Pine Beetle Infestation: 2011
    14. 14. Offshore Lumber Exports have Doubled, Growing by 3 Bbf 0 1 2 3 4 5 6 7 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 North American Lumber Exports Rest of World China 14Source: RISI, B.C. Ministry of Forests, Mines and Land, Random Lengths Billionboardfeet 3 Bbf
    15. 15. Normalized North American Demand is Estimated to be about 67 Bbf of Lumber, up 23% from 2012 64 Bbf 3 Bbf 67 Bbf 1.5 million starts Normalized Demand New Chinese Demand 15
    16. 16. Source: Wood Markets Benchmarking Reports, Plum Creek estimates U.S. Producers are Well-positioned on the Cost Curve 16 US$/mbfnet–LumberBasis $215 $244 $284 $286 0 50 100 150 200 250 300 350 2004 $236 $246 $270 $315 0 50 100 150 200 250 300 350 2012 Sawmilling Costs: Average MillBritish Columbia British Columbia USWest USSouth USSouth USWest EasternCanada EasternCanada Strong Canadian Dollar also a factor
    17. 17. For Supply to Meet Demand, the U.S. South will Need to Produce Lumber at Levels Beyond its Prior Peak 1998- 2002 Peak 2005 Trough 2009 Recent 2012 Future % Change from 2012 U.S. Starts 1.63 2.07 0.55 0.78 1.50 Lumber Supply (Billion Board Feet) Canada 30 34 19 23 24 U.S. West 17 19 10 13 17 U.S. South 17 19 12 14 21 +50% Rest of U.S. 2 2 1 2 2 Offshore Imports 2 3 1 1 3 TOTAL SUPPLY* 67 78 43 53 67 17 * Totals do not add due to rounding Source: US Census Bureau, RISI, Random Lengths, Plum Creek estimates 67 Bbf
    18. 18. Southern Production and Price Source: Timber Mart-South (TMS), WOOD MARKETS 18 $0 $5 $10 $15 $20 $25 $30 $35 $40 $45 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0 22.0 SawlogPriceperTon/Stumpage BillionBoardFeetLumber Annual Southern Lumber Production TMS SYP Sawlog Prices 1997 – 2007 Average - $38.00/Ton
    19. 19. $80 million investment to buy existing mills Capital Flowing into U.S. South is a Leading Indicator for Increased Sawlog Demand in the Region $400 million mill capacity expansion $150 million mill capacity expansion $240 million investment to build two new mills $80+ million investment to buy existing mills 19
    20. 20. European Energy Policy is Driving Demand Growth for Wood Pellets 20 European Union’s renewable energy targets by 2020 • 20% reduction in greenhouse gases • 20% increase in renewable energy • 20% increase in energy efficiency Wood replacing coal for power generation • Supported by policy; wood is carbon neutral UK is an early adopter; carbon tax and incentives in place • Committed to “decarbonizing” the power sector • Carbon tax of £11/ton of coal expected increasing to £40/ ton of coal by 2015 Source: Hawkins Wright
    21. 21. $200 million investment for two new mills $300 million investment in new Louisiana mill $190 million repurpose of chip mill in Texas $200 million investment for two new mills $200 million investment for two new mills Wood Pellet Mills are Breaking Ground in the U.S. South • Well over $1 billion of capital investment announced 21 $325 million investment for three new mills
    22. 22. Southern Softwood Pulpwood is Low Cost on a Global Basis $74 $75 $84 $86 $86 $90 $98 $99 $104 $134 $148$150 $161$163$163 $177 0 20 40 60 80 100 120 140 160 180 200 DeliveredPriceUS$/Odmt 22 Source: Wood Resources International, Q1 2013 Odmt: oven dried metric ton
    23. 23. Announced Mills are Locating In Multiple Plum Creek Timber Basins Across the South 23
    24. 24. Industry Challenges 24
    25. 25. Contractor Capacity • Contractor workforce declined approximately 25% since 2005 • Demand for contractors increasing as recovery progresses • Contractor shortage an issue - expect trend to continue • Higher production rates • Decreased interest in logging – few new entrants • Barriers to entry - capital, labor • Plum Creek • Provides core contractors with base load volumes to support their business • Gives pass-through fuel adjustments • Supports organizations like AFA that promote logging 25
    26. 26. Clean Water Act (Forest Roads) • Three year legal battle over Point/Nonpoint Designation for Forest Roads has not resolved the issue • U.S. Supreme Court decision supportive, but… • Legislation is the best way to get a permanent solution • Bipartisan support • Farm Bill possible vehicle • AFA has been an active advocate for this issue 26
    27. 27. Clean Air Act (Tailoring Rule) • Three years ago EPA declared CO2 a pollutant • EPA proposed treating biomass emissions the same as fossil fuels • Congressional pressure has been effective with Administration and EPA • AFA has joined NAFO, AF&PA and others in support 27
    28. 28. Summary • Increased demand and reduced supply are driving a rebound in the U.S. timber and wood products industry • Renewable energy is providing new demand for biomass and pulpwood • Key trends are translating into major opportunities for Southern forest products communities • Challenges remaining – must work together to address 28

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