Hancock Timber Resources Group has acquired 12,250 hectares of forestland in central Chile from Forestal Tierra Chilena, a subsidiary of Japanese conglomerate Mitsubishi.
Financial terms for the deal were not disclosed and Hancock did not return messages seeking further detail.
The timberland is located in the Bio Bio and Araucania regions of Central Chile, an area which Hancock said is known for its “productive soils and deep timber markets.”
Hancock Timber Resource Group president Brent Keefer said the plantations’ hardwood timber will continue to supply Chile’s growing export chip market.
“The majority of these lands were established several decades ago as timber plantations and contain an extensive infrastructure network and thriving plantations,” he noted.
The acquisition is Hancock’s second in Chile. In 2014, the firm used a joint venture with local timber products company MASISA SA to purchase a 62,000 hectare timber plantation.
Jack Lutz, an economist with Forest Research Group, told Agri Investor that rather than reflecting any particularly strong focus on Chile on the part of Hancock, the deal was likely opportunistic. While a number of international timber investors entered Chile during the 1990s, the country’s paper market is dominated by a small number of regional players, according to Lutz, who worked at Hancock from 1994 to 1998.
“There are places in the world where you just don’t want to take pension money and invest it. You are a fiduciary, you have some responsibility,” Lutz said. “Chile has been stable. I think it’s a question of when does an opportunity become available in Chile.”
“You have these industrial owners in there that seem to think that owning timberland is still a good idea”
Jack Lutz, Forest Research Group
Lutz said that given Hancock’s stated focus on wood chip exports, the seller’s connection to Asia and Chile’s geography, China could be among the export markets the firm hopes to target with the investment. Benefiting from any domestic growth in Chile, which experienced a 1.4 percent GDP boost last year, would likely be possible only if supplying the country’s three existing paper companies, according to Lutz.
“You have these industrial owners in there that seem to think that owning timberland is still a good idea,” Lutz explained. “If someday they decide they should follow the example set by paper companies in US, they’ll sell it all, but they haven’t hit that point yet.”
In order to justify entering the Chilean market, Lutz estimated, investors are likely to expect real annual returns of approximately 8 percent, in order to provide a premium over the 4 or 5 percent annual returns currently available through timber investments in the US’s South.