CFZ Cathay Forest Products Corp

Cathay Forest Products Corp. ("Cathay Forest" or the "Company") (TSX:CFZ)
announces that it has entered into an agreement with Russia Forest Products
Group ("RFP"), a Russian based forestry company, under which RFP will acquire a
controlling interest in the Company's DalEuroLes LLC operations located in Far
East Russia.


Under terms of the agreement, which contemplates a series of transactions, RFP
and Cathay Forest will establish a special purpose entity and Cathay Forest will
transfer its equity interest and the other assets it holds in DalEuroLes to such
special purpose entity. In exchange for a controlling position of the special
purpose entity, RFP will provide the Company with a US$13 million cash payment.
RFP then expects to acquire the remaining shares of DalEuroLes not owned by the
Company and will provide sufficient funds to DalEuroLes to continue and expand
its current harvesting operations.


Following the completion of the contemplated transactions, the Company's equity
interest in DalEuroLes will be decreased from 51% to approximately 30% assuming
all proposed transaction are completed. Cathay Forest will also have the right
to nominate 2 of the 5 directors of the special purpose entity.


The contemplated transactions are subject to a number of conditions including,
without limitations, completion of due diligence and transactions documentation,
approval of the shareholders of Cathay Forest and other regulatory approvals. It
is anticipated that the proposed transactions will be completed by June 30,
2012.


Operational Update

The Corporation continues to operate in all segments which include: Fast Growth
Poplar plantations, log importing and harvesting.




a.  Plantations



The Corporation continues to operate the poplar plantations in Shandong,
Jiangxi, Jiangsu and Henan Provinces. The activities in each of these locations
during 2011 are summarized below.


Shandong: The Shandong properties consist of a total plantation area of 3,188
hectares remaining to be harvested. The Corporation is currently negotiating the
sale of the poplar trees from the remaining area which is anticipated to occur
in the second quarter of 2012. Management is still reviewing the revenue
projections from these anticipated sales but it will be dependant on the timing
of the transaction and pricing for the trees at the time of harvest. Additional
discussions with the local authorities needs to be completed in terms of the
future of the plantations in Shandong as government officials would like to
return the properties to farmers for agricultural production. This determination
will likely occur in the near future.


Jiangxi: In late 2010 and early 2011, the Corporation proceeded with planting
new poplar saplings in the Poyang Lake region. In total an area of approximately
10,000 mu was planted. Unfortunately, due to unusual weather events including
flood conditions followed by draught conditions in the area, the vast majority
of the new saplings and in addition, a large portion of saplings planted in the
three previous years were destroyed. This caused a significant set back in the
development of the plantation in Jiangxi. The current remaining areas of poplar
plantation total approximately 1,819 hectares. In 2012, there is no planting
activity planned while the Corporation reviews its strategy and the feasibility
with regards to this land area. The remaining trees continue to be maintained by
local employees.


With regards to the Jiangxi standing timber properties, during 2011 and to the
end of November 2011, revenue totalling RMB2.1M was generated from the sale of
timber from these properties. The revenue was generated primarily from the sale
of Chinese fir. There was a minimal amount of bamboo sold in 2011. The bamboo
harvesting is closely monitored by the forestry authorities following the 2008
snow storms that covered the area. It is anticipated that additional quotas for
bamboo harvesting could be made available in 2012, although this has yet to be
confirmed.


Henan: The plantations in the Henan Province continue to be well maintained. To
the end of November 2011, revenue of approximately RMB 2.12M (CDN$331,000) was
recognized by the Corporation. The properties in Henan are part of a joint
venture which the Corporation holds 70%. The remaining 30% is held by a local
pulp manufacturer (Xinxiang Xinya Paper Industry Group Corporation Limited) who
is actively involved in the oversight of these properties.


Jiangsu: The Jiangsu fast growth poplar plantations are generally located along
river banks and low lying areas. In 2011, while preparing harvesting plans for
the maturing plantations, the Corporation was advised by the local government
that in keeping with the Central Government's strategy of concentrating on
environmental matters it wished to keep the plantations as is and not issue
harvesting certificates for the plantations. With harvesting quotas no longer
available, the Corporation undertook the initiative to negotiation a settlement
with the local government that wish to retain the plantations. The basis of
negotiation being that the Corporation would be reimbursed for its cost base of
planting and the maintenance costs expended on the properties since the planting
occurred. Negotiations that lead to the settlement on the first property in
Tongzhou (680 hectares) were completed in November 2011. As of this date, RMB
1.02M of the settlement amount of RMB 2.28M has been received with the balance
anticipated in the near future. The Corporation is now in the process of
negotiating similar settlements for the remaining properties in Jiangsu
including the properties in Rugao (32 hectares) and Haimen (162 hectares). It is
anticipated that all Jiangsu properties will be disposed of in this fashion
through the course of 2012.




b.  Log Importing



The importation of logs from Russia to the Chinese market continued throughout
2011. As in prior years, the majority of logs were imported from the
Corporation's Russian subsidiary, DalEuroLes LLC. The Corporation is currently
in the process of preparing the financial and operational information for its
subsidiary Raohe Songlin, but as of this date the data is not completely
available in the Shanghai office although expected soon. There had been delays
in the forwarding of information from the subsidiary to the Shanghai office
during 2011, but the reporting situation has been improved and full information
is expected to be available in the next few weeks. During 2011, there were no
sales of logs originating from the Russian operations made to the Japanese
market.




c.  Harvesting



The harvesting operations consist of the operations of the Corporation's 51%
owned subsidiary DalEuroLes LLC. During 2011, DalEuroLes continued to operate at
full capacity reaching a volume of 205,000 cubic metres for 2011compared to a
2010 harvesting volume of 240,000 cubic metres. All operations are contained
within the first forestry concession which carries a net annual allowable cut
quota of 270,000 cubic metres. 


In prior years, almost all of the DalEuroLes' production had been destined to
the Raohe Songlin trading company for the China markets. In 2011, a significant
portion of the production was sold to the Business Marketing group located in
Russia for use as input in their local sawmill.


About Cathay Forest Products 

Cathay Forest is a forest products company that manages approximately 1,000,000
hectares of standing timber properties and fast-growth, high-yield poplar
plantations in China and Russia. Cathay Forest's customer base includes the
domestic Chinese pulp and paper industry and other wood products customers in
the Russian and Japanese market.


About Russia Forest Products Group 

RFP is one of the largest integrated forestry groups in Russia and Asia-Pacific
region by timberlands area with 6,400,000 hectares of standing timber and annual
harvesting volumes of over 2 million m3. RFP mainly exports its wood products to
China, South Korea and Japan and is the world's largest single timber supplier
to China and Japan controlling around 10% of Russian timber export to China and
around 15% of Russian timber export to Japan. RFP benefits from integrated
logistics division, which has its own fleet, river/marine ports and is the
leading passengers and cargo operator along the Amur River.


Forward-Looking Statements 

All statements, other than statements of historical fact, in this news release
are forward-looking statements that involve various risks and uncertainties,
including, without limitation, statements regarding the future plans and
objectives of Cathay Forest. Actual results and future events could differ
materially from those anticipated in such statements. Except as required under
applicable securities laws, Cathay Forest assumes no obligation to update
forward-looking statements should circumstances or management's estimates or
opinions change.

Cathay Forest Products Corp (TSXV:CFZ)
Historical Stock Chart
From May 2024 to Jun 2024

Cathay Forest Products Corp (TSXV:CFZ)
Historical Stock Chart
From Jun 2023 to Jun 2024