MercoPress. South Atlantic News Agency

Ence’s assets in Uruguay taken over by Stora Enso and Arauco

Finland’s Stora Enso, Europe’s leading paper producer and Arauco, one of the largest forest industry enterprises in Latinamerica based in Chile, announced Monday the definitive purchase agreement for the joint (50%/50%) acquisition of Spanish pulp producer Grupo ENCE assets in Uruguay.

Assets include approximately 130.000 hectares of owned land and plantations, 6 000 hectares of leased lands and other operations owned by Grupo ENCE in Uruguay. The enterprise value of the transaction is 344 US dollars including 33 million US dollars of assumed debt. Stora Enso's share of the enterprise value is 50%.

Stora Enso and Arauco intend to combine their existing assets in Uruguay with the newly acquired operations.

“This is an important step for Stora Enso, given that cost-competitive plantation-based pulp is a cornerstone of our strategy. Joining forces with Arauco gives us a total land base of approximately 250 000 hectares, nearly half of which is planted with hardwood and softwood”, said Stora Enso CEO Jouko Karvinen.

He added that “this transaction will secure the strategic raw material supply for a world class pulp mill in Uruguay that we are planning jointly with Arauco. No decision on building the mill has been taken yet. The mill investment decision will be based on appropriate feasibility and investment studies, and markets conditions, and require formal approval by both partners and Uruguayan authorities”.

“The partnership between Stora Enso and Arauco is a natural extension of the successful joint operation of the plantations and coated magazine paper mill at Arapoti in Brazil. After this transaction Stora Enso and Arauco together will be the largest private landowner and one of the largest owners of plantations in Uruguay”, underlined the Stora Enso release.

“Uruguay has exceptionally good conditions for growing plantation fiber, and its forestry sector is developing rapidly. We are very pleased to be participating in this development together with Stora Enso” said Arauco CEO Matías Domeyko.

Sustainably managed plantations are crucial to ensuring the long-term success of forestry businesses, providing jobs and supporting local development and income generation. Both partners are committed to sustainable plantation management.

Grupo ENCE's plantations have received FSC (Forest Stewardship) certification, and both Stora Enso and Arauco will continue to work towards FSC certification of the new joint-venture operations.

The transaction with Grupo ENCE also includes mill sites under development at Punta Pereira and M'Bopicua, a port and barge terminal, a wood-yard and chipping plant and a nursery. Grupo ENCE will retain its Atlantic region forest land, a related shipping terminal, sawmill and, in Montevideo, a chipping plant with wood yard as its sole operations in Uruguay.

The release insists that “Stora Enso and Arauco have not made any investment decision concerning the construction of a pulp mill in Uruguay”. The transaction with Grupo ENCE is expected to close by the end of 2009.

Finding viable sources of wood and pulp is redefining Europe’s paper industry as companies seek lower costs to combat falling prices and demand. In Latin America, eucalyptus trees can be harvested after seven to 10 years, compared with the 60 years needed for spruce and birch in Sweden and Finland, the traditional heartland of Europe’s forestry industry.

“That makes wood costs substantially lower” said Nils Grafstroem, head of Stora Enso’s Latin America unit. Felling and processing trees in Latin America and shipping the pulp to Amsterdam is cheaper than the factory-gate price of wood in Finland, Stora spokesman Lauir Peltola said.

For debt laden Ence the sale closes the chapter on its ambitious plans in Uruguay and will help cut its 520 million Euro debt and finance a recent shift in strategy towards renewable energy production. In a release Ence said it would use the funds from the sale to restore its balance sheet and help finance its production of renewable energy from biomass sources in Spain.

Ence posted a first-quarter net loss of 93.8 million Euros after making a write-down against asset deterioration in Uruguay, and a 32% decline in sales to 112 million Euros.