Oil report

Brazil companies, funds create $600 mln timber firm

SAO PAULO, Sept 21 (Reuters) - Brazil’s J&F, the holding company of beef group JBS, said on Monday it joined forces with an agriculture firm and two pension funds to create a company that will supply timber for industrial usage.

Brazil’s J&F, agriculture firm MCL and pension funds Petros and Funcef said on Monday Florestal Brasil will have an initial capital of 1.1 billion reais ($600 million).

The company will plant eucalyptus in 335,000 hectares (828,000 acres) in the center-western states of Mato Grosso and Mato Grosso do Sul, they said.

The trees, which will be planted mainly over degraded pastures, will then be cut and sold as wood biomass, to be burned and generate electricity to move industrial plants.

"As Brazil grows, we'll need more and more legally extracted wood to run factories," said Joesley Batista, chief executive officer of JBS JBSS3.SA, adding that finding timber in the market is currently "a major concern" for the company.

JBS will become the world's largest meat company after it announced, last week, it would take over bankrupt U.S. poultry producer Pilgrim's Pride PGPDQ.PK. [ID:nN16119897]

“Our biggest advantage (with Florestal) won’t be in prices since we’ll be paying market prices but in availability,” said Batista at a press conference, adding JBS currently buys wood to feed its furnaces from “thousands of small farms.”

Timber is not the core-business of any company in Brazil today, although costs to grow forests are cheaper here and trees grow faster than in any other place -- an eucalyptus is usually ready to be cut in seven to eight years, compared with 15 to 45 years in other areas of the globe.

JBS plans to consume in its plants around 20 percent of Florestal Brasil’s timber output in 2014, when the first planted eucalyptus trees will be cut.

The four partners, each one with 25 percent of the new company, also want it to become public in 2014, when its revenue is forecast to reach $1 billion. According to Batista, returns of the investment are expected to total, in seven years, four times the amount invested.

Timber is the cheapest source of energy for industrial plants in Brazil, where gas supplies are scarce, said Mario Celso Lopes, the president of Florestal Brasil and MCL, which already runs an eucalyptus nursery producing 6 million trees per month.

Florestal is also expected to trade carbon credits in the future as, according to Lopes, an hectare of eucalyptus absorbs 12.5 tonnes of carbon per year.

About 30 percent of the company’s total land will be left untouched, as legal reserves or permanent preservation areas.

This is the first time Brazilian pension funds invest in forests in the South American country.

Petros, the pension fund for oil giant Petrobras PETR4.SA, and Funcef, the fund for public bank Caixa Economica Federal, said they are also in talks with mining company Vale VALE5.SA to invest in a reforestation project in the Amazon.

“Returns may not be exceptional but risks are controlled as in 20, 30 years, it’s quite unlikely that the world won’t need timber,” said Funcef’s president, Guilherme Lacerda.

$1 = 1.818 reais Reporting by Inae Riveras; Editing by Marguerita Choy