May 11, 2010

Dear Friend,

We wrote with some caution concerning Australian politics and legislative procedure in our May 4th report assigning a < 5% likelihood of the "Resource Super Profit Tax" being enacted, as we are not political analysts.  We draw some satisfaction that the Neilson survey released on May 10th showed the general public does not support the measure.  Please see http://www.mineweb.com/mineweb/view/mineweb/en/page31?oid=104608&sn=Detail&pid=31 for more details.  We regard the entire controversy as an opportunity to buy Overweight-rated BHP Billiton in which we have a $129 per ADS price target.

 

Separately, we cut our price target for Louisiana-Pacific to $9 from $12 per share and cut earnings estimates because it charged a much larger discount to published OSB prices in the first-quarter than we anticipated.  The prices published in trade publications sometimes differ from the "cold cash" transactions among the largest supplier, LPX, and the largest customers like Home Depot, Lowe's, Menards or others.  We had estimated larger 2010 earnings in our prior April 28th "preview" report in which we relied on Random Lengths price quotations.

 

We are skeptical of wood markets because we expect prior 20% planned log harvest restrictions to be relaxed with greater market optimism, no repeat of early 2010 unusual wet weather that caused large unplanned log harvest reductions and some deliberate rehiring to staff wood manufacturing plants with higher sales prices and market optimism.  We are a long way from 2004's 2.2 mm housing starts, and we fear a log and manfactured goods "surplus" if landowners seek to monetize our estimate of 500 to 750 million tons of logs not harvested in 2007 to 2011 due to poor market conditions.

 

Faithfully, 

 

John C. Tumazos, CFA