MOUNT Gambier timber processing giant Carter Holt Harvey yesterday delivered a letter to hundreds of its workers warning it will close its mills unless the State Government agrees to new contractual conditions for the delivery of logs.
In an alarmingly development for the region's $1b timber industry, the timber heavyweight told its workforce that it had started discussions with key unions over the future of its presence in Mount Gambier.
In an open letter to its 1000-plus employees, the timber processor said the company was losing millions of dollars and it could not continue under current arrangements.
It is understood the open letter yesterday sent shockwaves through the city's timber sector and CHH's major mill sites.
"CHH's Wood Products in Mount Gambier and across Australia are losing many millions of dollars," CHH Wood Products Australia timber general manager Ian Tyson said in the letter, which was leaked to The Border Watch.
"It is with sincere regret that CHH advises that we have commenced discussions with the CFMEU, AMWU and ETU with respect to the future of our mill facilities at Mount Gambier."
Mr Tyson issued a warning to the State Government that the future of the industry was in its hands.
"At this point the destiny of the Mount Gambier facilities and the shape of the forestry and wood processing industry in the South East is in the hands of FSA (ForestrySA) and its owner, the South Australian Government," he said.
"We are now at a point where we must secure a re-set of the log price and/or rationalise our mill capacity."
He explained the industry in Australia had undergone structural change, evolving from a "cost plus, closed market" to an "open, free market".
"The result of this change (increasing costs and reducing revenue) is that CHH Mount Gambier mills are losing millions of dollars whilst Forestry South Australia (FSA) is making millions of dollars," Mr Tyson said.
He said the company had made it clear to the government that it would not continue to incur these losses.
"CHH will not be put in a position where our losses, which form part of FSA's profits, are captialised and sold by the government, leaving us to resolve the problem with a new forestry owner," Mr Tyson said.
"FSA and CHH must have an equitable and sustainable long-term contract in order to support the forestry and wood processing industry in the South East.
"Without this the losses will force the closure of the mills and the decimation of the industry they support."
In the letter, Mr Tyson said employees had already seen first-hand structuring, cost cutting and meritorious improvements to mitigate this divergence.
He said the company sought an immediate log price reduction from ForestrySA in July last year.
"By March of this year, with no progress, we were not prepared to sustain the losses any longer and at this stage Rank Group Limited, CHH's owners, got directly involved," Mr Tyson said.
He said the company then had comprehensive talks with ForestrySA, Treasurer Jack Snelling and Forestry Minister Gail Gago and submitted a new contract proposal that included a reset of log price, increase volume of log supply and support for mill expansion.
"Regretfully, our proposal, as set out above, was not adopted," Mr Tyson said.
"For the record, the government subsequently offered a direct payment from Treasury for two years, subject to certain conditions. CHH declined, as the offer was inappropriate and it failed to address the fundamental issues."
Mr Tyson said the company distributed the letter yesterday because of the magnitude of the situation.
"We would not normally provide this level of detail, or in fact indulge in this level of debate," he said in the letter.
"However, in this instance, where the consequences of these decisions are so significant for both community and industry, we determined we would put forward the facts as we see them for your awareness."
