PAPUAN PRODUCTS.

Auckland Star, Volume LXII, Issue 138, 13 June 1931, Page 4

PAPUAN PRODUCTS.

BOND SELLING SCHEME.

REPLY TO CRITICS

In part of yesterday's issue we published an article concerning the Papuan Rural Products Bond issue which had appeared in the Melbourne "Herald." Prior to publication we had received from the Ocean Investment Trust an answer to the published criticism, and in view of the publication of the article, and of the apparently inaccurate statements and deductions there made, and in fairness to the C.F., we now publish the answer referred to: — "On benaTi or Ocean Investment Trust (N.Z.), Ltd., I thank you for the opportunity of correcting gross mis-statements and of refuting other charges made by Mr. H. Burston in an article published in your columns. The article purports to be a criticism of Papuan Rural Products, Ltd.'s bond prospectus, but Mr. Burston has revealed the lack of sound argument by resorting to abuse, and, for some unknown reason, not of Papuan Rural Products, Ltd., so much as of the brokers, Ocean Investment Trust, Ltd. Between the two Mr. Burston appears to have become hopelessly mixed. _ I "He states that the authorised capital of Ocean Investment Trust, Ltd., is £25,000, whereas the authorised capital of that company is £100,000, of which £20,000 is fully paid. The next amazing statement by Mr. Burston is that Ocean Investment Trust, Ltd., are capitalising the 20,000 acres at £1,200,000, or £60 an acre. Mr. Burston makes this statement in spite of the facts that the estimated capital expenditure before him clearly shows that of the £1,200,000 capital £530,000 is allowed as the cost of a mill, £105.000 for tram lines and rolling stock, £90.000 for wharf and loading plant, and approximately £105,000 for working capital, making a total of £790,000, and leaving £410,000 as the total cost to the bondholder of 30,000 acres of land, of which 20,000 acres is planted in cane. The actual cost per acre for, the land cleared and planted, after being saddled with the cost of selling the bonds and all preliminary and overhead expenses, is therefore £13 13/4 per acre. "Mr. Burston further states that ' The Investor's Guide ' has details of the costs of Papuan areas that have already been cleared, planted and maintained at a cost of £2 per acre, but fails to mention the locality or extent of these areas, what they were planted with, or for what period they were maintained. Papua is roughly the size of New Zealand, and it is ridiculous to infer that because an area in one part of the country can be cleared at a certain price, the whole of the country should be cleared at the same price.

Estimated Costs by Mill and Plantation Expert. "The estimates are the work of Mr. Disney G. McGown, a well-known mill and plantation expert, who has been associated with the sugar industry all his life, having been 10 years witli the well-known Farleigh Estates Sugar Company. He succeeded his father as general manager and was the youngest mill and plantation manager in Queensland. His figures were compiled aftev visiting Papua, selecting the land and investigating conditions there. "The rent mentioned is for the short developmental period, as also is the harvesting. Mr. Burston has overlooked the fact that it will be necessary to plant and harvest a considerable quantity of seed cane, with which to plant 20,000 acres. Mr. Burston would do well to seek some technical advice before he presumes to criticise the work of experts.

"There are no promoter's bonds to cover the cost of securing the land, surveying same and all preliminary flotation expenses, including brokerage on the sale of bonds and all overhead expense. /The sum of £8 per bond >is allowed under the Trust deed. This, I am sure, will compare more than favourably with similar charges in any other bond-issuing company. "Optimism is justified in any industry, in any circumstances, if the advantages are so great as to allow a staple product to be produced at a cost below that at which it can be produced elsewhere. Mr. Burston admits that the capacity of Papua to grow a high grade cane is unquestioned; add to this the advantage of a plentiful suppy of good and cheap labour (the Papuan native even in his natural state is a keen agriculturist), ideal climate, exceptionally fertile soil, cane indigenous to the country, immunity from cyclones, absence of taxation and preferential markets, and the reason of such optimism will be readily apparent.

The Lack of Markets. "With the existing preference on British-grown sugar of £4 5/, and approximately £6 in Britain and Canada respectively, Papuan sugar will successfully compete in these markets, where there is an immense shortage of British-grown sugar, until foreign countries are able to produce and land their sugar in these countries £4 5/ and £6 per ton cheaper than Papua can. Mr. W. F. Seymour Howe, general manager of the Mulgrave Central Mill, and president of the Queensland Society of Sugar Cane Technologists, and a recognised authority on sugar production, after visiting Papua and investigating conditions there, gave it as his opinion that Papua would produce sugar £3 12/ per ton cheaper than either Java or Cuba, and could successfully compete with these countries in the open markets of the world. So convinced was he that he selected 29,000 acres in Papua and capitalised it to the extent of £1.000,000 by forming a company called Sangara Sugar Estates, Ltd., comprising mainly North Queensland sugar growers. It is not likely that these men could be misled regarding the prospects of marketing their sugar. Is the statement that only a small percentage is held over so amazing? On Mr. Burston's own figures the present surplus is 2,000,000 tons; the consumption is 26,000,000. Therefore the present surplus represents just one month's sunplv; tinder-consumption caused by the worldwide depression probably accounts for there being a surplus. Will this condition obtain three years hence? Price on Which Profits are Based. "The price basis on which profits are estimated, viz., £11 17/ per ton, the prospectus states is the average price received in Britain for the years 1926 to 1929. the latter being the latest figures available when the estimates were compiled. Because the prices have since fallen to a level at which sugar cannot be profitably produced in many countries, it is quite unfair to accuse the promoters of gross misrepresentation. If the average price had been taken over a longer period—sav 10 years—it would show £19 per ton. It is, I think, obvious that if the price remains at the present low level production will quickly decrease, resulting in a natural rise in price levels. It would then surely be reasonable to take an average over five years from 1926 to 1931. including the lowest price known in the history of the industry. If this were done, it would show approximately £9 per ton. On the other hand, to use Mr. Burston's own figures of £6 4/2, and allowing for the disappearance of £330.000 of the estimated £488,500, there still remains a profit of £258,500 on a capital of £1,200,000, representing approximately 13 per cent. Mr. Burston does admit, however, that some improvements may be expected on current abnormally low prices. In three years' time, when this company will be entering the markets, they will probably be back to normal.

Empire Shortage. "The shortage of 1,700,000 _ tons referred to in the prospectus is the additional quantity of Empire-grown sugar necessary to supply the total annual requirement of Great Britain. Mr. Burston infers that this does not exist, but he does not, for very good reasons, contradict it There are other interests, lestt advantageously placed in many respects, which the development of the sugar industry in Papua will possibly affect if current low prices continue, and it would be wise for investors to scrutinise carefully any article which aims to hinder such development, to determine whether or not such articles may possibly be inspired.