Southern Alps Timber

Start by naming what this company is paid for. A sawmill of this shape is a pass-through business: logs in, lumber out, and the earnings are the spread, times the volume that moves through it. The log price is not its asset — it is the variable that passes through both sides of its ledger. That framing does the first piece of work on this request, because "cheap logs" is not automatically an opportunity for a business that also sells what logs become. Export log prices fell 18% because export demand softened — and the same softness is working its way toward the lumber side of the mill's own invoice book. The widest spread in three years is real, and it is partly a snapshot of the lag between the two prices, not a durable new margin.

Now read the request against the model. Six months of logs is not a procurement schedule — it is a position. Funded with the bank's money, it has a specific mechanical problem: if the MD's view is wrong and prices keep falling, the collateral marks down at exactly the moment the facility is fullest, the borrowing base contracts just as liquidity is most needed, and the bank discovers it has financed a leveraged long on the commodity its client was supposed to be immune to. Working capital lending repays from turnover. Stockpile lending repays from being right about a price. The second is not a working capital line — it is margin lending wearing a working capital jacket, and the yard already at 92 days says the position was opened before the committee was asked. That red cell is the honest sentence in the file.

B is the room's favourite because it sounds like discipline — fund half now, half if prices fall further. Look at what it actually does: it takes the same price view and builds it in two instalments, with the second tranche released on a trigger — a further fall — that should update the thesis against the position, not fund more of it. Averaging down is a treasury strategy for people trading their own capital. D reads the same file and finds misconduct: it is not there. The company is healthy, the request is honestly framed, the operators are genuinely good. The problem is not the borrower's character. It is the category of the ask.

The senior banker's read is C, and it answers the request by answering what the bank is for. Hold the line at normal-cycle cover — about three months, where eleven years of history says this mill runs. Tier the advance rates to liquidity — green logs are one price event away from a markdown, finished lumber is an order away from cash, and they should not share a rate. Mark the yard to market monthly, so the structure keeps telling the truth as prices move. And say the last part out loud, because it is respect, not refusal: the family may well be right about logs — if they are, the place to monetise that conviction is the equity line, where the upside is theirs, not the bank's working capital facility, where the upside is theirs and the downside is shared. A processor earns the spread by moving volume through it. The moment it starts holding volume to play the price, it has changed businesses — on the bank's money.