Australian timber company Gunns' stock soars 36% after Richard Chandler Capital agrees to invest AU$150M, bringing proposed new capital to total AU$280M for Bell Bay, Tasmania, pulp mill proposal

LOS ANGELES , February 9, 2012 () –

Shares of Australian timber company Gunns Ltd. rose 36% at closing Thursday after the Richard Chandler Capital Corp. said it would invest AU$150 million (US$161.8 million) to help restart work on the Bell Bay pulp mill, the Herald Sun reported Feb. 9.

New Zealand-based billionaire Chandler's company would gain a 39% share in Gunns. The Australian Securities Exchange still needs to approve the deal, as do company shareholders at a vote in April.

The agreement would in effect clear Gunns' debts and provide a stable base to build the mill in Bell Bay, Tasmania, said managing director Greg L'Estrange.

The increase in share prices was the troubled firm's biggest gain since April, the Herald Sun reported.

Launceston, Tasmania-based Gunns plans to raise up to AU$280 million in new capital, included the Chandler investment.

Gunns will seek the additional AU$130 million through a rights issue to existing shareholders, returning 1.3 new shares for every one current share, reported the Herald Sun.

The Chandler deal could be Gunns' “last chance,” said head of equities research Peter Warnes at Chicago-based Morningstar Research Inc. Warnes added that, if the deal succeeds, it could ensure the pulp mill's and company's future.

However, Warnes advised investors to remain cautious about Gunns despite the climb in share price. The pulp mill lacks a cost model and shares will be diluted, Warnes said, making a valuation difficult, reported the Herald Sun.

In 2008, environmental protests led ANZ Banking Group Ltd. to withdraw funding support for the controversial pulp mill in 2008. Gunns has not been able to obtain financing since then.

The primary source of this article is the Herald Sun, Melbourne, Australia, on Feb. 9, 2012.

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