Phaunos Timber Fund appoints Stafford Timberland to manage its portfolio of timberland assets including Matariki forestry estate in New Zealand, Aurora Forestal loblolly pine plantations in Uruguay and Mata Mineira eucalyptus forests in Brazil

Wendy Lisney

LONDON , June 24, 2014 (press release) – Phaunos Timber Fund Limited ("Phaunos" or the "Company"), the Authorised Closed ended investment scheme established to invest in timberland and timber related assets on a global basis, today announces that it has reached an agreement with Stafford Timberland Limited ("Stafford") to manage its portfolio of assets. The Company also announces the completion of Stafford's strategic review into its portfolio of assets.

Strategic Review

Stafford was initially engaged by the Board of Phaunos in December 2013 to carry out a strategic review of the Company's assets. The key findings of that review are as follows:

- Phaunos has interests in good quality timberland assets in Matariki, Aurora Forestal and Mata Mineira. Combined, these assets represent 56% of the Net Asset Value (NAV) and present a solid base upon which to build out the Phaunos portfolio;

- 36% of the portfolio is represented by higher risk assets, which is a greater proportion than would normally be expected in a balanced timberland portfolio; - There are a large proportion of greenfield 'venture capital' style investments; - Phaunos is reliant on a relatively small number of mature timberland assets for annual cash flows and these assets are subject to export or single product market risk;

- There are several assets whose valuations are subject to significant uncertainty and a forced liquidation value could be more than 30% below the December 2013 NAV;

- Weaknesses in log prices in China have occurred recently, which may have an impact on cash flows in the second half of the year; and

- The Company should seek an exit from some higher / medium risk components of the portfolio and should seek a suitable loan facility in order to make its cash position more robust.

- Stafford's investment team which includes a number of foresters with on-theground operational experience, has the relevant experience to manage the various different asset types included within the Phaunos portfolio;

- Stafford has extensive market knowledge through strong local networks created from its existing investments which include significant assets in South America, North America and New Zealand, which are regions that overlap with the Phaunos assets;

- Stafford's investment activity in its institutional fixed-life funds has created impressive performance which is significantly better than has been achieved by the Phaunos portfolio; and

- Phaunos will have the benefit of personnel within Stafford who have significant previous experience of managing listed investment companies.

1. An annual management fee of 0.35% of market capitalisation of the Company's shares, payable quarterly in arrears. To assist the Company with management of its cash flow, the first payment will be made in December, 2014.

2. A warrant package consisting of:-
- 10 million five year warrants to purchase shares at 50 cents per share, to be issued immediately after the GM;
- 10 million four year warrants to purchase shares at 58 cents per share, to be issued on 1st July 2015; and,
- 10 million three year warrants to purchase shares at 63 cents per share, to be issued on 1st July 2016.

In the event that shareholders do not ratify the issue of warrants at the GM, the terms of Stafford's contract will automatically convert such that their remuneration will be 1% p.a. of market capitalisation, payable quarterly in arrears.

3. In the event that shareholders vote to wind up the company at the continuation vote to be held in 2016, the base fee will rise to 1% p.a. of market capitalisation from the date of the vote. Further, all warrants will lapse and an incentive fee with a similar return profile to the warrants will be payable, based upon the actual net proceeds returned to shareholders.

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