Wednesday, March 23, 2011

Investors Guru Small Cap Stock Observer

(TSXV: PCT) Prima Colombia Hardwood - Helicopter Logging In Colombia Brings Profits

The impending $200 billion Japanese rebuild has pushed lumber futures to their highest levels in half a decade at $323 per 1,000 board feet. The devastation in Japan is adding fire to a growing macro-trend.

Driven by surging global demand the Guggenheim Timber ETF (NYSE: CUT) has risen 144% in the last two years.

In fact, since the turn of the century, Timberland has beaten the S&P 500. Historically, the sector is resistant to economic downturns. During the Great Depression wood prices doubled. Since 1987, the NCREIF Timberland Index climbed by an average of 14% per annum.

Why is wood such a reliably profitable investment? Because it has a unique growth amplifier.

The resource base appreciates 5% per annum simply by absorbing sunshine and raindrops.

While mining companies are forced to spend tens of millions of dollars on drill programs to extend the life of a mine - commercial timber accrues compound interest every year courtesy of Mother Nature.

International lumber demand is growing fast. Last year, lumber shipments from British Columbia to China increased 400%. The UN forecasts that global lumber demand will double by 2050.

So although it doesn't shine like gold, timber has been a very profitable sector.

The World Timber Total Return Index (TIMBEX) tracks the performance of the largest and most liquid timberland companies.

Large cap companies like Plum Creek Timber (NYSE: PCL), Rayonier (NYSE: RYN) and Potlach (NYSE: PCH) have been on nice runs lately but the big timber winners will be in smaller nimble companies, harvesting high value timber with cutting edge technology.

Prima Colombia Hardwood (TSXV: PCT) is a new company that fits this profile.

PCT is headed by CEO Donald P. Hayes and COO Harold F. Hayes, both principals of Hayes Forest Services Limited - a 3rd generation British Columbia logging dynasty.

It has an exclusive 15-year lease to selectively harvest 3.1 million cubic meters of sustainable tropical premium Colombian hardwood. The product will be sold by China, India and Korea.

Tropical Hardwood is the champagne of woods.

The Hayes family has been involved in timber management for almost a century. They are one of the pioneers of helicopter logging - a low impact method of removing high value trees from dense forest. Prima Colombia Hardwood has first-mover status in Colombia with this cutting edge timber extraction technology.

With the Hayes Family history of community involvement and sustainable logging practices - PCT is a strong candidate to attract the interest of S.R.I (Socially Responsible Investing) funds.

If that happens, institutional buying could have a significant effect on the stock price of PCT.

There are currently about $3.07 trillion in total assets under management in the U.S. alone.

From 2007 to 2010, SRI enjoyed a growth rate of more than 13-percent, increasing from $2.71 trillion in 2007. Nearly one out of every eight dollars under professional management in the U.S today is involved in socially responsible investing.

With a quick-to-cash flow story in a robust recession-proof sector, Prima Colombia may not need this kicker.

But it certainly won't hurt.

For the next five years, Japan's reconstruction will also factor heavily into the demand side for high value lumber. More at .

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