Sandalwood Project Report

Sandalwood
PROJECT 2001
P R O S P E C T U S
ARSN 096 165 874
FOREST
REWARDS LTD
ACN 089 582 427
Corporate
Directory
Responsible Entity
Forest Rewards Ltd
ACN 089 582 427
Level 2, Scott House
46-50 Kings Park Road
West Perth WA 6005
Tel 08 9324 1155
Fax 08 9324 2171
Email mail@forestrewards.com.au
This prospectus was lodged with the Australian Securities
Directors of and Investments Commission (ASIC) on 26 March 2001.
Responsible Entity That date of lodgement is the date of this prospectus.
Dr Andrew Radomiljac
Mr Craig Burton No interests will be issued on the basis of this prospectus
Mr Mark Blanchard later than 13 months after the date of issue of this
prospectus. Neither the ASIC, nor any of its officers, takes
Manager any responsibility for the contents of this prospectus.
Forest Rewards Forest Rewards Ltd (Responsible Entity) is the issuer of
Management Pty Ltd this prospectus and, except for the preparation of those
ACN 089 940 376 parts of the prospectus in which its professional advisers
Level 2, Scott House were also involved, is wholly responsible for its content.
West Perth WA 6005 This prospectus relates to the Forest Rewards
Sandalwood Project 2001 ARSN 096 165 874
Independent Forester (Project).
Associate Professor
Nicholas Malajczuk Neither the Responsible Entity nor its related companies
BSc (For) PhD guarantee the success of the Project or the repayment of
Treetec Consulting Pty Ltd capital or income return or make any representation with
respect to income or taxation consequences of any
Taxation Advisers investment in the Project which is made under this
KPMG prospectus.
152 St Georges Terrace
Perth WA 6000 Participation in the Project is considered to be
speculative. Before deciding to subscribe for woodlots,
Solicitors prospective Growers should read the entire prospectus
Garton Smith & Barrett and seek professional advice that an investment of this
13 Nairn Street type is appropriate for their particular circumstances.
Fremantle WA 6160
1. Forest Rewards Ltd

Contents
Corporate Directory 1
Investment Highlights 4
Sandalwood Farming Makes Sense 6
An Important Part of Western Australias History 12
Project Summary 16
What are we offering? 16
How much will it cost? 16
Taxation benefits 16
What are the estimated returns? 16
How will the Plantation be established? 17
How will the Plantation be maintained? 17
When is the Plantation harvested? 17
How will the trees be harvested? 17
How will the trees be sold? 17
Insurance 18
How do I subscribe? 18
What information will I receive? 18
Financial Forecasts 19
Returns per Woodlot 19
Cashflow Model 20
Sensitivity Analysis 20
Taxation 21
Environmental Considerations 22
Research on Sandalwood 24
Forest Rewards The Group 25
Management Team 27
Corporate Structure 30
Further Details of the Project 32
Independent Foresters Report 35
WA Sandalwood Market Report 38
Sandalwood Market Report (International) 43
Project Risks and Safeguards 47
Summary of Material Agreements 49
Additional Information 55
Directors Consents 56
Application Directions 57
Application Form 58
Glossary of Terms 62
FOREST
R E WA R D S
Forest Rewards Ltd 2.

SandalwooD
Sandalwood is the most valuable

tree in the world. As with gold,
platinum and diamonds, it owes its
value to demand based on ritual,
fashion and scarcity. It is the stuff
of mystery and intrigue, and
fortunes can still be made from it.
Professor John E. D. Fox

Investment Highlights
A tax deductible outlay of $7,800 generates
an estimated return of $43,800
Become a Sandalwood Farmer Sandalwood is in Short Supply

Investors become farmers of sandalwood in Western Australia Although sandalwood grows in some Asian countries, most
by subscribing for woodlots through this prospectus. You will of those countries utilise all their production domestically.
be able to identify your woodlots and visit them. They will Other Asian countries, such as Taiwan, have no native
be established and managed on your behalf by the Forest supplies and are dependent on supplies from Western
Rewards group. Australia. The depletion of native resources of sandalwood in
Western Australia has led to government controls, including
A Tax Effective Investment strict quotas.
The initial investment and the first year fees are 100% tax
deductible in the financial year they are incurred. This is Environmental Benefits
confirmed by Product Ruling PR 2001/17 issued by the The project will ease pressure on native sandalwood supplies
Australian Taxation Office. in Australia and the Tropics, help reduce salinity caused by
rising groundwater, and create a sink for greenhouse gases.
Excellent Projected Returns
Investing in sandalwood trees is projected to provide an Strong Management Team
excellent return on your money. Increasing Asian and The project will be run by a skilled management team. The
domestic demand for sandalwood, together with limited plantation will be professionally managed using best industry
supply from natural stands worldwide, creates a favourable practice under a detailed management plan.
market outlook.
A Revitalised Timber Industry
A Well Established Industry The Federal Government has published a vision statement -
Sandalwood has been exported from Western Australia to 2020 Vision - confirming its commitment to expanding and
Asian markets for over 150 years. It is an aromatic wood supporting the Australian timber industry. Not only will
highly prized in Asia for its use in joss sticks (incense) and as forestry projects provide jobs, they will increase Australia's
a source of essential oil. Sandalwood oil is also used as a exports and reduce our need for imported timber products.
base in many French perfumes.
The Most Valuable Timber in Australia

The market value of sandalwood is much greater than any
other native timber grown in Australia.

SandalwooD
The many uses of sandalwood and

its religious significance to vast
populations, on one hand, and
the relative scarcity of the wood, on
the other, have combined to make
it an extremely valuable commodity.

Sandalwood farming
makes sense
The Opportunity The Markets
A unique opportunity exists to Sandalwood has been highly prized
establish a boutique tree crop industry and intimately linked to Asian cultures
based on Australia's most valuable for thousands of years. Sandalwood is
native tree Santalum spicatum, used in a variety of ways:
commonly known as Western
Australian sandalwood. With increased The wood is powdered for the
demand for sandalwood in Asia, manufacture of joss sticks, which are
Government incentives for forestry burned as incense during Hindu and
projects, and substantial environmental Buddhist religious ceremonies.
benefits, the development of
sandalwood tree crops on farmland in
Western Australia makes perfect sense. Sandalwood oil extracted from the
wood and root is used for high
quality perfumes, soaps and creams
because of its unique fragrance and
fixative properties.
The extremely dense and close-

grained fibre of the wood provides
great appeal for the creation of
intricate woodcarvings and furniture.

The Asian Market
The most significant use of sandalwood is for the production of joss sticks
(incense) which are burned during Hindu and Buddhist religious ceremonies.
A few Asian countries have their own native supplies of sandalwood. These
supplies are generally used domestically and are not traded internationally.
In fact, India and Indonesia, which were traditionally major suppliers to the
international sandalwood market, now have strict government controls over
sandalwood harvesting and export. The controls are aimed at preventing
overexploitation and to ensure domestic demand is met.
The many Asian countries without native stands of sandalwood are wholly
dependent on international supply. Taiwan is most notable and is the largest
importer of sandalwood from Western Australia.
Another significant market for sandalwood is China. China was the largest
importer of sandalwood from Western Australia until the Cultural Revolution in
1966, when the Communist Government banned imports. In 1999, China
announced it would re-open its domestic market to agricultural and forestry
products to promote free trade. Shipments of Western Australian sandalwood
to China have already commenced. The potential size of the Chinese market is
substantial.

The
Western
Market
Markets for sandalwood are
developing within Australia and in
other Western countries. Sandalwood
oil has long been used as a base for
many French perfumes. It is also in
demand in the Western world for use
in aromatherapy and fragrant body
care products.
In 1997 Mt Romance Australia Ltd

opened a state of the art essential oils
factory near Albany, Western Australia.
The factory has developed world class
technology and aims to process up to
1000 tonnes a year of sandalwood. A
showroom has also been opened in
Melbourne. After 2 years of research
and development, Mt Romance
released a range of sandalwood oil
based body care and therapeutic
products under the "Santalia" label.
A 10 year contract with CALM (the Sandalwood conjures up many

relevant Western Australian State body)
for up to 1000 tonnes of sandalwood a images. For some, it excites
year guarantees Mt Romance ongoing
memories of Asian holidays,
supply. If Mt Romance were to utilise
its full CALM quota the native exotic fragrances and
sandalwood available for export would
be halved.
carvings.

Increasing Demand
The Demand Outlook The Supply Outlook These new markets together with the
Mt Romance quota are squeezing the
The outlook for demand for Western Australia has now become the
supply of sandalwood to Taiwan. With
sandalwood appears to be very strong: main source of internationally traded
further growth expected in the new
sandalwood. Production from the
markets, the limited native sandalwood
The use of sandalwood in joss sticks is remaining native stands in Western
resource needs to be supplemented by
intimately tied to Asian cultures and has Australia is subject to a strict
plantation grown sandalwood. Not
been for centuries. It is a strong, stable government quota of 2000 tonnes
surprisingly, the State government is
market. per year.
now actively encouraging sandalwood
planting.
The major Asian suppliers, India and Until recently the bulk of the State's
Indonesia, have restricted sandalwood sandalwood exports were sold to
Growers of sandalwood will have a
log exports because of dwindling stocks. Taiwan. In the mid 1990's CALM
unique opportunity to capitalise on a
appointed a private produce marketing
global market for sandalwood in which
China recently changed its policy group to market the State's
alternative sources of supply are very
enabling recommencement of sandalwood. As a result, sales to China
limited.
importation of sandalwood. and India have now commenced and
other international markets are being
The use of sandalwood oil in Western pursued.
countries is likely to grow. Over a period of 60
years from 1870 to
1930, when supply
constraints were
not as severe, exports
of sandalwood from
Western Australia
averaged more
than 6000 tonnes
per annum.

Sandalwood farming makes
commercial and environmental
sense so it is surprising that
sandalwood plantations have
not been established in the past.
Why haven't
Sandalwood
plantations
been grown
before?
Although there are many small scale
plantings of sandalwood by Wheatbelt
farmers, Forest Rewards undertook the
first commercial scale plantation last
year. There are a number of reasons for
the lack of past development:
In the 1920's, sandalwood exports were

so lucrative that over-harvesting led to
concerns about the sustainability of the
industry. To protect this valuable resource
the Western Australian government
introduced legislation that imposed the
need for a licence on anyone who wished
to pull sandalwood, effectively vesting
sandalwood in the State no matter
where grown. It was only in 1996 that
this legislation was amended to exempt
sandalwood grown on private
plantations from these requirements.
The past few years have witnessed a

dramatic increase in the level of forestry
investment and plantation development,
in particular for bluegum plantations.
This has generated considerable
awareness of the benefits of sound and
well managed plantation projects.
Over the last decade a greater emphasis

has been placed on sandalwood
research. This research has assisted in
understanding the silvicultural
requirements for sandalwood. In
particular, research conducted by the
Western Australian Department of
Conservation and Land Management,
Curtin University, Murdoch University
and the University of Western Australia
has been of great value.

trade route
Sandalwood
trade route
Sandalwood has played a vital role

in Western Australias history since
it was first exported in 1845.

Courtesy Battye Library 10009P
An Important Part of
Western Australias History
There are 16 species of sandalwood, of Sandalwood was tested by an expert in There was a boom period for
which four are native to Western England who pronounced it equal to sandalwood from the 1860s to the
Australia. Of these four, the one with the East Indian sandalwood and 1920s. By 1920, 330,000 tonnes of
the greatest commercial significance is settlers were advised that it should be sandalwood worth over 3 million
Santalum spicatum, Western Australian possible to sell large quantities of it at pounds had been exported (worth
sandalwood. The fragrant wood of enormous prices. over $2 billion at todays prices). In
this tree is the most valuable of all 1924, exports peaked at 14,000
timbers in Australia. The struggling colony hastened to tonnes.
initiate the export of sandalwood to
Sale of Western Australian sandalwood the Far East. Settlers were instructed By the turn of the century it became
was one of the States first and most not to burn or use sandalwood for any clear that the level of harvesting was
important export industries. other purpose, but when clearing to unsustainable. The first serious
stack it aside and have it available for attempt to control the industry was
In 1843 a report reached the young export when required. introduced in 1923 by way of
WA colony of the high prices being regulations imposing quotas, increased
obtained for sandalwood in Singapore. Within a few years, sandalwood had royalties, and export licences.
Up until that time the settlers, being become the colonys primary export
ignorant of its value, had been using industry. All those who were able to
sandalwood for firewood and fencing do so became involved in sandalwood
material, or else simply burning it gathering. In 1848 sandalwood earned
when clearing their land. This was 40 percent of the colonys total
occurring at a time when the colony exports. An export tax on sandalwood
was desperate for an increase in provided the colony with funds for
exports to help balance its trade public works, helping to open up roads
deficit. and other transport routes.

Sandalwood Industry Today Private plantations are not subject to Natural distribution of
these controls. The amended Santalum spicatum
Government regulation of native
Sandalwood Act 1929 exempts
sources of sandalwood continues today Sandalwood naturally occurs over a
sandalwood growing on private
through CALM. CALM harvests, carts, large area of Western Australia. Its
plantations from government
processes and exports sandalwood original distribution was from the
regulation.
under contracts awarded by tender. It western edge of the Wheatbelt into
also controls the amount and the vast Western Australian deserts. In
At present all sandalwood exports
minimum size of sandalwood trees that the high rainfall zone of the Wheatbelt
come from natural stands within
can be removed from natural stands. (400 mm or more per year)
Western Australia and the industry is
There is a strict quota on how much sandalwood was a forest tree, growing
worth about $14 million a year in
sandalwood can be harvested each with native acacia and eucalypt trees.
exports. The state government is
year. That quota is about 2,000 It has virtually disappeared from the
actively encouraging private
tonnes. Wheatbelt due to over cutting and
plantations to ease pressure on native
land clearing. Sandalwood is now
resources and assist in combating
mostly confined to pastoral lease land
erosion and salinity problems in the
where annual rainfall is less than 250
Wheatbelt.
mm per year.

Distribution of
Sandalwood
Sandalwood is now mostly found in
the pastoral zone of WA. It has
virtually disappeared from the
Wheatbelt.
LEGEND
Original occurrence
Present occurrence
Carnarvon Warburton
Wiluna
Meekathara
barri
Northampton
Leonora
eraldton Morawa
AN OCEAN
Kalgoorlie
Toodyay Southern Cross

Northam Norseman
Perth
Narrogin
Esperance
Busselton
SOUTHERN OCEAN
Albany

23.
Project Summary
What are we offering? How much will it cost? Taxation benefits
We are offering you the opportunity to An establishment fee of $7,200 is Growers can obtain immediate
participate in the Forest Rewards payable on application. This covers the taxation benefits. Under current
Sandalwood Project 2001. As a Grower cost of establishing the host trees, Australian taxation laws, all the fees are
you will establish and maintain your purchasing the planting stock, and 100% tax deductible in the financial
own stand of sandalwood by: administration. year they are incurred. This is
confirmed by a Product Ruling
leasing identifiable allotments of land of A fee of $600 is payable to cover the PR 2001/17 issued by the Australian
one hectare each (woodlots); costs incurred in the first financial year Taxation Office.
following the initial investment. This
engaging us to establish and manage a fee is payable on 1 September of the What are the estimated
sandalwood plantation on your next financial year. returns?
woodlots; and
For a tax deductible outlay of $7,800
An amount equal to 12% of your share
the project generates estimated net
engaging us to arrange harvest and then of the net sale proceeds of each
sales proceeds of $43,800 per
sale of your wood for the best price we harvest is payable to cover rent and
woodlot. The after tax internal rate of
can obtain. ongoing plantation maintenance,
return is 11.34%. Full details of the
management and administration.
estimated returns and underlying
The terms of these arrangements are
assumptions are set out in the Financial
contained in the Constitution, 10% GST is payable by you on each of
Forecasts section of this prospectus.
Management Agreement and Lease the above fees.
summarised in the Summary of
Material Agreements section of this
prospectus.

How will the Plantation be How will the Plantation be How will the trees be
established? maintained? harvested?
Sandalwood requires a host tree to The plantation will be monitored and The whole of the sandalwood tree,
help it grow. The woodlots are maintained by the Manager. This including roots, branches and butt, are
established by planting Acacia host includes weed and pest control, valuable. The trees will be harvested by
trees as seedlings in rows. This species nutrient analysis, fertilising, fire control, pulling them from the ground using
is native to the plantation area, and annual reporting. The Responsible excavation equipment. The trees will
nitrogen-fixing, hardy, and relatively Entity will retain $1000 per woodlot then be cut into smaller sections,
easy to grow. It is the ideal host out of the Managers funds to secure debarked and transported to Perth
species. performance of these maintenance for sale.
obligations.
The following year sandalwood seeds How will the trees be sold?
will be direct sown into the ground When is the Plantation
Following each harvest, the Manager
near the host trees. The next year a harvested? will sell the timber for the best
survival count will be conducted and
The sandalwood trees will be achievable price. The Manager will
any necessary resowing will be
progressively harvested between ages determine the best method of sale at
undertaken. The overall number of
10 and 20. The precise timing, number the relevant time, the most likely being
surviving sandalwood seedlings will be
of trees per harvest, and number of sale by private tender to the (mostly)
thinned to about 550 seedlings
harvests will be determined by the Asian buyers. The proceeds of sale of
per hectare.
Manager at the relevant time with the each woodlot will be pooled and you
aim of achieving the best overall result will receive your proportionate share
for Growers. An indicative harvest after deducting the applicable
schedule is set out in the Financial expenses.
Forecasts section of this prospectus.

Insurance
At your request we will arrange
insurance for your woodlots. The first
year's insurance is included in the first
year fee. Thereafter, the cost of
insurance will be at your expense and
is tax deductible. In 1948 four tons of
How do I subscribe? sandalwood was used
To become a sandalwood Grower, you on Mahatma Ghandis
should complete and deliver to the
Custodian the attached Application funeral pyre.
form and a cheque for the subscription
monies.
You can elect to apply for year 2001

woodlots or year 2002 woodlots. The
year 2001 woodlots will be established
by 30 June 2001 and the year 2002
woodlots by 30 June 2002.
Applications for the year 2001

woodlots must be received on or
before 31 May 2001. We reserve the
right to accept late applications but
only if we can schedule completion of
the host tree establishment work by 30
June 2001.
We reserve the right to accept or reject

applications in whole or in part at our
discretion.
What information will I

receive?
You will receive:
A document confirming acceptance of
your application.
A site plan to enable you to identify your
woodlot(s).
An annual report from the Manager.
A forester's report every 3 years
describing the progress of the project.
The right to visit your woodlot(s) and the
project plantation.
All information relating to the project you
reasonably request at any time.

Financial Forecasts
Returns per Woodlot
Sandal- Trees Yield Total Price Notes Proceeds Proceeds Proceeds Total
wood Harvested kg per Yield $kg Age 10 Age 14 Age 18 Proceeds
Age Tree kg $ $ $
10 250 71/2 1,875 4.00 (1) 10,382

14 100 13 1,300 5.00 (2) 10,127
18 150 20 3,000 6.00 (3) 31,563
Gross Sales Proceeds 10,382 10,127 31,563 52,072
Less:
Harvest costs (4) 1,038 468 789 2,295
Maintenance Fee (8%) (5) 747 773 2,462 3,982
Rent (4%) (6) 374 386 1,231 1,991
Net Sales Proceeds 8,223 8,500 27,081 43,804
Less:
Establishment Fee (7) 7,200
First Year Fee (8) 600
Net Profit before tax 36,004
Less Tax (9) 17,462

Net profit after tax 18,542
Rates of Return (10)

Annual compound return (IRR) after tax 11.34%
Specific Notes General Notes

(1) At sandalwood age 10, 250 trees are pulled yielding (11) Assumes 550 sandalwood trees are established on
71/2 kg of saleable wood per tree, fetching a net price average per woodlot. All early mortality is replaced.
of $4.00 per kg indexed. Other mortality is 50 trees, leaving 500 commercial
trees per woodlot on average.
(2) At sandalwood age 14, 100 trees are pulled yielding
13 kg of saleable wood per tree, fetching a net price (12) Indexation (inflation) is assumed to be 3% per annum.
of $5.00 per kg indexed.
(13) No allowance is made for insurance costs or GST
(3) At sandalwood age 18, 150 trees are pulled yielding (which are payable by the Grower).
20 kg of saleable wood per tree, fetching a net price
of $6.00 per kg indexed. (14) For simplicity, tax payments/refunds are assumed to
be paid/received in the same year as incurred.
(4) The harvest costs (including transport and storage) are
$3.00 per tree indexed. (15) The sandalwood trees will be harvested on a
progressive (thinning) basis between ages 10 and 20.
(5) The Manager's maintenance fee is 8% of the net sales The precise timing, number of trees per harvest, and
proceeds of each harvest. number of harvests will be determined by the
Manager at the relevant time with the aim of
(6) Rent is 4% of the net sales proceeds of each harvest. achieving the best overall result for Growers. The
harvest schedule used in the forecasts is indicative
(7) The establishment fee is $7,200 per woodlot. only.
(8) The management fee in the first year is $600 per (16) The price currently being obtained by the State for
woodlot. native sandalwood is in the range of $6 to $10 per kg
depending on the size and quality of the wood. The
(9) Tax is calculated at the rate of 48.5%. plantation wood produced by this project will be
younger than the native wood harvested by the State
(10) This is the internal rate of return of the estimated after and accordingly a price discount is applied.
tax cash flows of the project i.e. allowing for tax
deductions on outflows and the tax paid on income (17) See the Project Risks and Safeguards section of this
(assuming a tax rate of 48.5%). prospectus.
The establishment fee of $7,200 and the first year fee of

$600 are both 100% tax deductible in the financial year in
which they are paid.

Cashflow Model
Year ending 30th June 2001 2002 2012 2016 2020 TOTAL
Sandalwood Age 10 years 14 years 18 years
Net Sales Proceeds 8,223 8,500 27,081 43,804
Establishment fee (7,200) 7,200

First Year fee (600) 600
Cashflow Before Tax (7,200) (600) 8,223 8,500 27,081 36,004
Tax (payable) refund 3,492 291 (3,988) (4,122) (13,134) (17,462)
Cashflow After Tax (3,708) (309) 4,235 4,378 13,947 18,542
Cumulative Cashflow (3,708) (4,017) 218 4,595 18,542

After Tax
Sensitivity Analysis
An indication of how changes in sandalwood yield,
prices and harvest costs will affect returns to Growers
Change in variable IRR Net Sales is set out on the left. This sensitivity analysis shows
Proceeds that due to the high value of the wood relative to the
harvest costs the returns are robust, even with
Sandalwood price or yield substantial changes in price or yield. The sensitivity
40% increase 13.94% $62,133 analysis is calculated with no borrowings.
20% increase 12.74% $52,968
Projected 11.34% $43,804
20% decrease 9.65% $34,639
40% decrease 7.51% $25,475
Harvest costs
50% increase 11.13% $42,794
Projected 11.34% $43,804
50% decrease 11.55% $44,813

Taxation
The Australian Taxation Office has issued Product Ruling If you are registered for GST purposes then any GST paid in
PR 2001/17. This Ruling confirms the deductibility of the relation to the fees you pay will represent a GST input tax
establishment and first year fees. To view the Product Ruling credit. If you are not registered for GST purposes any GST
go to the Australian Taxation Office website at paid in relation to the fees you pay will be a cost and will be
"law.ato.gov.au" and enter"PR 2001/17" in the search box. deductible.
The Product Ruling is binding provided the project is carried Unless otherwise stated, dollar amounts referred to
out in accordance with details provided to the Australian throughout this Prospectus do not include GST and the
Taxation Office by Forest Rewards Ltd and described in the internal rate of return calculations are calculated before the
Ruling. impact of the GST.
Goods and Services Tax Independent Taxation Advice

The Federal Government has introduced a GST which applies Intending investors should seek advice from their
to the supply of goods and services (unless otherwise professional tax advisers to confirm their own position in
exempt). The establishment fee, first year fee, rent, respect of taxation in general and the impact of GST.
maintenance fee and performance fee for all woodlots will
attract GST.

Environmental
Considerations
Rectification of land degradation
Large amounts of salt are stored in the groundwater and soil
beneath farmland in the Wheatbelt of Western Australia. The
salt originated from the ocean and was carried in rainfall
over millions of years. Before large scale clearing for
agriculture this large store of salt was kept more or less in
balance by the consumption of water by native vegetation.
When the land was cleared and replaced with shallow rooted
annual pastures and crops, which have a much lower water
demand, the groundwater rose and mobilised the salts. In
many areas the groundwater has risen to a point where it
now intersects the surface resulting in salinisation of soil and
surface water. Research has shown that this process can be
stopped, and over time reversed, by tree planting.
Greenhouse gases and carbon credits

Tree crops contribute to the absorption of carbon dioxide in
the atmosphere. As a result, they help reduce the net
The Plantation will have substantial emission of greenhouse gases. Australia, along with other
environmental benefits industrialised nations, has pledged to reduce greenhouse gas
emissions under the Kyoto Protocol to the United Nations
Framework Convention on Climate Change held in
Reduction of pressure on native stands
late 1997.
Before the commencement of sandalwood harvesting in
Western Australia, sandalwood trees were naturally abundant It was agreed at this conference that countries with high
throughout the Wheatbelt. Today, this tree has virtually carbon emissions could "balance their books" by taking
disappeared from the Wheatbelt due to clearing for carbon out of the atmosphere via large-scale tree planting. A
agriculture and past over-harvesting. system is being developed so that when countries burn fossil
fuel they can offset this incursion with a "carbon credit" by
Sandalwood now mainly occurs in the arid interior. These planting trees. Carbon polluters would pay tree planters to
stands are subject to low growth rates due to low rainfall accommodate their carbon emission problems via trees that
and poor regeneration due to grazing by domestic and feral have the capacity to store carbon.
animals.
A number of broking houses have stated a desire to establish
The development of a plantation resource in the Wheatbelt trading in carbon credits which would make it possible to
will have the potential to reduce the pressure on native realise the benefit of accruing carbon credits. Given the early
stands and re-establish sandalwood in its natural habitat. It stage of the Kyoto initiatives, carbon credits are not factored
will also help address the overwhelming pressures on into the financial model for this project. Any carbon credits
sandalwood resources elsewhere in the world where some will accrue to the benefit of the Grower (80%) and the
sandalwood species have been harvested to the edge of Manager (20%). The Manager will consult Growers
extinction. regarding opportunities to take advantage of carbon credits
as and when such opportunities arise.

Research
on Sandalwood
A valuable body of research on Murdoch University and the University of Findings from sandalwood research
sandalwood has been developed in Western Australia have conducted show that acacia trees are the best
Western Australia in recent years, valuable research on the parasitic nature host trees for sandalwood. Research
contributing greatly to knowledge on of sandalwood and the influence of has also found that direct sowing
establishment and management of different host species on sandalwood sandalwood seeds near established
sandalwood trees. The research comes growth. acacia trees is an effective method of
from government and university establishing sandalwood in plantations
sources, including the following. A number of post-graduate degrees on on farmland.
sandalwood have been obtained from all
In the late 1980's, CALM established a three universities. Forest Rewards' Forest Rewards has conducted its own
sandalwood trial planting near director Dr Andrew Radomiljac research on direct sowing sandalwood
Northampton to investigate the completed a doctoral thesis on Indian seed. Seed was collected from 10
germination and establishment of eight sandalwood. different provenances in Western
different provenances of sandalwood. Australia and direct sown beneath
acacia hosts, near New Norcia. This
In 1991, CALM established a 2 hectare research found an average sandalwood
sandalwood planting near Kwobrup. This germination and survival rate of about
investigated the effect of different host 80%.
species on sandalwood establishment.
Forest Rewards has structured this
Curtin University has conducted project on the basis of both the
extensive research on sandalwood. In published research and its in-house
1993 Curtin University published a study research and specialist sandalwood
on the germination rates of sandalwood knowledge.
seed collected from eight provenances.
Curtin continues significant research on
sandalwood plantation establishment.
Recent research has focused on the effect
of sowing depth on the establishment of
sandalwood.

Forest Rewards
The Group
The Forest Rewards Group was founded with the vision of The Forest Rewards Group holds and retains important
developing new, niche forestry projects using first class core values:
technical expertise. There is a need for new investment
alternatives in the plantation forestry industry, particularly First class forestry expertise and management practices,
with the possibility of over-investment occuring in leading which will not be compromised
products.
Ongoing research and development of quality,
With the advent of ATO product rulings, the tax effective alternative forestry and agricultural products
industry is here to stay and represents a legitimate and
appropriate vehicle to generate much needed investment in Reasonably priced tax effective investment products, i.e.
commercial scale forestry and agricultural projects in a fair deal between management and growers
Australia. Forest Rewards aims to meet the need within this
industry for investment alternatives backed by quality A dynamic and innovative approach to all aspects of
management. its business
Forest Rewards established the first commercial scale Awareness of project risks and processes to minimise
plantation of Santalum spicatum last year with its such risks
Sandalwood Project 2000, which closed fully subscribed.
This year we will be offering the Sandalwood Project 2001 This section contains extracts of the Groups audited
and two other forestry projects that have been under accounts in respect of the period to 30 June 2000. A full set
research and development for almost two years. of the Groups financial statements including notes to the
accounts is available on request.
Although pioneering new projects inevitably involves
additional risks, we seek to minimise the risks by use of best
expertise and practice, combined with a flexible and
progressive approach. The potential financial rewards in
select niche projects are substantially higher than in
traditional projects where first choice land is no longer
available and over-production may well be occurring.

Forest Rewards Corporation Ltd Audited Consolidated
Balance Sheet as at 30 June 2000
$
Current assets
Cash 2,951,932
Receivables 8,771
Other 33,731
Total current assets 2,994,434
Non current assets

Property, plant and equipment 28,420
Other 25,979
Total non current assets 54,399
Total assets 3,048,833
Current Liabilities
Accounts payable 713,925
Borrowings 196,999
Provisions 746,946

Total current liabilities 1,657,870
Management Team
Directors Mr Craig Burton Field Manager
The directors of Forest Rewards Ltd Executive Director - The directors of Forest Rewards Ltd are
(and each other company in the Forest Corporate supported by Mr Peter Grime.
Rewards group) as at the date of this
prospectus are: Mr Burton has a law degree and is a
Fellow of the Australian Institute of Mr Grime was appointed Forest
Company Directors. He is a former Rewards Field Manager in May 2000,
Dr Andrew Radomiljac Chairman of a listed forestry group. having formerly worked for CALM. He
Executive Director - Forestry is responsible for conducting and
Mr Burton has extensive experience in supervising all plantation planting,
Dr Radomiljac is a professionally
public company administration and in maintenance, and site selection
qualified forester with a degree in
project development, financing and activities.
forestry from Australian National
University and a doctorate in structuring. He co-founded Verona
Capital, a venture capital business that Over a period of 24 years with CALM,
plantation sandalwood from Murdoch
provides finance and corporate Mr Grime's experience includes field
University.
assistance for start up businesses and manager on the maritime pine
ventures seeking a public listing. planting project in the Wheatbelt,
From 1992 to 1999 he worked for the
coordinator of the Peel/Harvey Estuary
Western Australian Department of
Mr Mark Blanchard tree planting project, area coordinator
Conservation and Land Management,
of the first commercial bluegum
primarily as a research scientist and Non-Executive Director
plantations for CALM Estate, and
project leader based in Kununurra Mr Blanchard has degrees in manager of CALM's nursery operations
working on CALM's plantation forestry commerce and economics and is an at Hamel.
project. More recently, Dr Radomiljac Associate of the Securities Institute of
was based in Perth heading a part of Australia. He has worked in merchant
CALM's maritime pine share farming and corporate banking in Australia,
project. and in London for the UK's largest
credit insurer. From 1993 to 1997 he
He has published 22 international assisted in the establishment of a
journal articles, conference papers, highly successful funds management
books and popular articles on group. He is a co-founder and principal
plantation development and of Verona Capital.
sandalwood farm forestry.

Compliance Committee
Forest Rewards Ltd has established a
Compliance Committee as required by
the Corporations Law. The Committee
consists of two independent members
and one representative of Forest
Rewards Ltd. The members are:
Mr Craig Readhead
External Member
Mr Readhead is a barrister and solicitor
with extensive experience in corporate
and resources law.
Ms Anne Thoume
External Member
Ms Thoume is a business consultant
with a strong background in funds
management. She has experience as a
member of a number of compliance
committees.
Mr Mark Blanchard
Mr Blanchard is the representative of
Forest Rewards Ltd.
The Compliance Committee will

monitor Forest Rewards Ltd's
compliance with the Compliance Plan
and report any compliance failures.

Forest Rewards Corporation Ltd
(Parent Company)
100% owned 100% owned

100% owned
Forest Lands Pty Ltd Forest Rewards

Forest Rewards Ltd
(Land Owner) Management Pty Ltd
(Responsible Entity)
(Manager)
Constitution Lease Management Agreement
Grower
SandalwooD
Corporate Structure
Forest Rewards Corporation services of a skilled management team ensures the Responsible Entity keeps
and will undertake its duties in adequate records and complies with the
Limited - Parent Company
accordance with the Management Plan financial reporting requirements of the
Forest Rewards Corporation Limited is for the project and the Code of Corporations Law, and appoints the
the ultimate holding company of the Practice for timber plantations in auditors of the Project;
three companies involved in the Western Australia.
Project. addresses related party issues and sets
Forest Lands Pty Ltd - out the Complaints Handling Procedures;
Forest Rewards Ltd - The The Lessor
identifies the Project property, ensures it
Responsible Entity Forest Lands Pty Ltd has entered into
is held separately from the property of
Under the Corporations Law, the an agreement to purchase the land on
the Responsible Entity and any other
project requires a "responsible entity" which the plantation will be
scheme and appoints the Custodian; and
to protect the interests of the Growers. established. It will lease woodlots to
Forest Rewards Ltd is the responsible Growers under the terms of the Lease.
establishes procedures in relation to this
entity and has obtained a dealers Prospectus, moneys received under the
licence to operate the project. Compliance Plan
Constitution, the conduct of business
Forest Rewards Ltd has prepared a issues, external service providers, the
The rights and responsibilities of Forest Compliance Plan to ensure that it appointment of agents to market
Rewards Ltd are set out in the meets its obligations as a Responsible woodlots, insurance and the relationship
Constitution (see the Summary of Entity and that the rights of Growers between the Manager and the Lessor.
Material Agreements section of this are protected. The plan identifies the
prospectus). Amongst other things, it various obligations under the Management Plan
must receive and disburse money on Corporations Law, the Constitution,
The project will be conducted in
behalf of the Growers (through the the Lease and the Management
accordance with a detailed
Custodian) and hold the project assets Agreement that affect the Responsible
Management Plan. The Management
on behalf of the Growers. Entity, identifies the risks of non-
Plan outlines the procedures to be
compliance and establishes measures
followed to ensure that the project is
To ensure efficient and timely designed to address these risks.
carried out in accordance with the
management and compliance with its In particular, the Compliance Plan:
Western Australian Code of Practice for
statutory duties, Forest Rewards Ltd
Timber Plantations and in a manner
has formulated a Compliance Plan to includes measures to ensure the
designed to both mitigate the project
be overseen by a separate Compliance Responsible Entity and its officers and
risks and maximise the growth and
Committee. Details of this Committee employees comply with their respective
yield of the plantation. It deals with
and Plan are set out below. obligations under the Corporations Law;
the following aspects:
Forest Rewards appoints the Compliance Officer,
Design of Plantation
Management Pty Ltd - establishes the Compliance Committee,
Land Preparation
The Manager and regulates the Committee's duties
Weed Control
and functions, its members and its
Growers will contract Forest Rewards Planting
meetings and activities;
Management Pty Ltd to establish, Fertilising
maintain and manage the plantation, Pest Control
and arrange harvest and then sale of Fire Control
the timber. Forest Rewards Pruning
Management Pty Ltd will use the Monitoring
Reporting

SandalwooD

Further Details of
the Project
The Plantation Site Independent Review sandalwood seedlings will be thinned
to about 550 seedlings per woodlot.
The plantation site or sites will be Each selected site will be inspected by
carefully chosen to meet the following the Independent Forester and must
criteria: meet his approval. Maintenance
The plantation will be maintained in
Rainfall Planting and Seeding accordance with the Management Plan
Sandalwood grows in areas that Sandalwood trees require a host tree to ensure it performs to its potential.
receive between 200 to 600 to survive and grow. The sandalwood Maintenance will include weed and
millimetres annual rainfall. The rainfall tree's roots penetrate the roots of the pest control, pruning, culling, nutrient
at the plantation site will average more host to draw water and nutrients. analysis, fertilising, fire control,
than 400 millimetres a year. Wattles (Acacia) are considered the inventory measurement and annual
best hosts due to their nitrogen fixing reporting.
Soil abilities. This species is native to the
The suitability of the site will be plantation area, hardy, and relatively The Responsible Entity will retain
determined by evaluation of soil depth, easy to grow. $1000 per woodlot of the
fertility and moisture retention establishment fee to secure
characteristics. It will be in an area in These host trees will be planted on the performance of the Manager's ongoing
which sandalwood naturally occurs. site in June of the financial year the maintenance obligations. This will be
investment is made. In the following released in annual instalments over 11
Infrastructure year, sandalwood seeds will be direct years provided the Independent
sown into the ground near the Forester is satisfied that the Manager is
The sites will be within 200km of the
established host trees. The seeds for performing its maintenance
processing centres in Perth and the
planting have been selected from trees obligations. If for any reason
port of Fremantle.
growing in remnant natural stands in maintenance is not undertaken
the Wheatbelt or adjacent pastoral the Responsible Entity may use the
Farmland areas. retained monies to pay another
The plantation sites will be established contractor to undertake the work.
on previously cleared and pastured In the year following seed sowing, a
farmland in the Wheatbelt which survival count will be conducted and
ensures high fertility and minimises the any necessary resowing will be done.
development of competing woody The overall number of surviving
weeds.

Harvest and Sale Harvest and Sale Costs Reports to and visits
Each Grower is responsible for their by Growers
Harvesting share of harvest, transport, storage, The Manager will prepare and deliver
The sandalwood trees will be harvested processing (if any) and sale costs. to Growers, by mail or email, annual
on a progressive (thinning) basis These costs will be deducted from the reports comprising a summary of
between ages 10 and 20. The precise sale proceeds. A maintenance fee of progress, growth and other matters
timing, number of trees per harvest, 8% of net harvest proceeds and rent of specific to the plantation.
and number of harvests will be 4% of net harvest proceeds will also be
determined by the Manager at the deducted from the sale proceeds. Prior to each harvest the Manager will
relevant time with the aim of achieving send to each Grower a report detailing
the best overall result for Growers. The Performance Incentive the proposed timing for harvest and
logs, roots and butts of the tree As a performance incentive, the expected yield. Growers will be
contain saleable wood and are easily Manager is entitled to 15% of the entitled to visit and view their
harvested by pulling the whole tree amount by which the net sales woodlots and the plantation at any
from the ground. proceeds of the harvests exceed the time, subject to giving the Manager
forecasts in this prospectus. reasonable notice.
Marketing
The wood from the harvests will be Election to Harvest Insurance
differentiated depending on quality and Market At a Grower's request, Forest Rewards
and size and sold for the highest
A Grower may notify the Manager by Ltd will use best endeavours to arrange
possible price. Presently, sandalwood
30 June 2003 that the Grower wishes insurance against destruction or
processed prior to export is sold as
to make his or her own arrangements damage to the Grower's tree crop. The
uncleaned logs, cleaned logs, butts
for harvesting and marketing. Where a cost of the insurance will be borne by
and roots, dead wood pieces, chips
Grower makes this election the the Grower, other than insurance for
(2 grades), powder and shavings.
Manager will mark out the Grower's the first year which is covered by the
woodlots and advise the Grower when first year fee. The cost of insurance and
At the time of sale, the Manager will
the trees may be harvested. The the terms of the cover available will be
determine the most profitable and
Grower will remain liable to pay the determined by the state of the
appropriate markets for the product
maintenance fees and the rent. insurance market at the time the cover
and whether to contract any value
is sought.
adding prior to sale. The proceeds of
each woodlot will be pooled and
Growers will be paid their
proportionate share of proceeds from
the relevant plantation after deduction
of applicable costs.

Land
The Manager is in the process of
identifying land suitable for this project
that meets the selection criteria
described in this prospectus and the
approval of the Independent Forester.
In the event that the number of
applicants who subscribe to this offer
exceeds the maximum number that
can be accommodated on the initial
plantation site, and the Manager has
secured further land, the Responsible
Entity may accept oversubscriptions to
the extent of the further land available.
No additional allotments will be made
until the acquisition or lease of the
additional land is secured.
Applications and
Allotments
All Applications are sent to the
Custodian.
Forest Rewards Ltd has the discretion

as to whether to accept or reject
Applications under this prospectus in
whole or in part. When Forest Rewards
Ltd accepts an Application and allots
one or more woodlots, the Grower
automatically becomes bound to the
Constitution and Rules. The
Responsible Entity has entered into
Standing Offers with the Manager and
the Lessor so that upon the allotment,
the person who is allotted woodlots
also automatically becomes a party to
the Lease and Management
Agreement as a Grower in respect of
the specific woodlots allotted.
As agent for the Bare Trustee, the

Custodian holds the subscription
money for woodlots on trust pending
the allotment of woodlots. After the
allotment of woodlots, the subscription
money may be released in payment of
project fees in accordance with the
Lease, Management Agreement and
Constitution. Forest Rewards Ltd
also has the power to direct the
Custodian to invest the subscription
money in any authorised investment.

Treetec Consulting Pty Ltd
21 November 2000
The Directors
Forest Rewards Ltd
West Perth 6005
Western Australia
Independent Foresters Report

This report has been prepared for Dr Malajczuk also has extensive The Species
inclusion in a second prospectus to be forestry experience in China, the
issued by Forest Rewards Limited Philippines and Japan. More recently The species to be grown for this
which offers investors the opportunity he has been a consultant to forestry project is to be Santalum spicatum. This
to subscribe to the Forest Rewards projects in the agricultural areas of species is currently commercially
Sandalwood Project 2001 to establish Western Australia. In 1994 he was harvested from native stands located in
another plantation of sandalwood appointed an Adjunct Associate Western Australia's arid interior and
(Santalum spicatum) in the Western Professor at Murdoch University in approximately 2,000 tonnes are
Australian Wheatbelt. Western Australia and supervises exported each year. S. spicatum is an
Honours and PhD students in various obligate root semi-parasite requiring a
Treetec Consulting Pty Ltd has been aspects of forestry. He has published host plant such as acacia trees, to
commissioned by Forest Rewards Ltd over 140 research papers in survive and grow. Nutrients and water
to provide an independent technical international journals and books. are obtained from these host plant
assessment of the Project and Forest root systems so that it is essential that
Rewards' methodology concerning site Dr Malajczuk has inspected the areas these trees be nurtured with the
selection, establishment, management, to be planted with sandalwood and sandalwood during life of the project.
and anticipated returns to the investor. known past trial plantings of
sandalwood within the Wheatbelt. The species grows mainly on loamy,
The Director of Treetec, Dr. Nicholas Forest Rewards technical staff were acidic soils where rainfall is 200-500
Malajczuk is forestry educated and has present to discuss aspects of the mm a year. It can withstand
over 25 years research experience as a technical operations. temperatures in excess of 40C when
scientist with CSIRO, Division of established and prefers well-drained
Forestry. Dr. Malajczuk's professional soils for subsequent growth and
The Proposal development. The higher rainfall areas
expertise includes Australian and
international research on plantation Investors are invited to enter into a of the Wheatbelt have been known to
establishment and nutrition in both Lease and Management Agreement for produce the largest trees of
temperate and tropical/sub-tropical Woodlots of Western Australian sandalwood.
environments. He has worked with sandalwood. Woodlots are to be one
major forestry companies in Australia hectare in size within a proposed Since the early 1980's, CALM and
including Bunnings Treefarms, APPM plantation estate of 1100 hectares. The Curtin University have carried out
and ANM on the inoculation of Project proposes to grow sandalwood extensive research and field trials on
eucalypts with mycorrhizal fungi and trees on a 18 year rotation for the propagation and establishment of
nutrient application to maximise tree production of export quality sandalwood on farmland. More
growth. sandalwood. recently, Forest Rewards have
undertaken the establishment of

sandalwood at a property near New hand after delivery of the seedlings will occur in the first 13 months, and
Norcia using the current best practices from the nursery. thereafter at least tri-annually . These
for growing sandalwood. inspections will focus on survival, fire
Following host seedling establishment, protection, weed control, growth rates,
Location of Plantation and sandalwood seeds will be direct sown and plantation health.
near the Acacia host trees at a density
site conditions of at least 1200 seeds per hectare the Management Expertise
The property is located near following year. Eventually the total
Goomalling on the western edge of number of sandalwood seedlings will Forest Rewards executives are
the Western Australian Wheatbelt, be reduced to about 550 per hectare. professionally qualified and experts in
about 130 km east north east of Perth. This thinning will be based on several their field. The Project brings together
It is gently undulating and over 90% criteria including proximity to hosts, a mix of long time experience in
of the property has been cleared. It has creating uniform sandalwood density, project management and plantation
been regularly cropped to wheat, and removal of less vigorous seedlings. establishment and maintenance.
canola and legumes and grazed by The overall host to sandalwood ratio
sheep. The property receives will be about 1.75 hosts to 1 Forest Rewards has also acquired the
approximately 450mm rainfall per sandalwood tree. services of experienced consultants to
annum during the winter period. The provide advice on sandalwood
soil is a sandy loam overlaying clay at Checks of the plantation survival will provenance selection, host species
depth >1-2 metres. The residual be undertaken in the autumn following suitability, sandalwood planting
fertiliser is relatively high in planting. If necessary, both density, sandalwood growth rates and
phosphorus and nitrogen and will sandalwood seeds and host seedlings harvesting techniques.
ensure good growth of the host plant will be infilled during the following
and sandalwood. The property has winter. Growth and Yields
several large sandalwood trees growing The valuable component of the
on it within the remaining native Establishment and sandalwood tree is its oil-bearing
vegetation suggesting to Treetec that
this property should meet the yield
Management wood, which is mostly the heartwood
but can include some sapwood and
estimates outlined in the prospectus. The plantations will require extensive transition sections. Heartwood
weed control, consisting of formation commences around age five.
Selection of planting broadspraying, mounding and post Yields quoted in this report refer to
planting weed control.
materials saleable wood only and not to the
total weight of the tree. At age 10
Forest Rewards has entered into a Fertiliser requirements of sandalwood years the sandalwood trees are
supply contract with a reputable are not well known however foliar estimated to produce 7.5 kg of
nursery for the supply of Acacia analysis does provide a guide to whole saleable wood per tree. At age 14
acuminata host seedlings. The same tree requirements if measurements are years the forecast is 13 kg per tree and
nursery supplied high quality acacia taken seasonally. Based on this analysis, at age 18 years 20 kg per tree. The
seedlings to Forest Rewards last year. fertiliser will need to be applied if overall mean annual increment (MAI)
The selected host plants have been element levels are lower than of the plantation will be about 340 kg
sourced from provenances in the published figures for slow growing per hectare per year.
Wheatbelt and will perform well at the trees. Fertilizer can readily be applied
property. as hard compound fertilizer near the Based on published research by the
trees soon after sandalwood seedlings Department of Conservation and Land
Forest Rewards has also entered into a become established or during the Management, yields reported in this
contract for the supply of high quality growing season throughout the report are achievable from sandalwood
sandalwood seed. Seed has been rotation. plantations, provided that site
sourced from provenances in remnant selection, establishment techniques
stands of Wheatbelt sandalwood and Firebreaks will need to be ploughed, and subsequent management meet
in neighbouring pastoral land areas. graded or broad sprayed prior to the specifications summarised above.
summer. Access until harvesting will be Actual yields from individual Woodlots
Plantation Configuration by firebreaks. Roads will need to be will vary above and below the average
formed as required to enable figure, depending on micro-site
The host seedlings will be planted in harvesting equipment access at the
June 2001 following site preparation. factors.
time of harvesting.
Sandalwood seeds will be planted in
autumn 2002. This delayed Treetec has reviewed Forest Rewards' Financial Analysis
sandalwood seeding will ensure that methodologies for plantation Treetec has assessed the assumptions
the hosts are well established by the establishment and maintenance and stipulated by Forest Rewards to model
time of sandalwood germination and concludes that the silvicultural system the net Project return and return to the
root establishment. used to establish sandalwood in this investor. Treetec have independently
Project is appropriate for the checked and confirmed the cash flow
Row width will vary slightly on achievement of high establishment model for the Project.
different sites, but will usually be 4 and sandalwood growth rates. The projections on returns are based
metres apart and host seedling spacing on assumptions for plantation yield,
along the row will vary between 2.5 to
Monitoring rotation length, price of sandalwood,
3 metres apart giving an approximate costs for establishment and
stocking of about 960 hosts per The Project provides for regular maintenance, transport and
hectare. Host plants will be planted by inspections by an expert forester who processing. These assumptions are
reports to the Manager. Inspections

consistent with current industry Treetec has assessed the risk factors of about 80%. It is important that
practices and are considered associated with the Project and is Forest Rewards continues to monitor
reasonable. Treetec's assessment of satisfied that all risks can be managed and test the germination rates of the
Forest Rewards methodology for site to minimise their influence on the sandalwood seed prior to seeding to
selection, plantation establishment and Project's performance. Treetec have ensure that the number of seedlings
maintenance and management independently checked Forest Rewards' established match what is indicated in
indicate that the Project will be risk management strategy and can the prospectus.
economically viable and potential risks verify that appropriate measures are
to returns will be minimised, although available to manage the risks. Summary
returns are sensitive to price, yield and
taxation treatment. Provided that the plantations are The silvicultural procedures adopted by
established on favourable areas on the Forest Rewards for establishing the
sandalwood plantation have been well
Prices property the risk of drought and
thought out, are based on sound
salinity can be greatly minimised.
Sandalwood prices have remained Correct initial establishment techniques research and observations of their past
stable for the past few years. Despite provide the best risk management plantings and experience, and are
the strong outlook for sandalwood strategy for plantations from weed capable of producing the yields
prices, prices are determined by the competition and insect and vermin predicted.
international market and are therefore attack.
volatile. The forecast value for The price estimates used to forecast
sandalwood timber from each Woodlot Wildfire is a risk within the Wheatbelt. returns are reasonable and well-based
is based on the well known and However, a combination of vehicle though investors should be aware of
published export prices for movement bans imposed by Shires the unpredictable nature of prices
sandalwood. Sandalwood prices during summer, well maintained which are dependant on an
currently range from about $A6 to internal and external firebreaks, and international market.
$A10 per kilogram depending on the integration with fire fighting
specific sizes of logs and heartwood authorities will greatly minimise the Treetec consents to being named as
quality. risk of wildfires. Losses from fire, hail the expert Forester in the Prospectus
and windstorms can be covered by for Forest Rewards Ltd and to the
Fees insurance. I advise Growers to consider inclusion of the Foresters Report in the
insuring against damage or loss caused form in which it is submitted. Treetec
In my opinion the fees payable to has acted as the independent Forester
by bushfires and windstorms, and to
Forest Rewards are a sufficient and and in no other capacity. Treetec takes
discuss this with Forest Rewards.
commercially realistic amount to no responsibility for any other matter
Seedling deaths of host plants may
ensure that the important in the Prospectus.
occur in the first year after outplanting.
establishment and maintenance phases
Therefore infills or replants will be
are properly performed. The fees are in
carried out as part of the normal
accordance with reasonable standard
establishment regime.
industry costs and practices, and
comparable to other crop ventures.
Forest Rewards has conducted
germination studies on the
Risks sandalwood seed collected by the seed
The principal risks to sandalwood suppliers. Of the provenances tested Dr Nicholas Malajczuk
plantations in the Wheatbelt are fire, high rates of germination and
wind, insect attack, drought, salinity establishment were recorded, with an Director
and nutritional deficiencies. average germination and survival rate Treetec Consulting Pty Ltd

3 December 2000
The Directors
Forest Rewards Ltd
West Perth 6005
Western Australia
WA Sandalwood Market Report

This Report was prepared by Professor areas of expertise are in silviculture and 30 reports and some 35 journal articles
John E.D. Fox, for inclusion in Forest forest ecology. He has researched or conference papers on sandalwood.
Rewards Sandalwood 2001 Project sandalwood growth since 1980. He was a trustee of the Sandalwood
prospectus. Professor Fox has 40 years During 1987-1994 he conducted a co- Research Institute from its inception in
professional experience in forest operative research project on Indian 1980 until its demise in 1994. In
research, including 13 years of tropical sandalwood for the Australian Centre addition to West Timor, he has also
rain forest research and 25 years for International Agricultural Research visited Sandalwood areas in Java, Bali,
investigating tree regeneration in the with the Forest Research Institute of Karnataka (India), New Caledonia
arid zone of Western Australia. He is NTT, Kupang, Indonesia. He has and Fiji.
Director-at-Large of the International supervised many projects dealing with
Society of Tropical Foresters. His main sandalwood research, prepared some
2000
Total
1500
PRODUCTION (tonnes)
Greenwood
1000
Deadwood
500
0
1992 1994 1996 1998 2000
YEARS
FIGURE 1. Annual harvests (tonnes) of dead, green and total sandalwood, taken from crown land
in Western Australia 1993-2000.

Introduction early settlers of the developing Governments have instituted bans on
wheatbelt and pastoral industries wood export from time to time as
Sandalwood is a valuable commodity,
(1844-1880) and during the main time supplies have diminished in recent
traded for centuries and well known in
of gold prospecting activity (1880- years. Governments are attempting to
world markets. Many sandalwood
1918). The quantity exported was encourage land holders to cultivate
products and derivatives of the oil are
determined more by supply than sandalwood with little success.
sold to the world's luxury markets.
demand. The supply depended on
Wood is used for carvings, and wood
labour and availability of the wood. Certain conventions govern the
dust is used in joss sticks at shrines and
Good quantities were taken from regulation of harvest of naturally
temples. Wood is burnt on funeral
much of the area eventually cleared for occurring populations, such as trees
pyres by Hindus in India and also burnt
agriculture. From 1859-1867, exports and forests. Naturally renewable
by devotees of Buddhism in SE Asia
were 1,200-3,000 tonnes per annum, supplies can last indefinitely, as long as
and by Muslims in the middle-east.
rising to 3,000-7,000 tonnes between harvests do not exceed the growth
Sandalwood oil is a high price raw
1868 and 1880. More than 9,000 rate, and providing the resource base
material for the perfume industry. It is
tonnes was exported in 1882 and is not destroyed. This is known as
used in a range of medicinal
again in 1907-1908. The maximum sustained yield.
preparations and for toiletry items
recorded annual export (> 14,000
(soap, face cream, powders and
tonnes) was reached in 1920 and The natural sandalwood resource in
cosmetics).
1924. Production declined to between WA is believed currently capable of
1,000-3,000 tonnes from 1930 until sustaining annual yields of 1,980
Current and Historically
World War II. Thereafter, it did not tonnes. This harvest level is used to
Traded Sandalwood exceed 1,000 tonnes per annum until control WA production. Current
Volumes 1973. From 1980 to the present, some supplies from government controlled
The wood of native WA sandalwood 1,500-1,900 tonnes have been land in Western Australia (Figure 1),
(Santalum spicatum) has been traded exported each year. Processing of come from some 190,000 ha of the
from Fremantle (WA) for 150 years. It sandalwood for oil in Western Australia arid zone, mainly pastoral stations or
is of lower oil content than Indian was a feature of the trade between un-allocated land, to the North and
sandalwood (Santalum album) but the 1913 and 1971, but export of wood East of Kalgoorlie.
oils are similar and are readily was the main activity.
substituted. Influence of Decline of
In most countries, natural grown (old Global Supply on
Production of wood for export from growth) sandalwood is not managed Consumption and Price
WA began after an initial trial shipment under a system of sustained yield.
Sandalwood is very valuable vis-a-vis The supply of sandalwood has declined
in 1844. Quantities exported rose from
labour prices in India and Indonesia. historically. Stands closest to ports
370 tonnes in 1847 to 1,335 tonnes in
Consequently, theft and smuggling were exploited and used up first. For
1848. Once the market was
take place. Both countries use local material further inland, transport and
established, harvesting sandalwood
material for a range of products but other costs were greater. Contracts for
provided a good source of income to
also export processed sandalwood oil. sandalwood collection would only
Year Production (tonne) Exports Sales

Crown Land Private Land Total (tonne) (A$m)
1992-93 1,823 217 2,040 1,899 6.24
1993-94 1,786 207 1,996 2,032 7.16
1994-95 1,895 198 2,093 1,568 na
1995-96 1,900 217 2,117 1,827 13.20
1996-97 1,771 208 1,979 1,073 7.53
1997-98 1,653 + 1,653 1,334 8.35
1998-99 1,730 + 1,730 1,166 6.63
1999-00 1,390 + 1,390 1,814 11.64
TABLE 1. Sandalwood production, exports and sales 1992-1993. (+ Private land production not available, this is
included for 1992-1997, at ~ 210 tonne per annum)

10000
NATIONAL $ per tonne
8000
6000
4000
2000
0
1985 1990 1995 2000
YEARS
FIGURE 2. Notional dollar values per tonne with trend line shown.
have been met when prices available were Significance of Emerging Markets and Reopening
sufficient to induce sandalwood harvesters to
of Old Sandalwood Markets on Consumption
be involved.
and Price.
Sandalwood has been, weight for weight, the There is no shortage of markets for Western Australian sandalwood. All
most valuable wood resource in Western parts of the heartwood component can be traded (Table 2).
Australia. In 1845 the initial export price was
10 per ton (1 ton = 1.016 tonne). Relative
price stability ensued until 1918, with the Category Price (A$ t-1) Index
export price fluctuating between 7-10 ton.
In 1918 the price reached 12 ton. Prices Cleaned logs 9363 100
increased steadily thereafter, to average 30
per ton in 1926; from 1948-1965 prices were Butts 7573 81
between 176-305 per ton.
Pieces (dead) 6926 74
A period of relative inactivity, through the
Uncleaned logs 5318 57
WWII period and after, was followed by one
of steadily increasing prices from 1968 to Powder 5000 53
date. This coincided with higher costs to
transport material over greater distances. Chips 4788 51
Average prices exceeded A$700 per tonne in
1968; A$1500 in 1983; and A$5,000 in 1988. Shavings 2952 32
It is widely considered that prices rose in No.2 chips 2500 27

response to the world supply weakness. By
the 1990's, the sandalwood export market TABLE 2. Sandalwood product prices relative to cleaned logs
from Western Australia had become (1990 FOB Fremantle).
remarkably stable in relation to supply (Table
1). This constant, regulated, supply has been
accompanied by increasing sales values.
Sales revenue combined with export weight is

a crude measure of price. The available gross
reported values are illustrated (Figure 2) to
demonstrate that the price trend for Western
Australian sandalwood remains on an upward
tendency. Whereas the WA supply is fixed,
other sources are not always available to the
world market.

The pattern of product share for WA sandalwood additional to that Global Supply of Naturally
wood exports in 1992-93 (of 1900 currently harvested from the wild will Occurring Sandalwood
tonnes), was as follows: Logs 40% find that ready markets exist for this
(uncleaned 36%, quality logs 4%); commodity as soon as the supply is Western Australian sandalwood
other wood 12% (butts 8%; pieces available. dominates the international trade in
4%); chips 38.3%; powder 8.9%. wood. The WA state government
Market destinations in 1992-93 were: Emergence of New End regulates the world supply of wood at
Taiwan 57%; Hong Kong 21%; Uses- Pharmaceutical and the determined quantity of no more
Singapore 10%; Malaysia 10%; and Medicinal Uses than 2,000 tonnes per year. The total
Thailand 2%. world supply of natural sandalwood
It must be said that there are many
encompasses limited and sporadically
All markets will take produce from blue sky possibilities for sandalwood
available quantities of material sourced
different sources. For example, Fiji products. In the class of 'minor forest
from some 16 species of sandalwood
exported a total of 1,115 tonnes from products' such 'value-added' items are
(genus Santalum). Apart from Western
1984-1993 to Taiwan, Singapore, unlikely to be marketed successfully
Australia, these occur in India,
Japan, Korea and Saudi Arabia. Oil from a state with a low population
Indonesia, Queensland, Fiji, Vanuatu,
factories in India and Indonesia may base. It as more likely that the
Hawaii and other Pacific Island
source Australian plantation wood importing countries will develop
territories. None provide regularly
from time to time. products based on mass markets for
available supplies. In 1998, an estimate
highly altered raw materials.
of current world supply was ~ 5,100
All purchasers of raw materials will tonnes.
place a premium on a dependable Sandalwood oil has a traditional role as
supply and consistent quality. It may an antiseptic. It has medicinal uses. In
These supplies are brought forward
be especially prudent in plantation the Pacific Island cultures, each group
irregularly, on an opportunistic basis.
establishment to plant blocks by has particular medicinal folklore
Wood production from West Timor is
provenance so that marketing can associated with the local sandalwood
reported to have averaged 550 tonnes
include a premium for material of species. Sandalwood oil from Santalum
from 1970 to 1990. This material has
similar characteristics. spicatum was first traded from WA
been wholly used for internal oil
directly into world markets in 1913.
manufacture. Oil manufacturers in
The Australian Sandalwood Company The oil was found to have an unusual
India require at least 2,000 tonnes per
had a monopoly on export of positive refraction. The British army
annum for efficient operation. Some
sandalwood, until the last change in used the oil as a treatment for venereal
Indian wood has been exported to
state government. This monopoly was disease. Little has been heard of this in
Japan and other countries in recent
abolished and a new company, recent years.
years. Export prices have been
Wescorp Sandalwood won a fixed-term reported up to about US$18,000. This
contract to export the sandalwood Perfumery is well known as the highest
reflects a considerable premium above
quota derived from natural supplies, value end-use for sandalwood oil. Oil
the Indian domestic market price and a
mainly in the Goldfields region. Clearly has antiseptic properties and is also
willingness by the authorities to trade
some time, effort and trust must be used in soaps, toiletries (skin creams)
in wood when export opportunities
put into nurturing and maintaining and a wide range of consumer
arise.
markets, but without a readily products. Small bottles of oil are
available, existing and marketable available in producer countries and
Santalum album is accepted as being
supply of additional product, opening these invariably represent the highest
the most valuable sandalwood species.
new markets is likely to be value unit sales, but take little of the
It has the highest oil content in its
unsuccessful. gross product. Both powder and oil are
heartwood. It grows relatively fast to a
also used in traditional ceremonies for
tree of up to 20 m in height. It is
Taiwan dominates demand for wood cultural purposes in most countries
native to India and Indonesia.
and is the most important market. where the various species occur
Governments attempt to strictly
Undoubtedly some of the Taiwan naturally.
control production of wood. Current
purchases find their way to other end plans to grow this with irrigation in the
markets. However, it must be As more people in China, India and
tropical north-west of Western Australia
remembered that the broader entity of Indonesia become relatively affluent,
may create a new and valuable supply.
China was the major market in the demand for incense usage will increase
early trade and considerable quantities inexorably. Use of sandalwood oil (and
Inadequate supplies of available
were exported from Fremantle to derivatives) is already comparatively
material form the major limitation to
Singapore and Shanghai for China. high in India and Indonesia. Should
the world market in wood. Policies in
Recent political developments suggest extensive, successful, plantations be
oil-producing countries (India and
that a vast new market will open in established in Western Australia then S.
Indonesia) favour oil production at the
China in the near future as the people spicatum wood could be exported for
expense of wood export. Log export
are increasingly able to worship distillation at Kupang in West Timor, or
has been banned, mainly to direct
traditional deities. The same argument Dili in East Timor, as well as India
supply to domestic oil production. Oil
applies to N. and S. Korea. where the majority of distillation plants
factories have been unable to operate
The present proposal to grow are located.

at capacity due to the shortage of Importance of Plantation New Caledonia has adopted a policy of
wood. Any new oil refining enterprises encouraging local value-adding and
Sandalwood to Supplement
are likely to be obliged to pay current may not again produce log material
world market prices for government
Supply From Natural Stands for the export market, as it had,
supplies of wood. Such activities must In order for plantation sandalwood to irregularly, in the past. The only
either develop lucrative new markets be acceptable emphasis must be potential competitors with Western
or operate very efficiently, in order to placed on quality and consistency. Australia in the world market for wood
justify the high cost of wood purchase. Large amounts of material of relatively and unprocessed material are the
A new enterprise, Mt Romance, uniform characteristics should always Pacific Island nations. None of these
operating at Albany, WA, has opened command higher market values than currently have either sufficient stock or
to produce oil. The state government mixed, variable, natural materials. A plantation programs to allow anything
has guaranteed a supply of up to premium is generally available for other than an irregular log export
1,000 tonnes of WA sandalwood per established producers who can industry.
annum over 10 years to support this maintain a constant quality. New
venture. It is understood this Company ventures offer the prospects of It is possible for the WA government to
will pay current world price (export attention to quality and consistency increase the native harvest yield above
value) for this wood. This quantity is from the start-up phase, as each 2,000 tonnes per year. However, as
said to be part of the currently procedure is checked in turn against harvesting moves into ever more
available yield of ~ 2,000 tonnes per effect on growth. remote areas, the costs of production
year. Should the Mt Romance venture rise and labour involved faces
be successful, then the supply of WA Naturally occurring sandalwood is increasing disincentives to work the
sandalwood to the export market will inevitably declining in Western product. Social benefits and alternative
be halved. Australia. This is due to continuing loss employment options may terminate
of habitat and destruction of seedling the trade sooner than a loss of supply.
Pacific Island countries have limited regeneration through selective grazing. Increased environmental awareness
(and probably declining) areas of There is an almost total lack of could rapidly erode the current
production and irregularly bring stocks seedlings or young plants in natural industry, based as it is on a non-
to the market. East Timor has an stands. Most state government sustainable, wasting asset taken from
unknown quantity of material available holdings are being increasingly fragile and sensitive lands.
that could be brought to market at devoted to conservation reserves.
any time. This could cause some These reserves, mainly in the arid zone, A significant increase in supply of
temporary disruption to prices. are unlikely to be opened for plantation wood of consistent quantity
However reliable reports of the status harvesting. In addition, current and quality is likely to be readily
of sandalwood in that territory are not government policy does not ensure absorbed by a market that is starved of
available. No country or state (except regeneration of sandalwood. Of the reliable sources of supply. Under all
Western Australia), currently has a present residual distribution, not all scenarios, privately produced material
large quantity of material potentially can be considered as economically in plantations would be more
available, although inventories have available for harvesting due to low attractive to buyers in the world
periodically resulted in several tonnages and remoteness. market for wood.
countries putting wood supplies into
the world market. The supply of stock Until recently, both Australian and
to Indian distilleries has been disrupted Indonesian (Timor) sandalwood had Signed
in recent years as the authorities have been considered the property of the
realised that the resource has been Crown. This notion mitigated against
over-cut. private cultivation and ownership. In
the past few years the legal status has
changed in both countries, but little in
the way of plantation development has John E D Fox
occurred in Timor. However, the Professor of Vegetation Science
techniques are proven and as soon as Director, Mulga Research Centre
entrepreneurial management can be
brought to bear, plantation
development is possible.

25 November 2000
The Directors
Forest Rewards Ltd
West Perth 6005
Western Australia
Sandalwood Market
Report (International)
This sandalwood market report has Advance Science Technology Transfers International Sandalwood
been prepared by Mr. H.S. Anantha (FAST). He has co-authored books on
Padmanabha for the inclusion in a sandalwood and has published over
Markets
prospectus to be issued by Forest 125 research papers in international Oil
Rewards Ltd. This prospectus offers journals. In 1992 he received the Ron
investors the opportunity to subscribe Cockcraft award for IRG (Sweden). The predominant markets for Indian
to the Forest Rewards Sandalwood sandalwood oil are France, the USA,
Project 2001 (Project). The Project is the UK and the Middle East. It is
Introduction
offering an opportunity to share in the estimated that 30,000 kg of oil is
development of approximately 1000 Sandalwood and its fragrant oil are exported to the US, Europe, USA, Asia
hectares near Toodyay in the Shire of one of the most valuable perfumery and Middle East each year. Both
Goomalling as a commercial materials in the world. Its utilisation domestic and international demand is
sandalwood plantation. dates back to the early civilisation. increasing, especially in new markets,
Sandalwood is a moderately heavy such as in aromatherapy,
Mr. H.S. Anantha Padmanabha has timber, which seasons slowly and is pharmaceutical applications and
over 35 years of research experience as strongly scented. It is yellow or brown cosmetics.
senior scientist at Institute of Wood in appearance and even textured. The
Science and Technology (Indian wood is used within the premium UK Japan
Council of Forestry & Education, Asian carving market. Oil extracted USA Malaysia
Government of India). He has from sandalwood is highly prized as a
key ingredient in the cosmetics and France Singapore
researched various aspects of
sandalwood for over three decades, perfumes. Sandalwood oil has Tiawan Dubai
with particular emphasis on improving important fixative properties, which is Hong Kong South Africa
techniques of growing sandalwood. He critical in the blending process for
was designated as chief Technical perfume manufacture. These fixative 3% 3%
3%
Advisor for a World Bank sandalwood properties are due to the chemical 3%
project in India. He was also a composition of two key compounds, 3%
consultant to plantation companies alpha and beta santalol. 3%
growing Teak and Acacia plantations in
India. This report provides an independent 5% 37%
evaluation of the Indian and
3%
Mr. H.S. Anantha Padmanabha has international markets for sandalwood
forestry experience in the United and its oil.
States, Australia, Nepal and UK. At
present he is a Director of the Export markets for Indian 37%
Karnataka Research Foundation for sandalwood oil

Currently, India is the largest exporter completely free from knots and is About 70% of the total consumption
of sandalwood oil, supplying around easily worked. Sandalwood is used to of sandalwood in India is in the attar
75% of the world demand. The only make cabinets panels, jewel cases, industry. The production of attar has
other notable exporter of sandalwood walking sticks, picture frames, fans, occurred in India for centuries. Attar is
oil is Indonesia. Oil from Indonesian table lamps, and carvings. a blend of sandalwood oil and flower
distilleries is less sought after by oil, such as rose petal oil. The
perfume manufacturers compared to Sandalwood carving has important preparation of attar involves distilling
that of Indian oil due to the cultural significance in India, which has the oil from flowers and blending this
inconsistent supply. The main reason been practiced for centuries. The with sandalwood oil. The quality of
for the inconsistent supply of oil from traditional community of professional attar depends on the concentration of
Indonesia is largely due to the decline sandalwood carvers are called flower oil within the sandalwood oil.
in sandalwood production from natural "gudigars" The craftsmanship is passed Numerous types of attar products are
forests. It is believed that there may be on from generation to generation made in India, which consist of
only limited oil production in Indonesia within the community. different types of flowers and the
in forthcoming years because of a proportions of flower oil and
moratorium imposed on harvesting The carving industry is prominent in sandalwood oil within the attar. Attar
sandalwood. The flow on effect of this the Indian states of Karnataka, Tamil forms the principal constituent for the
moratorium is that sandalwood Nadu, Rajas than, Kerala, Andhra manufacture of incense sticks and
industries in Indonesia will have limited Pradesh, Gujarat and Utter Pradesh. scented tobacco.
access to sandalwood and as a result The styles in carving vary significantly
these industries may need to import from state to state. As the attar industry consumes large
sandalwood from Australia or India to quantities of sandalwood oil, and due
prevent their collapse. To promote the sandalwood carving to the supply shortages and high
industry in Karnataka and Tamil Nadu sandalwood oil prices, the industry is
A significant influence on the government supplies sandalwood at a very keen to explore the possibility of
international demand for sandalwood subsidised rate as the unpredictable using Western Australian sandalwood
oil is the increasing trend for natural and erratic supply of sandalwood has oil in different attar formulations.
flavours and fragrances. Health compelled the sandalwood carvers to
regulations, in particular in the EU, are source alternate raw material. The manufacture of scented tobacco
becoming more stringent on the use of (zarada) also consumes large quantities
synthetics in fragrances and flavours The demand for the handicraft of sandalwood oil. Up to 20% of the
and as a result there is greater material is increasing both in India as population in Southern Asia and the
importance placed on the use of well as in the international market, but Middle East chew scented tobacco.
natural products. Consumers have also the cost of sandalwood carvings is The popularity of chewing tobacco is
become more discerning, demanding extremely expensive. rapidly growing and has placed
more intensive flavours and fragrances. significant demand pressures on oil
Oil distilleries for sandalwood oil.
Domestic Sandalwood It is estimated that domestic industries Chewing tobacco manufactured using
Markets in India consume about 30,000 kg of sandalwood oil is an expensive habit.
sandalwood oil each year. Main As sandalwood oil is a natural product
Sandalwood domestic industry consumers of it is widely considered as a safe
Incense sticks sandalwood oil include the perfume ingredient for chewing tobacco.
In India a major consumer of industry, attar products, soaps and
sandalwood is the incense (joss stick) detergents, incense sticks, The price of Indian sandalwood oil is
industry. Burning incense is an pharmaceutical applications and the about A$500 / kg. The price for
important cultural and religious manufacture of scented tobacco. internationally traded sandalwood oil is
pastime in India and large quantities of more expensive than that traded
sandalwood incense sticks are Domestic use of domestically, with price ranges of
consumed each year. The process of A$580 to A$625 / kg.
making incense sticks consists of sandalwood oil in India
grinding sandalwood to a powder and Present Status
coating the powder onto thin pieces of Attar Incense
wood, usually bamboo. Using pure Natural sandalwood forests in India
sandalwood powder is prohibitively Perfume Pharmaceutical have declined dramatically over the
expensive for the Indian incense Soap & Other past few decades due to unsustainable
Detergents
industry and as a result sandalwood harvesting. Similarly, the production of
powder is almost solely derived from sandalwood has declined over the past
5%
sandalwood oil distilleries, which is in 1% 6% several years as a result of the
the form of spent sandalwood. depletion of these natural forests. As a
result of the short and inconsistent
8%
Low quality incense sticks are now supply, the prices for oil and the wood
being manufactured from substitutes fluctuate in the international market.
as a result of the supply shortage of 10%
sandalwood. 70%
It is difficult to estimate the remaining
sandalwood resource in native forests.
Carvings and furniture However, it is widely accepted that the
Sandalwood is also one of the finest resource is declining rapidly and the
woods for carving as it has a uniform, cultivation of plantations undertaken
straight close wood grain. It is almost by both the government and the

Annual Government sandalwood harvest in India
3000
2500
2000
TONNES
1500
1000
500
0
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
-88 -89 -90 -91 -92 -93 -94 -95 -96 -97 -98 -99 -2000
YEAR
private sectors in India are not not reconcile with the quantities Billets with knots, cracks & small
adequate to meet future demand. consumed. Consequently, the supply Sandalwood is publicly auctioned twice
shortfall is met by illegally harvested a year in Tamil Nadu. Bidders need to
and smuggled sandalwood from register with the State Forest
Current supply trend natural forests. The combined official Department and they also need to
and unofficial harvest volume in India possess a permit to store and on sell
The Indian sandalwood industry has
is estimated to be about 3000 tonnes sandalwood.
three distinct markets: (i) sandalwood
per annum.
and sandalwood powder, for products
As expected prices fluctuate with
such as incense manufacture, (ii)
The declining natural sandalwood quality and the expectation of future
sandalwood oil for cosmetics and
forests together with the effects of supply. High quality sandalwood, for
fragrance manufacture and (iii)
illegal harvesting have created a markets such as carving and fine
sandalwood solid wood for fine
chronic sandalwood supply shortage in furniture is becoming increasingly
furniture and carving manufacture.
India. This is further exacerbated by difficult to source.
the lack of regrowth in the natural
To supply the diverse range of
forests. Price structure of Western
domestic and international sandalwood
markets a minimum of 1500 tonnes of Australian sandalwood
Indian sandalwood is required Price Trend
annually. About 60 tonnes of At present Western Australian
The price of sandalwood has been sandalwood oil is distilled in small
sandalwood oil (the equivalent to 1300 increasing on the international market
tonnes of sandalwood) is required quantities in Australia. Discussions
over recent years. At present, the within the Indian sandalwood industry
annually to supply the global cosmetic government auction price for
and aromatherapy industries. In suggest that the price of Western
sandalwood is about A$28,600/ tonne. Australian sandalwood should be set at
addition, the Indian carving industry
consumes about 200 tonnes of about one-third the price of Indian
Sandalwood is harvested and sandalwood. Indian sandalwood oil
sandalwood annually. transported to State Forest Department contains about 90-93% of santalol,
depots. Sandalwood is sorted and whereas Western Australian
The official government annual classified into six classes, depending on
production of sandalwood in India is sandalwood oil contains about 30%
the size and soundness of billets santalol. Therefore, using this model,
less than 1000 tonnes, predominately (sandalwood logs). These are classified
from the states of Karnataka and Tamil the price of Western Australian
in Table 1. sandalwood in India may range
Nadu. The official volume clearly does

Auction price for sandalwood in India
35000
30000
25000
$A/TONNES
20000
15000
10000
5000
0
91 92 93 94 95 96 97 98 99 2000
YEAR
Class Category Description Auction price Auction price

on April 2000 on Sept 2000
(A$ / tonne) (A$ / tonne)
1 First class Completely sound billets, weighing
not less than 9kgs and not exceeding This class is not sold at auction
112 pieces to the tonne.
2 Second class Slightly inferior billets, weighing not
less than 4.5kg and not exceeding This class is not sold at auction
224 pieces to the tonne.
3 Third class Billets having knots, cracks and
hollows weighing not less than 448 This class is not sold at auction
pieces to the tonne.
4 Ghat badla Billets with knots, cracks and small
holes at either end weighing not less This class is not sold at auction
than 4.5kgs and not exceeding 240
pieces to the tonne.
5 Roots Root material A$28,000 A$32,608
6 Jagpokal Hollow pieces weighing not less than A$27,478 A$30,434
1.3kgs.
7 Ain chilta Solid, cracked and hollow pieces A$26,522 A$30,000
weighing not less than 0.45kg.
8 Ain billets Chips and small pieces of heartwood. A$21,739
TABLE 1. Categories and price of sandalwood at government auctions in Tamil Nadu, India.
between US$3500 to $4000 / tonne [or A$6363 to $7272 / Signed

tonne (US$ = A$0.55)].
Conclusion
There is an obvious need for plantation grown sandalwood
to enter the market. In India and elsewhere, the natural
Mr H. S. Anantha Padmanabha
forests alone will not be able to meet the current and future
demand for sandalwood. Sandalwood grown in plantations
in Australia and elsewhere will generate a consistent supply
of sandalwood to market, therefore reducing the wide
fluctuations in supply and help to stabilise price.

Project Risks and Safeguards
As with any investment in forestry, there are inherent risks. The aim of the Management Plan is to achieve high
Some of these risks can be mitigated by the use of standards and outcomes in this respect.
safeguards and appropriate systems and actions, but many
are outside the control of the Manager. There are a number
of risk factors which investors should consider before they
Financial Risks
make a decision to apply for woodlots. The principal factors The financial success of the project depends primarily on the
include, but are not limited to, the following. growth rate of the sandalwood trees and the sale price of
sandalwood timber at the time of the harvests. Ultimate
Primary Production Risks outcomes are dependent upon future silvicultural and
market factors that cannot be accurately predicted.
Limited History of Santalum spicatum Accordingly outcomes may vary substantially from the
forecasts contained in this prospectus. Included in the
Plantations financial analysis is a sensitivity table that shows anticipated
There is a limited history of plantation grown Santalum effects of movements in key variables such as sandalwood
spicatum. The first large scale commercial plantation was price, sandalwood yield and harvest costs.
undertaken by the Manager last financial year and it is still in
early stages of development. The project must be considered Market risk
in light of the risks and difficulties frequently encountered by
pioneering projects. Although the project is based on There may be changes in supply or demand for sandalwood
published research following trial plantings, some aspects of during the term of the project that affect the prices paid for
the project may not have been exposed to all variables in Santalum spicatum. Demand can be affected by many factors
the environment. including Asian economic conditions, availability of
substitutes, China's import policy, and the success of Mt
Romance. Some of the factors that affect supply include
Establishment risks CALM's native harvest quota policy, competitive plantation
The plantation will be established by direct sowing projects, private plantings, and developments in the supply
sandalwood seed near the base of established host trees. To of other sandalwood species. There is no guaranteed
achieve the projected sandalwood stocking rate, a seed minimum price received for sandalwood.
germination and survival rate of at least 35% is required.
Additionally, a reasonable host tree survival rate is necessary Plantation sandalwood
to support the sandalwood. Research shows that sandalwood
germination and survival rates should be significantly higher
price discount
than 35%. Generally speaking, sandalwood quality improves with age
as the heartwood content increases. To allow for this,
To mitigate establishment risks, the Manager will infill plant forecast prices for the plantation sandalwood to be
any areas necessary to achieve the desired stocking rate of produced by this project incorporate a discount to the
sandalwood and host trees. Establishment risks also apply to current market prices being paid for native sandalwood. As
such infill planting. there are no current commercial scale sales of plantation
grown Santalum spicatum, the size of this discount is an
Fire estimate.
There is a fire risk in the Wheatbelt over the warmer months.

Wildfire frequency is moderate and fire protection is an
Yield estimates
important element of plantation management. The Manager The sandalwood yields in the financial forecasts are estimates
will adopt a fire management plan for the plantation, having regard to published research on trial plantings and
including well maintained firebreaks. The Manager the site selection criteria. These trial plantings are located in
recommends that Growers insure their woodlots against fire. various parts of the Wheatbelt and are still at early stages of
development. There are no substantial plantations or trial
Physical risks plantings of Santalum spicatum more than 10 years of age
from which yield data can be drawn. The yield estimates are
There are inherent physical agricultural risks such as drought, therefore based on limited data.
frost, hail, windstorms and other acts of God, disease,
insects, grazing animals, and other pests that can affect the
plantation. Santalum spicatum and acacia are hardy, native
Harvest schedule changes
species that grow naturally in the Wheatbelt and more arid The financial forecasts are based upon an indicative harvest
surrounding regions. The Manager will monitor the schedule. The final harvest schedule as determined by the
plantation and where possible take remedial action to Manager will affect the timing, yield, and sale price
minimise these risks. ultimately achieved.
General No buy back right

Good forestry management practices are necessary to ensure Growers have no right to require Forest Rewards to purchase
that weed control, land preparation, seedlings, seeds, their interest and there is no secondary market in the
planting technique, fertiliser application, pest control, fire woodlots.
control and general management are of a high standard.

Taxation General
The Australian Taxation Office has issued a Product Ruling in The value of the project can be affected by various general
relation to this project. financial factors such as economic conditions, inflation,
exchange rates, regulatory changes, and taxation changes.
The Product Ruling is a ruling on the application of taxation
law only and is in no way expressly or impliedly a guarantee Force Majeure
or endorsement of the commercial viability of the Project,
the soundness of the Project as an investment, or the The Manager can be excused from performing its
reasonableness or commerciality of any of the fees charged. obligations if it is prevented from doing so due to
circumstances beyond its reasonable control (other than
The Ruling is only binding if the project is carried out in financial circumstances or circumstances arising from a
accordance with details provided to the Australian Taxation breach of its obligations). The Manager must try to remedy
Office by Forest Rewards Ltd and described in the Ruling. and avoid any such circumstances.
Before deciding whether to participate, you should obtain

your own independent financial advice on the taxation
implications of participating in the project.

Summary of Material
Agreements
The following are summaries of the principal terms of h) give such access to occupiers of adjoining woodlots
material agreements which relate to the Forest Rewards as is necessary;
Sandalwood Project 2001. The project has been registered i) take all reasonable steps to avoid interfering with the
by the Australian Securities and Investments Commission as operations of any owner or occupier of neighbouring
a managed investment scheme. land.
The material agreements are the: Lessor's Covenants

The Lessor will give the Grower quiet possession of the
1. Lease woodlots and pay all rates, taxes and other charges in
2. Management Agreement respect of the land.
3. Constitution
4. Rules Interest
5. Standing Offers Any overdue monies shall bear interest at the National
Australia Bank Limited Base Rate plus 3%.
Copies of these agreements are available for inspection at
the registered office of Forest Rewards Ltd during normal Default
business hours. This Prospectus does not set out all of the The Lessor may terminate the Lease if the Grower is declared
provisions of these documents. Any intending applicant who bankrupt, goes into liquidation, a receiver is appointed to
wishes to gain a full knowledge of the contents of any the undertaking of the Grower, or the Grower fails to
agreement should inspect the documents. Prospective perform its obligations under the Management Agreement
applicants should seek independent professional advice on or the Constitution or the Lease and such default continues
these agreements if necessary. for a period of 21 days after receipt by the Grower of written
notice. Upon such termination the sandalwood trees and
host trees shall vest in the Lessor with no compensation for
1. LEASE
the monies contributed by the Grower. The Lessor retains
Parties the right to sue the Grower for payment of any outstanding
Forest Lands Pty Ltd (the Lessor), Forest Rewards Ltd (the monies.
Responsible Entity), and each Grower.
Prohibited Activities
Grant of Lease The Grower shall not:
The Lessor leases to the Grower the woodlots allotted under a) use the woodlots for anything other than cultivating
the prospectus commencing on the date of such allotment sandalwood trees;
until completion of the final harvest. b) permit any nuisance or disturbance upon the woodlots;
c) erect any buildings, structures or dwellings on the
The Grower is entitled to the sandalwood trees and the host woodlots;
trees planted on the woodlots and all timber therefrom (but d) use the woodlots for any illegal purpose;
not seed and propagation material). e) store or use any inflammable, chemical, noxious or
dangerous substances on the woodlots in a manner
The Lessor has or will contract to buy freehold land for the likely to cause damage;
plantation. If the Lessor does not own the land the Lease f) light any fires in the woodlots except in
constitutes a sublease (with the consent of the registered accordance with the Bush Fires Act 1954;
proprietor of the land) from the date of commencement g) lodge any absolute caveat against the land.
until the date the Lessor settles acquisition of the land.
The Grower appoints the Lessor and its officers as its
Rent attorney to execute and register a withdrawal of any
The Grower shall pay rent of an amount equal to 4% of the absolute caveat and at any time beyond two weeks after
Grower's share of the net sales proceeds of each harvest, expiry of the Lease a withdrawal of any subject to claim
plus GST, payable out of such net sales proceeds. caveat.
Grower Covenants Upon termination

The Grower shall: Upon termination the Grower must remove any plant,
a) plant on each woodlot host trees and sandalwood trees; equipment, debris or rubbish and deliver up the woodlots in
b) tend to the trees according to good forestry principles; good repair, order and condition.
c) prevent or combat land degradation in relation to
woodlots; 2. MANAGEMENT AGREEMENT
d) comply with the Bush Fires Act 1954; Parties
e) not render any applicable insurance policy void or
Forest Rewards Management Pty Ltd (Manager), Forest
voidable;
Rewards Ltd (as Responsible Entity and Bare Trustee) and
f) comply with all laws, regulations and other legal
each Grower.
obligations in respect of the use of woodlots;
g) permit the Lessor to enter the woodlots as necessary;

Appointment of Manager Fees and Costs
The Grower engages the Manager as an independent The following management fees are payable:
contractor to carry out the Initial Services and the a) $6,500 per woodlot plus GST for the Initial Services and
Ongoing Services in accordance with sound forestry the supply of the planting material. An additional $700
and environmental practices. plus GST is payable to the Responsible Entity under the
Constitution for administration;
Initial Services b) $600 per woodlot plus GST payable on or before 1
The Manager's Initial Services comprise: September of the following financial year for the
a) Supply sufficient host tree seedlings to the specifications Ongoing Services provided in that financial year;
recommended in the management plan. c) thereafter, for the Ongoing Services, an amount equal to
b) Supply sufficient sandalwood seed to the specifications 8% of the Grower's share of the sale proceeds of each
recommended in the management plan. harvest after deducting harvest costs, plus GST, payable
c) Ensure all necessary approvals for the establishment of out of such proceeds; and
the plantation are obtained. d) as a performance fee, 15% of the amount by which the
d) Ensure that the woodlots are ready for planting in Grower's share of the net proceeds of all harvests
accordance with the management plan. exceeds the forecast as set out in this prospectus, plus
e) Ensure that all roads, tracks and firebreaks in and about GST, payable out of the final harvest receipts.
the plantation are in good repair.
f) Controlling rabbits, pest and other vermin. Crop Insurance
g) Plant the host trees. The Manager shall use best endeavours to arrange
h) Use an experienced and competent forestry appropriate crop insurance at the Grower's election and cost.
management team to perform the Manager's services.
i) Supervise and secure management of all works on Tree Farming
the plantation. The Manager shall:
j) Administration. a) be allowed full access to the woodlots to carry out its
duties;
The Initial Services shall be completed by 30 June b) not erect any structures on the woodlots;
2001 (in the case of year 2001 woodlots) or 30 June c) not use the woodlots for any illegal purpose or create a
2002 (in the case of year 2002 woodlots). nuisance;
d) not use or store any inflammable, chemical, noxious or
Ongoing Services dangerous substances in a manner likely to cause
The Manager's Ongoing Services comprise: damage;
(a) Combat land degradation in relation to the woodlots. e) have the right to erect a sign on the plantation;
(b) Tend to the sandalwood trees and host trees according f) comply with all applicable laws, regulations and notices;
to the principles of good forestry, including such g) take all reasonable steps to avoid interfering with the
nutrient analysis, pruning, fertilising and fumigating, as operations of any owner or occupier of neighbouring
the Manager deems appropriate to promote tree growth land.
and yields.
(c) Maintain and repair roads and fences on the land and If the Manager sells any carbon credits in connection with
keep the woodlots in good and substantial repair and the trees the proceeds will belong 80% to the Grower and
condition; 20% to the Manager. All seed and other propagation
(d) Control disease, rodents, vermin, noxious weeds, rabbits, material from the sandalwood and host trees will be the
insect pests and all other pests of any kind. property of the Manager.
(e) Comply with the provisions of the Bush Fires Act, 1954.
(f) Attend such local government meetings as are Harvest
considered necessary. Harvest shall take place as and when deemed appropriate by
(g) Secure entryways to the land against trespass as the Manager the aim being to produce the best overall
considered necessary. result for Growers. The timing of harvest may be altered by
(h) Keep a public risk insurance policy in respect of the the Manager as against the indicative harvest schedule in
plantation for not less than $5,000,000. this prospectus.
(i) Sow sandalwood seeds within 12 months of planting of
the host trees. Prior to each harvest, the Manager will provide to the
(j) Within 12 months of the planting of the host trees and Grower a harvest plan setting out expected harvest dates, an
the sowing of the sandalwood seeds respectively, estimate of expected costs, the proposed method of sale of
conduct a survival count and replant or resow (as the the timber, and the estimated number of trees to be
case may be) as necessary. harvested.
(k) Carry out any other obligation imposed on the Grower
under the provisions of clause 4.1 of the Lease subject to Subject to the Grower's right to elect to harvest itself, the
the other provisions thereof. Grower irrevocably appoints the Manager to arrange the
(l) Manage the tree crop in accordance with the harvest and engage contractors to undertake the harvest.
management plan. The Manager will use best endeavours to ensure the work is
(m) Undertake periodic site inspections. undertaken in a competent manner and for a competitive
(n) Determine the harvest schedule and manage each price. The Grower is liable to pay the Grower's share of all
harvest. costs of and incidental to harvest. If practicable, these costs
(o) Manage the sale of harvested timber. shall be paid out of the proceeds of the relevant harvest.
(p) Provide periodic reports to the Grower.

Sale 3. CONSTITUTION
Subject to the Grower's right to elect to sell the timber itself,
the Grower irrevocably appoints the Manager to negotiate Parties
the sale of the harvested timber. The Manager will use best Forest Rewards Ltd (the Responsible Entity) and Forest
endeavours to negotiate the highest price practicable. Rewards Ltd (the Bare Trustee) and each several Grower.
The project is split between year 2001 woodlots (planted Appointments

prior to 30 June 2001) and year 2002 woodlots (planted in The Responsible Entity acts as agent for the Grower and as
the financial year to 30 June 2002). The timber from each bare trustee of the subscription money and project property.
harvest of each of these plantations is pooled and the
Grower takes its share according to the proportion of A Custodian may be appointed to act as trustee of the Funds
woodlots held by the Grower in the relevant plantation. The set up under the Constitution, in accordance with the
proceeds of sale will be paid directly to the Bare Trustee and requirements of the Corporations Law.
dealt with in accordance with the Constitution.
Acceptance of Applications
Harvest and Sale by Grower Upon any application under this Prospectus being accepted
The Grower may elect on or before 30 June 2003 to harvest by the Responsible Entity, the applicant is deemed to have
and sell the timber itself. In this case the Manager will mark contemporaneously become a party to the Constitution, the
out the Grower's woodlots and advise the Grower of when Management Agreement and the Lease (the Agreements).
the trees can be harvested. The Grower must pay all To the extent the application is accepted, the subscription
outstanding project fees and estimated fees payable within 6 monies will be applied towards the fees payable by the
months (including the maintenance fee and the Grower under the Agreements.
performance fee as estimated by the Responsible Entity)
prior to commencing harvest. Release of Subscription Money
All subscription money must be placed in an account called
Other Rights the Subscription Fund in the name of the Custodian.
Growers may inspect documents and other information The money in the Subscription Fund may only be released
relevant to the Manager's activities subject to appropriate when:
confidentiality undertakings. a) the minimum subscription is reached; and
b) the Responsible Entity has notified the Custodian that it
Manager's Reports is satisfied that:
The Manager shall provide to Growers: i) the areas of land to be leased to the Applicants are not
subject to any encumbrances or restrictions which
an annual report detailing actual operations performed, detrimentally affect the interests of the Growers and
health and vigour of the trees, and details of any which are not disclosed in the Prospectus;
outcomes likely to affect performance or viability of the ii) the relevant Lease and Management Agreement are in
trees; the proper form and have been entered into by all the
a report prior to any harvest setting out details of the parties;
harvest; and iii) any other matters necessary for the creation of the Lease
a report within 30 days of sale of timber setting out and the effective vesting in the Grower of the Lease and
details of the sale. Management Agreement have been attended to; and
iv) there are no outstanding material breaches of the
Constitution which are detrimental to the interests of the
Interest on overdue monies Applicants.
The Grower must pay the Manager interest on any overdue
monies at the rate being 3% per annum above the National If the subscription money paid by an Applicant is not
Australia Bank Limited Base Rate. released within the financial year in which the application is
accepted, the Responsible Entity will refund that subscription
Termination money to the Applicant.
The Manager may terminate the Management Agreement if
the Grower is declared bankrupt, goes into liquidation, a
Trust Accounts
receiver is appointed to the undertaking of the Grower, or
The Bare Trustee will create the following separate funds (in
the Grower fails to perform its obligations under the
the name of the Custodian where required by the
Management Agreement or the Constitution or the Lease
Corporations Law):
and such default continues for a period of 21 days after
a) the Subscription Fund for the purpose of depositing
receipt of written notice. The Manager retains the right to
subscription money;
sue the Grower for payment of any outstanding monies.
b) the Project Fund for the purpose of depositing project
fees; and
The Grower may terminate the Management Agreement if
c) one or more Proceeds Funds for the purpose of
the Manager fails to perform its obligations under the
depositing receipts including the proceeds of sale of the
Management Agreement and such default continues for a
timber. Separate Proceeds Funds must be established in
period of 21 days after receipt of written notice.
relation to separate plantations.
Force Majeure These funds will be pooled in a trust bank account

Either party shall be excused from the performance of its established by the Custodian and held by the Custodian as
obligations to the extent such performance is prevented by agent for the Bare Trustee.
circumstances beyond the reasonable control of that party,
other than financial circumstances.

The Subscription Fund will be deemed to have become the (l) to monitor the performance of the Manager's
Project Fund upon woodlots being allotted to the Grower, to obligations in accordance with the Management
the extent that the moneys of the Applicant are applied Agreement;
thereto. (m) to appoint the Auditors or other auditors to audit
and/or monitor the accounting records and other
The Responsible Entity or the Manager shall be entitled to records of the Manager;
any interest earned on subscription money, retention money, (n) to exercise all rights and powers of the Grower and/or
project fees or receipts. to direct the Bare trustee to exercise any right or
power under the Management Agreement;
Maintenance Fund (o) [harvest agreement] to enter into any harvest
The Manager is to pay an amount of $1,000 per woodlot agreement on behalf of the Grower;
into a separate account in the name of the Responsible (p) to enter into any contracts with any person which
Entity to secure performance by the Manager of the have the effect of varying or replacing the harvest
Ongoing Services. agreement in order to better achieve the purposes of
the project;
Provided the Independent Forester is satisfied the Manager is (q) to monitor the performance of the obligations of the
performing the Ongoing Services, these funds will be party commissioned to harvest the trees in accordance
released to the Manager. The Manager is entitled to any with the harvest agreement;
income on the funds. (r) to exercise all rights and powers of the Grower and or
to direct the Bare Trustee to exercise any right or
If the Manager fails to perform any Ongoing Services the power under any harvest agreement;
Responsible Entity may use these funds to pay another (s) [sale agreement] to enter into any sale agreement on
contractor to do the work. behalf of the Grower;
(t) to appoint the Manager to negotiate the sale of the
Consideration Payable by Grower timber from the Grower's woodlots;
(u) to enter into any contracts with any person which
Each Grower pays the following consideration for acquiring
have the effect of varying or replacing the sale
an interest in the project (the project fees):
agreement in order to better achieve the purposes of
a) the subscription money;
the project;
b) all expenses, fees, interest, taxes or monies payable
(v) to exercise all rights and powers of the Grower and or
under the Management Agreement;
c) all rent or other expenses or monies payable under the
power under any sale agreement;
Lease; and
(w) [sale on termination] upon the termination of the
d) all fees, expenses or monies payable under the
project, or earlier after the passing of a resolution at a
Constitution.
meeting of Growers in terms which support the
proposed sale or assignment, to direct the Bare
Appointment of Responsible Entity as Agent
Trustee to sell or assign all right, title and interest of
Each Grower irrevocably appoints the Responsible Entity as a
the Grower in relation to the project, whether for
sole and exclusive agent for the Grower in relation to the
money, shares or some other consideration;
project. The Responsible Entity shall have irrevocable power
(x) to direct the Bare Trustee to pay for the costs and
as agent and attorney of the Grower:
expenses of any such sale;
(a) [Subscription Fund] to direct the Bare Trustee to
(y) to direct the Bare Trustee to receive sale proceeds;
receive and hold subscription money from the Grower
(z) [Receipts] to receive or direct the Bare Trustee to
in the Subscription Fund;
receive the sales proceeds;
(b) to direct the Bare Trustee to invest those moneys in
(aa) to direct the Bare Trustee to hold the receipts in the
any Authorised Investment pooled with Authorised
Proceeds Fund;
Investments made on behalf of other Growers;
(bb) to direct the Bare trustee to invest the receipts and
(c) to discharge the Grower's obligations pursuant to the
interest on the receipts and other accretions in any
Agreements and this Constitution;
Authorised Investment and to pool any Authorised
(d) [Project Fees] to direct the Bare Trustee to receive and
Investment;
hold the project fees in the Project Fund;
(cc) to direct the Bare Trustee to deal with the receipts and
(e) to direct the Bare Trustee to invest the project fees of
other money in any Proceeds Fund as provided in the
the Grower in any Authorised Investment pooled with
Constitution;
Authorised Investments made on behalf of other
(dd) [audit] to direct the Bare Trustee to pay for the costs
Growers;
and expenses of any audit from money in the Trust
(f) to direct the Bare Trustee to use the project fees of the
Accounts, each Grower to pay the Grower's share
Grower in discharging the Grower's obligations
thereof;
pursuant to the Agreements and this Constitution;
(ee) [indemnities] to indemnify the Responsible Entity and
(g) [Lease] to confirm the Grower as a party to the Lease;
the Bare Trustee as provided in the Constitution;
(h) to monitor the performance of the Lessor's obligations
(ff) [legal and arbitration proceedings] to commence legal
in accordance with the Lease;
or arbitration proceedings as authorised in the
(i) to exercise all rights and powers of the Grower and/or
Constitution;
(gg) [settle and compromise] to receive, collect, pay, settle
power under the Lease;
and compromise any payments, debts, obligations,
(j) to buy, sell or otherwise deal in any sequestration
judgments or settlements in relation to the project
rights, carbon credits or other environmental credits
and/or to direct the Bare Trustee to do the same;
arising from, or in connection with the woodlots or
(hh) [caveat] to lodge and withdraw a subject to claim
the trees and to which the Grower is entitled;
caveat against the certificate of title to the land the
(k) [Management Agreement] to confirm the Grower as a
subject of the woodlots;
party to the Management Agreement;

(ii) [other] to execute the Compliance Plan, any deed, f) the complaints handling procedures are summarised
agreement, certificate or other document and to do all separately in the Compliance Plan, and a copy of them
other things necessary or desirable in furtherance of will be made available on request by any Grower free of
the powers granted to the Responsible Entity and/or charge.
to direct the Bare Trustee to do the same; and
(jj) [borrow] to borrow or raise money for the purposes Other Obligations of the Responsible Entity
of the project. The Responsible Entity is also required to comply with
obligations imposed by the Corporations Law. These include
Payment of Project Fees the duty to keep accounts and have those accounts audited,
The Responsible Entity shall arrange dispatch to Growers an procedure for meetings of Growers, the keeping of the
invoice requesting payment from the Grower of project fees register of Growers, provisions regarding the
at least one month prior to the date for payment. The transfer/assignment of woodlots, provisions relating to
Grower will pay interest at the Base Rate of National related party transactions, and the statutory duties of the
Australia Bank Limited plus 3% per annum on any late Responsible Entity.
payments of monies.
Except as set out below, the Growers do not have the right
The Grower agrees to pay to the Responsible Entity as part to withdraw from, or realise the assets of, the project. The
of the establishment fee referred to in the Management Grower does not have the right to require payment to it of
Agreement a fee of $700 (plus GST) per woodlot, payable any money in a trust account other than as provided for in
on application. the Constitution.
Dealing with Receipts Term of Project

The Bare Trustee shall deal with the Grower's share of The project shall commence upon the date upon which
receipts of the project and any other money in the Proceeds woodlots are first allotted in relation to the project and,
Fund of the Grower in the following manner and priority: subject to the terms of the Constitution, shall terminate
(a) pay the Grower's share of the costs of the harvest and upon the later of the termination of the Lease or the final
sale as advised by the Manager (unless the Grower has distribution of receipts to the Grower.
made an election to sell their timber under the
Management Agreement); and then Termination of Project
(b) pay to the Responsible Entity any outstanding project At any time, a meeting of Growers may by special resolution
fees or other fees, costs, interest or taxes owing by the resolve to terminate the project. However, the project may
Grower to the Responsible Entity under this be continued if it appears to the Responsible Entity to be in
Constitution; and then the interests of the Growers for it to do so for such period as
(c) pay as directed by the Responsible Entity the reasonable is determined by the Responsible Entity.
estimate of what may be required within the following
12 months to pay any project fees payable by the Upon the termination, the Responsible Entity shall
Grower; and then immediately sell, call in, convert and realise all timber and
(d) to pay to the Manager any outstanding fees, costs, project property after paying all proper costs and fees of
interest or taxes owing by the Grower to the Manager termination.
under the Management Agreement; and then
(e) to pay to the Lessor any outstanding Rent or other fees, Grower's Relationships
costs, interest, expenses or taxes owing by the Grower The Grower does not have any relationship or contract with
to the Lessor under the Lease; and then any other Growers in the project and all Growers are
(f) distribute the balance to the Grower (provided the independent.
entire balance distributed to Growers is greater than
$1000).
Indemnities
Complaints Handling Methods The Bare Trustee may indemnify the Responsible Entity from
The Responsible Entity will deal with all complaints and against any expense or liability incurred by the
according to the following methods, the details of which are Responsible Entity or the Bare Trustee in legal proceedings
set out in the Compliance Plan: relating to the project, except to the extent that the expense
a) all complaints are to be acknowledged promptly; or liability is attributable to a breach of the duties under
b) complaints that do not require investigation are to be Section 601FC or elsewhere in the Corporations Law. If the
resolved immediately or expeditiously; project or trust account is taxed under the Tax Act, the
c) otherwise, within 21 days of the complaint being made, Responsible Entity and Bare Trustee may be indemnified out
the complaint is to be investigated, the complainant is of receipts.
to be given an opportunity to provide information, the
complaint is to be properly considered, and a report is The Responsible Entity shall not be liable for anything done
to be prepared; or suffered as a result of it acting in good faith in reliance
d) a decision is to be made and the decision upon the opinion or advice of an expert. The Responsible
communicated to the complainant with the reasons for Entity is entitled to be indemnified from the receipts to the
the decision within 28 days of the complaint being extent that any such liability is incurred except to the extent
made; attributable to the Responsible Entity's own neglect or
e) if the complainant remains unsatisfied, the complainant default.
is to be provided with information as to appropriate
avenues by which the complainant can pursue the The Responsible Entity shall not be under any liability on
complaint including having the complaint resolved by account of anything done or suffered by other parties,
an industry complaints tribunal; and except to the extent that any loss is attributable to the
Responsible Entity's own act, neglect or default.

Provided the Responsible Entity has not breached its duties Assignment or Transmission of Woodlots
under Section 601FC or elsewhere in the Corporations Law, No assignment or transmission of any woodlots may be
it shall not in any way be responsible for any loss, costs, registered unless an instrument of transmission or a deed of
damages or inconvenience resulting from the exercise or assignment in the form set out in the Rules, duly stamped,
non-exercise of the powers, authorities and discretions under has been delivered to the Responsible Entity.
the Constitution or reliance on documents reasonably
believed to be genuine. The Responsible Entity may delegate Quorum
any of its functions under the Constitution and the Bare No business shall be transacted at any meeting unless a
Trustee may delegate any of its powers to the Custodian. quorum is present at all times during the meeting. The
quorum necessary for a meeting at which a resolution only is
The Responsible Entity and the Bare Trustee will remain to be proposed shall be two Growers and for a meeting at
responsible for any such delegates' acts and omissions which which a special resolution is to be proposed shall be persons
constitute a breach of duty. holding or representing by proxy more than 50% of the
The Responsible Entity will not be liable for any failure of a number of woodlots issued to the Growers for whom the
Grower to obtain a tax deduction in respect of the project. meeting has been called.
4. RULES 5. STANDING OFFERS

Acceptance of Applications A Standing Offer by the Manager and the Responsible Entity
Within 2 months after the acceptance of an Application to enter into the Management Agreement with every person
under any prospectus, and when next accounting to a who becomes a Grower under this Prospectus.
Grower after any change in the holding of the Grower in the
register, the Responsible Entity will issue to the Grower a A Standing Offer by the Lessor and the Responsible Entity to
woodlot statement. enter into the Lease with every person who becomes a
Grower under this prospectus.

Additional Information
Registers Mr Mark Blanchard has been paid directors fees totalling
$12,500 in the last two years.
We will maintain the principal registers of Growers at our
registered office at Level 2, Scott House, 46-50 Kings Park The directors hold the following interests in Forest Rewards
Road, West Perth, Western Australia. The registers may be Corporation Ltd:
inspected by any member of the public between the hours
of 9.00am and 5.00pm on Monday to Friday inclusive, Mr Craig Burton has a relevant interest in 9,020,000
excluding public holidays. shares and 2 million options exercisable at 50 cents each
on or before 30 June 2005.
Our allocation policy Dr Andrew Radomiljac has a relevant interest in
6,020,000 shares.
Unless we agree otherwise with any particular Growers or Mr Mark Blanchard has a relevant interest in 3 million
financial intermediary, we will allocate woodlots in order of shares.
receipt of completed applications.
The directors reserve the right to participate as Growers on
Minimum subscription the terms set out in this prospectus.
The minimum subscription level is 150 woodlots by 31 May
Mangium Consulting Pty Ltd has received or is entitled to
2001. If this is not met, or we are unable to accept an
receive $80,000 per annum for providing forestry services.
application for any reason, we will immediately refund the
Dr. Radomiljac is a director of Mangium Consulting Pty Ltd.
application monies received.
Verona Capital Pty Ltd has received or is entitled to receive
Subscriptions and Oversubscriptions $220,000 for providing office, secretarial, bookkeeping and
The offer is for up to 1,000 woodlots to raise $7,200,000 administrative services. Mr Burton and Mr Blanchard are
(plus GST). The Manager reserves the right to accept directors of Verona Capital Pty Ltd.
oversubscriptions.
Sampala Investments Pty Ltd has received or is entitled to
receive $120,000 per annum for the provision of corporate
Commissions consultancy services and Brindabella Holdings Pty Ltd has
We may pay commissions or brokerage in relation to
received $20,000 for the provision of corporate services. Mr
woodlots for which you apply to those persons authorised
Burton is a director of Sampala Investments Pty Ltd and is
by the Corporations Law to receive such commissions or
associated with Brindabella Holdings Pty Ltd.
brokerage. In addition, we may reimburse persons for
marketing and other administrative costs incurred in relation
Treetec Consulting Pty Ltd has received or is entitled to
to woodlots sold.
receive fees of $15,000 (plus GST) for the preparation of the
Independent Forester's Report.
Disclosure
Except as stated under the heading Interests and Fees Curtin Consultancy Services Pty Ltd has received or is
below, no persons required to make disclosure under entitled to receive fees of $6,950 for the preparation of the
Sections 711(2), 711(3) and 711(4) of the Corporations Law WA Sandalwood Market Report.
hold (or held at any time during the last 2 years) any interest
in the Project or in the formation or promotion of the Project Mr H. S. Anantha Padmanabha has received or is entitled to
or in any property acquired or proposed to be acquired in receive fees of $2,300 for the preparation of the Sandalwood
connection with the formation or promotion of the Project Report (International).
and no amount has been paid or agreed to be paid to those
persons or benefit given or agreed to be given: Garton Smith & Barrett have received or are entitled to
(a) to the Responsible Entity, to procure acquisition of receive fees of $13,750 (plus disbursements) for legal
interests in the Project or for services provided under the services and further amounts for any future services in
Constitution; or accordance with their usual time-based charges.
(b) for services rendered by the person in connection with
formation or promotion of the Project; or KPMG has been paid a fee of $15,000 (plus disbursements)
(c) in the case of directors to induce them to become or for the audit of Forest Rewards' financial statements for the
qualify them as directors. year ended 30 June 2000. KPMG has also assisted Forest
Rewards Ltd to apply for the Product Ruling and, in respect
of this work, Forest Rewards Ltd estimates it will pay
Interests & Fees approximately $3,960 to KPMG.
The Manager will receive the fees set out in the summary of
the Management Agreement. Consents
The Lessor will receive the Rent as set out in the summary of
the Lease. The following have each given (and have not prior to
The Responsible Entity will receive the fee set out in the lodgement of this Prospectus with ASIC withdrawn) their
summary of the Constitution. written consent to the inclusion of the reports, sections,
The directors are entitled to be paid a directors fee which express and implied references and statements detailed
will not exceed $40,000 per annum per director, or such below in the prospectus in the form and context in which
sum as the members may at general meeting from time to each is included, and for the purpose of Sections 716(2) and
time determine. 729 of the Corporations Law were each involved only in the

preparation of those reports, sections, express and implied Inspection of documents
references and statements:
Copies of the Lease, Management Agreement, Constitution,
Treetec Consulting Pty Ltd, Curtin Consultancy Services Pty Rules and Standing Orders may be inspected or obtained,
Ltd, Mr H.S. Anantha Padmanabha for inclusion in this free of charge, during normal business hours at our
prospectus of their respective reports. registered office Level 2, Scott House, 46-50 Kings Park
Road, West Perth, Western Australia.
Dr Nicholas Malajczuk of Treetec Consulting Pty Ltd as
Independent Forester in the Corporate Directory and Further
Details of the Project sections. Litigation
There is no litigation of a material nature pending or
Garton Smith & Barrett for the Additional Information threatened which may significantly affect the Forest Rewards
(except the details of interests and fees). group or the project.
KPMG for the inclusion in this prospectus of extracts of the

audited financial statements of the Forest Rewards Group for
Compliance Committee Members
the period ending 30 June 2000 and to being referred to in The external members of the Compliance Committee, Craig
the Corporate Directory and Additional Information sections. Readhead and Anne Thoume, were not involved in the
preparation of any part of the Prospectus and have not
authorised or caused the issue of the Prospectus. Mr
Disclaimers Readhead and Ms Thoume consent only to being named as
Treetec Consulting Pty Ltd, Curtin Consultancy Services Pty the external members of the Compliance Committee.
Ltd and Mr H. S. Anantha Padmanabha have acted as
independent experts and have authorised the issue only of Enhanced Dislocure Securities
their respective reports. They expressly disclaim and take no
The Woodlots may be enhanced disclosure securities within
responsibility for any other part of this prospectus.
Section 111AD of the Corporations Law if there are more
than 100 Growers, and if so, the Responsible Entity will be
Garton Smith & Barrett have assisted in preparing the
subject to regular reporting and disclosure obligations. In
Constitution, the Agreements and the Compliance Plan in
that event, documents lodged pursuant to these
relation to this prospectus. They have reviewed this
requirements may be obtained from, or inspected at, any
prospectus to ensure that its contents are consistent with the
office of ASIC. Further, in that event, the Responsible Entity
Constitution and the Agreements. Garton Smith & Barrett
will provide a copy of the most recent financial statement of
expressly disclaim and take no responsibility for any other
the Responsible Entity and any other document required to
matter referred to in this prospectus.
be lodged under Section 1001B of the Corporations Law free
of charge to any person who asks for it during the currency
KPMG have not been involved in any aspect of this
of the Prospectus.
prospectus apart from the financial statements on page 26.
They expressly disclaim and take no responsibility for any
other part of this prospectus. Application of this Prospectus
This Prospectus has been prepared to comply with the
No Guarantee securities laws of Australia. The offer of Woodlots contained
Forest Rewards Ltd does not guarantee the amount or in this Prospectus is available to persons receiving this
timing of any tax deduction or item. Prospectus within Australia.
Directors' Consents
As required by law, each of the directors of Forest Rewards Ltd has given his written consent to the issue of this prospectus.
Further, this prospectus has been signed by each of those directors or his agent authorised in writing.
Craig Burton Andrew Radomiljac Mark Blanchard

by his agent authorised in writing

Application Directions
How to apply
Before signing the Application, you should read the whole of this Prospectus.
The Application must be signed and dated by individuals in the presence of an adult who must sign as witness. Company
applicants may sign under seal, although a seal is not required.
Lodge your completed Form together with your cheque made payable to "CFM - Sandalwood Project 2001" and crossed
"Not Negotiable" by delivery to: Custodian and Funds Management Services, Locked Bag 7, Osborne Park, WA 6916.
Your Woodlots and payment details

You may apply for any number of Woodlots. Forest Rewards Ltd reserves the right to accept or reject applications in
whole or in part at its discretion.
Complete the payment details on the Form.
The amount payable per woodlot is $7,200 plus GST. A further $600 plus GST is payable on 1 September of the next
financial year.
Signature and declarations

Applicants must be one or more individuals or a company.
Each Form must be signed personally by an applicant who is an individual.
Joint applicants must each sign the Application.
Joint applicants will be deemed to hold their woodlots as tenants in common unless requested to the contrary.
An Application by a company may be under seal.
All communications from us will be sent to the address shown on the Form. For joint applicants, only one
address is required.
Please provide your full telephone, fax and mobile phone details in case we need to contact you urgently.
Please date the Application.

Application Form
Please read the Terms and Conditions forming part of this Form before signing it.
Your Details
Full Name (individual or co.) Mr/Mrs/Miss/Ms
Joint Applicant (if applicable)
ACN (if Company) Contact Name:
Address:
Post Code:
Telephone: Mobile:
Fax: Email:
Your Woodlots
Number of Woodlots applied for
Year 2001 woodlots at $7,920 per woodlot inclusive of GST
Amount payable $
Please make cheque payable to "CFM - Sandalwood Project 2001
Terms and Conditions

The Applicant agrees to be bound by the Constitution as a Grower. The Applicant also offers to enter into the Lease and
the Management Agreement as a Grower and acknowledges that upon this Application being accepted in whole or part, the
Applicant will be bound to the Lease and to the Management Agreement as a Grower.
Date of Signing: / /
If Applicant is a Person: If Applicant is a

Company:
Signed THE COMMON SEAL
of the company Applicant
is affixed in accordance with
its constitution in the presence of:
Signed Director
(if joint applicant)
Witness Director/Secretary
POST TO CUSTODIAN AND FUNDS MANAGEMENT SERVICES, LOCKED BAG 7, OSBORNE PARK, WA 6916
BY 31 MAY 2001 (for Year 2001 Woodlots)

How to apply

financial year.


Application Form
Please read the Terms and Conditions forming part of this Form before signing it.
Your Details
Full Name (individual or co.) Mr/Mrs/Miss/Ms
Joint Applicant (if applicable)
ACN (if Company) Contact Name:
Address:
Post Code:
Telephone: Mobile:
Fax: Email:
Your Woodlots
Number of Woodlots applied for
Amount payable $
Please make cheque payable to "CFM - Sandalwood Project 2001
Terms and Conditions

The Applicant agrees to be bound by the Constitution as a Grower. The Applicant also offers to enter into the Lease and
the Management Agreement as a Grower and acknowledges that upon this Application being accepted in whole or part, the
Applicant will be bound to the Lease and to the Management Agreement as a Grower.
Date of Signing: / /
If Applicant is a Person: If Applicant is a

Company:
Signed THE COMMON SEAL
of the company Applicant
is affixed in accordance with
its constitution in the presence of:
Signed Director
(if joint applicant)
Witness Director/Secretary
POST TO CUSTODIAN AND FUNDS MANAGEMENT SERVICES, LOCKED BAG 7, OSBORNE PARK, WA 6916
BY 31 MAY 2001 (for Year 2001 Woodlots)

How to apply

financial year.


Glossary Of Terms
ASIC Grower Project or project
Means the Australian Securities and Means a person (or in the case of joint Means the Forest Rewards Sandalwood
Investments Commission. applicants, those persons) who Project 2001 outlined in this
becomes a Grower as a result of either Prospectus.
CALM the allotment of woodlots under this
prospectus or a transmission, transfer, Responsible Entity
Means the Department of mortgage, assignment or other
Conservation and Land Management disposal of woodlots under the Means Forest Rewards Ltd
of Western Australia. provisions of the Lease and the ACN 089 582 427.
Management Agreement and who
Corporations Law remains the registered holder for the Sandalwood or sandalwood
time being of any relevant woodlots.
Means the Corporations Law of Means Santalum spicatum, commonly
Western Australia. known as Western Australian
GST sandalwood.
CPI Means the goods and services tax
Means the Consumer Price Index (All
introduced by the Commonwealth Woodlot or woodlot
government.
Groups) for All Cities published from Means an area of approximately one
time to time by the Australian Bureau hectare offered to be subleased to a
of Statistics. Indexed Grower under the Lease.
Means adjusted by CPI increments
Constitution using the March 2001 quarter as the year 2001 woodlot
base.
Means the Constitution summarised in Means a woodlot in the project for
the Summary of Material Agreements which the Initial Services are
section of this prospectus. Lessor completed by 30 June 2001.
Means Forest Lands Pty Ltd
Custodian ACN 089 949 824. year 2002 woodlot
Custodian and Funds Management Means a woodlot in the project for
Pty Ltd, a division of Hayes Knight Management Plan which the Initial Services are
GTO Pty Ltd. Means the management plan for the completed in the financial year to 30
project (as amended or updated from June 2002.
Financial Year time to time).
Means financial year ending on 30
June of the relevant year.
Manager
Means Forest Rewards Management
Pty Ltd ACN 089 940 376.

FOREST
REWARDS LTD
46-50 Kings Park Road West Perth WA 6005
Tel 08 9324 1155 Fax 08 9324 2171
Email mail@forestrewards.com.au

Sandalwood Project Report

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Sandalwood

1. Forest Rewards Ltd

Forest Rewards Ltd 2.

Sandalwood is the most valuable

Professor John E. D. Fox

3. Forest Rewards Ltd

Become a Sandalwood Farmer Sandalwood is in Short Supply

The Most Valuable Timber in Australia

Forest Rewards Ltd 4.

The many uses of sandalwood and

5. Forest Rewards Ltd

The extremely dense and close-

Forest Rewards Ltd 6.

7. Forest Rewards Ltd

In 1997 Mt Romance Australia Ltd

A 10 year contract with CALM (the Sandalwood conjures up many

Forest Rewards Ltd 8.

9. Forest Rewards Ltd

In the 1920's, sandalwood exports were

The past few years have witnessed a

Over the last decade a greater emphasis

Forest Rewards Ltd 10.

Sandalwood has played a vital role

11. Forest Rewards Ltd

Forest Rewards Ltd 12.

Courtesy Battye Library 28586P

13. Forest Rewards Ltd

Toodyay Southern Cross

Forest Rewards Ltd 14.

Forest Rewards Ltd 16.

17. Forest Rewards Ltd

You can elect to apply for year 2001

Applications for the year 2001

We reserve the right to accept or reject

What information will I

Forest Rewards Ltd 18.

10 250 71/2 1,875 4.00 (1) 10,382

Less Tax (9) 17,462

Rates of Return (10)

Specific Notes General Notes

The establishment fee of $7,200 and the first year fee of

19. Forest Rewards Ltd

Net Sales Proceeds 8,223 8,500 27,081 43,804

Establishment fee (7,200) 7,200

Cashflow Before Tax (7,200) (600) 8,223 8,500 27,081 36,004

Tax (payable) refund 3,492 291 (3,988) (4,122) (13,134) (17,462)

Cashflow After Tax (3,708) (309) 4,235 4,378 13,947 18,542

Cumulative Cashflow (3,708) (4,017) 218 4,595 18,542

Forest Rewards Ltd 20.

Goods and Services Tax Independent Taxation Advice

21. Forest Rewards Ltd

Greenhouse gases and carbon credits

Forest Rewards Ltd 22.

Forest Rewards Ltd 24.

25. Forest Rewards Ltd

Total current assets 2,994,434

Non current assets

Total non current assets 54,399

Total assets 3,048,833

Forest Rewards Ltd 26.

27. Forest Rewards Ltd

The Compliance Committee will

Forest Rewards Ltd 28.

100% owned 100% owned