Kangaroo Island company Kiland plans to graze 270,000 sheep by 2026

While it's good news for the sheepmeat sector on the island, the plan also heralds the loss of most of its valuable timber industry.

Kiland, formerly Kangaroo Island Plantation Timber, managed more than 85pc of the island's plantation forests before 95pc of it was razed by the fires.

The company owns 18,662ha and of this 14,200ha was forestry land, comprising approximately 11,360ha of hardwood and 2840ha of softwood.

In its 2020 annual report the company stated its fair value of biological assets had decreased by $109.2 million as a result of the bushfires.

"The impact of wildfire and associated backburning operations on the KPT tree crop caused the board to revalue the forest estate from $115.2m (June 30, 2019) to $5.95m," the report states.

A year later in its 2021 report, this value was "written down to nil".

The company reported a net comprehensive loss for the 2020 period of $25.6m and a loss of $28.6m in 2021.

These substantial losses have led to a shift in strategy and the business now plans to enter the agricultural industry.

Read more:

A spokesperson for the South Australian Department of Primary Industries and Regions said to date, there has only been minimal clearing of the estate's burnt hardwoods.

"The SA Department of Primary Industries and Regions expects this will gain momentum in mid-2022 following the appointment of AAGIM to conduct the plantation to agriculture land conversion and remediation operations," the spokesperson said.

"Kiland has been harvesting the burnt softwood timber since the fires and selling the timber into the local market."

In South Australia, the clearing of burnt and unburnt commercial plantations does not require government approvals.

However, a change in land use to agriculture may require state and local government planning approval.

"The South Australian government has been interested and engaged in the Kiland land conversion process and will continue to work with the company to support a good outcome for the Kangaroo Island community, environment and the economy," the spokesperson said.

AAG Investment Management was appointed as the property manager in January to remove the current tree crop, improve the land and run the agricultural enterprise.

AAGIM has managed the reversion of more than 100,000ha of country from forestry to agricultural farmland over the past 11 years.

Its intention is to convert the 14,000ha on the western side of KI to grazing land for a sheepmeat farming enterprise with hopes of running up to 270,000 sheep.

In an investor presentation on March 29, Kiland stated the land would be developed following a suggestive timeline revealing the first 55,000 sheep will begin grazing there from the start of next year.

By 2024 those stock numbers are expected to boost to 125,000 head and in 2025 about 213,000 sheep are expected to be grazing the land before climaxing at 270,000 by 2026.

The plan comes at a crucial time for the island's agricultural industry after reported losses of more than 51,000 sheep during the KI fires in December 2019 - almost 10pc of the island's pre-flock numbers of 600,000.

If these extensive numbers are reached, KI's sheep flock will potentially increase by almost 50pc.

The remediation of the western side of the island, including harvesting of timber, sourcing of water, fencing, fertiliser application and pasture planting is expected to begin this July.

The investor presentation states KI's historically high rainfall (over 750mm) and reliable climate provides for attractive pasture growing conditions with expected average carrying capacity of 13 to 16 dry sheep equivalent per hectare.

Principal consultant from Agrivet Business Consulting Dr Graham Lean said in a high rainfall area such as the western side of KI, the proposed DSE capacity is feasible, but it will also depends on the time frame.

"Fourteen and a half DSE is potentially doable, especially in that higher rainfall area," Dr Lean said.

"From my experience, the higher rainfall areas and longer growing seasons certainly support a higher stocking rate.

"In a ballpark, I'd say 16 to 18DSE is up there with best practice, so 14.5DSE is achievable."

But he said he would err with a little caution on such a large scale enterprise, and it would also depend on what breed of sheep were used in the grazing system.

"If it was a specialist prime lamb enterprise they would require a lot of input and there are not a lot of people doing it on a larger scale, let alone a goal of 270,000 head," Dr Lean said.

"Merinos would be a lot more able to absorb variation in feed supply, because they are mainly producing wool and mutton."

Reversion activities are expected to take four to six years and are set to commence this July.

In its multi-operational master plan Kiland's transition is split into four phases - harvest, biomass removal and land preparation; land improvement; development of going concern sheepmeat farm enterprise; and initial sheepmeat enterprise establishment costs.

All up, this process is estimated to cost $91m.

The ASX-listed company announced its intention to raise $32.4m through a fully underwritten 7 for 11 accelerated non-renounceable pro rata entitlement offer at $1.10 per share on March 29.

The institutional entitlement offer was completed on March 30 and raised approximately $24.7m.

Kiland released a retail entitlement offer for potential investors that ran from April 5 to May 2, with close to 7m shares issued.

The company also finalised the sale of its pontoon on the island for cash proceeds of $6.2m less costs at the end of April.

Kiland and AAGIM declined requests for comment.