Cathay Forest Products Corporation

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Cathay Forest Products Corporation
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Disclosure RegardingForward-Looking Statements

• The entire discussion in this document, as well
  as other documents and discussions of Cathays
  goals and expectations as reported in the
  business plan, offering memorandum, quarterly and
  annual management discussion and analysis,
  regulatory filings, press releases and other
  reports may contain Forward-Looking Statements
  that are subject to certain risks and
  uncertainties that could cause actual results to
  differ materially from those projected. The
  words "believe", "expect", "intend", "anticipate"
  or any variations of such words and similar
  expressions identify Forward Looking Statements,
  but their absence does not mean that the
  statement is not Forward-Looking in nature.
  These statements are not guaranties of future
  performance and are subject to certain risks,
  uncertainties and assumptions that are difficult
  to predict. Factors that affect the Company's
  actual results include, among other things, the
  availability of adequate funding, relationships
  with corporate collaborators, the rate of market
  acceptance of the Company's products and services
  and to market the Company's product and services
  as well as the status of competing products and
  services. Readers are cautioned not to place
  undue reliance on these Forward-Looking
  Statements, which speak only as of the date of
  this document. The Company undertakes no
  obligation to update publicly any Forward-Looking
  Statement to reflect new information, events or
  circumstances after the date of this document or
  to reflect the occurrence of unanticipated events.

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Cathay Forest

• The Company is a Shanghai-based, Canadian company
  that
• Plants and harvests fast-growing poplar trees for
  the Chinese pulp and paper industry
• Enters long-term supply agreements with local
  paper mills
• Employs western forestry management expertise in
  the Chinese market
• Works with regional business and political
  leaders to secure long-term land leases

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Share Structure

• Shares outstanding (millions)
• Management insiders 20.9 (16.3 in escrow)
• Institutions 30.0
• Other 5.4
• Issued Outstanding 56.3
• Options 2.5
• Warrants 12.2
• Fully Diluted 71.0
• RTO - September 2004
• 6 million private placement at 0.40 - October
  2004
• 10.4 million private placement at 0.55 - August
  2005

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Chinese Pulp Timber Demand

• China consumed 138 million m³ of wood in 2003
• Produced only 105 million m³
• China consumed 12.6 million tonnes of pulp in
  2004
• Produced only 5.3 million tonnes
• Despite rapid growth, domestic per capita paper
  consumption is only 9 of that in North America

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Chinas Industrial Wood Consumption vs Production
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Chinas Industrial Wood Imports Vs Exports
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Chinas Paper Industry

• Many new pulp and paper mills expected over the
  next 5 years representing 9.2 million tonnes
  annually
• Small, environmentally harmful mills replaced
  with large, technologically advanced mills
• Central government requires proof of supply of
  wood before approving construction of new mills

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Engineered Poplars

• Fast growth poplar grow two to three times as
  fast as conventional poplars
• Operating strategy based on 4-5 year growth
  cycle, but trees are economically harvestable
  after 2 years
• Estimated yield of 150 m³ to 180 m³ per hectare
  (ha)
• Superior quality of wood, no stain
• less bleaching required
• Better resistance to pests/disease

Note 1 hectare 2.47 acres an area of 100
metres by 100 metres
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Technicians Preparing Engineered Cultures

• Cathays joint venture partner develops and grows
  poplar species for fast growth and other
  characteristics suited for the pulp and paper
  industry

• JV with Shanghai Science Technology Co.

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Two Week Old Seedlings
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Month-Old Seedlings

• Seedlings mature in controlled environment

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Sapling Fields

• 8-12 month old saplings will be approximately 3
  metres tall and ready for transport to plantations

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Preparing Fields Heze, Shandong (February 2004)
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Preparing Fields Heze, Shandong (February 2004)
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Transporting of Saplings Heze, Shandong
(February 2004)
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5 Months After PlantingHeze, Shandong (August
2004)
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Rapid Growth of Poplars
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2-Year Old Trees
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Strategy

• Accumulate large quantities of prime agricultural
  land with long-term contracts
• Contract with pulp/paper mills for supply and
  price guarantees
• Locate plantations near mills (within 300km)
• Secure concessions to harvest standing timber
• Generate revenues in 2006 and breakeven in 2007

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Location of Plantations
Heilongjiang
Heze Cao Xian
Zhengzhou
Tongzhou
?Shanghai
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Organization Chart
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Revenue Model

• 1 hectare 150 m³ of wood
• Approximately 1650 trees
• Average of 4 years to maturity
• Offtake agreements with paper mills
• US48/m³ or market price, whichever is higher
• Currently market is US85/m³
• Using the base price of US48/m³, revenue per
  hectare is US7,200
• Expenses
• Land lease costs range from nil to 725 per
  hectare per annum
• Sapling, planting, management and harvesting
  costs unique per plantation average US200 per
  hectare per cycle
• Total direct expenses from planting to maturity
  are approx. US4000
• Some land lease agreements are based on revenue
  sharing rather than annual payments

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Plantation Summaries
Heze, Shandong Cao Xian, Shandong Zhengzhou, Henan Tongzhou, Jiangsu
Land use term 25 Years 25 Years 25 Years 25 Years
Trees planted as of May 2005 (ha) 7,367 1,333 1,333 667
Scheduled planting - Fall 2005 (ha) 2,000 3,000 4,000 1,000
Scheduled planting - Spring 2006 (ha) 2,000 3,000 4,000 1,000
Annual lease costs (USD/ha) 1 725 548 363 0
Structure JV Land lease from farmers JV Land lease from farmers Cathay has 70 interest in JV with paper mill JV with government 50/50 revenue split with farmers
Estimated Cost (USD/cu.m.) 1 33 30 24 20
Guaranteed Base Price (USD/cu.m.) 1 48 48 48 48
Current Market Price (USD/cu.m.) 1 85 85 85 85
Customer Chenming Chenming Xinya Oji Paper
1st Full Harvest Spring 08 Spring 09 Spring 10 Spring 10
(1) Based on exchange rate of US 1 8.28
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Tongzhou (March 2005)
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Tongzhou (June 2005)
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Customers

• Plantation
• Heze, Shandong
• Tongzhou, Jiangsu
• Zhengzhou, Henan
• Cao Xian, Shandong
• Standing Timber
• Heihe, Heilongjiang
• Taoshan, Heilongjiang

Paper Co. Chenming Oji Paper Xinya
Group Chenming Customer Local market Local
market
300km
50km
20km
300km
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Privatization Program

• State-owned plantations are currently
• Second-growth boreal forest
• Small, inferior trees
• Lack effective reforestation program
• The privatization program will benefit many
  stakeholders
• The State increases the efficiency of its assets
• Cathay gains access to land
• Consumers get access to higher-quality,
  lower-cost raw materials

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State Owned Plantation(Taoshan, Heilongjiang )
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Privatization Program

• Cathay Pilot Project
• Clear and sell standing timber in Heilongjiang
• Plant fast-growth poplars further engineered for
  local conditions
• Provide long term stewardship
• Expands to other plantations once the initial
  plan is proven
• 70,000 ha of standing timber (harvesting
  reforestation began in 2005)
• Advantages
• Access to large supply of inexpensive land
• Sale of standing timber provides immediate cash
  flow
• Despite longer harvesting cycles in the north,
  wood costs are dramatically lower at USD 16/m³

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Cathays Projected Wood Inventory
Cubic meters
(based on 10,800 hectares planted and no
harvesting)
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Estimated Economic Value of Cathays Projected
Wood Inventory
USD millions
(assuming US85/m³, no value attributed to land
leases and no harvesting during the period)
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Investment Highlights

• 10,800 ha currently planted (107 km2, 17.6
  million trees)
• Planting program scheduled for fall 2005
• Generate revenue in 2005 (standing timber in
  north)
• Initial harvest in 2006
• 4 fast growth plantations in 3 provinces
• Long-term pulpwood sales contract secured
• JVs with government and PP mills
• Currently only participant in privatizing program
• Positioned to accumulate large parcels of low
  cost acreage as long term land bank
• Low cash burn rate of US50,000 / month