Gunns says Bell Bay pulp mill still on

Gunns Ltd has scoffed at suggestions its controversial proposed Bell Bay pulp mill in Tasmania has collapsed, saying construction will commence once financing is secured.

But despite the wood chipper's reassurances, Gunns shares fell nearly 18 per cent on Wednesday.

The fall was connected to media reports that fervent mill project supporter, former Tasmanian premier Paul Lennon, told a parliamentary committee on Tuesday it appeared the project "may not be alive".

Gunns chairman John Gay issued a statement saying it was inaccurate to say the northern Tasmanian mill was not proceeding.

"Contrary to the reports, the company is continuing to progress with the project," Mr Gay said.

"We are continuing to work hard to satisfy federal government environmental approvals and to secure financing."

But his words failed to stop the share slide, with the stock closing down 18.5 cents or 17.62 per cent at 86.5 cents.

An analyst, who did not want to be named, later said investors were tired of the controversy surrounding the mill and believed it was unlikely to attract funds,

"Given the fact that there is a credit crunch and banks are not lending - where do you suppose they are going to find the money?," the analyst said.

"There is no concrete evidence of any funding in place for this pulp mill.

"A lot of other companies that are better placed than Gunns are having trouble finding money, so I don't know how they can say the project is going to go ahead."

In his statement to the Australian stock exchange on Wednesday, Mr Gay said Gunns was expecting final federal government approval in January 2009, with construction to commence on financial close.

In the past weeks, Gunns had continued to talk with potential joint venture partners for the mill and was developing a financing structure that would not need additional equity from shareholders, he said on Wednesday.

Last month, Mr Gay told Gunns' annual general meeting in Launceston the project - initially costed at $1.4 billion - had blown out by a further $200 million to $2.2 billion and now was effectively on ice.

Project funding was at the mercy of an improvement in global financial markets and an easing of the international credit squeeze, he said at the time.