The agreement was due to expire on November 30 if the company had not started construction of the mill. Gunns is yet to get all the Federal Government permits for the project or the finance.

Gunns said today it does not believe the sovereign risk agreement materially changed the risk profile of its project and was confident in Forestry Tasmania's ability to meet its commitments.

It said the potential value of compensation under the sovereign risk agreement was not significant to the pulp mill project or the company's operations.

The sovereign risk agreement was provided with the intent of providing security in the event of Forestry Tasmania being unable to supply its volume commitments under a wood supply agreement as a result of future changes in Government policy.

The agreement would have only been triggered in the event of a default in supply due to those specific reasons and was capped to a maximum of $15 million over a 20-year period.

Tasmanian Treasurer Michael Aird said he was pleased Gunns had acted before the 30 November.

``The Government believes the pulp mill is important to Tasmania's economy,'' he said.

``The Government has done everything possible to ensure the mill goes ahead but the decision to proceed is up to Gunns and its financiers,'' Mr Aird said.

Gunns said the majority of supply for the mill project would come from its own or managed resources.

It said its plantation resource would underpin mill supply into the future with 200,000 hectares currently established.

Gunns said it acknowledged Forestry Tasmania's support for value added processing and the integral role of the wood supply agreement in providing certainty for the broader forest industry, including forest contractors and veneer and hardwood sawmilling operations.

Gunns again reiterated its commitment to proceed with the pulp mill project as planned.

It said final Federal Government approval was expected in January with construction of the project remaining on track to proceed once financing was secured.

The company's shares hit a new low today, dropped to 72.5 cents during early trading. Gunns issued more then 200 million new shares to institutional investors last month at $1.50.