Pulp and Paper Canada

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Industry News (September 01, 2006)


September 1, 2006
By Pulp & Paper Canada

ENERGY

TOLKO’S SYNERGISTIC SYNGAS

VANCOUVER, BC — Tolko Industries and Nexterra Energy have wrapped up their new gasification project at Tolko’s Heffley Creek plywood mill near Kamloops, BC.

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The syngas plant converts wood residue into low-cost, clean thermal energy, replacing high-cost natural gas. The system is expected to save the mill more than $1.5 million in annual fuel costs, in addition to improving local air quality.

The conversion will additionally curb Tolko’s greenhouse gas emissions by 12,000 tonnes per year.

MILLS

ABITIBI SPLITS HYDRO

KENORA, ON — Abitibi-Consolidated is seeking to split its hydroelectric generation assets into a subsidiary, Miner and News has reported.

Included in the division would be power dams in Kenora.

Vice president in charge of communications Seth Kursman said, in response to questions on the split, “We are transferring some of our hydro assets to another Abitibi-Consolidated affiliate. This is part of our overall plan for growing our power business. We need, over the next few months, to go through the regulatory process in Ontario, to receive the appropriate licenses and approvals for this affiliate.”

Miner and News further reported that Kenora mayor Dave Canfield was candid in his speculation on the split, and discussed the possibility of taking over the dams; effectively merging them with the city’s own power utility.

FORESTRY

CONSULTANTS TO HELP SASKATCHEWAN INDUSTRY

SASKATCHEWAN — The Saskatchewan government is increasing efforts to address the forest industry crisis in the province.

According to a report by the CBC, the government is preparing to hire two more consultants who will give advice on how to invigorate Saskatchewan’s pulp and paper industry in the aftermath of the closure of the Prince Albert mill, and challenges at a facility in Meadow Lake.

The CBC further reported the consultants have until the end of September to put forth their recommendations. Saskatchewan is additionally interested in learning what other forestry products it could feasibly make, to try and prop up the industry.

Although the hiring does send a clear message to the province that the government is keen on addressing some of the issues plaguing the sector, the timing has proved a source of frustration for many living in Saskatchewan.

“It’s the right thing to be doing,” CBC reported Delbert Kirsch, a member of the opposition Saskatchewan party as saying. “My only concern is, it should have been started a lot sooner. [They] send up a batter when the game is over. Weyerhaeuser’s gone.”

MILLS

ABITIBI SHAKES IT UP

MONTREAL, QC — It was a positive quarter for Abitibi-Consolidated, and the company took the opportunity to announce some changes.

Upon releasing its Q2 results (see Industry Trends, Page 12), Abitibi confirmed it would be implementing a series of four initiatives.

Firstly, the company will proceed with the aforementioned IPO of the Ontario hydro income fund. The company also plans to buy up the remaining 47.5% interest in Augusta Newsprint Company, while selling off 55,000 acres of woodlands related to that operation.

Finally, Abitibi is suspending its quarterly dividend. John Weaver, president and CEO said of the decision, “this is the right action given today’s context.”

SHUT DOWN

SMURFIT CLOSES ONTARIO PLANT

MONTREAL, QC — Before the end of September, Smurfit-Stone Container Corporation’s corrugated container facility in Rexdale, ON, will close down.

Roughly 129 hourly and 10 salaried employees will lose their jobs as a result of the closure, which the company confirms is part of its overall strategic plan, designed to ‘improve overall performance and customer satisfaction.’

Nearby Smurfit-MBI facilities will accommodate existing business at the Rexdale facility.

FINANCIAL

THIRD AVENUE BIDS ON CATALYST

VANCOUVER, BC — Third Avenue Management LLC is looking to eat up 39,000,000 shares of Catalyst Paper. The unsolicited bid translates to a $129 million chunk, or 18.17% of the company.

Catalyst’s share price shot up in response to the news, jumping 14% on July 26.

Third Avenue offered Catalyst $3.30 a share for the stock. According to a report by the Vancouver Sun, the price is 21% above the average price of the stock 20 days prior to the offer.

MILLS

NEENAH TO TRANSFER TERRACE BAY

ALPHARETTA, GA — Neenah Paper has signed an agreement to transfer its Terrace Bay pulp mill and woodlands assets over to Terrace Bay Pulp and Eagle Logging, members of the Buchanan group.

Although the deal remains subject to closing agreements, once it’s finished Terrace Bay Pulp will take over the Terrace Bay operations. This includes existing employee and other contracts, as well as other assets and liabilities directly related to the operation.

Assets of the company’s woodlands operations will be transferred to Eagle Logging.

“This agreement represents a win for all parties, including Neenah Paper’s shareholders, the workforce at Terrace Bay and their communities, and also Buchanan Forest Products,” said Sean Erwin, chairman and CEO. “It allows the mill to continue operating and cash requirements are substantially lower than if we had proceeded to close the mill. Neenah Paper is now in a position of added financial flexibility and strength and can focus on growing our core paper business.”

ENVIRONMENT

QUEBEC CHAGRINED BY TRACK RECORD

MONTREAL, QC — A recent column by Montreal Gazette columnist Henry Aubin recapped some of the highlights from a report issued by the Commission for Environmental Cooperation, created by the North American Free Trade Agreement.

“Formaldehyde,” the Gazette quoted of the CEC report, “is one of the four carcinogenic chemicals spewed out by North American industry, and Quebec was home in 2003 to three of the five worst corporate offenders. All are pulp-and-paper plants.”

However, as a spokesperson for one of the mills indicated, formaldehyde is a naturally occurring chemical, and thus, is an inevitable component of the pulp and paper making process. “I am extremely surprised at this,” he said. “We have an excellent environmental record. Formaldehyde is present in the wood itself — there isn’t anything we can do about it. It’s a naturally occuring process, we aren’t introducing the chemical ourselves.”

The spokesperson also expressed frustration with what he considered to be the report’s unjust findings as “there are no rules, no government regulations pertaining to the emission of formaldehyde.”

MILLS

STORA ENSO SETS RECORD STRAIGHT ON TIMBERLANDS

HELSINKI, FINLAND — Stora Enso is clarifying reports concerning its timber division.

The Swedish commercial daily newspaper Dagens Industri ran a story that included ‘too far-reaching assumptions’…that Stora Enso would sell its wood products (sawmilling) division.

Stora is reviewing the role of the wood products division within its organization, but no decisions have been made, and no timetable concerning the issue has been set.

FINANCIAL

YEAR 2005 ‘A CHALLENGING ONE’ SAYS PWC

VANCOUVER, BC — The year 2005 was a challenging one, according to a report recently released by PricewaterhouseCoopers. Return on capital employed (ROCE) fell to an average of 4.5% in 2005, from 5.3% in 2004, the firm’s ninth annual Global Forest, Paper and Packaging Industry Survey indicated. As Craig Campbell, leader of PwC’s performance improvement practice for the global forest and paper industry noted, this percentage falls far from the target of 10-12%.

“Canadian forest and paper compan
ies saw their margins reduced significantly in 2005,” Campbell noted. “Producers were hampered by the strong Canadian dollar, along with reductions in most product prices. The softwood lumber dispute with the U.S. and increased shipping and energy costs also kept the industry’s results down.”

“It’s a tough business,” Campbell granted. “And Canada is no better and no worse than any other country. What makes it so challenging is the chronic oversupply situation we have here. It’s an extremely fragmented industry. No one company has any sort of critical mass. It’s difficult to close a mill when you only own one or two facilities,” he conjectured.

Campbell also noted that the capital-intensive status of the industry exerts downward pressure on prices. “It’s generally very difficult to make money in this industry,” he said.

As for the tendency for mills to investigate the potential to be found in the production of alternative forest products, Campbell was somewhat skeptical. “It’s a good thing, for certain,” he acquiesced. “But it’s a smaller-type solution, niche stuff. The big play is to be found in traditional products.”

FORESTRY

CATHAY BUYS UP CHINESE TIMBERLANDS

TORONTO, ON — Cathy Forest Products is forging ahead with its timber acquisition aspirations in China. The company recently bought up 2,700 hectares of standing timber in the southern part of the country, in the provinces of Henan and Jiangxi. The Henan properties contain fir, pine and poplar, while Jiangxi is home to these species, as well as bamboo.

Anthony Ng, Cathay president and CEO said that previous successes with timber purchases in China prompted the decision to buy these hectares. “These properties will provide excellent return from the standpoint of existing timber assets on the properties combined with recurring revenue from replanting programs,” he said.

Surveys indicate that roughly 160,000 cubic metres of wood are available on these 2,700 hectares. There are also approximately 900,000 bamboo trees available for harvest in Jiangxi.


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