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Logging and Sawmilling Journal November 2014

November 2015

On the Cover:
G R (Mac) Lind Logging of Princeton, British Columbia, has a long history with Caterpillar equipment, and their equipment line-up includes two Cat 320D processors, equipped with Waratah 622 heads, which continue to be proven performers (Cover photo by Paul MacDonald).

Spotlight — Ecosystem management project seeking long term funding
The Ecosystem Management Emulating Natural Disturbance (EMEND) project in Alberta is looking for additional funding to keep its work on evaluating logging practices in the boreal forest—and their impact on forest health—going for the long term.

Revving up Resolute’s Thunder Bay mill
Resolute Forest Products has ramped up production at its Thunder Bay sawmill as part of a larger capital plan for its facilities in northwestern Ontario, a move that will allow the sawmill to capture more higher grade lumber products.

Iron investments
New Brunswick logger Ken Thomas has recently made some significant equipment investments, including a new John Deere 703 harvester with a Waratah H480C head, which has been working well in commercial thinnings—and still does a great job in final harvest.

Figuring out Ontario’s logging playbook
Ontario logger Gord Griffiths is looking to retire, but he’s concerned about who in the next generation is willing to take over the reins, given a constantly changing logging playbook from Ontario’s Ministry of Natural Resources.

Gradual growth for B.C. sawmiller
Sawmilling operation Vancouver Urban Timberworks started out modestly, but it has gradually grown, and the company recently installed a new mill, a Wood-Mizer WM1000—the first WM1000 to operate in Canada—at their production facility in Squamish, north of Vancouver.

Sawmill Sid shoots—and scores,
with hockey sticks
Producing everything from guitars to hockey sticks, Ontario mill operation Sawmill Sid is working hard to see that the trees in Toronto that have been hit by the Emerald Ash Borer have added value, and don’t just end up in tub grinders.

The Edge
Included in this edition of The Edge, Canada’s leading publication on research in the forest industry, are stories from the Canadian Wood Fibre Centre, Alberta Innovates - Bio Solutions and NRCanada.

The Last Word
Jim Stirling on how B.C. forest companies are heading to North America’s lowest cost lumber producing region—the U.S. South.

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B.C. forest companies are heading to North America's lowest cost lumber producing region—the U.S. South

By Jim Stirling

The levels of capital investment in British Columbia’s sawmilling industry are increasingly dependent on the political agendas of the two senior levels of government.

Forest companies are mindful of protecting their financial futures and long term interests. They will look outside B.C. for growth potential if governments don’t commit to a defined forest strategy at home which supports investment.

That is one reason why forest licencees are increasingly looking south of the border to invest, primarily in the southern yellow pine belt of the United States. The other key reason is the aftermath of the mountain pine beetle epidemic in the B.C. Interior.

The U.S South is now North America’s lowest cost lumber producing region. More B.C. companies are looking to the U.S. for investment opportunities as a consequence, especially as the provincial and federal governments continue to vascillate about developing any cohesive vision which accommodates a constitutionally changed forest sector.

The latest large B.C.-based licencee to look south for higher returns on its investments is Conifex Timber Inc. The company spent $21 million to secure an out-of-commission sawmill in El Dorado, in southern Arkansas.

Conifex joins other major B.C.-based forest companies like Canfor, West Fraser and Interfor in diversifying into the U.S. Estimates are that B.C.-based companies now own at least 30 sawmills in the U.S., with many of those acquisitions coming within the last few years.

There’s no surprise about the timing. It’s a case of Supply and Demand 101. The sawlog availability in the B.C. Interior is spiralling down—steeply in some regions —as the realities of the beetle epidemic bite deeper. And, inevitably, the prices for the sawlogs that are available increases proportionately. Ergo, the B.C. Interior has lost some of its competitive sheen.

Purchasing an asset like a boarded-up sawmill in the U.S. South for a relative song is one thing. Overcoming those factors that precipitated its condition and bringing the mill up to Conifex’s standards and positioning it for consistent profitability is quite another.

Obviously Conifex’s board of directors is confident that can be accomplished with this investment, but the company still has a dilemma. It already has a major rehabilitation project on its books. Conifex plans a major consolidation and upgrade of its Mackenzie operation in north central B.C.

The Mackenzie complex—like Conifex’s Fort St. James sawmill before it and now the El Dorado mill in Arkansas—were all mothballed for varying reasons by their previous owners. Conifex has learned how to turn around others’ misfortunes. The company also has an ace in the hand with its long term timber supply in B.C. The pine component was hit hard by the beetle but Conifex’s timber cutting rights in the forests north of Fort St. James and Mackenzie have healthy spruce, balsam and deciduous populations.

Conifex’s decision is should hard-to-raise funds be first invested in Mackenzie or El Dorado? And that is where both levels of government could play a role in swaying the company’s ‘which first’ decision.

“The key variable that determines our spending is the program and strategy the province adopts,” pointed out Ken Shields, Conifex’s CEO in a recent interview with the Vancouver Sun newspaper. Shields was referring in part to the impacts of the Canada-U.S. softwood lumber agreement that expired at the end of October. The most recent agreement imposed taxes on Canadian softwood lumber exports to the U.S. when the commodity’s price fell below a prescribed level.

Federal fall elections in Canada have suspended negotiations between the two countries to hammer out a new agreement. Both countries know the outgoing agreement contains a year grace period before any new terms come into force. It will be well into 2016 before the file is officially advanced.

B.C. has a huge inventory of beetle-killed fibre despite the concerted salvage efforts of licencees and their logging contractors. B.C. licencees are part of a forest fibre working group with the provincial government to develop ways to productively utilize more of that inventory through alternate products. These include manufacturing wood pellets from beetle residuals and electricity generation from the wood biomass.

The challenge for the province and the industry is to broker a deal that will permit the fibre to flow where it can be productively utilized. And the main sticking point there is the price of and for the raw material. It comes down to the development of new rules for a changed forest industry. That’s never easy. But fiddling with existing rules in the hope they can be stretched enough to work in a changed environment isn’t the answer.

But as that process drags on in B.C., forest companies still have to satisfy their shareholders. One strategy to help accomplish that objective is with the acquisition of U.S. sawmills.

Under the circumstances, having a business presence in both Canada and the U.S. South makes sense. And spare a thought here for B.C. forest ministry staff. They’re part of a Liberal government preoccupied with the sole issue of advancing LNG exports. Promoting forest policy changes, especially far reaching ones, is a tough sell.

What it’s all boiling down to is that without a more favourable operational framework, more B.C.-based forest companies will discover they simply can’t afford to come home again.