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February 2005  - The Logging and Sawmilling Journal

SPOTLIGHT

What’s next for BC’s Northwest?

The long, drawn-out story of New Skeena Forest Products and its predecessor companies appears to be drawing to a close, with the focus now switching to what comes next for the forest industry in northwestern BC.

By Jim Stirling

The Terrace sawmill: it appears that at least three groups are in the running for resurrecting the sawmill as a going concern.

British Columbia’s New Skeena Forest Products is now in liquidation, officially gone as an integrated forest products company. When New Skeena’s partners, George Petty and Daniel Veniez, acquired the assets of Skeena Cellulose Inc from the BC government in 2002 for $6 million, it was supposed to trigger the rejuvenation of the forest industry in northwestern BC. The hope was that New Skeena would reverse a long trend of mismanagement, misfortune and financial crises that plagued the operation and scripted one of the saddest sagas in BC forest industry history. But it didn’t happen.

New Skeena couldn’t deliver, and the company never got going again. As a result, the northwest region remains one of Canada’s hardest hit economic areas. Frustration and recrimination inevitably linger. So, what now? New Skeena’s remaining assets are being probed and new alliances forged as the industry in the northwest begins a process of re-definition and adjustment. New Skeena had earlier sold off its Smithers sawmill and wood basket (to West Fraser Timber) and a small cedar mill in Kitwanga.

What remained was the company’s pulp mill at Watson Island in Prince Rupert and sawmills at Terrace and Carnaby, near Hazelton, and their respective fibre supply licences. As it stands now—and this is a continuously evolving story—the pulp mill and Carnaby sawmill have been consigned to Maynards Industries, a Vancouver auction house. The liquidation is expected to recover at least $17.4 million. The jury’s still out on what will happen and what group of interested parties might acquire the Terrace sawmill. A sore spot for New Skeena was tax arrears claimed by regional municipalities. The legacy remains for the cities. Prince Rupert is owed about $15 million in direct taxes, not including interest, from the Skeena Cellulose days and New Skeena.

Prince Rupert Mayor Herb Pond says it will take resourcefulness to work with the timber profile in the northwest region.

Terrace is owed about $3 million. Herb Pond, Prince Rupert’s mayor, says accommodating and servicing the forest companies’ debts has become a monumental task. “We had to cut about $4 million from our spending in 2004,” he says. It impacted city services, RCMP and firefighter staffing levels and transfer payments for economic development, tourism, the library, museum and other community assets, explains Pond. Pond is hopeful the provincial government will come up with some form of transition funding, as it has with other suffering communities. “I think the province realizes this region needs attention.”

Pond notes historical patterns have changed in the province and fewer people have roots in rural BC. “They don’t understand fully where their bread is buttered.” He suggests that is best countered by returning more control of resources like forests to local communities. Pond believes the growing capacity of northwest forests is a valuable long-term asset. “It requires ingenuity to deal with the profile of pulp wood we have today. But we can’t just throw up our hands and consider it an obstacle.” The fibre quality—or lack thereof—is a fact of operational life for the northwest forest industry. It can be considerably more than 50 per cent pulpwood, depending where you are in the region.

Most of the high quality, easily accessed timber has long been creamed off. What remains is difficult and expensive to harvest. But for all its shortcomings, that wood profile must sustain any post-Skeena forest industry. The future of the Terrace sawmill is balanced upon it. Nine parties bid on Tree Farm Licence (TFL) # 1 while New Skeena was in bankruptcy. Scooping the Terrace-based interest was the Lax Kw’alaams Band, based in Port Simpson on the Tsimpsean Peninsula north of Prince Rupert.

The Lax Kw’alaams bid $4.815 million for the 430,000 cubic metres of timber in the Terrace area (after the government policy clawback). At least one other party bid only a dollar, making Larry Prentice’s decision at receiver Ernst & Young a no-brainer. The band’s bid also included land adjacent to the Terrace sawmill. One of the other bidders for the TFL was a partnership between the Kitsumkalum and Kitselas Indian bands and Terrace-based log contracting companies Main Logging and Bear Creek Contracting. The Lax Kw’alaams’ successful bid has put the cat among the pigeons of regional band politics. They’re all members of the Tsimshian Nation but have overlapping land claim issues.

They’d better be prepared to consult and accommodate us, said one disgruntled Terrace-based band member. As for the Lax Kw’alaams, they appear conciliatory enough, knowing full well the fate of the Terrace sawmill will most likely go through them. “We take a simple approach. We look for people who can help us and we build solid relationships,” explains Wayne Drury, CEO of the band’s corporate operations. “Our name ‘Coast Tsimshian Partnerships’ says it all,” he adds. Drury says the Lax Kw’alaams began building a forest industry economy to benefit its members about five years ago.

Licence volumes have mushroomed from 7,000 cubic metres then to about 200,000 cubic metres in 2004. “We expect to be around 1.2 million cubic metres during 2005.” He attributes the turnaround in the band’s fortunes to “ being very creative in the resource sector.” Drury says the acquisition of TFL # 1 was hugely important for the band. “It’s a tremendous opportunity for the band to have effective management control on parts of its traditional territory.” He says the band’s core business is logging. They want to be managers and develop the skills they need, he adds. He also spoke about “the need to have a clean slate and build the business from the ground up.”

That has meant cancelling the evergreen logging contracts that existed on TFL # 1. Understandably, that didn’t sit well with Don Hull & Sons Contracting, K’Shian Logging and Construction and Main Logging which— when Skeena was logging—amounted to 168,000 cubic metres, 100,000 and 100,000 metres respectively for the three contractors. The Supreme Court Justice in the case ruled the right of provincial evergreen contracts was superceded by federal bankruptcy laws. Meanwhile, in another recent court ruling, local municipalities have learned they’re out of luck to collect back taxes prior to 2002 when New Skeena took over from Skeena Cellulose.

It appears at least three groups are in the running for resurrecting the Terrace sawmill as a going concern. Heading one of these groups are more ghosts from the operation’s past. Harry Papushka, Rudy Schwartz and Russ Jenjins were business associates of Petty and Veniez. Papushka was a director of Repap Enterprises which acquired Skeena Cellulose and built the Terrace sawmill for $42.5 million in 1987. Another interested party is CellMark, a Swedish pulp marketing company and secured creditor owed about $6.6 million by New Skeena. Don Hull & Sons Contracting has indicated a willingness to work with CellMark if it acquired the sawmill. A third party is the group that bid on the TFL: the Kitsumkalum and Kitselas bands, Bear Creek Contracting and Main Logging.

The city of Terrace has a vested interest in the sawmill acquisition negotiations and will help choose the successful bid. Meanwhile, retired Terrace logger Mario Da Costa says he knows of a two-company partnership interested in establishing a pulp mill and sawmill between Prince Rupert and Hazelton if they can acquire a site and access to about 800,000 cubic metres of fibre annually. He says the partners have an estimated $700 million to invest and worldwide experience in the forest industry. Da Costa identified the company only as MCLP Pulp & Paper Co. New Skeena’s Carnaby sawmill and equipment is scheduled for liquidation by Maynards.

 But there is, apparently, an offer under consideration for the Carnaby land, office building and two forest licences as foundation for a wood-fired power generation plant. As Hazelton’s mayor, Alice Maitland has seen unemployment soar and people leave the three Hazelton communities. “We are in truly bad shape. Whole families have moved away. It affects every phase of living here,” she says. The New Skeena situation was exacerbated when Kispiox Forest Products closed due to high costs and softwood duties. Maitland sees some hope for the future through small sawmilling operations—if they can access fibre at affordable prices—and agriculture. A community forest between the Hazeltons and First Nations has potential to help. “The hope is with the people who remain here and their ingenuity. I think that’s what we’ve got,” says Maitland. Once the liquidation of New Skeena’s assets are complete, Maynards will take its cut along with the court-appointed monitors, lawyers and the receiver.

Court approved loans will be honoured next, followed by the secured creditors. On top of that list, owed around $9.9 million, is NWBC Timber & Pulp, the holding company of Petty and Veniez.

First Nations groups hope timber allocations will provide jobs

Two Terrace-based First Nations groups are hoping recent timber allocations will provide skills and employment for their members in a post New Skeena era. The Kitsumkalum and Kitselas bands were each awarded forest licences to harvest 400,000 cubic metres/year over five years. The timber was withdrawn from New Skeena and West Fraser (the other major licensee in northwestern BC) as part of BC government policy to diversify harvesting rights and establish a more market-oriented system for the pricing of Crown timber. The demise of New Skeena means the bands’ timber rights open the door to opportunity for strategic alliances with local logging contractors and others to save the Terrace sawmill from liquidation.

The Kitsumkalum band was set to be first out of the block and begin logging on its licence in January 2005. “We’ve completed engineering on the first 50,000 cubic metres,” reports Ron Bartlett, CEO of Kalum Ventures, the independent, business development arm of the Kitsumkalum Band Council. The timber harvesting will be done by Main Logging of Terrace. “It’s a well-respected company with good capacity,” says Bartlett. This initiative is anticipated to keep the money that is made in the region and launch a drive to get more people back to work. Anticipated hikes in stumpage complicated the logging start-up plans but negative value wood is available in the interim. Bartlett says Roger Harris, Skeena MLA and minister responsible for forestry, has been helpful in getting the venture going. “He realizes the reality of the difficulties in the northwest,” says Bartlett.

There’s a 60 per cent pulp wood component in the timber supply and New Skeena’s pulp mill is to be liquidated. In the long term, if the pulp mill void is not filled, Bartlett sees other potential uses for the fibre, like strand or chipboard plants.

 

 

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