By Paul MacDonald
The re-opening of the plywood plant in Cochrane, Ontario—which brought 125 jobs back to the northeastern Ontario town—started over a cup of coffee.
Though the process towards starting up the plant had started some time before, it was a coffee between Marc Cernovitch of venture capital firm Rockshield Capital and forest industry veteran Tom Scott that really solidified the deal.
“Our background in venture capital has been on the resource side, but mostly in mining and oil and gas,” explained Cernovitch, talking about Rockshield Capital. “But that said, we were firm believers in the resurgence of the U.S. housing market—and we had been looking at forestry opportunities.”
One of the opportunities they saw was a shut down plywood plant formerly owned by Norbord, in Cochrane.
An advisor to Rockshield, and one of their board members, Derek Cathcart, is a forest industry restructuring specialist—and he knew the plant well.
“I showed Derek the Cochrane plant, and he said that it was a good opportunity,” said Cernovitch. “So Derek and I spent a couple of days in Cochrane.”
The two went through old financials for the plywood plant, and built a quick business model of what it would take to get it going again.
“I came away quite intrigued,” said Cernovitch. “But it was a little bit more that we were willing to bite off financially—and I don’t know the first thing about making plywood.”
Meanwhile, the clock was ticking for the entire plywood plant to be sold off at auction. All buildings were going to be knocked down, and the site turned into a parking lot.
Cernovitch talked to the town’s economic development people, and said Rockshield would be willing to fund a portion of buying the plant and getting it up and going—but they needed an operating partner.
Enter Tom Scott, who through his Oregon-based equipment company, Lewis and Clark Machine, was looking to purchase the Cochrane plant’s equipment at auction. Scott has plenty of industry experience, having run Louisiana-Pacific’s plywood and engineered wood products division for a number of years. He then started his own business, building and refurbishing plywood plants.
Scott attended the auction, with the goal of purchasing the equipment for clients as far afield as South America.
“After the auction, people from the town talked with Tom, and explained they had an investor for the plant,” explained Cernovitch. “They asked whether he would consider talking with us about leaving the equipment there, and running the plant.”
Scott said, sure, he would have a meeting with Cernovitch, over a coffee. They went over the details, and both Cernovitch and Scott committed to re-starting the plant.
“Tom and I literally cut a deal on the back of a napkin. By the time we got to the plant, trucks were starting to line up at the gate to rip out the equipment, some of which was critical to making the plant work.”
It was Go Time.
So Cernovitch called his partners, and said he would need to make a major financial commitment—on the spot—to the business.
“After saying I was bloody nuts, I explained the business. And they said, well, we are in the venture capital game.
“We said that nothing is leaving the plant, and went out to the trucks and told the drivers to call their bosses—that we’re buying it all. And that’s how Rockshield Engineered Wood Products all started.”
Today, working from the plant in Cochrane, Rockshield Engineered Wood Products ULC produces aspen core hardwood plywood for domestic and international markets.
In addition to the plant facilities, the deal includes a guaranteed wood supply, with a provincial allocation of 200,000 cubic metres annually of veneer quality aspen logs.
“That guaranteed, fixed cost, wood supply was a major attraction for both of us, given the state of the North American wood market,” says Scott. “That’s really what makes this opportunity work—we are in the middle of this boreal forest, and it has the largest aspen resource in the world.”
The core blanks of plywood are made with aspen logs from sustainably managed forests in Northern Ontario. To a multi-layer core, Rockshield adds a purchased hardwood veneer such as oak, cherry, maple, birch or other exotic hardwoods as an overlay, to produce ready-to-use specialty, high value panels for cabinetry and furniture for a growing, mostly U.S., market.
“It’s not a commodity product,” says Scott. “It has some commodity attributes, but a lot of the attributes of the plywood we produce are specialty.
“And it’s all done to order—we’re not making product for inventory and then selling out of inventory.
“We are essentially making a specialty product, to order. It makes the business and the plant a little unique that way. There are other companies that do it, but it probably only represents about 10 per cent of the market. The other 90 per cent is commodity product.”
Scott notes that hardwood plywood is viewed as a premium core product in the market, and is in demand. “It cuts better, it’s more flat—there was a lot of excitement from the customer base to have access to the aspen-based plywood product, over the Douglas fir product.”
Panels are typically 4 ft. by 8 ft. and range in thickness from ¼” to 1” (with a high percentage being ¾”). There are literally hundreds of different products given the various combinations of panel thickness, surface type (front and back species and grades) and finish quality.
Rockshield’s production facility is located within the town of Cochrane on approximately 15 acres of industrial zoned property. The property includes a log storage yard, several utility outbuildings and the main production building of approximately 155,000 square feet.
The town lies along the TransCanada highway in the heart of the boreal forest in Northeastern Ontario. Their location provides good access to highway transportation to southern Ontario and Quebec, and into the primary markets on the U.S. East Coast. In addition, the mill is served by the Ontario Northland Railway which interchanges with both CN Rail and CP Rail and provides economical rail access across North America.
The mill, built in 1963, originally produced aspen plywood sheathing, a commodity product used in building construction. Since the supply of aspen around Cochrane was abundant, the plant produced aspen veneer plywood for the next 30 years. Historical production was approximately 76 million sq. ft. (3/8 basis) annually.
Over this period, the construction of larger, low cost mills on the West Coast, the growth of the oriented strand board (OSB) industry and the increasing pressure on forest lands gradually eroded the mill’s profitability—and it shifted its production into hardwood overlay panels for interior uses such as cabinetry and furniture. Aspen excelled at meeting the properties of these market segments.
A $13 million plant modernization occurred in 1996 under Norbord ownership and the mill enjoyed a period of very good profitability and a reputation for very high quality products. However, the mill was considered a non-core asset to Norbord and little capital investment occurred after 1996.
The mill also began to struggle as the wood products industry felt the first signs of the recession in 2007, and due to its non-core status was spun-off into a joint venture with Kruger Inc. Management difficulties, coupled with the extended recession and the U.S. housing downturn, resulted in the mill closing in 2010. Those involved in the forest industry are only too familiar with the numbers: U.S. housing starts fell from over two million in 2005 to 554,000 in 2009.
“The housing crisis was worse than anyone expected, and the plant was shut down,” said Cernovitch.
In 2012 the mill was reopened by group of regional investors. But lack of operational experience and inadequate capitalization caused the mill to cease operations again in December 2013.
Following the purchase of the majority of the plywood processing equipment, Rockshield resumed operations in April 2015. Scott says the company invested significant funds in preparing the mill for operations, and is also planning capital improvement projects to increase veneer production, drying capacity, and panel production, Ultraviolet light Cured Varnishing system (UV), as well as implementing automatic grading and stacking of dry veneer.
These projects, when completed, will improve manufacturing efficiencies and market penetration.
In terms of the production process, veneer quality aspen logs are delivered to the mill site by truck and stored in the log storage yard located east of the mill building. Using two Volvo L80 loaders, the logs are delivered in 8 foot lengths (plus trim) and stored in rows of piles in the yard.
Storage inventory varies with the seasons and regulatory restrictions on road haulage, with peak inventories occurring around mid to the end of March at the beginning of the annual hauling restriction period. Inventories are lowest during the summer months. The target peak inventory is 35,000 cubic metres.
Once logs are delivered to the infeed deck, they pass through a water vat to remove loose dirt and debris. In the winter months, the water is heated to thaw the wood. Logs are conveyed out of the vat and then passed to a slasher saw where they are trimmed to the required length and then passed to the 30” ring debarker.
Logs are then fed to one of the seven conditioning log vats. From the log vats, the logs are chain conveyed to the two parallel Coe (now part of USNR) lathe lines. Enroute, the logs pass through a second slasher saw where selected logs are cut to 4 ft. lengths (this is done to increase recovery from logs that have defects and are not suitable for the 8 ft. lathe).
The two lathes reduce the logs to a thin continuous sheet of veneer. The logs are held in a spinning chuck while a long blade is moved against the spinning log with the resulting sheet of veneer conveyed to mechanical clippers where the sheet is cut to individual sections.
The logs are X/Y charged for best positioning on the spindles, for maximum recovery. The operation peels about 3,000 blocks a day.
Unsuitable material from the lathe is rejected and conveyed to a chipper located nearby. Aspen cores from the lathes are either faced on a small sawmill and sold as landscape timbers or are chipped along with the scrap veneer and trimmings.
Approximately 80 per cent of throughput is processed on the 8 ft. lathe while the remaining 20 per cent is handled on the 4 ft. lathe. From the lathes and Raute clippers, the thin sheets of wood veneer are taken to one of the two parallel/independent gas-fired Coe M72 veneer dryers where moisture content is reduced to approximately seven per cent.
From the dryers the veneer sheets are graded, sorted and stacked; there are various sorting stations, quality control steps and veneer repair stations along the process flow including a Raute veneer composer, and patchers. There is a relatively high manual labour involvement in the process.
The final stage of the manufacturing process involves lay-up of the dried aspen veneer sheets with application of glue and finish layers of thin decorative hardwood veneer on the front and back of the mat, using a Globe glue spreader. “Most of the product is hand laid-up,” says Scott. “With hardwood plywood, it’s almost impossible to have a completely automated lay-up. We need that attention to detail because one little piece of knot that sticks under a sheet will cause a piece of plywood to have a defect when we go to sand it.
“It seems like a simple process,” he says, “but there are lots of details involved. We want keep the grades up and the defects very low.”
The assembled mats are delivered to the Raute 30-opening steam heated hydraulic press where they are subjected to pressure and heat to produce finished plywood panels. In addition to the 30-opening press, there is a second smaller 24 opening press.
The smaller Raute press is very similar to the larger unit (steam heated with hydraulic pressure) and can handle the same product range. But it is manually fed which allows it to produce some products that the larger press cannot, such as thin plywood sheets (1/4”).
Finished panels are discharged from the presses, cooled; trimmed, stacked, puttied and sanded.
A Globe skinner saw does the trimming, and then each piece goes through a Timesaver sanding line.
Scott says the plant equipment was in fair condition when they took over. Much of the equipment he had his eye on—to buy and sell in foreign markets—he would have refurbished, he says.
And despite their best efforts, some of the equipment sold at auction was committed to go.
“One of the pieces of equipment that left was a composer,” explained Scott. “This eight foot composer was sold to one of our bigger competitors—and they did not want to sell it back to us. But we were able to find a high quality used composer that was in better shape, and installed it.”
There was some new equipment installed, such as the veneer robot system that Scott’s company, Lewis & Clark Machine Inc, produced.
They worked on refurbishing the plant for about three months, until January 2015.
This kind of work is second nature to Scott—he’s rebuilt and refurbished a number of plywood plants in his career. Along the way, their investment in the business has grown to $13 million.
“That is what’s involved in bringing something like this back to life,” says Scott. “It’s mainly PPE—plant, property and equipment—and working capital, and funding some of the initial start-up costs.”
The business received a $2.5 million jobs grant from the Northern Ontario Heritage Fund, which requires them to meet certain employment targets. There was also funding of FedNor money through North Claybelt Community Futures Development Corporation. They have also been able to access funding through the Export Development Corporation.
Scott says there are some essential elements to bringing a plywood plant back to life.
“There are really three components—but they all have to happen concurrently,” he notes. “You need to get the key employees who are going to operate the plant, and since it was a union plant, we needed to work with the union to come up with an interim contract that we could operate under.
Another key component is log supply. “We bought logs for three months prior to start-up,” he explained. “When we started up the plant that January, we wanted to have roughly six weeks of capacity in the log yard—that would get us through break-up.
“But probably the biggest challenge of all is getting customers to buy your product in confidence again—convincing them that you are going to be around.” This was especially the case because the previous effort to get the plant re-started left customers high and dry when it did not succeed. “We had a lot of discussions with our customer base, to assure them.”
A surprise for Scott, who is used to doing plywood start-ups in the U.S., is the First Nations involvement with Canadian forestry operations.
“I did not know about that. But we have a First Nations agreement with the Taykwa Tagamou First Nations near Cochrane. They were very supportive of us getting the wood supply, which was very helpful.”
A number of their employees used to work at the old plywood mill. But Scott emphasized that it was not business as usual for the new company. Their goal, he says, is to make the mill more efficient, and they are a good part of the way there. “We’ve been investing money pretty much all the way through the first year of operations. We are doing things differently than when it was run by Norbord. The most significant part of it is to have all the people working together and implementing best practices for hardwood plywood manufacturing—we’ve made some big changes in the mill, and how it operates.”
The mill is currently operating at about 60 per cent capacity, on a 1.5 to two-shift basis. The company’s strategy is to put on a full two shifts later this year, and 2.5 to three shifts in 2017.
“We are slowly finding our niche, and having the product quality drive demand,” says Scott. “There are other players in the market, and you’ve got to differentiate your product with good quality and service. We see ourselves as a customer driven, niche player.”
And while the plant is enjoying the benefits of a relatively low Canadian dollar—80 per cent of its sales are to the U.S.—it is also ready for a rising dollar, if that occurs.
“We want to be battle-ready,” says Cernovitch. “We want to be ready for a par Canadian dollar, to be ready with the right product mix for the market and to be a very good and efficient converter of round wood. That’s why our target is to install an updated veneer processing line, that will allow us to be even more efficient.
“That’s what we are doing now—getting the company battle ready so we’ll make good money during the good times, and we’ll be feeling good if we break even when the market is not so good.”
On the Cover:
The re-opening of the plywood plant in Cochrane has brought 125 jobs back to the northeastern Ontario town. In addition to the plant facilities, the deal to re-open the plant includes a guaranteed wood supply, with a provincial allocation of 200,000 cubic metres annually of veneer quality aspen logs. (Cover photo courtesy of Rockshield Engineered Wood Products)
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The re-opening of the plywood plant in Cochrane, Ontario has brought a good number of jobs and economic activity back to the community—and it all started over a cup of coffee.
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