May/June, 2002





Investing in the Future

Committed to the future, Crown Pacific updates its mill.

The year 2000 ushered in more than a simple calendar change in the Crown Pacific's corporate office in Lake Oswego, Ore. Lumber prices were down. Federal lands showed no signs of relaxing their tight restrictions on logging. The $13.33 million annual profit paled beside the previous year's healthy $34.4 million. 

The company waited anxiously for the results of a year-long study that took committee members all over the United States, Canada and Europe. The committee's recommendation? A green light on an expensive renovation of the Gilchrist mill, one of the company's six mills spread across Idaho, Washington and Oregon. 

The mill, located just south of Bend, Ore., was acquired from the Gilchrist Timber Company in 1991 and pulls in logs from a 100- mile radius, from federal, Crown Mill and other private forest lands. Most of the logs are lodgepole and Ponderosa pine, with some white fir and Douglas fir. The Gilchrist mill, like so many others, was faced not so much with a dwindling log supply, but with ever-diminishing log sizes. "We're getting in logs with four-inch tops," says John Ernst, vice-president of manufacturing. "Utilization is the key word for small wood," he adds, "but you've got to be able to do it and still make money." 

Crown Pacific had already invested in a $9- million upgrade when it acquired the mill in 1991. Nine years later, a new, state-of-the-art small log line was installed to replace the existing small log line, thus allowing them to more efficiently process logs four to 11 inches in diameter into specialty lumber products. Although the company has on occasion imported wood from New Zealand, CEO Peter W. Stott says the Gilchrist mill investment was designed to capitalize on fiber resources of the region - from Klamath Falls to the Columbia River and east to the Ochoco and Blue Mountains. 

The gutsy move shows real commitment to the future. The new $20-million small log line was in addition to the company's installation of a new lumber drying kiln, which added 25 million board feet of annual drying capacity to the operation. The total price tag hovers somewhere near $25 million, but the investment seems to be working: Crown Pacific Partners (NYSE: CRO) announced a smaller than expected loss for the second quarter of 2001. 

The handsome 1938 brick power house is part of the mill's history.

Lumber prices were temporarily up in April and May; log and overhead costs were somewhat lower; and the company realized higher than projected productivity from the newly upgraded sawmill and planer facility in Gilchrist. Many investors began to breathe easier. Crown Pacific has maintained an aggressive profile when other sawmills were going under. Last year, consistent with the policy of adding timberlands around its existing fiber resources, the company purchased 91,000 acres of Idaho timberlands from the Plum Creek Timber Company. 

The Crown Pacific Partners, L.P., owns and manages around 800,000 acres and prides itself on using modern forest practices to balance timber production with environmental protection. Their six sawmills are capable of producing more than 600 million board feet of lumber annually, much of it aimed for the lumber-hungry growth areas of the West and Southwest. 

But, according to a July 17, 2001, CP statement, the company is still vulnerable to a number of risks, including the volatility of timber and lumber prices, factors limiting harvesting of timber (contractual obligations, government restrictions, weather and access limitations) and, of course, the substantial capital expenditures required to supply its operations. Capital expenditures at the Gilchrist mill for this recent renovation include state-of-the-art machinery chosen for high-volume use of smaller wood. 

The two new Valon Kone Brunette (VKB) Debarkers, a Kodiak 22-inch capable of 400 fpm and a Kodiak 27-inch capable of 350 fpm, both featuring a self-centering infeed conveyor and variable speed control. Two 72-inch L&M cut-off saws, capable of 3,200 cps, are chop saws with linear positioners, optimized for length with look-up tables. For primary breakdown, the USNR (Porter Engineering) double length infeed canter twin is capable of 6,000 pcs. 

For secondary breakdown, the CAE McGehee (Porter Engineering) shape sawing 6-inch gang is also capable of 6,000 pcs. For edgers, the existing Salem OE combination gang/edger with Inovec is rated at 8,700 pcs, while the new CAE Newnes OE is at 12,000 pcs. The Modified Teco Trim/Inovec trimmer, a 16-foot multi-saw with Inovec optimization and controls, is rated at 23,142 pcs. 

The Gilchrist mill is ready for the new century. Although a few employees, both workers and management, had trouble adapting, most proved to be remarkably versatile. John Ernst, whose grandfather Frank Gilchrist originally built the mill and the company town of Gilchrist in 1938, singles out an example - Harold Loyd. Harold monitors incoming logs (double length infeed) and directs the appropriate computers. 

He has worked at the mill for more than 31 years and has lived through some major mill changes and sees his new job as just another variation on getting lumber out of a log. Working with a computer? No big deal. Of course everything is more automated. After being debarked, logs are trimmed to between eight and 16 feet in length. 

Each log goes through an optical scanner that shoots an image onto a computer screen. This image is the operator's clue how the log should be positioned to recover the most wood at the band saw. Crown Pacific knows that lumber from smaller trees is still worth two to three times more than if it had been chipped. It doesn't matter if a 2x4 came from a skinny top. If the dimensions are correct, it is acceptable. Smart utilization is a big theme. Pieces of lumber may be cut again at the band saw and then are edged and trimmed, dried in a kiln, planed, graded and packaged for shipment. 

Most of the lumber is hauled out by rail - the mill has about 10 miles in mainline railroad track - and the rest by truck. Most of it ends up in the United States, but some may go to Canada and Mexico. It is used by furniture manufacturers, construction builders, treaters, and door and window makers. Hog fuel, mostly bark from the debarkers, is taken to the historical-looking 1938 brick powerhouse, which has a small generator and turbine. The steam produced is used in the kiln drying process and the electricity generated is used for on-site power. 

There is a natural gas backup boiler if needed. The powerhouse overlooks a quiet stretch of water, the former log pond. Today it is home to Canada geese, mallard ducks, quail, deer, raccoons and squirrels - and a peaceful spot for workers to relax. The mill employs about 125 workers, who average a little over $13 an hour, and the two 40-hour shifts are an important factor in the local economy. 

According to Ernst, there is a good labor pool in the area, but he adds that the company insists on plenty of personnel training for new The handsome 1938 brick power equipment, mill procedures and, of course, safety.  The mill has a good safety record, with some of the employees CPR-trained.  Crown Pacific has a random drug testing policy, a safety component that has been in place several years.  

The company helipad is available for emergency use by both the mill and the community at large.  Ernst knows that the public has an interest in the heavy investment Crown Pacific has placed in the Gilchrist mill. He's optimistic, but reflective about this modern-day miracle and puts it in perspective.  "A key feature of this whole thing is that anybody can go out and buy machinery and optimize it for an efficient mill.  

But for us to be truly successful, we have to be sure that we select the correct machinery to match the available wood and then see that the crew is training to make it all work properly."  At a time when the Northwest is losing sawmills, it is invigorating when companies like Crown Pacific are investing in the changing future of timber products and proceeding full steam ahead.

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