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Eacom continues mill upgrades

In announcing positive third-quarter earnings, Eacom Timber also said that capital improvements to two of its mills are nearing completion and that reconstruction of its Timmins mill will began shortly.


November 14, 2012
By John Tenpenny

According to the company, third quarter saw a continuation of the significant improvement in housing activity which had a positive impact on lumber consumption, contributing to a stronger pricing environment and higher mill realizations. This improvement was somewhat offset by start-up costs at two of its mills which had been temporarily shut down since the second half of 2011, Val-d’Or and Matagami, and by downtime costs related to upgrades underway at Nairn Centre and Elk Lake.

As a result, Eacom recorded a positive adjusted EBITDA of $1,482,000 for the third quarter ended September 30, 2012, down from $2,792,000 in the previous quarter but up against a negative adjusted EBITDA of $4,367,000 in the corresponding quarter of 2011.

During the third quarter, Eacom said significant progress has been made in its capital improvements targeted at increasing the production capacity at two of its mills, Nairn Centre and Elk Lake. Improvements at Nairn Centre are now completed. Construction at Elk Lake is expected to be completed shortly following a six-week shutdown of the mill. These upgrades are expected to partially offset the capacity lost at Timmins and mitigate some of the damages incurred as a result of the fire. A significant portion of these investments will be reimbursed under the business interruption insurance claim.
Eacom also commenced preliminary preparation for the reconstruction of the Timmins mill, which was destroyed by fire earlier this year. A substantial portion of the total cost of the project is being funded from proceeds of insurance related to the fire. To date, the company has received $23,700,000 of insurance proceeds, of which $10,000,000 for damage or destruction of assets and $13,700,000 related to business interruption.

‘We are progressing well with our capital expenditure program at Nairn Centre and Elk Lake. We also moved forward with the commencement of the rebuilding process at Timmins,” said Rick Doman, president and CEO. “The company intends to continue its focused capital investments with a view to increase capacity and recovery, and reduce manufacturing costs. This should contribute to improve our competitiveness in the global forestry sector. It should also provide a more stable and sustainable employment environment for our employees in the communities where we operate,”

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For the quarter ended September 30, 2012, the net loss attributable to shareholders amounted to $964,000 or $0.00 per common share, against a net loss of $709,000 or $0.00 per common share in the previous quarter and a net loss of $564,000 or $0.00 per common share in the corresponding quarter of 2011. During the corresponding quarter of 2011, the company recorded a gain of $4,339,000 on the sale of the idled mill located in Big River, Saskatchewan and a $2,940,000 recovery of income taxes as a result of the acquisition of the remaining one-third interest in the Elk Lake mill.

During the third quarter, the Eacom recorded sales of $63,380,000, down 3% against sales of $65,256,000 in the previous quarter but up 3% against sales of $61,396,000 in the corresponding quarter of 2011. The company’s sales include both lumber and by-product sales. During the quarter, Eacom shipped 125 million board feet of lumber (133 million board feet in the previous quarter and 135 million board feet in the corresponding quarter of 2011) and 127,000 oven-dried metric tons of by-products (119,000 oven-dried metric tons in the previous quarter and 138,000 oven-dried metric tons in the corresponding quarter of 2011).

Pricing has improved again in the third quarter of 2012 with benchmark lumber prices averaging US$394/Mfbm for studs and US$404/Mfbm for random lengths delivered Great Lakes, up 2% and 3% from US$388/Mfbm and US$393/Mfbm respectively in the second quarter of 2012. Mill realizations were impacted by a slightly stronger Canadian dollar with the exchange rate relative to the US$ averaging 1.005 in the third quarter of 2012, up 2% against an average of 0.990 in the previous quarter. Compared to the corresponding quarter of 2011, studs and random lengths are trading at prices 24% and 22% above the levels achieved last year, and the Canadian dollar is down 1% relative to the US$.

Substantially all of the Eacom’s sales were to North American customers. Sales to U.S. customers are subject to export taxes and volume quotas under Option B of the Softwood Lumber Agreement. Effective July 1, 2012, the export tax rate for sales to U.S. customers decreased from 3% to 2.5%, increasing back to 3% for the months of August and September. Overall, compared to the corresponding quarter of 2011, export taxes paid by EACOM decreased from $1,095,000 to $388,000 as a result of lower shipments and a decrease in the export tax rate for sales to U.S. customers.

Lumber production for the quarter ended September 30, 2012 was 112 million board feet of lumber, against 109 million board feet in the previous quarter and 126 million board feet in the corresponding quarter of 2011. During the third quarter, Eacom operated at 45% of its capacity (40% during the previous quarter and 51% in the corresponding quarter of 2011). Mills in Val-d’Or and Matagami resumed their operations during the third quarter – these mills had been temporarily shut down since the second half of 2011 due to weak market conditions. Compared to the corresponding quarter of 2011, the capacity lost at Timmins where operations have been interrupted since January 22, 2012 as a result of the fire at the mill site has been partially mitigated by higher production levels at two other sites, and by the additional production at Elk Lake following the acquisition of the remaining one-third interest in that mill in the third quarter of 2011.
Unit costs increased compared to those experienced in the second quarter of 2012 and in the corresponding quarter of 2011 as a result of the higher cost mills resuming their operations and downtime costs related to upgrades underway at Nairn Centre and Elk Lake.