Interfor to upgrade Castlegar Sawmill
Nov. 7, 2014, Vancouver - Interfor's Board of Directors has approved a $50 million capital project to upgrade the company's sawmill in Castlegar, BC.
The project will convert the Castlegar mill to a 2-line operation with state-of-the-art technology and optimization. "We expect significant improvements in lumber recovery, productivity and grade outturns as well as lower conversion costs as a result of the investment," said Duncan Davies, Interfor's President & CEO. The project will also eliminate the need for approximately $20 million in maintenance-related capital spending over the next four years.
Rated capacity of the mill calculated on a full two-shift basis will be in the range of 210 million board feet per year compared with the current level of 185 million board feet. Proforma cash payback on the project is less than three years.
Interfor has a long history with capital projects of a similar nature including rebuilds of the Company's sawmills at Port Angeles (2006), Adams Lake (2009), and most recently, Grand Forks (2012). Each of these projects was delivered on time and on budget and generated returns in excess of proforma.
The project is scheduled for completion in the fourth quarter of 2015 and will require approximately 30 days of operational downtime during the construction period. Full operating performance is targeted for the first quarter of 2016.
Interfor's Q3 results
Interfor reported net earnings of $11.0 million, or $0.16 per share, and EBITDA of $45.4 million for the third quarter of 2014. These figures compare with net earnings and EBITDA of $7.4 million and $47.3 million respectively in the second quarter of 2014 and a loss of $130,000 and EBITDA of $24.6 million in the third quarter of 2013. Sales revenue amounted to $373 million in the third quarter compared with $390 million in the second quarter and $273 million in the third quarter last year.
Lumber production in the third quarter was 567 million board feet, down 15 million board feet or 3% compared with the second quarter. Adjusting for the production of the Beaver-Forks operation, which was closed permanently at the end of the second quarter, production was up 7 million board feet compared with the second quarter and up 143 million board feet relative to the third quarter of 2013.
Net earnings in the third quarter include $0.7 million of expenses associated with the wind-down of the Beaver-Forks operation.
Long-term incentive compensation expense of $3.6 million was recorded in the third quarter compared with a recovery of $0.4 million in the second quarter.
In the third quarter, Interfor generated $40.1 million of cash from operations before working capital changes and $69.0 million after working capital changes were considered. Capital spending amounted to $22.4 million during the quarter.
The Company reduced its net debt during the quarter to $203.6 million or 24.4% of invested capital, leaving $163.7 million of availability under its credit facilities.
Average commodity lumber prices varied by species and dimension in the third quarter. The Western SPF 2x4 benchmark price increased US$22 to US$357, rebounding from a year-to-date low in June, while the SYP Eastside 2x4 benchmark price improved US$33 to US$438. Prices for wide dimension SYP fell US$15 to US$60 depending on width as demand for those products adjusted to seasonal factors. The HF Stud 2x4 9' benchmark price dropped US$24 to US$385 as supply outpaced demand while 8' was up US$13. Demand for lumber in China was steady in spite of tighter credit conditions while price levels softened by approximately 5%. Prices in Japan were 5-7% lower as the market adjusted to the recent VAT increase as well as increases in domestic supply and a drop in the value of the yen.
Higher log costs in the BC Interior and Coastal regions affected margins in those areas in the third quarter while lower log prices positively impacted results in the US Pacific Northwest.
The Canadian dollar weakened by almost 5% against the US dollar during the quarter, closing at US$0.8922 versus US$0.9367 in the second quarter, which had a positive impact on the Company's earnings in the quarter.
North American commodity lumber prices during the fourth quarter should continue to reflect the slow but steady increase in U.S. housing demand. Demand and prices in China are expected to remain stable in the fourth quarter. Japan is expected to remain soft as the housing market adjusts to the VAT increase and changes in currency values.