West Fraser closes mill, adapts to MPB
Oct. 25, 2013, Vancouver - West Fraser has announced a comprehensive plan to address the effects of the mountain pine beetle infestation in the interior of British Columbia. The infestation has killed vast portions of the interior pine forest, resulting in a continuing deterioration and loss of merchantable timber available to wood products producers in the interior of B.C. The goal of the company's MPB plan is to ensure the viability and competitiveness of its B.C. operations in response to the lack of available timber supply following the beetle infestation.
The three-part MPB plan consists of the exchange of certain timber rights which will help maintain the competitiveness and viability of several of West Fraser's B.C. interior mills, the closure of West Fraser's Houston, B.C. mill and the announcement of significant investments in two major mill upgrades in Smithers and 100 Mile House, B.C.
Under an agreement entered into with Canfor Corporation, West Fraser has exchanged a portion of its existing timber harvesting tenure in the Morice Timber Supply Area for Canfor's tenures located in the Quesnel and Lakes TSAs. The Quesnel tenure will provide additional timber security to West Fraser's largest and most recently rebuilt sawmill located in Quesnel, B.C. which has over 400 employees. The Lakes tenure combined with the remaining Morice tenure will provide additional timber security for the company's sawmills located in Smithers and Fraser Lake, B.C. which together have over 500 employees.
Regrettably, the MPB Plan also includes the permanent closure of West Fraser's Houston mill. Closure of the mill will be completed in the second quarter of 2014 and will affect 225 employees. Where possible, the company will be assisting employees to transition to other West Fraser operations in B.C. and Alberta.
The timber exchange provides access to additional timber in key areas that will support a capital investment plan aimed at ensuring the Company's B.C. mills are modern, efficient and well-capitalized. Under the MPB plan, the company will proceed with major rebuilds of its 100 Mile House and Smithers sawmills.
West Fraser has recently completed a rebuild of its Chetwynd sawmill and is currently modernizing the planer at its Williams Lake sawmill. West Fraser is also proceeding with two previously announced bioenergy projects expected to improve the profitability of its Fraser Lake and Chetwynd sawmills. When completed, each bioenergy plant is expected to generate approximately 90 GWh of power produced from wood biomass, enough energy to power over 8,000 homes annually.
Ted Seraphim, West Fraser's President and CEO, said: "The mountain pine beetle devastation has and will continue to undermine the availability of merchantable timber in the interior of B.C. The shutdown of our Houston mill has been a difficult decision and we will work closely with the affected employees to support them through this process. Our first priority is to explore opportunities to transition Houston employees to one of our other operations and we will provide assistance in finding new employment."
Mr. Seraphim added: "The competitiveness of our operations in B.C. will be significantly improved with the completion of the projects announced today, which are part of a $350 million B.C. capital investment program."
Additional information about the MPB plan is included in a backgrounder released concurrently with this news release. The timber rights exchange may be subject to customary competition-related government or regulatory reviews and any such review could result in a requirement to make changes to the exchange.
West Fraser Mountain Pine Beetle Plan
The mountain pine beetle infestation has had a devastating effect on the pine forest of British Columbia. For more than a decade, West Fraser has been aggressively salvaging beetle-killed pine and continues to do so. The MPB epidemic has killed a significant proportion of the available pine forest in the interior region of B.C. and is causing constrained supplies of merchantable timber in affected areas. Recent forecasts have predicted that the allowable harvest in the interior of B.C. could be reduced by more than 30 per cent from current levels.
West Fraser's MPB plan addresses some of the effects of the MPB infestation on the Company's operations in the interior of B.C. The MPB plan consists of three parts: securing an improved long-term timber supply, the permanent closure of one of the Company's B.C. mills and a capital investment plan to strengthen operations in the province.
Timber Supply Security: The Tenure Exchange
West Fraser has entered into an agreement with Canfor to exchange certain timber harvesting rights in the interior of B.C. Under the timber exchange, West Fraser has received a replaceable forest licence in the Quesnel Timber Supply Area with an AAC of 382,194 m3 per year, a replaceable forest licence in the Lakes Timber Supply Area with an AAC of 53,627 m3 per year and a non-replaceable forest licence in the Quesnel Timber Supply Area with an AAC of 166,667 m3 expiring on January 31, 2017.
Under the timber exchange, Canfor has received a replaceable forest licence in the Morice Timber Supply Area with an AAC of 324,500 m3 per year.
The Quesnel timber tenures strengthen the fibre security of West Fraser's largest sawmill located in Quesnel, B.C. The remaining Morice tenure still held by West Fraser and the Lakes tenure improves the fibre security for West Fraser's sawmills located in Smithers and Fraser Lake, B.C.
Permanent Closure of Houston Forest Products
Houston is approximately 300 kilometres west of Prince George, which is located in the centre of B.C. The timber resource in the region from Houston to Prince George has been heavily affected by the MPB epidemic. The Houston mill has an annual capacity to produce up to 275 MMfbm of dimension softwood lumber. The mill has 225 employees.
It is currently anticipated that the sawmill will operate through the first quarter of 2014 and then will begin a gradual closure process that will be completed by the end of the second quarter of 2014. The company will be assisting employees to transition to other West Fraser operations as well as providing additional placement assistance and retirement planning support. We regret the impact this decision has on our employees, their families and the community.
$350 Million Capital Investment in B.C.
During the three-year period from 2012 and through 2014, West Fraser expects to invest in excess of $350 million in its B.C. operations. Major projects announced today include the following:
-- Smithers - major sawmill upgrade scheduled for 2014.
-- 100 Mile House - major sawmill upgrade scheduled for 2014.
Major projects either completed or currently in progress include the following:
-- Cariboo Pulp & Paper (Quesnel) - cogeneration turbogenerator
which produces electricity for sale to B.C. Hydro under a long-term
contract and an upgrade of the mill's chlorine dioxide (CIO2) generators
-- Chetwynd - construction of a bioenergy project is underway and
anticipated to be completed in 2014, producing electricity for sale to
B.C. Hydro under a long-term contract. A rebuild of the sawmill was also
completed in 2013.
-- Fraser Lake (sawmill) - construction of a bioenergy project is underway
and anticipated to be completed in 2014, producing electricity for sale
to B.C. Hydro under a long-term contract.
-- Quesnel River Pulp (pulp mill) - upgraded to low consistency refiners to
reduce electrical energy consumption (2012).
-- Williams Lake (sawmill) - planer modernization completed in 2013.
West Fraser has had a long and successful history in B.C. These and other investments in West Fraser's B.C. operations will support our operations' long-term competitiveness in spite of the challenges created by the beetle infestation. While this is a difficult time for our Houston operation, overall, West Fraser's MPB plan is a comprehensive approach to strengthen the company's mills in B.C.
To view the map of West Fraser's B.C. operations relative to the Timber Supply Areas under the MPB plan, please click the following link: http://media3.marketwire.com/docs/wft.jpg.