Posts Tagged ‘Thurso Pulp Mill’

THE OTTAWA CITIZEN: “The Future Looks Fluffy”

Posted: Wednesday, September 1st, 2010

Driven by the imperatives of globalized economics and digital technology, Ottawa’s pulp-and-paper heritage has been reduced to a remnant.

The forestry industry that built the Ottawa-Gatineau economy appears to be on its last legs.

Hammered by the Internet’s growing grip on personal communications, the rich Canadian dollar and intense competition, the forestry industry continues to slash operations in the hopes of finding a smaller, profitable core.

The industry, which employed 5,000 people just 20 years ago, today has dwindled as Domtar-Eddy mills in Ottawa, an AbitibiBowater mill in Gatineau, a Smurfit-Stone mill at Portage, and Domtar mills in Cornwall slashed staff and finally closed. Fewer than 1,200 jobs remain, focused on a few niche markets far removed from the newsprint and lumber products that drove the industry for 150 years.

Next to go could be 200 jobs at Papier Masson, a newsprint operation in the east end of Gatineau, which was founded James Maclaren, a pulp and paper pioneer, and later owned by Noranda.

White Birch Paper of Connecticut, Papier Masson’s current owner, has hired Lazard Freres, the New York private banker that helped sell Nortel assets, to find new owners for three mills in Quebec and one in the U.S.

White Birch, operating under bankruptcy protection since February, opened the doors to prospective bidders last month.

The threat is there will be no bidders and that some mills will close in a major restructuring, adding to the thousands of lost jobs in the industry.

Certainly, the relentless march of the Internet into every corner of human communications is destroying demand for newsprint, telephone directories, copying paper, books, magazines and glossy printed advertising across the Western world.

The result is that mills that employed thousands and drove the industry for more than 80 years are being sold for less than $3 million each.

One huge AbitibiBowater mill in Thunder Bay sold for just $100,000 because of environmental cleanup issues.

The recently upgraded machinery in four former AbitibiBowater mills sold for just $5 million — not much more than scrap value.

The real value now is in the land, including about 40 acres controlled by Domtar in the heart of Hull across the Chaudière Bridge and Chaudière Island into Ottawa.

However, while the Ottawa regional industry is in deep trouble, new profitable product lines are emerging and demand for older products is rebounding, at least temporarily.

The trouble is that most of the Ottawa regional mills are too big or too old to be revived. With governments taking a hands-off approach — after spending billions bailing out GM and Chrysler — bankruptcy courts will decide the fate of underfunded pension plans, unpaid severance and struggling suppliers.

The federal government finally rolled out a $170-million investment program this week, too late for most Ottawa companies.

“The forestry industry employs more people in more places across Canada than the auto industry, but governments have turned their backs,” said Kim Ginter, a vice-president of the Communications, Energy and Paperworkers union.

“Many mills are competitive, but need investment. We still have the best source of fibre in Canada, but, once the mills go, it will be very hard to get them back.”

For the few survivors, there could be light at the end of the tunnel.

After years of declining sales and heavy losses, sales of many forestry products companies rebounded in the last six months.

It wasn’t much, just two per cent in the case of Domtar and other companies, but it surprised analysts and had business leaders and bankruptcy monitors scratching their heads. They had expected declines of at least two per cent.

Sales of AbitibiBowater rose 2.6 per cent between April and May, though the wounded newsprint giant is mired in bankruptcy.

Even before it shut the huge Gatineau mill this spring, AbitibiBowater had slashed newsprint production by 3.4 million metric tonnes or 32 per cent since 2007. It also sold off $940 million in assets, including $615 million in a Quebec power company.

A surprised bankruptcy monitor reported last month that White Birch sales were not significantly hurt despite the stigma of defaulting on loans and pension obligations and seeking court protection from creditors.

Sales at Papier Masson were 18 per cent higher than the monitor predicted for the June quarter, and the White Birch cash burn was 70 per cent lower than forecast.

The reason is basic economics: Deep, permanent cuts to production mean that prices jump with the smallest improvement in sales. While demand for newsprint continues to fall, the deep production cuts of the 2008-2009 recession were deeper than immediately necessary.

The result is the price of pulp was more than 50 per cent higher in the June quarter from a year earlier, and Domtar is running hard in a bid to keep up.

Domtar chief executive John Williams told an industry conference: “If you look at tissue, if you look at toweling, if you look at printing and writing, in the geographies where we are selling, those markets are actually growing. So we see a long-term pretty positive trend for pulp.”

His company converted a Massachusetts mill from newsprint pulp to fluff pulp.

“We currently sell 150,000 tons of fluff pulp, (and) we’ll move up to 444,000 tons (by December 2010.)

“If you take fluff pulp, it’s largely used in diaper markets and in the incontinence marketplace. That’s a very fast-growing market both in developed economies and developing countries because of the demographic.”

Fluff pulp doesn’t have the brawny feel of the traditional products like lumber and newsprint that defined the industry and Stompin’ Tom Connors is unlikely to add a new verse about fluff pulp or air-laid superabsorbent paper to Big Joe Mufferaw, his ballad celebrating the Ottawa Valley logger and raftsman, but fluff pulp is immune to the Internet.

Glatfelter, a Pennsylvania specialty paper producer that makes tea bags and labels, bought the Concert Industries plant near the Gatineau airport in January for $246.5 million. It employs 285 people making super-absorbent paper sold to companies like Procter & Gamble and Johnson&Johnson.

It is primarily used in feminine hygiene products, a market that is growing about five per cent annually as the combination of growing prosperity and a huge young population opens new markets.

Farther east in Thurso, the moribund Fraser Pulp mill, once owned by James Maclaren, is being revived after it was closed a year ago. Fortress Paper is converting the mill to produce cellulose used in rayon, a cheaper, more environmentally-sound alternative to cotton.

“The forest products industry will continue to decline and there will be more pain,” Fortess founder Chad Wasilenkoff said.

“But there are still specialty niche production operations available at attractive prices which can yield good profits.”

While buying the Thurso pulp mill makes sense, he said that buying newsprint mills in North America did not. “This is still an industry that is profitable only about one year in 10.”

The share price of his company has quadrupled in the last year in part because of two profitable mills in Europe that produce paper for the banknote and wallpaper industry.

Better still is the Kruger Products mill on Rue Laurier next to the Museum of Civilization. For much of its 70-year history, it had a water tower with a White Swan logo that made it a landmark.

Today it is the sole survivor of the E.B. Eddy-Domtar mills, which, for 160 years, stretched from the Museum of Civilization site to the Chaudière Bridge and onto Lebreton Flats.

Three Kruger papermaking machines roar around the clock, turning out Spongetowels, Scotties and White Swan industrial towels.

Kruger employs 475 people at the mill and another plant in Hull that processes and packages the material.

It is spending $4.8 million with Quebec government assistance to capture lost steam, reduce operating expenses and reduce the carbon footprint of machines that have been running for 60 years.

With backing from governments, companies like Domtar are investing in new technology to make operations cleaner, greener and more efficient.

Domtar is investing $32 million in new technology to create nanocrystaline cellulose used in optically-reflective films, high-durability varnishes and bioplastics.

The biggest problem for the North American newsprint mills is they are situated in the wrong places.

There is growing demand in developing countries, but newsprint is heavy and expensive to ship. This spring, Canadian newsprint sales to Asia tripled, with two-thirds of the business in India, as buyers stepped aggressively into markets to rebuild inventories depleted during the recession.

No one expects this trend to continue, however. The newsprint industry is still bracing for reductions averaging four per cent annually in demand.

“The paper industry is not going to die,” says Martine Hamel of the Pulp and Paper Products Council. “It faces major challenges, which will mean it will continue to get smaller and focused on different products.

“But the decline will eventually level off and we will still have an important industry and significant employer.”

By Bert Hill for The Ottawa Citizen. September 1st, 2010.

SOURCE:
The Ottawa Citizen: “The Future Looks Fluffy”

The Ottawa Citizen: “Sniffing Out Hidden Value”

Posted: Wednesday, August 18th, 2010

For contrarian Chad Wasilenkoff, a nose for overlooked potential led him to a pulp mill in Thurso. Bert Hill reports for The Ottawa Citizen.

OTTAWA — From golf courses to art auctions and old mill towns, value can hide in unexpected places.

Just ask Chad Wasilenkoff, the 38-year-old chief executive officer of Fortress Paper Ltd.

When he was a child in Calgary he built a savings account fishing golf balls out of ponds and buying and selling video games, BMX bikes and other popular products he found in want ads.

He learned market timing. He and a friend snapped up Robert Bateman prints for a few hundred dollars each at a deserted auction in the middle of a Calgary snowstorm and sold them for more than $1,000.

That might seem a long jump from Fortress’ latest coup — a mothballed pulp plant in Thurso that, for generations, was the bane of the capital region because of its smelly rotten-egg emissions.

The mill, which stood empty for a year because of the forest industry collapse, is now back in production. The 300 employees are producing hardwood pulp, suddenly profitable because of a strong — but likely temporary — increase in demand in Asia.

Early next year, it will start producing dissolving pulp to feed the developing world’s demand for rayon used in clothing.

Though Thurso has yet to produce the new pulp, Wasilenkoff said he got “multiple overtures” during a recent business trip to China from investors who wanted to buy the whole mill or a minority stake.

He said textile industry customers are lining up to negotiate for the specialized pulp with starting offers he considers surprisingly high.

With all the production likely to be committed soon, he is looking to convert other mills. There are no other suitable mills in the Ottawa area, but “we are searching the planet for more of these opportunities,” he said.

Wasilenkoff said he plans to stay in dissolving pulp, unless an attractive offer comes along.

“We are in this for the long haul. But money talks and at the right price, everything is for sale.”

Fortress shares have quadrupled this year as investors discovered the magic of a tiny profitable player in an industry still covered with red ink. The firm just snapped up $44 million in a new stock offering.

Trading at $28 this week, the company now has a market capitalization approaching $400 million.

Wasilenkoff owns 23 per cent of the Vancouver-based company.

The rapid acceleration of the stock from below $10 in January has some analysts worrying.

TD Newcrest analyst Sean Steuart downgraded the stock to “hold” from “buy” this week, although Fortress beat his sales and profit forecasts for the June quarter.

With the price up 31 per cent in less than a month since he put on the buy recommendation, Steuart took action because of concern that the stock valuation is running ahead of underlying business.

“Management has earned our benefit of the doubt, but there are several major projects on the go right now.

“We would prefer the company deliver on current capital expenditure plans before looking at additional expansion opportunities.”

Wasilenkoff says he is a contrarian. When the investing public is chasing the latest hot stocks and investment ideas, he looks elsewhere.

It was a philosophy he learned the hard way: He read weighty analyst reports during the technology boom and lost heavily when prices collapsed.

It is a philosophy that has allowed him to benefit from buying gold, copper and other assets when prices were deeply depressed. It takes nerve and patience to stay away from the herd.

He also learned never to fall in love with an asset. If his analysis said the prices had passed sustainable levels, as it did with uranium and a stake in Cameco, he sold and the market eventually followed.

Now he has embraced the pulp and paper industry, a business loved today only by bankruptcy lawyers.

Canada is rapidly shedding a world-class industry that for 90 years supported tens of thousands of jobs and billions of dollars in global sales.

Governments, which rushed to bail out the auto industry, are taking a hands-off attitude to the forestry industry, its unemployed workers and underfunded pension funds.

Mills across Ontario and Quebec that would cost billions to replace are selling today for a few million dollars each. An empty Thunder Bay mill recently sold for just $100,000. Production machinery is being sold for scrap or shipped abroad.

“There are a lot of smaller mills that were considered too uncompetitive to survive against the big mills,” Wasilenkoff said.

“But markets have changed. Now there is opportunity and good profit margins in the small mills with the right products and technology.”

He doesn’t see the traditional newsprint, photocopying or related pulp markets recovering soon in North America.

But mills with profitable specialty products have a future.

He tried to buy the former Concert Industries mill in Gatineau, which makes air-laid paper used in diapers and incontinence and feminine hygiene pads. Glatfelter, a small specialty Pennsylvania producer of everything from labels to tea bags, won the asset.

Fortress owns a wallpaper plant in Germany and a bank-note plant in Switzerland, where it is investing to expand production.

Wallpaper must be due for a turnaround because it has been out of fashion so long, particularly in North America.

But in eastern Europe demand continues to grow though assets are depressed.

Fortress bought a mill in Germany that makes dry-strippable paper, a profitable niche.

“We spent less than $5 million but now it is generating $3 million a month in business.”

The latest coup was the former Fraser Pulp kraft mill in Thurso, originally a key part of the old James Maclaren and Noranda empires.

It makes hardwood pulp, a market commodity that has been losing ground steadily to softwood pulp.

The mill closed in June 2009 when Fraser Pulp tumbled into bankruptcy protection, laying off hundreds of employees.

It appeared headed for the scrap heap, like other older mills in Ottawa, Gatineau, Cornwall and Portage du Fort.

Fortress bought the old mill — with buildings, land and machinery worth $45 million — for just $3 million.

It embraced a plan, promoted in the local community,

to generate electricity from biomass for sale to Hydro-Québec.

Fortress will spend $153 million converting the mill to dissolving pulp production. Investissement-Québec is providing a $102.4-million loan, to be combined with

$25 million in federal tax credits and other incentives. When it opens, it will be second-largest of its kind in the world, behind only a plant in Brazil.

Wasilenkoff got a great deal on the enormous digester tubes and other sophisticated equipment needed to make dissolving pulp. They will arrive by barge next month.

Russia shut off exports of pulp logs in a move that stranded a Stora mill in Finland.

Fortress bought the machinery for $3 million, or less than 10 per cent of replacement costs.

The company is also enjoying the luck of a sudden pick up in pulp demand and prices. Global demand has snapped back from the 2008-2009 recession. With production permanently reduced by many permanent closings, prices have jumped 50 per cent in the last year.

When Fortress hired 300 former employees and started production in late May, it caught the new market demand.

Wasilenkoff does not expect the prices to hold because the global industry is only profitable one or two years every decade.

But he believes the prices will hold up until it completes the conversion next year.

With a strong push from the Thurso products, Fortress adjusted profits jumped almost 60 per cent to $4.3 million in the June quarter and sales rose 22 per cent to $60.5 million compared to a year earlier.

SOURCE:
The Ottawa Citizen: “Sniffing Out Hidden Value”