TSX: WEF
DUNCAN, BC, Dec. 15 /CNW/ - Western Forest Products today announced the
closure of its pulp mill located in Squamish, BC effective March 9, 2006. The
mill, which has an annual capacity of 275,000 tonnes of NBSK pulp, will
continue production until the week of January 23, 2006 after which time
shutdown activities would commence. The closure affects 323 employees in
various locations.
"Financial results from the pulp segment of our business have been
unacceptable for many years," said Reynold Hert, President and Chief Executive
Officer. "Having considered the long-term market outlook, the impact of rising
fibre and energy costs and the high capital requirements, we determined that
the best long-term decision for Western was to exit the pulp segment and
narrow our focus to our lumber business. We pursued the sale of the mill for
an extensive period but were ultimately unsuccessful and, as a result we are
proceeding with the closure plans announced today."
"This is a difficult decision as many long-term employees are affected,"
continued Hert. "Our team at Squamish have worked hard to improve operations
but it is a relatively small mill by industry standards with outdated
technology and high costs. We met with employees this afternoon and assured
them that people will be treated fairly and according to the terms of the
collective agreement and statutory requirements."
Preliminary estimates indicate the closure of the Squamish pulp mill will
result in a pre-tax restructuring charge in the fourth quarter of
approximately $80 million, including a non-cash charge of approximately
$46 million relating to the write-down of fixed assets and supplies
inventories.
Replacement Fibre Supply Arrangements
Wood chips from Western's four Vancouver Island sawmills previously
consumed at the Squamish pulp mill and surplus to the Company's other
long-term commitments will be sold under a new agreement with a partnership of
Canadian Forest Products Ltd. and Oji Paper Canada Ltd. for consumption at the
Howe Sound Pulp and Paper mill. As consideration for entering the fibre supply
agreement, Western will receive a non-refundable payment of $35 million in
cash on closing in the form of a pre-payment against future deliveries of
chips. Cash proceeds from the transaction will be used by Western to fund
closure costs at the Squamish pulp mill.
Under the new fibre supply agreement, Western is required to sell a
minimum of 200,000 volumetric units of chips per year and at least 900,000
volumetric units of chips during any three year period for the initial ten
year contractual period based on the market price under long-term chip
contracts on the coast of British Columbia plus a fixed premium. The
$35 million cash pre-payment received by Western will be amortized for the
purposes of the agreement at a rate equal to the fixed premium against future
deliveries over approximately ten years.
Western will also sell all pulp logs harvested off of its Crown tenures
and timberlands at market prices under the agreement. The agreement will have
an initial 40 year term and subject to mutual agreement, is extendable for an
additional five years.
Acquisition of Englewood Logging Division
In a related transaction, Western has entered into a definitive agreement
to acquire substantially all of the assets associated with Canfor's Englewood
Logging Division, including 945,000 cubic metres of annual harvest rights
under Tree Farm License 37 ("TFL 37"), for $45 million plus the value of
certain log inventories at closing. The $45 million purchase price will be
paid for by the amortization of the balance of the fixed premium, after the
$35 million cash prepayment has been amortized in full, against future
deliveries of chips under the previously discussed fibre supply agreement.
Payment for the log inventories, net of certain adjustments, will be made by
Western in cash at closing. To secure payment of the $45 million fixed
purchase price and certain minimum performance obligations under the fibre
supply agreement, Western has agreed to grant a security interest in TFL 37
and the associated assets, which security will be released on the tenth
anniversary of the fibre supply agreement.
The Englewood Logging Division is located on northern Vancouver Island
adjacent to Western's main logging operations. The harvest rights under TFL 37
include approximately 4,725 hectares of private lands. In addition, the
acquisition includes three timber licenses also on Vancouver Island, existing
capital improvements and infrastructure; machinery, equipment and railway
rolling stock. Western will assume certain contracts and equipment leases and
will offer employment to approximately 275 employees currently involved in
harvesting operations but will not assume any other material liabilities
relating to the assets prior to closing. By combining and streamlining
operations with its own activities, Western expects to capture annual
synergies in excess of $6 million within 48 months of closing.
Closing of the fibre supply agreement and the acquisition of the
Englewood Logging Division is expected to occur early in the first quarter of
2006 and is subject to the receipt of regulatory approvals.
"The forest products sector on the coast of British Columbia has been
under significant pressure for the past two decades. We believe that today's
moves when combined with our previously announced acquisition of Cascadia
Forest Products Ltd. give us the opportunity of building a stronger and
sustainable lumber business capable of competing in global softwood markets,"
said Hert.
About Western:
Western is an integrated Canadian forest products company and the second
largest coastal woodland operator in British Columbia. Principal activities
conducted by Western and its subsidiaries include timber harvesting,
reforestation, sawmilling logs into lumber and wood chips, value-added
remanufacturing and producing NBSK pulp. Over 95% of Western's logging is
conducted on government owned timberlands in British Columbia. All of
Western's operations, employees and corporate facilities are located in the
coastal region of British Columbia and its products are sold in over 25
countries worldwide.
Forward Looking Statement
This press release contains statements that are forward-looking in
nature. Those statements appear in a number of places herein and include
statements regarding the intent, belief or current expectations of Western,
primarily with respect to market and general economic conditions, future
costs, expenditures, available harvest levels and future operating performance
of Western. Such statements may be indicated by words such as "estimate",
"expect", "anticipate", "plan", "intend", "believe", "will", "should", "may"
and similar words and phrases. Readers are cautioned that any such
forward-looking statements are not guarantees and may involve known and
unknown risks and uncertainties, and that actual results may differ from those
expressed or implied in the forward-looking statements as a result of various
factors, including general economic and business conditions, product selling
prices, raw material and operating costs, changes in foreign- currency
exchange rates, changes in government regulation, fluctuations in demand and
supply for Western's products, industry production levels, the ability of
Western to execute its business plan and misjudgements in the course of
preparing forward-looking statements. The information contained under the
"Risk Factors" section of Western's Annual Information Form and under the
"Risk Factors" section of Western's Form 20-F/A identifies important factors
that could cause such differences. All written and oral forward- looking
statements attributable to Western or persons acting on behalf of Western are
expressly qualified in their entirety by the foregoing cautionary statements.
Western does not expect to update forward-looking statements as conditions
change.
