NEWS RELEASE · 29th October 2009
WEST FRASER TIMBER CO. LTD.
West Fraser ("WFT") to Permanently Close Eurocan Operation in Kitimat, B.C.
VANCOUVER, BRITISH COLUMBIA - (Marketwire - Oct. 28, 2009) - After many years of ongoing efforts to reduce operating costs and improve results at West Fraser's (TSX:WFT) Eurocan paper mill in Kitimat, B.C., the Company announced today that it will permanently close the unprofitable operation. The closure is expected to take place on January 31, 2010.
"We deeply regret the impact the mill closure will have on our 535 employees, their families and the community and we will ensure those who are affected are treated with fairness and respect," said Hank Ketcham, West Fraser's Chairman, President and CEO.
The 40-year-old mill, which produces linerboard and kraft paper, has historically struggled with high costs and negative returns. A contributing factor to the mill's problems in recent years has been sawmill curtailments in the region, which have reduced the supply of lower-cost residual wood chips to Eurocan and increased the mill's reliance on more expensive whole log chips.
In addition to these ongoing challenges, the mill's situation took a dramatic negative turn during the past year. Since December of 2008 Eurocan has experienced a drop of approximately 40 per cent in the net selling price of its products. This decline has been driven by the global economic slowdown, the rise of the Canadian dollar and severe competition from low-cost paper producers in other countries.
"A deep and thorough review by the Company looked at ways to offset the steep decline in Eurocan's financial results," said Mr. Ketcham. "Unfortunately, even with the most optimistic projections the business fundamentals of the operation have deteriorated to the point where permanent closure is the only reasonable alternative."
West Fraser will record an asset impairment charge in the third quarter of 2009 of $138 million related to the property plant and equipment and certain other assets at the Kitimat facility. In addition, West Fraser will incur costs over the next several quarters related to the shutdown of the facility. The total of these costs is estimated to be approximately $70 million.
This News Release and the accompanying Backgrounder contain certain statements about potential future developments, in particular, the Company's decision to close its Eurocan operation at Kitimat, B.C. and the related asset-impairment charge and costs. These are forward-looking statements and are presented to provide reasonable guidance to the reader but their accuracy depends on a number of assumptions and is subject to various risks and uncertainties including the estimated cost of shutting down the facility. Actual outcomes and results may differ materially from those anticipated or projected. Accordingly, readers should exercise caution in relying upon forward-looking statements and the Company undertakes no obligation to publicly revise them to reflect subsequent events or circumstances except as required by applicable securities laws.
West Fraser is an integrated wood products company producing lumber, LVL, MDF, plywood, pulp, linerboard, kraft paper and newsprint. The Company has operations in western Canada and the southern United States.
West Fraser shares trade on the Toronto Stock Exchange under the symbol: "WFT".
BACKGROUNDER TO OCTOBER 28, 2009 NEWS RELEASE
EUROCAN MILL CLOSURE
October 28, 2009
* Current market conditions: Since December of 2008 the net selling price of Eurocan's products has dropped approximately 40 per cent. The decline has been driven by a number of factors, including the global economic slowdown, the rise of the Canadian dollar and severe competition from low-cost paper producers in other countries.
* Impact of exchange rate: Eurocan's revenues are extremely sensitive to the Canada-U.S. exchange rate. For every penny increase in the Canadian dollar, revenues are reduced by approximately $3 million per year. Over the past year the dollar has increased by as much as 15 cents against its American counterpart and this has severely reduced the mill's revenues.
* Impact of B.C.'s changing wood fibre market:
o Residual wood chips (a by-product of sawmill operations) have traditionally provided a lower-cost, local source of fibre for Eurocan.
o In recent years, with sawmill shutdowns and production curtailments in the surrounding area, there has been a growing shortage of lower-cost fibre available to the Eurocan mill.
o Today about 20 per cent of Eurocan's fibre needs are being met with whole log chips, which are significantly more expensive than residual chips.
o To remain viable, sawmills need to have long term, secure customers for their wood chips. With the closure of Eurocan, residual chips from West Fraser's sawmills in Houston, Smithers and Fraser Lake will now go to pulp mills in Prince George and Quesnel.
o The Mountain Pine Beetle infestation is expected to have a long-term negative impact on the province's softwood lumber production, which will reduce the availability and increase the cost of fibre for the pulp and paper industry in the Northern Interior.
* Jobs lost as a result of permanent closure: approximately 535 (of approximately 8,500 West Fraser employees)
* Location: 640 km north of Vancouver on the B.C. coast
* Age of mill: 40 years
* Ownership history: Eurocan was built in the late 1960s. West Fraser became a joint venture partner in the 1980s and then acquired the operations in 1993.
* Products: about 75 per cent of Eurocan's paper production is linerboard (a component of corrugated cardboard boxes) and about 25 per cent is kraft paper (used in a variety of applications, including cement packaging)
* Production: Eurocan produces approximately 450,000 tonnes of paper products each year, or about 2 per cent of total Canadian pulp and paper production.
Kitimat RCMP were out in force near Eurocan doing a seatbelt check this afternoon. As many as 8 officers were stopping cars to do this check
Look to Harmac Nanaimo success story.
Comment by Olevia on 1st November 2009
39 years ago we joined the accounting department of Eurocan. Yes we moved on. Our hope is Eurocan employees of today will not let West Fraser canibalize the mill to sell to China in pieces and guard it from now on. It is important to buy your job like Harmac Nanaimo has as now they have put on their 3rd shift and we are so proud of them. No there aren't jobs elsewhere. You have to bloom where you grow folks. Getting rid of the big top salaries and cutting operations to the bone along with pride of ownership and you can do it. Worker ownership is the way to go. Don't let the fluctuating dollar influence you. You have the trees, the workers and with a will it will happen.
This is for me
Comment by Satans Sombrero on 30th October 2009
Me , you are right Kitimat has had it pretty good and for the most part ,have never really suffered.What i dont understand is why you take great joy in seeing the people of kitimat suffer now.You should be asking the question ,why do corporations have to be so greedy .The people of Kitimat are fighters and yes eventually we will recover ,we are not like most of the lethargic, whatever will be will be attitude types here. We will do what it takes to hold the companies that come to this town accountable and will hold them up to the highest expectations. We will give them our sweat and blood in return for good high paying jobs. People deserve to enjoy the fruits of their labour ,not just the shareholders .
Yea its sad but.....
Comment by Me on 30th October 2009
For the most part Kitimat has not faced what alot of BC has already faced and still is facing economy wise....THIS IS NOT A SHOCK! and why the " why us??" attitude...many people has lost their jobs in the last few years....
What is more scary is how a community which has been used to things being handed to them , (they still have no appreciation for Alcan)...will they be as resilient as other communitys have had to be?
Give me a break
Comment by Satans Sombrero on 29th October 2009
Emar ,Give your head a shake dude ,You cant blame city council for this .They new as much as anyone about the mill shutting down.Its our provincial politicians who have created the mess in the forest industry.
Comment by emar on 29th October 2009
Congratulations to past and present Mayors and Council for letting another major employer leave our community. Not once did I hear of Think Tanking together with the industries and going as a group to see the ministers and Premier of our province. They have had trouble for a few years and nothing was ever done to try and avoid these closures. Now all political elected members are coming out of the woodwork showing concern, well I am sorry it is too little too late for the people of Kitimat. I guess we now have to depend on all the new businesses and industries you have promised us that are coming to Kitimat soon or if ever.
Time for some new ideas
Comment by Sim on 29th October 2009
Perhaps the big whigs should have listened years ago and put a chipper at the site. Rather than shipping chips in, which as logs were shipped to other mills and chipped there, perhaps we could have utilized the vast amounts of trees being cut down around here and being shipped somewhere else! Might have helped...just a thought. Or how about using that terminal down by the water there, yah the ocean! to perhaps import or export other products.....you know big empty piece of land with a wharf that parks two ships at a time, that rarely has one ship a week at it.....hmmm might have bin useful. Time for the employees and the city to step in take the mill and let someone who cares about the community run it not a boardroom in who knows where.
Comment by leo on 28th October 2009
is west fraser selling or going to sell raw logs?
is the mill going to be sold and relocated?
is there anyone out there that is concerned with raw logs leaving B.C.?
The Bubble Has Burst - but not by who we thought
Comment by HB on 28th October 2009
For years now Kitimat has lived in a bubble away from the realities of struggle & job loss. Now it is hitting home in a terrible way. My heart goes out to the employees and their families. I hope we as a community will do everything to help wherever we can.
Comment by Jessy Damaso on 28th October 2009
When I opened the Kitimat Daily today on my computer I expected to read the usual; more Rio-Tinto Alcan BS, McLaren vs. Gottschling; on-going Haisla court case; and something about tanker ships and the environment. To read that West Fraser is closing Eurocan has left me feeling shocked and in disbelief! As if there wasn't enough going on and happening to the town of Kitimat this has to happen now too! Just thinking about all the friends I have back in Kitimat that are employed by Eurocan and will be without jobs come January has left me angry. What are they going to do now? Kitimat does not need this right now nor does the 535 employees and their families. There has been enough uncertainties over the last few years that this just makes me lose hope. IT'S A SAD SAD DAY! For all my friends who work at Eurocan I truely feel for you and your families today. I can't believe this.
Comment by Janine on 28th October 2009
This is completely devastating....