Wednesday, November 08, 2006

Terrace Lumber failure on the mind of Rupert mayor

The Daily News reviewed the recent demise of the Terrace Lumber Company on its front page Tuesday, examining the financial toll the mill failure has taken on local investors of the northwest.

It was a wide ranging article that featured quotes from a number of citizens of the northwest, among those to comment on the situation was Prince Rupert Mayor Herb Pond, who described the failure as a loss for the entire region.

His comments opened up the lengthy examination of the anatomy of a business failure, which was the featured story of the day in the paper. More or less a history lesson of the forest issues of the Northwest over the last five years or so.

SAD END TO TERRACE MILL A BLOW TO THE REGION, POND
Local investors left on the hook after mill is wound up
By Leanne Ritchie
The Daily News
Tuesday, November 7, 2006
Pages one, three and five

Around two dozen business people in Terrace who invested $5.6 million to purchase the former Skeena sawmill stand to lose almost everything following the closure of the Terrace Lumber Company.

And for the struggling communities of the Northwest, the timing couldn’t be worse.

“It’s a real negative when a group of local entrepreneurs and investors receive that kind of a hit. As the opportunities around the Prince Rupert Container Port are developing, these are exactly the kind of people you hope are investing and will benefit,” said Prince Rupert Mayor Herb Pond

“To see that kind of hit is a loss for the entire region.”

Eighteen months ago, a group of Terrace investors rallied to save the Skeena sawmill from the auction block by investing $5.6 million to buy the beleaguered mill and renaming it the Terrace Lumber Company (TLC).

Directors and investors in the new company included such well known business people as John Ryan, Mo Takhar and Gerry Martin.

The sawmill had not operated since 2002 when the newly-elected Liberal government sold the assets of the former Skeena Cellulose empire to New Skeena Forest Products for about $8 million.

The NDP had sunk hundreds of millions into trying to save Skeena Cellulose and the Liberals had vowed to get the company – which included the sawmill, Prince Rupert pulp mill and several large forest licences – back into private ownership.

The former Skeena Celllulose at one time employed thousands of people in the Northwest and fueled the economy. However, New Skeena Forest Products was never able to raise start up financing for all its operations. A year and a half ago, just as the sawmill was about to be auctioned off in a fire sale, community investors and the city of Terrace – which financed the land – stepped in to save the Terrace mill.

Close to 1,000 people gathered to celebrate the mill’s opening. But the jubilation didn’t last.

The high Canadian dollar, softwood lumber and a softening U. S. housing market all hit the business hard.

TLC didn’t manage to operate for more than a year before the shutdown began.

“This is a really disappointing result. A the time of the purchase, everyone on the purchaser side was happy to have saved the mill from liquidation and had very high expectations they could operate the mill going forward on a basis that was commercially reasonable,” said Larry Prentice of Ernst and Young Inc.

Prentice handled the sale of the assets form New Skeena Forest Products to TLC, and now he’s handling TLC’s affairs as they file a notice of intention to restructure. It’s an effort TLC hopes will get the most back for their shareholders and creditors.

“They voted with their wallets and their hearts, putting up a substantial amount of money to keep the mill from being auctioned last year,” said Prentice.

“One of the major creditors said to me after the filing that it seems every break that has occurred since they’ve owned the land has been a bad one. For me personally, it’s disappointing. A lot of people stepped up and wrote a cheque they didn’t have to.”

The sawmill was auctioned off by Maynard’s in late October and locals at the auction have called the results “disappointing,” with low purchase prices for the equipment, some of which could only be sold for scrap metal.

The cash from the auction, the land on which the sawmill sits and a one million dollar softwood lumber rebated are all the assets the company has and the list of creditors is long.

The City of Terrace and International Forest Products which provided operating capital and marketing for TLC, are secured creditors and will take the first grab at any cash.

Next in line are the 75 unionized employees, owed $105,000 in vacation pay.

At the bottom, there’s the community investors, now owed a total of $6.5 million (their original investment plus interest on their loans) and companies like the Coast Tsmishian, which sold logs to the sawmill.

“There is a significant amount more debt than there is assets. If this were simply to go into bankruptcy and the land liquidated and the softwood monies collected and if it were simply split up among creditors, the recovery by creditors would not be very much,” said Prentice.

The total value of the company’s debt is still being calculated and the value of the assets will not be known for some time. TLC has six months to try to maximize its recovery and present a plan that is acceptable to its creditors. If it fails to do so, it will be declared bankrupt.

Regardless, the outlook for recovery for the investors looks bleak, ironically at a time when Northwest B. C. finally has the opportunity to develop a forest industry by building new markets.

The industry is looking overseas towards the booming Asian economies through the development of a break bulk port in Kitimat and container port in Prince Rupert.

“For the first time ever in our history – even though it’s a sad day for forestry with the auction in Terrace – the components of success are finally being put in place,” said Roger Harris, the former Skeena MLA, Minister of State for Forestry and a life-long member of the forest industry in the Northwest.

Harris said that if government policy could be changed to recognize the low value (high rot content) of timber in the Northwest and the high cost of harvesting, there would be an opportunity to develop other forest products such as particle board and wood pellets.

“If we have a high decadent stand, we need to design forest policy that attracts investment into products that can be made from it,” said Harris.

“I think there is a future here and it will revolve around other product lines (other than dimensional lumber), - engineered wood and bio energy. There are products that when you think about it have some advantages here – and they aren’t captured by softwood lumber today.

If government would make the changes and help facilitate investment by recognizing the realities of the timber profile – something that has been recommended in countless reports over the last decade- maybe new industries could rise from the ashes, he said.

And he predicted that in 10 years, new growth could leave the industry in the Northwest sitting pretty compared to the forest industry in the interior where the mountain pine beetle is causing havoc.

“You need access to all of the global markets – we didn’t have that and we are about to,” said Harris.

“We are moving into a new world in Rupert and Kitimat.

“That in combination with some good forest policy really starts to set the stage to attract some pretty good investment.”

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