Eurocan couldn’t be saved
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West Fraser cuts its losses on paper mill
After years of ongoing efforts to reduce operating costs and improve results at West Fraser’s Eurocan paper mill in Kitimat, B.C., the company announced it is permanently closing the unprofitable operation.
The closure is expected to take place Jan 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,” West Fraser’s Chairman, President and CEO Hank Ketcham said.
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 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,” Ketcham said.
“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.
“Our strong balance sheet, conservative business philosophy and longstanding emphasis on controlling costs will serve us well as we work through this difficult time in our
industry’s history,” Ketcham said.
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