Conifex Timber Inc.
TSX VENTURE : CFF

Conifex Timber Inc.

August 30, 2010 16:35 ET

Conifex's Second Quarter Results Reflect Impact of Planer Mill Curtailment and Recent Asset Acquisition; Ends Quarter with Strong Cash Position

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Aug. 30, 2010) - Conifex Timber Inc. ("Conifex" or the "Company") (TSX VENTURE:CFF) today reported a net loss of $2.4 million or $0.31 per share for the second quarter of 2010 and a net loss of $4.0 million or $0.67 per share for the six month period ended June 30, 2010. This compares to a net loss of $1.7 million or $0.40 per share for the second quarter of 2009 and a net loss of $7.1 million or $1.71 per share for the six months ended June 30, 2009.

EBITDA was ($0.9) million for the second quarter of 2010 and ($1.8) million for the six months ended June 30, 2010. EBITDA was ($1.1) for the second quarter of 2009 and ($6.4) million for the six months ended June 30, 2009. EBITDA is defined by the Company as earnings before interest, taxes, depreciation and amortization, as well as before deductions for non-cash changes related to employee compensation and changes to the balance sheet carrying value of convertible debentures and other investments. The Company discloses EBITDA as it is a measure used by analysts and by Conifex's management to evaluate the Company's performance. As EBITDA is a non-GAAP measure, it may not be comparable to EBITDA calculated by others. In addition, as EBITDA is not a substitute for net earnings, readers should consider net earnings in evaluating the Company's performance.

The Company has operated one-shift at the Fort St. James sawmill since March 2009. On June 3, 2010, the Company completed the acquisition of certain assets (the "Mackenzie Assets") located in Mackenzie, British Columbia. The Mackenzie Assets included two sawmill complexes, harvesting rights to 932,500 cubic metres of sawlogs annually, power generation assets and a paper mill (excluding the headbox) that is being held for sale. A specific start-up date at this site has not been determined.

Conifex's Chairman and Chief Executive Officer commented that: "Our recent results have been held back by low operating rates and reduced shipments from the modernization and upgrade underway at our Fort St. James mill. When this initiative is completed, we intend to operate the mill on a two-shift basis, and we expect that the mill will be capable of producing financial results which are in line with the top performing forestry and sawmilling companies in B.C."

The Company's financial results of the second quarter of 2010 were adversely impacted by increased unit manufacturing costs due to a low operating rate and to a temporary curtailment of the Fort St. James main planer mill to accommodate a capital upgrade. The Company's current operating rate is approximately 22% when full production capacity is calculated on an annualized two-shift basis at the Fort St. James sawmill and the recently acquired Mackenzie sawmills. The Company currently absorbs the significant fixed costs related to its timberlands and manufacturing operations that would be required to operate the mills at full capacity. 

During the second quarter of 2010, the Company completed the first phase of a $30 million capital expenditure program at the Fort St. James sawmill which will upgrade and modernize specific converting and finishing processes to enable cost effective operations on a two-shift basis. The program is expected to be completed by the end of 2010. 

A key component of the first phase of the capital expenditure program involved the installation of an automated grading system which required the shutdown of the main planer mill for a three-week period commencing on April 16, 2010. The planned curtailment decreased lumber shipments by 12% from recent quarterly shipment averages; overall planer efficiency was reduced and unit manufacturing costs increased by 8% over recent average levels. In addition, the planned shutdown occurred during a period when lumber prices reached their highest 2010 year-to-date levels, and a level not achieved since 2006.

Lumber production for the second quarter of 2010 was 41.3 million board feet, an increase of 15% over the second quarter of 2009. Revenues for the second quarter of 2010 totalled $12.6 million compared to $8.4 million for the second quarter of 2009. The increase in revenues is attributable to a 9% increase in shipment volume and a 33% increase in unit sale prices over the same period last year. 

During the second quarter of 2010, in addition to the low operating rate and the disruption of planer production, operating costs were also increased by the revaluation of logs and lumber inventory of $0.8 million, the addition of fixed costs from the acquisition of the Mackenzie Assets and the opening of a corporate office in Vancouver, British Columbia. Some cost relief was provided by the reduced export tax rate, which averaged 8.33% during this quarter compared to 15% in prior periods. The export tax is charged on softwood lumber shipments from Canada to the United States. The Company shipped approximately 40% of its total volume to the U.S. during the second quarter of 2010 compared to 50% during the same period last year. The balance of the volume was shipped to customers in Canada, China and Japan.

For the second quarter ended June 30, 2010, the Company recorded non-cash charges totalling $1.0 million, including a one-time share revaluation expense related to its recent qualifying transaction and accretion of convertible debentures.

In connection with the acquisition of the Mackenzie Assets, the Company completed a private placement for gross proceeds of approximately $89 million. At the end of the second quarter, the Company had cash on hand of $52 million. The Company intends to use the funds from the financing to support the capital expenditure program, working capital and for general corporate purposes.

Transition to IFRS

On June 3, 2010 (the "Closing Date"), the Company completed its qualifying transaction (the "QT") with DTR Wood Acqusitionco Ltd. ("DTR'). Although the completion of the QT resulted in DTR becoming a wholly-owned subsidiary of the Company, the QT constitutes a reverse asset acquisition, with the business of DTR being the business of the Company. Consequently, the Company's accounting is a continuation of DTR's accounting. Given that DTR has prepared its financial statements in accordance with International Financial Reporting Standards ("IFRS") since incorporation, the Company will be presenting IFRS compliant financial statements for all periods subsequent to the Closing Date.

The completion of the QT resulted in the former DTR shareholders controlling the Company as they held approximately 99% of the issued share capital of the Company on closing. Accordingly, the accounting treatment under IFRS is to account for the transaction as a reverse asset acquisition, with DTR as the acquiring company for accounting purposes. DTR will consequently consolidate the net assets of the Company with its own and present consolidated financial statements that will be filed as the Company's in future filings.

Earnings Release Call

There will be a conference call held by the Company on Tuesday, August 31, 2010 at 7:30 AM (Pacific time) to discuss the second quarter financial and operating results. To participate in the call, please dial 416-340-2216 or toll free 866-226-1792. The call will also be available on instant replay access until September 30, 2010 by dialling 416-695-5800 or 800-408-3053 and entering participant pass code 1158331.

About Conifex Timber Inc.

Conifex is an independent British Columbia company formed for the purpose of investing in the forest industry in the interior region of British Columbia and elsewhere in Canada. Conifex and its subsidiaries' primary business includes timber harvesting, reforestation, forest management, sawmilling logs into lumber and wood chips, and value added lumber finishing. Conifex's lumber products are sold in the United States, Chinese, Canadian and Japanese markets.

Conifex's sawmill situated in Fort St. James, British Columbia was purchased in August 2008 and commenced operations on a one-shift basis in March 2009. At this mill, Conifex intends to move to a two-shift operation in the first half of 2011 upon the completion of a capital expenditure program. Conifex's sawmill situated in Mackenzie, British Columbia was purchased in June 2010. On a combined basis, Conifex now owns sawmills having an annual lumber production capacity of approximately 745 million board feet on a two-shift basis, all supported by renewable forestry licences with an allowable annual cut of approximately 1.6 million cubic metres. 

Forward-Looking Statements

Certain statements in this news release may constitute "forward-looking statements". Forward-looking statements are statements that address or discuss activities, events or developments that the Company expects or anticipates may occur in the future. When used in this news release, words such as "estimates", "expects", "plans", "anticipates", "projects", "will", "believes", "should", "could", "may" and other similar terminology are intended to identify such forward-looking statements. Forward-looking statements reflect the current expectations and beliefs of the Company's management. Because forward-looking statements involve known and unknown risks, uncertainties and other factors, actual results, performance or achievements of the Company or industry may be materially different from those implied by such forward-looking statements. Forward-looking statements involves significant uncertainties, should not be read as a guarantee of future performance or results, and will not necessarily be an accurate indication of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including those matters described in Schedule "A" to the filing statement of the Company dated May 25, 2010 under the heading "Risk Factors", available on SEDAR at www.sedar.com. 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 law.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the polices of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Contact Information

  • Conifex Timber Inc.
    Yuri Lewis
    Chief Financial Officer
    (778) 331-8687