Canfor Pulp Products Inc

TSX:CFX

Earnings Call Transcript

[Operator]

Good

morning.

My

name

is

Miranda,

and

I

will

be

your

conference

operator

today.

Welcome

to

Canfor

and

Canfor Pulp

Fourth

Quarter

Analysts

Call.

All

lines

have

been

placed

on

mute

to

prevent

any

background

noise.

During

this

call,

Canfor

and

Canfor

Pulp's

Chief

Executive

Officer

will

be

referring

to

slide

presentation

that

is

available

on

the

Investor

Relations

section

of

the

company's

website.

Also,

the

companies

would

like

to

point

out

that

this

call

will

include

forward-looking

statements,

so

please

refer

to

the

press

releases

for

the

associated

risks

of

such

statements.

I

would

now

like

to

turn

the

call

over

to

Mr.

Don

Kayne,

Canfor

and

Canfor

Pulp's

Chief

Executive

Officer.

Please

go

ahead.

Mr.

Kayne.

[Donald B. Kayne]

Okay.

Thank

you,

operator.

And

good

morning,

everyone.

And

for

joining

the

Canfor

and

Canfor

Pulp

Q4

2021

results

conference

call.

I'll

make

a

few

comments

before I

turn

things

over

to

Pat

Elliott,

our

Chief

Financial

Officer

of

Canfor

Corporation

and

Canfor

Pulp

and

our

Senior

Vice

President

of Sustainability.

Pat

will

provide

a

more

detailed

overview

of

our

performance

in

Q4.

In

addition

to

Pat,

we

are

joined

by

Kevin

Pankratz,

Senior

Vice

President

of Sales.

I

want

to start

by

recognizing

all

of

our

employees

across

the

organization,

who

in

the

face

of

many

challenges

including

the

pandemic

and

significant

supply

chain

challenges,

our

employees

demonstrated

exceptional

resilience

and

dedication

and

they

were

key

to

our

success

in

2021.

We

continue

to

deliver

on

our

strategy

during

the

year

and

I

would

like

to

highlight

just

a

few

key

areas.

In

October,

we

announced

our

bold

ambition

to

become

a

global

leader

in

sustainability.

I'd

like

to

thank

everyone

across

the

organization

who

was

contributing

to

setting

and

achieving

our

sustainability

goals.

This

is

a

team

effort

and

it's

great

to

see

the

support

it's

receiving

from our

employees.

One

area

of

focus

over

the

last

few

months

has

been

working

to

develop

our

carbon

target,

which

we

expect

to

announce

in

Q2.

We

are

pleased

that

forest

products

are

increasingly

being

recognized

for

how

they

help

mitigate

climate

change

as

the

world

moves

away

from

fossil

fuel-based

products.

In

October,

we

announced

our

planned

investment

in

a

new

biofuel

plant

in

Prince

George

through

our

Arbios

joint

venture.

And

progress

continues

to

be

made

towards

construction

of

the

facility.

In

2021,

we

continued

our

focus

on

global

diversification

and

successfully

executed

on

several

strategic

initiatives

announcing

plans

to

construct

the

state-of-the-art

greenfield

sawmill

in

Louisiana,

completing

a

number

of

organic

capital

investments,

purchased

an

additional

operation

in

Sweden,

and

concluded

an

agreement

for

the

purchase

of

Millar

Western

solid

wood

assets.

Since

2018,

and

including

Millar

Western,

Canfor

has

added

2.2

billion

board

feet

in annual

production

capacity

through

our

CAD 1.2

billion

of

investments

in

acquisitions,

which

have

been

focused

mostly

in

the

US

South,

Europe,

and

in

Alberta.

A

much

more

globally

diversified

operating

footprint

is

ensuring

that

we

are

able

to

provide

exceptional

service

to

our

global

customers

as

we

navigate

the

many

challenges

throughout

the

supply

chain.

And

this

was

evident

in

Q4.

We're

continuing

to

assess

additional

organic

and

value-added

external

growth

opportunities

as

we

look

to

grow

our

lumber

business

globally.

In

terms

of

our

results,

our

lumber

business

benefited

from

record

high

pricing

and

strong

operational

performance

during

2021,

with

operating

income

of

CAD 2.2

billion

before

adjusting

items.

In

the

fourth

quarter,

our

lumber

business

operating

income

before

adjusted

items

was

CAD 273

million

supported

by

continued

strong

results

in

Europe.

Despite

extreme

volatility

experienced

during

the

year,

lumber

demand

far

exceeded

available

supply,

resulting in unprecedented

price

increases

and

record-high

earnings

for

our

lumber

operations.

While

our

operations

benefited

from

favorable

market

conditions,

we

faced

a

number

of

significant

challenges

during

the

year,

including

extreme

wildfires,

historic

flooding,

the

impact

of

COVID-19,

along

with

the

many

supply

chain

issues.

As

a

result

of

these

challenges,

as

well

as

ongoing

uncertainty

associated

with

fiber

supply

in

British

Columbia,

many

of

our

sawmills

were

on

reduced

operating

schedules

during

the

third

and

fourth

quarter.

BC

continues

to

be

a

challenging

jurisdiction

to

operate

in

due

to

a

smaller

fiber

basket

as

we

enter

the

post-mountain

pine

beetle

era,

in

addition

to

significant

uncertainty

brought

on

by

several

new

and

proposed

policy

changes,

land

use

decisions,

and

legal

decisions.

A

few

weeks

ago,

we

announced

the

difficult

decision

to

permanently

reduce

the

production

capacity

at

our

Plateau

facility

to

align

production

capacity

with

the

sustainable

fiber

supply

in

the

region.

We

regret

the

impact

this

decision

will

have

on

our

employees,

and

we

are

committed

to

supporting

those

impacted

through

the

transition,

including

providing

jobs

to

those

who

would

like

to

stay

with

Canfor.

We

also

announced

CAD

14 million

investment

in

Plateau

to

improve

manufacturing

flexibility

and

lumber

recovery

and

better

align

the

manufacturing

capabilities

of

the

Plateau

operation

with

existing

fiber

supply.

While

these

closure

decisions

are

difficult,

we

remain

focused

on

enhancing

value

and

maximizing

returns

from

our

fiber

basket

in

British

Columbia,

ensuring

the

long-term

success

of

our

operations

with

a

footprint

that

aligns

with

available

economically

viable

fiber.

We

continue

to work

with

government

and

our

indigenous

partners

to

ensure

a

sustainable,

globally

competitive

forest

sector

in

BC

and

are

pleased

to

announce

our

intent

to

sell

our

Mackenzie

tenure

to

the

McLeod

Lake

Indian

Band

and

Tsay

Keh

Dene

Nation,

which

provides

an

opportunity

to

grow

the

nation's

leadership

in

the

forest

economy

and

stewardship

opportunities

within

their

traditional

territories.

Turning

to

Canfor

Pulp,

2021

was

more

challenging,

particularly

in

the

second

half

of

the

year

due

to

significant

transportation

delays

related

to

the

extreme

weather

in

British

Columbia,

COVID-19,

production

downtime

and

weakness

in

the

global

pulp markets.

Before

taking

account

to

an

asset

impairment

charge

that

Pat

will

speak

to,

Canfor

Pulp

had

operating

income

of

CAD

32

million

in

2021,

with

an

operating

loss

of

CAD

41

million

in

the

fourth

quarter

as

a

result

of

significant

downtime

associated

with

supply

chain

constraints,

as

well

as

the

ongoing

repairs,

the

Northwood's

recovery

boiler

number

one.

While

pulp

markets

have

improved

significantly

in

early

2022,

Canfor

Pulp

continues

to

be

impacted

by

ongoing

supply

chain

challenges.

With

our

major

maintenance

on

Northwood's

recovery

boiler

progressing

as

scheduled,

on

time

and

on

budget,

we

remain

focused

on

improving

operational

reliability,

closely

managing

cost

and

maximizing

fiber

utilization

going

forward.

Lastly,

I

would

like

to

thank

Alan

Nicholl,

who

after

14

years

with

Canfor

will

be

leaving

the

company

this

month.

Alan

will

continue

to

serve

as

President

and

CEO

of

Arbios

and

has

taken

on

the

role

of

Managing

Director

with

Licella

Holdings,

our

partner

in

the

Arbios

joint

venture.

I

will

now

turn

it

over

to

Pat

to

provide

an

overview

of

our

financial

results.

[Patrick A. J. Elliott]

Thanks,

Don,

and

good

morning,

everyone.

The

Canfor

and

Canfor

Pulp

quarterly

results

released

yesterday

afternoon

and

come

together

with

an

overview

slide

presentation

in

the

Investor

Relations

section

of

the

respective

company's

website.

In

my

comments

this

morning,

I'll

speak

to

quarterly

and

annual

financial

highlights,

a

summary

of

which

is

included

in

our

overview

slide

presentation.

As

Don

has

already

mentioned,

2021

was

an

exceptional

year

for

Canfor.

In

the

face

of

significant

weather

and

supply

chain

challenges,

we

saw

the

benefit

of

our

diversification

strategy

with

our

global

lumber

platform

generating

unprecedented

earnings

during

the

year.

We're

pleased

to

have executed

on

a

number

of

strategic

initiatives

during

the

year,

supported

by

our

strong

balance

sheet

and

record

earnings.

Capital

expenditures

were

approximately

CAD 430

million

in 2021,

which

included CAD

83

million

for

our

greenfield

sawmill,

as

well

as

various

organic

growth

initiatives

largely

undertaken

in

the

US

South

and

Europe.

Our

greenfield

mill

is

progressing

well,

but

due

to

a

challenging

supply

chain

is

slightly

behind

schedule

and

is

anticipated

to

start

up

in

early

2023.

We

repurchased

approximately

CAD

20 million

of

shares

during

the

year

and

repaid

over

CAD

420

million

of

term

debt,

ending

the

year

with

net

cash

of CAD

1.1

billion.

Looking

ahead

to

2022,

we

currently

anticipate

capital

spending

of

approximately CAD

430

million

in

the

lumber

segment

and have

just

completed

the

Millar

Western

acquisition

yesterday

for

CAD

420

million,

including

target

working

capital

of

CAD

56

million.

For

Canfor

Pulp,

we

are

forecasting CAD

70

million

in

spending,

including

approximately

CAD 30

million

towards

ongoing

repairs to

Northwood's

recovery

boiler

number

one.

In

addition

to

an

expanded

capital

program

in

2022,

we

continue

to

look

at

several

organic

and

external

growth

opportunities

and

plan

to

restart

our

share

buyback

program

and

anticipate

moderate

opportunistic

use

during

the

year.

Turning

to

our

quarterly

results,

our

lumber

segment

generated

operating

income

of CAD

273

million

in

the

fourth

quarter

before

adjusting

for an

asset

impairment

charge

of

approximately

CAD

200

million.

Results

in

the

fourth

quarter

benefited

from

continued

strong

earnings

in

Europe,

with

our

European

operations

contributing

approximately

50%

of

our

lumber

segment

earnings

for

the

second

consecutive

quarter.

In

2021,

EBITDA

from

our

European

operations

was

approximately

CAD

630

million.

In

North

America,

our

results

reflected

the

impact

of

reduced

operating

rates

with

production

and

shipment

volumes

well

below

the

previous

quarter

due

to

significant

supply

chain

challenges,

severe

flooding

in

British

Columbia

and

reduced

trucking

availability

in

the

US

South.

Log

costs

in

Western

Canada

also

reflected

moderately

higher

market-based

stumpage.

While

pricing

in

North

America

increased

significantly

as

the

quarter

progressed,

offshore

sales

realizations

declined

following

the

record

high

prices

experienced

in

Q3.

Due

to

timing

of

shipments

versus

orders,

the

surge

in

lumber

prices

towards

the

end

of

the

fourth

quarter

will

largely

be

realized

in

early

2022.

As

noted,

we

reduced

the

net

book

value

of

both

our

lumber

and

pulp

assets

in

British

Columbia

following

an

impairment

test

completed

in

accordance

with

IFRS. This

nearly CAD

300

million

charge

reflects

the

rightsizing

of

our balance

sheet

to

reflect

the

reduced

availability

of

fiber

supply

in

certain

regions

of

British

Columbia.

Our

pulp

mill –

our

pulp

business,

excuse

me,

had

an operating

loss

of CAD

41

million

in

the

fourth

quarter

before

adjusting

for

the

asset

impairment

charge

of

CAD

95

million.

Results

in

our

pulp

business

reflect the

weaker

global pulp

market

conditions,

as

well

as

the

impact

of

severe

flooding

in

British

Columbia,

which

has crippled

transportation

networks

and

resulted

in

significant

operational

downtime

during

the

quarter.

In

addition,

Canfor

Pulp

announced

extended

capital-related

downtime

at

Northwood.

The

rebuild

of

the

lower

portion

of

the

recovery

boiler number

one

is

going

well

and

mill is

expected

to

return

to

full

production

at

the

end

of

Q1.

While

global

pulp

markets

have

improved

significantly

in

early

2022,

Canfor

Pulp

continues

to

be

impacted

by

ongoing

transportation

challenges

with

a

significant

lag

in

sales

realizations

anticipated

in

the

first

quarter.

As

the

rebuild

of

the

RB1

approaches

completion,

Canfor

Pulp

is

focused

on

improving

operational

reliability,

improving

fiber

yield

and

reducing

and

stabilizing

manufacturing

costs.

And with that, Don I'll turn the call back over to you.

[Donald B. Kayne]

All

right.

Thanks,

Pat.

So,

operator

we're

now

able

to

take

questions

from

analysts.

[Operator]

Great.

We

will

now

take

questions

from

the

financial

analysts.

[Operator Instructions]



Your

first

question

is

going

to be

coming

from

Hamir

Patel

from

CIBC

Capital

Markets.

Please

go

ahead.

[Hamir Patel, Analyst, CIBC Capital Markets]

Hi,

good

morning.

Don,

your

outlook

was

pointing

to

some

near-term

pressure

in

R&R.

I'm

just

curious,

what

are

you

hearing

from

your

Home

Center

customers

about

on

maybe

a

full-year

basis

in

2022? How

do

they

see

volumes

playing

out

this

year

versus

last

year?

[Donald B. Kayne]

Yeah.

Thanks,

Hamir.

And

I'll

let

Kevin

talk

about

that

because

we –

it's

actually

looks

quite

promising

actually

for

2022.

So,

well,

Kevin,

you

go

ahead...

[Kevin Pankratz]

Sure.

[Donald B. Kayne]

...and

talk about

it.

[Kevin Pankratz]

Sure.

Hamir,

maybe

just

a

bit

of

a

background

there.

We

actually

ended

Q4

with

something

like

beyond

seasonal

norm

takeaways

in

the

R&R

segment,

which

was

really

encouraging.

And

we

actually

saw

that

continue

and

–

in

the

year-to-date

so

far.

So

I

would

say

year-to-date,

we

are

experiencing

basically

very

similar

numbers

to

last

year

and

which

is

obviously

encouraging

and

it's

maybe

difficult

to

predict

how

it's

going

to go

for

the

balance

of

the

year

as

prices

trend

up.

But

at

current

prices

and

the

current

indicators

we're

seeing

today,

we're

seeing

pretty

good

takeaway.

[Hamir Patel, Analyst, CIBC Capital Markets]

And

Kevin,

can

you give

us

a sense as

to

where

inventories

are

in

the

channel?

[Kevin Pankratz]

I

would

say

that

they're

improving.

We

had

obviously

some real

challenges

early

this

year

and

struggling

to

keep

up

but

we

did.

And

I

think,

the

BC

transportation

challenges

are

well

documented

but

I

think

but

we

are

very

fortunate

that

with

our VIDA

Swedish

footprint,

we

were

able

to

offset

some

of

that

pressure

by

increasing

shipments

from

there

into

the

eastern

seaboard.

[Hamir Patel, Analyst, CIBC Capital Markets]

Great.

Thanks,

Kevin.

And

Don, I

wanted

to

ask

in

Europe

with

the

war

in

Ukraine

and

sanctions

against

Russia, do

you

see

that

effectively

pushing

Canadian

producers

out

of

China

as

trade

flows

readjust?

And

are

you

seeing

any

upward

movement

in

product

pricing

yet

in

Europe?

[Donald B. Kayne]

Yeah.

For

sure

and

good

question

I

think.

And

I

think

first

of

all

in

China,

it

used

to

be

a

significant

part

of

our

business

and

while

it

still

is,

it's

down

significantly

from

where

it was

at

the

peak,

right?

So

but

if

you

just

talk

about

the

UK

− Ukraine

situation

real

quickly,

our

view

right

now

is,

first

of all,

Russia

is about

12%

of

the

global

softwood

production

first

of

all

to

start

with.

And

of

course,

the

most

of

that

production

or

a

good

part

of

its

heavy

to

western

Russia

and

Siberia

will

ships

into

China

and

that

will

no

doubt

increase

we

think

for

sure

but

that's

okay.

What

we're

more

thinking

about

the

impacts

in

a

positive

way

will

be

around

the

log

supply

to

the

Baltics,

which

is

a

major

region

as

well

as

the

Middle

East,

North

Africa

and

South

Korea.

All

of those

regions

rely

on

Russia

for

a

lot

of

logs

and

that's

going

up

probably

dry

up

to

some

degree

which

creates

an

opportunity

here

in

Europe

for

us

from

a

pricing

point

of

view.

I

mean,

we

think

that

our

European

business

there

is

going to

be

able to

pick

up

a

lot

of

that

lack

of

Russia

supply

into

Europe,

so

we're

looking

we

think

that

will

be

beneficial.

We

haven't

really

seen

any

price

increases

to

speak

of

yet.

It's

been more

just maintaining

where we're

at. But

I

mean,

the

real

question

is

going to

be

down

the

road

here,

what

kind of

impact

here

over

the

next

two,

three,

four

months.

But

we

do

believe

at

least

short-term,

that

it

will

be

beneficial

to

some

degree,

potentially

from

a

price

point

of

view,

just

because of

the

lack

of

product

coming

in

from

Russia

into

Central

Europe,

right?

But

that's

kind

of

how

we're

seeing

it.

Now

I

guess

the

other

thing

we

might

see,

Kevin,

would

be,

too,

is

that

the

European

producers

that

were

shipping

into

North

America

in

a

big

way

will

probably

revert

back

and

try

to

fill

that

demand

with

Russia

exiting

Europe

to

some

degree,

and

that

should

help

actually

stabilize

prices

even

better

here

in

North

America.

[Hamir Patel, Analyst, CIBC Capital Markets]

Okay.

Great.

Thanks.

That's

all

I

had.

I'll

get

back

in the

queue.

[Donald B. Kayne]

Thanks.

[Operator]

Your

next

question

will

come

from

Sean

Steuart

with

TD

Securities.

Please

go

ahead.

[Sean Steuart, Analyst, TD Securities, Inc.]

Thanks.

Good

morning,

everyone.

And,

Pat,

I'll

start

with

you.

Can

you

give

us

context

on

specific

assets

that

were

written

down

in

the

provisions

in

lumber

and

pulp

with

those

write-downs

this

quarter?

[Patrick A. J. Elliott]

Sean,

it's

more

of a

general

provision

across

the

BC

assets

we

don't

specify

by

mill

site,

so

it's

across

the

fleet.

And

we

basically

look

at the

discounted

cash

flow

over

a

number

of years

across

that

whole

fleet

and

then

we

compare

that

back

against

the

book

value,

and

that's

the

adjustment.

It's

not

a

specific

as

a mill

level

adjustment.

[Sean Steuart, Analyst, TD Securities, Inc.]

Okay.

All

right.

Thanks

for

that.

US South

platform,

you

guys

referenced

some

timber

cost

inflation,

your

competitors

did

as

well.

Can

you

help

us

understand

how

much

of

this

do

you

think

is

temporary

related

to

weather

or

transportation

disruptions?

How

much

might

be

structural?

What

are

you

thinking

going

forward

for

that

cost

line

item?

[Donald B. Kayne]

Yeah.

Well,

I

think

it's

in

the

neighborhood

of

probably

5%

is

what

we

sort

of

guided

before

roughly

what

we

see

overall

for

this

year.

But

largely,

the

issues

that

we

have

is

what you've

outlined

there,

weather

wise,

trucking,

the

availability

of

trucking

is

a

big

one,

which

is

really

labor,

I

guess,

overall.

So,

all

of those

things

have

contributed

to

some

of

that

inflation

that

we're

seeing

here.

And

–

but

really

it's

–

it

varies

a

lot

depending

on

the

regions

as

well

across

the

US

South.

So, obviously

overall,

maybe

a

little

bit

of

it is

structural,

but

there's

a

lot

of

it

just

strictly

caused

by

some

of

those

unusual

events.

[Sean Steuart, Analyst, TD Securities, Inc.]

Okay.

Thanks,

Don.

Last

question

for

now,

I

know

there's

a

lot

of

moving

pieces

but

if

you

normalize

for

the

Millar

Western

acquisition,

just

try

to gauge

in

Q1

how

your

Western

Canadian

lumber

production

is

trending

versus

what

we

would

have seen

in

Q4.

It

sounds

like

there's

still

a

lot

of

challenges

getting

wood

into

the

mills,

getting

product

to

market.

Can

you

give

any

sense

of

how

that's

trended

versus

what

we

just

saw

after

the

fourth

quarter

[ph]



for

you

guys? (00:18:48)

[Donald B. Kayne]

Go

ahead, Pat.

[Patrick A. J. Elliott]

I

can

take

– yeah, Sean,

I

can

take

that. I

mean,

clearly

in

BC

in

Q4,

we

had –

we're

running

our

business

at

80%

in

British

Columbia

for

the

most

part,

and

we

took

some

Christmas

downtime

as

well.

So

right

there,

you're

going to

have

a

big

lift.

And

then obviously

we're

going

to

add

the

Alberta

assets' 630

million feet

on

an

annualized

basis.

We

are

having

some

shipping

challenges

out

of

BC.

I

think

we

are

going to

build

some

inventory

in

the

first

quarter.

Hard

to

quantify

that,

but

I

would

say

we'd

be

up

substantially

quarter-over-quarter.

[Sean Steuart, Analyst, TD Securities, Inc.]

Okay.

All

right.

That's

encouraging.

That's

all

I

have

for

now.

Thanks,

guys.

[Donald B. Kayne]

Right.

Thanks,

Sean.

[Operator]

Your

next

question

will

come

from

Mark

Wilde

from

BMO.

Please

go

ahead.

[Mark Wilde, Analyst, BMO Capital Markets Corp.]

Good

morning,

Don,

Kevin,

Pat.

[Donald B. Kayne]

Good

morning, Mark.

[Patrick A. J. Elliott]

Good

morning,

Mark.

[Mark Wilde, Analyst, BMO Capital Markets Corp.]

To

start

off,

either

Don

or

Kevin,

can

you

give

us

some

sense

of

what

the

inventories

looks

like

at

your

sawmills

in

Western

Canada

right

now,

just

given

these

transportation

issues?

[Kevin Pankratz]

Yeah.

For

sure.

So

maybe

I'll

just

do

it

by

region

there,

a

bit

there,

Mark.

So

I

think

in

Europe,

it's

actually –

they

were

all

in

balance,

normal

inventory

levels,

and

transportation

today

has

been

quite

fluid.

I

would

say

the

similar

situation

for

the

US

South,

we're

right

in

line.

We

haven't

had

the

same

challenges.

But

in

Western

Canada,

we

are

up,

for

sure,

really

struggling

with –

railcar

supply

is

the

biggest

challenge,

trying

to

help

offset

that

a

little

bit

with

trucks,

and

of

course

the

backup

on

the

marine

with

containers.

So

we

are

up

–

we're

up –

we're

definitely

up

above

where

we

expect,

and

it

probably

is

going to

take

us

by

the

end

of

Q2

to

get

it

back

down

to

normalized

levels.

[Mark Wilde, Analyst, BMO Capital Markets Corp.]

Any

way

to

quantify

kind

of

what

that

increase

might

look

like,

Kevin?

[Kevin Pankratz]

It's

kind

of

fluid,

so

all

I

know

is

it's

going

to

be

up

there,

Mark.

I

can't

really

give

a

specific

number.

[Mark Wilde, Analyst, BMO Capital Markets Corp.]

Okay.

All

right.

Next

question.

Just

it

seems

like

when

I

read

through

the

MD&A,

there

was

more

in

there

on

the

longer-term

challenges

of

fiber

supply,

including

for

the

pulp

mills.

So

I

wondered

if

you

could

just

shed

some

more

general

light

on

your

thinking

around

the

four

existing

pulp

mills.

[Donald B. Kayne]

For

sure.

I

think,

Mark,

and

we

talked

about

this

a

little

bit

just

in

the

context

of

BC

fiber

supply

period,

not

really

singling

out

necessarily

pulp

mill

particularly,

but

just

looking

at

overall

fiber

supply

in

British

Columbia,

we

do

believe

there's

going

to continue

to

be

pressure

there

on

a

downwards

direction

here

in

terms

of

overall

fiber

supply,

and

as a

result

of

that,

probably

another

2

billion

board

feet

of

lumber

that

is

going

to

need

to

be

reduced

here

in British

Columbia,

just

face

the

fact,

so

that's

due

to

beetle,

it's

due

to

forest

fires,

it's

due

to

policy

just

a

bunch

of

different

things.

And

we've

– I

think

we've

mentioned

that

before.

In

addition

to that

and

as

a

result

of

that,

clearly

it's

going to

be

less

residual

fiber

as

well.

So

there's

going

to

be

an

impact

here

in

BC

over

the

next

several

years

and

it

could

be

one,

two,

three

years

but

over

that

timeframe,

we're

going

to

see

some

challenges

on

some

of

the

secondary

manufacturing

facilities,

I'm

sure.

In

addition

to

that,

the

pulp

mill

or

two

perhaps

probably

our

view

right

now

probably

would

be

more

like

one

depending

on

the

size.

And

that's

kind

of

how

we

see

it,

which

is probably

no

surprise

because

that's kind

of been

what

we've

been saying

here

for

a

while, right,

so.

[Mark Wilde, Analyst, BMO Capital Markets Corp.]

Yeah.

[ph]

Maybe, Don,

without

putting

like – (00:22:30)

trying

to

get

too

granular

on

this

but

just

when

we

think

about

your

own

pulp

footprint, I

mean,

the

fact

that

you're

putting

a

lot

of

capital

into

Northwood,

I

think,

tells

us

that

your

view

that

mill

as

a

long-term

asset,

is

that

fair?

[Donald B. Kayne]

Yeah.

That

is

very

fair.

[Mark Wilde, Analyst, BMO Capital Markets Corp.]

And

would

it

also

be

fair

to

say

Taylor

when

you

used

to

report

it

separately,

seemed

like

it

was

only

kind

of

marginally

profitable,

you've taken

downtime

right

there,

right,

at

that

mill

right

now.

Is

that

probably

the

one

that

faces

the

greatest

challenge

in

your

view

of

your

portfolio?

[Donald B. Kayne]

Yeah.

I

mean

it's

a

different

type of –

it's BCTMP

versus

NBSK,

and

clearly

there

are more

challenges

there

for

sure

from

a

fiber

point

of

view

but

also

from

a

more

importantly

from

a

market

point

of

view

too.

And

I

think

in

both

cases

and

so

we

–

but

as

it

stands

right

now,

the

six

weeks

that

we've

announced

is

the

temporary

downtime

is

still

in

place

and

we

haven't

made

any

further

decisions

over and

above

that

going

forward.

[Mark Wilde, Analyst, BMO Capital Markets Corp.]

Yeah.

Okay.

And

then

just

turning

this

whole

fiber

supply

issue

on

the

lumber

side.

I mean,

you

were

– you've

been

quite

proactive

here,

you

announced

the

Plateau

[ph]

moves

(00:23:41)

in

the

midst

of

really

good

lumber

markets.

Do

you

think

the

sort

of

additional

2

billion

board

feet you

talked

about,

is

that

going

to

come

easily

or

is

that

going

to

take

a

significant

downturn

in

the

market

or

drive

that out

of

the

market,

just

in

your

view?

[Donald B. Kayne]

Well, I

think,

clearly,

the

downturn

could –

if

there

was

a

serious

downturn,

that

would

probably

accelerate

that

in

some

areas,

for

sure.

But

I

think,

I

mean,

again,

we

just

got

to

kind of

face

the

facts

as

an

industry,

there's

going

to be

less

fiber

available

going

forward,

which

is

going

to

be

the

bulk

of

the

reason

why

obviously

low

prices

might

accelerate

that,

like

I

said.

[Mark Wilde, Analyst, BMO Capital Markets Corp.]

Okay.

And

then,

if

we

look

past

kind

of

the

Monday

closing

on

Millar

Western,

you're

still

sitting

on

a

lot

of

cash

and

it

looks

like

you're going

to

generate

a

lot

of

cash

in

the

first

half

of

the

year.

Can

you

just

give

us

some

sense

for

the

priorities

for

the

cash?

And

then,

you

know,

within

the

M&A

bucket

of

priorities,

if

you

could

just

give

us

some

sense

of

what

you

might

be

most

interested

in

from

both

kind

of

a

location

and a

market

perspective?

[Donald B. Kayne]

Sure,

Mark.

I

mean,

as

Pat

mentioned,

we're

basically

between

the

Millar

Western

and

some

of

the

capital

that

we've

identified

for

this

year is

close

to CAD

900

million

that

we're

spending

just

with

those

two

areas

alone.

Over

and above

that,

certainly,

we've

got – we

got

some

projects

this

year

from

a

sustaining

capital

point

of

view

that's

underway,

as

well

as

we've

still

got

some

ongoing

organic

capital

projects

that

we

have,

also,

we'll

continue

to

be

working

on

this

year

and

going

forward

as

well.

We've

got

the

greenfield

project,

of

course,

going

on

at

DeRidder.

And

as

we

look

forward

here,

maybe

could

be

some

opportunity

there

for

one

or

two

or

whatever

more

there,

too.

Not

only

in

the

US South,

but

could

be

in

Europe

as

well.

In

addition

to that,

just

on

opportunities,

though,

I

think

we

also have

been

pretty

clear

and

we

haven't

really

changed

other

than

maybe

a

bit

more

–

well,

the

US

South

for

sure

is

a

key

area

for

us

and

it's

going

to –

we

still

believe

it's

a

really,

really

solid

area.

We

like

it

down

there

as

you

know,

and

we

see

opportunities

there

going

forward.

In

Europe,

same

thing,

I

mean,

Europe's

been

really,

really

good.

Probably

much

better

than

we

even

expected

and

we

always

thought

it was

going to

be

good.

And

then,

of

course,

Alberta,

[ph]

we know this (00:26:04)

latest

deal,

we

really

feel

very

fortunate

we were

able

to

get

the

Millar

Western

assets.

We

like

Alberta.

We've

always

liked

Alberta.

And

that's

a

new

growth

area

for

us

as

well,

and we're

pretty

pleased

with,

so...

[Mark Wilde, Analyst, BMO Capital Markets Corp.]

Okay.

You've

got

a

little

position

in

engineered

wood,

I'm

just

curious

whether

you're

thinking

about

going

beyond

lumber

and

perhaps

growing

in

the

engineered wood

area.

[Donald B. Kayne]

Yeah,

for

sure.

It's

something

that

we

look

at

regularly.

I

know

Kevin

and

his

group,

and

Stephen and

his

group

are

looking

at

that

on

an

ongoing

basis.

We

definitely

like

the

position

we

have

in

glulam

in

the

south

with

the

two

mills.

We

have

a

large

market

share.

We

have

a

fantastic

product.

And

we've

had,

frankly

had

lots

of interest

there

from

other

companies

interested

in

them.

But

we

do

believe

it's

a

core

business

for

us

for

the

future,

and

it's

something

that

we

can

leverage

and

increase

as

we

look

forward.

[Mark Wilde, Analyst, BMO Capital Markets Corp.]

Okay.

Pretty

good.

I'll

turn

it

over.

Thanks,

Don.

[Donald B. Kayne]

Okay.

No

problem.

See

you,

Mark.

[Operator]

Your

next

question

comes

from

Paul

Quinn

with

RBC.

Please

go

ahead.

[Paul C. Quinn, Analyst, RBC Dominion Securities, Inc.]

Yeah.

Thanks,

guys. Just

a

couple

of questions.

One

on

the

CapEx

budget

of

CAD

500

million.

Just

on

the

pulp

and

lumber

side,

if

you

could

split

that

down

between

what

is

maintenance

there

and what

is

strategic

or

project

work?

[Donald B. Kayne]

Yeah. Sure.

Well, maybe,

Pat

[ph]



you

can

go

ahead. (00:27:28)

[Patrick A. J. Elliott]

Yeah.

So

you're

asking

for

maintenance

versus

sort

of

strategic

fall

within

the

bucket

thing?

[Donald B. Kayne]

Sustaining. Yeah.

[Paul C. Quinn, Analyst, RBC Dominion Securities, Inc.]

Yeah.

[Patrick A. J. Elliott]

Yeah.

So

– yeah,

so

the

CAD 430 million,

I don't

know,

we

got

to CAD

200

million

or

probably

the

sustaining

CapEx

on

the

lumber

side.

And

then

on

pulp,

it's

probably CAD

30 million,

CAD

30

million to

CAD

40 million.

There's

a

bigger

number

around

RB1

this

year,

but

it's

CAD

30 million to

CAD

40 million,

Paul, sort

of

sustaining

CapEx.

[Paul C. Quinn, Analyst, RBC Dominion Securities, Inc.]

Okay.

So

then

if

you

got

CAD

200 million

on sustaining

on

lumber,

that

extra

CAD

230 million

that

you're going

to

be

spending,

what's

left

on the

derivatives? Is

that

about CAD

80 million?

And

what's

the

balance and

where

are

you

spending

the

balance?

[Patrick A. J. Elliott]

Yeah.

It's

about

CAD

100

million

on

derivatives, that's

left –

a

little

bit

more

than

CAD

100

million

that's

left.

And

then

just

a

number

of

sort

of

optimization

projects

throughout

the

fleet.

I

mean,

we're

investing

in

both

sides

of

the

border

actually

right

now.

I mean,

we

mentioned

Plateau's

investment.

So

there's

a

series

of

sort

of

smaller

investments

there,

Paul,

that

it

[indiscernible]



(00:28:27) upgrade

the

assets,

but

there's

nothing

as

large

as

the

greenfield

in

that

mix.

[Paul C. Quinn, Analyst, RBC Dominion Securities, Inc.]

Okay.

And

then

congratulations

on

the

potential

sale

in

Mackenzie.

Have

you

got

a

fiber

supply

chip

agreement

with

the

potential

new

owners

there?

[Donald B. Kayne]

No,

not

at

this

point,

we

don't,

but

it's certainly

something

that

we

would

be –

we'll

be

investigating

as

we

look

forward,

though,

but

at

this

point

we don't.

[Paul C. Quinn, Analyst, RBC Dominion Securities, Inc.]

Okay.

And

then

Europe,

you

mentioned

CAD

630

million

in

EBITDA

in

2021,

how

do

you

see

2022

here,

is

that

going to

be

pretty

similar

year?

[Donald B. Kayne]

It's

shaping

up

to

be

pretty

darn

good

year,

for

sure.

So

we'll

see

how

it

plays

out

here

going

forward,

there's

obviously

a

lot

of

geopolitical

that

we've

talked

about

here

earlier

that

may

have

some

influence.

But

for

the

most

part,

that

business

is

solid.

It's

very

sound.

The

upside

there,

in

our

view,

is

definitely

positive

for

sure.

And

so,

but

– obviously

it

depends

a bit

on

price

and

what

prices

do here,

back

half of

the year more,

and

we're

not

concerned

at

all

about

Q1

and

Q2

there

because

they

basically

locked

their

business,

and

as

you

know,

quite

a

bit

longer

than they

do

in

North

America,

right?

So

it's

the

back

half

of

the

year

in

every

case,

but

we

always

creates

a little

more

conservatism,

for

sure.

[Paul C. Quinn, Analyst, RBC Dominion Securities, Inc.]

Great.

We

have

a

pretty

good

view

on

North

American

lumber

prices.

Maybe you

can

help

us

out

with

what's

happening

in

Europe

with

a

little

bit

more

granularity,

given

our

muted

outlook

there.

[Kevin Pankratz]

Sure.

[Donald B. Kayne]

Oh, good, Kevin

why don't

you

take a stab there?

[Kevin Pankratz]

I

get

a

stab

there,

Paul.

So

I

mean,

it's

a

lot

of

different

markets

that

they

serve

there,

right.

Like,

I

think

VIDA

alone serves

about

44

different

countries.

But

the

big

one

is

obviously

the UK

market

and

we

did

see

softness

in

Q4

and

early

into

Q1.

But

we

are

anticipating

some

modest

increases

in

Q1.

But

more

material

increases

in

Q2

because

they

basically

didn't

really

replenish

a

lot

of

inventories

in

that

Q1

period.

So

could

prices

be

in

that

10% –

10-plus

percent

[indiscernible]



(00:30:36)

Paul.

And

also,

Central

Europe

for

the

same

reason.

So

that's

more

of

a

Q2

guidance.

And

then,

like

Don

said

on

the

back

half,

it's

a

lot

of

risks

and

uncertainties,

obviously

with

the

Ukraine

situation

that

could

be

short-term,

potentially

tighter

supply

would

also

have

a

corresponding

inflationary

pricing

but

the

longer

term

impact.

Whether

it's

a

supply

chain,

logistical

challenges,

all

of

that.

It's

just

a

few

unknowns,

but

maybe

[ph]



guys, (00:31:02) just

maybe

tempering

and

moderating

in

the

back

half.

[Paul C. Quinn, Analyst, RBC Dominion Securities, Inc.]

Okay.

Thanks.

I had

just

last

one

on

capital

allocation.

A

lot

of your

peers

have

been

buying

back

shares.

You

guys

look

particularly

inexpensive

and

just

wondering

why

you

don't

see

Canfor

shares

as

a

buy

right

now.

[Donald B. Kayne]

Pat's

going

to

buy

a

few.

Go

ahead.

[Patrick A. J. Elliott]

Yeah.

So,

I

did

mention in

my

comments,

Paul,

we

are going

to

restart

buyback.

I mean,

we

shut

it

off

in

the

fall

because

we

were

working

on

the

Millar

Western

deal.

But,

yeah,

I

mean,

we'll

continue

to

have,

I

think,

a

small

program.

And

we

acknowledge

the

value

that

sits

in

our

shares

right

now.

And

we'll

continue

to

selectively

acquire

some

of

those,

and

we'll start

that

again

here

before

too

long.

[Paul C. Quinn, Analyst, RBC Dominion Securities, Inc.]

All

right.

That's

all

I

have.

Thanks,

guys.

[Donald B. Kayne]

Thanks,

Paul.

[Patrick A. J. Elliott]

Thanks, Paul.

[Operator]

Your

next

question

comes

from

Mark

Wilde

from

BMO.

Please

go

ahead.

[Mark Wilde, Analyst, BMO Capital Markets Corp.]

Yeah.

Just

a

couple

of

follow-ons,

one,

I

wonder,

Pat,

if

you

could

help

us

at

all

with

just

sort

of

the

Q1

flow through

from

both

lumber

prices

and

pulp

prices.

I

think

when

you

talk

about

pulp,

you

suggested

that

there

were

going to

be

some

delays

in

these

higher

pulp

prices

rolling

through,

I

assume,

because

of

kind

of

transportation

delays.

[Patrick A. J. Elliott]

Yeah.

On

the

pulp

side,

I

mean, I

think

we

see

more

than

a

45-day

lag

in

the

prices.

Depending

on

the

markets,

it

could

be

almost

double

that,

I

think.

And

on

the

lumber,

I

think –

and

we

mentioned in

our

comments,

we

really

did

not

realize

any

of

the

upswing

in

the

price

in

the

fourth

quarter.

The

bulk

of that's

going to

be in

Q1

a

lot

of,

particularly

north –

in

Canada,

our

offshore

markets

actually

trended

down

after

having

record

high price

in

Q3.

So

we'll

see

all

those

prices

move

up

relatively

into

January.

We'll

be

realizing

those

on

lumber.

It

will

take

February,

March

before

we realize

them

on

– realize

those

in

pulp.

[Mark Wilde, Analyst, BMO Capital Markets Corp.]

Okay.

And

then,

Don,

one

other

question.

I'm

just

curious,

given

your

non-integrated

experience

now,

which

is

growing

in

the

southern

US

and

in

Sweden,

has

this

prompted

any

rethink

on

sort

of

the

need

for

vertical

integration

in

Western

Canada?

[Donald B. Kayne]

Well,

[indiscernible]



maybe

I didn't

get

the (00:33:14)

last

part

of

that, I

didn't

really

catch

that,

if

the

vertical

integration

in

Western

Canada

versus

the

South?

[Mark Wilde, Analyst, BMO Capital Markets Corp.]

Yeah.

I

mean,

basically

you

operate

on

a

non-integrated

basis

between

kind

of

lumber

and

the

chip,

where

the

chips

go,

in

both

the

South

and

in

Sweden.

In

Western

Canada,

you're

kind

of –

you're

integrated

and

that

you're

supplying

your

residual

chips

to

your

pulp

mill.

So

I

just

– I

wonder,

given

the

experience

in

the

South,

given

the

experience

in

Sweden,

does

that

make

you

rethink

the

strategy

in

Western

Canada

at

all?

[Donald B. Kayne]

Yeah.

I

don't

think

so.

I

mean,

not

at

this

stage.

I

mean,

I

don't know,

Pat,

is

there

anything you

want to

add

to

that?

Like

we...

[Patrick A. J. Elliott]

Yeah.

The

procurement

in

BC

is

different,

right,

than

in

the

South

and in

Sweden.

I

mean,

the

[ph]



tenured (00:34:02)

management

and

I

think

even

just

the

way

it

stands

out

here, mix

stands,

having

that

pulp

and lumber

business

together

has

created

significant

fiber

synergies

over

the

years

in

Canada.

I

mean,

in

the

US,

it's

a

different

procurement

strategy

that

we

employ.

So

I

mean,

I

think

we've

always

saw

the

benefit

of

the

integrated

business. And

I

mean,

even

if

we

weren't,

even

if

we

weren't

the

owners

of the

pulp

business,

Mark,

I

think

we'd

have

a

strong

fiber

supply

arrangement

with

the

pulp

business

because

it's

symbiotic

if

you

follow

me.

So

I

think

we're

always

going

to

be

tight

[indiscernible]

(00:34:31)

[Mark Wilde, Analyst, BMO Capital Markets Corp.]

Yeah. Okay.

And

Pat,

just

to

be

clear,

the

Millar

Western

residuals,

those

will

continue

to

flow

to

the

Millar

Western

pulp

mill?

Is

that

a

safe

assumption?

[Patrick A. J. Elliott]

That's

correct.

Yeah.

[Mark Wilde, Analyst, BMO Capital Markets Corp.]

Okay. All

right.

Very

good.

I'll

turn

it

over.

[Donald B. Kayne]

Thanks, Mark.

[Operator]

Thank

you.

There

are

no

further

questions.

I'll

now

turn

it

over

to

Don

Kayne

for

closing

comments.

Please

go

ahead.

[Donald B. Kayne]

All right.

Thanks,

operator.

All

right,

thanks,

operator,

and

thanks

everyone

for

joining

the

call

and

we

look

forward

to

talking

at

the

end

of

Q1.

Thanks

again.

[Operator]

That

concludes

our

conference

call

for

today.

You

may

disconnect

your

lines.