NEWS SCAN

The long-expected announcement to permanently shut the market pulp mill in Gold River, B.C., has been made. Bowater Inc. said it would close the 255,000 mtpy northern bleached softwood kraft (NBSK) mill effective Feb. 16, 1999. The company, which took ownership of the mill as part of its acquisition of Avenor Inc., said the mill was not strategic to its plans. The mill has been down since Aug. 23 and will remain closed, Bowater said, because of its “cost structure and poor market conditions.”

In the company’s third-quarter financial statement, Bowater’s chairman and CEO, Arnold M. Nemirow, described the mill’s continued operation as “not financially viable.” Bowater recorded an after-tax charge of approximately $40 million toward anticipated costs of the closure, including workers’ severance pay and shutdown expenses.

The provincial government immediately responded to the announcement with plans to explore the possibility of keeping the mill open, perhaps by restructuring. But it said it wouldn’t back a rescue of the mill unless it made financial sense. It also steered clear of suggesting a Skeena Cellulose Inc.-type government bailout.

Though the announcement came on Bowater’s watch, the Gold River operation has been in trouble for some time, losing C$187 million in the last eight years. Poor market conditions have kept the mill closed for a total of five months this year. The stand-alone mill, located at the end of a fjord in a remote area on the west coast of Vancouver Island, had no fiber agreement tied to it and was plagued by high production costs.

James Dorton, vice president of corporate development for Bowater, said the company had been studying a permanent shut since it finalized the Avenor acquisition July 24. He said Bowater’s other facilities producing market pulp are holding their own “at this time,” but like the company’s other operations, they are under “constant review.” Unlike Gold River and, significantly, all are part of integrated mills. Those facilities (market pulp capacities are in parentheses) are in Thunder Bay, Ont. (550,000 mtpy), Calhoun, Tenn., (150,000 mtpy), and Catawba, S.C. (250,000 mtpy).

Gold River, a company town of 2,100, derives 82% of its taxation revenue directly from the mill, according to the Vancouver Sun. The mill employs 382 people. Paul Lackhoff, a spokesman for Forests Minister David Zirnhelt, said the government would determine whether it is financially feasible for a new owner to operate the mill. *

The downturn in global paper and forest products markets had a significant impact on third-quarter earnings for U.S. and Canadian producers. Anticipating weaker results, many analysts had already lowered their earnings estimates for the industry. In September, Salomon Smith Barney Inc. reduced its forecasts of global economic growth and lowered its 1998-99 paper and forest products price forecasts across the board to reflect the spreading financial crisis in emerging markets.

Market pulp prices have eroded since a brief run-up in the second quarter and average paper and paperboard prices also declined during the third quarter. “The third quarter is shaping up to be the toughest quarter, which leaves the fourth quarter with a big question mark,” said Kathryn McAuley of Brown Brothers Harriman & Co. Some paper companies’ third-quarter earnings actually exceeded analysts’ estimates, but that was only because expectations had been sharply cut, said McAuley.

IP reported third-quarter net earnings of $77 million before special items. This represents a 14% decrease from second-quarter earnings of $90 million before special items. Net sales were down 3.9% to $4.9 billion from $5 billion a year ago. IP took a $115 million pre-tax charge in the third quarter, which includes provisions for the shutdown at the Gardiner, Ore. linerboard mill and other cost-reduction initiatives. As a result of these actions, IP expects to lower annual operating costs by $85 million and reduce its overall headcount by about 1,500 employees. After special charges, IP reported net income of $21 million for the third quarter compared to income of $102 million a year ago.

Weyerhaeuser Co. said third-quarter net income fell 3.5% to $110 million from $114 million a year ago, which included a gain of $7 million from the sale and closure of facilities. The results were substantially better than analysts’ estimates. Net sales for the third quarter were $2.7 billion compared with $2.8 billion for the same quarter last year. Operating income for the pulp, paper and packaging segment was $67 million compared with $76 million a year ago, before a special $21 million gain. Timberlands and wood products had income of $191 million compared to $182 million a year ago. Wood panel prices increased sharply in the third quarter as demand for building products was abnormally high. Export log volumes to Japan improved over the second quarter, but remained below last year’s levels.

Mead Corp. reported third-quarter net income of $35.4 million, which included a pre-tax restructuring charge of $22 million. This represents a 29.6% decrease from net earnings $50.3 million in the same quarter a year ago. Sales from continuing operations (excluding the Zellerbach distribution business) were $1.01 billion, a decrease of 2% from $1.03 billion in 1997. Paper segment earnings declined 17% from a year ago and 3% from the second quarter of 1998 levels due to lower prices and volume shipments. Price weakness in Mead’s principal product line—coated groundwood—led to most of the decline.

Fort James Corp. reported that its third-quarter net income before nonrecurring items increased 21.6% to $149.1 million from $122.6 million a year ago. Sales increased slightly to $1.84 billion from $1.82 billion. Operating profits for the North American tissue and foodservice operations increased 11% to $245.1 million, while sales increased 1.1% to $1.12 billion. Strong retail tissue volumes and higher prices, combined with ongoing cost reductions from last year’s merger of Fort Howard Corp. and James River Corp., were the primary reasons for improved profitability, said the company. During the fourth quarter, Fort James completed the successful start-up of a new 65,000 tpy tissue machine at the Savannah River mill.

Georgia-Pacific Group, the pulp, paper, and building products businesses of Georgia-Pacific Corp., reported operating earnings of $54 million for the third quarter ended Sept. 30. Including a $15 million after-tax charge related to the temporary closing of market pulp operations at the Ashdown, Ark., and Port Hudson, La., mills, net income for the group was $39 million. This compares with net income of $29 million in the second quarter and $41 million in the third quarter of 1997. Net sales were $3.4 billion, compared with $3.3 billion a year ago. Operating profits in the pulp and paper segment were $48 million before charges, compared with $93 million in last year’s third quarter.

The building products manufacturing segment had operating profits of $173 million, compared with $127 million a year ago, based on strong housing construction markets. Profits for structural panels, particularly oriented strand board (OSB), more than doubled. The building products distribution business had an operating profit of $14 million, versus a loss of $17 million a year ago. *

Weyerhaeuser Co. and Green Bay Packaging Inc. each have taken steps to add corrugated container plants, in moves both companies said will be strategically beneficial to their operations.

Looking to expand in the bulk packaging business, Weyerhaeuser Co. signed a letter of intent to acquire Connelly Containers Inc. of Bala Cynwyd, Pa. The deal should close by mid-December, according to a press release from Weyerhaeuser. No purchase price was disclosed.

The plant outside Philadelphia makes about 72,000 tpy of triple-wall heavy-duty bulk packaging, and would match up with Weyerhaeuser’s only heavy-duty packaging plant, Tri-Wall in Butler, Ind., to serve customers across the U.S., a company representative said. The Bala Cynwyd plant includes four-color printing capabilities. “It’s a fantastic match,” a Weyerhaeuser representative said.

Green Bay Packaging acquired Valley Packaging Corp. and Valley Packaging West, and its two sheet plants in Tennessee and Oklahoma, the company said. The plants are located in Pulaski, Tenn., and Chickasha, Okla. Terms were not disclosed. The Chickasha plant run by Valley Packaging West opened in the last two or three years and the Pulaski plant has been operating since 1984. Both plants are sheet producers of corrugated containerboard.

A company source said Green Bay Packaging liked both plants based on how they would fit in with the company’s corrugated plants, wanted corrugated plant exposure in the U.S. South, and could efficiently serve both plants from its linerboard mill in Morrilton, Ark. The Morrilton mill is located almost midway between the two plants—about 295 miles from Chickasha and about 320 miles from Pulaski.

The Valley Packaging Corp. plant will retain its name and be a wholly owned subsidiary of Green Bay Packaging. The Chickasha plant will be called the Chickasha Div. of Green Bay Packaging, the company said. *

Champion upgrades boiler, linermachines

A $30 million project to modernize a recovery boiler and make quality improvements on two linerboard kraft paper machines at Champion International Corp.’s 507,000 tpy mill in Roanoke Rapids, N.C. , was underway this fall. The pulp mill work should increase the boiler’s pulping capacity by 12% and was to include replacement of a lower furnace section and super heater, a Champion representative said. On the No. 3 machine, an enclosed dryer hood system will be installed and on the No. 4 machine, a Valmet calendar will be installed. There will be no immediate increase in paper or board capacity because of the project.

An estimated 16,000 tons of capacity would be eliminated while the work is done on the two machines. Total linerboard capacity for the two machines is an estimated 375,000 tpy.

Weyerhauser Co and Jefferson Smurfit Corp. sponsored a Celebration of Paper in September at historic Rittenhouse Town. Exhibits included a working scale model of a fourdrinier paper machine. It was the 200th anniversary of the paper machine’s invention by Nicholas-Louis Robert in Essonnes, France. Rittenhouse Town in Philadelphia is a restored village where paper was first made in America.

After years of idleness and months of upgrading, the former James River Co. specialty paper mill in Fitchburg, Mass., has resumed papermaking operations under new ownership. Operating as Princeton Paper Co. LLC, the mill has brought two fourdrinier paper machines online to produce a wide range of bleached and unbleached specialty packaging and industrial converting papers, as well as some printing/writing grades.

Some of the converting grades currently being produced are coating base papers, foil laminating, chart and plotting papers, and flexible food wrap. Additional grades will be added in the future. The mill purchases market deinked pulp (MDIP) and other fiber stock to supply the two paper machines.

Elmer C. Beale, president of Princeton Paper, said the mill will be positioned to serve customers in niche, specialty markets. “We are not a commodity mill due to the size of our machines, but we can be an effective specialty mill.” Beale is the former president and CEO of Silver Leaf Paper Corp., which was acquired by Fletcher Paper Co. in 1993.

Beale said Fitchburg’s papermaking equipment has been significantly upgraded and hiring of mill personnel continues. Workers completed an extensive rebuild and upgrade of paper machine No. 5 in June, which will ultimately double machine speed and output to about 150 tpd by early 1999. The No. 2 machine is a 138 in. wide fourdrinier unit. It was also refurbished and was expected to produce about 100 tpd when in full production in November.

Princeton Paper, formerly known as Fitchburg Operating LLC, took over the mill last year. The paper machines had been idle since the late 1980s, when James River closed its Fitchburg operation. Part of the mill was renovated two years ago by Northeast Recycling Associates to recycle high- grade wastepaper to produce market deinked pulp.

In August 1997, Northeast Recycling filed for bankruptcy and the assets of the mill were turned over to the creditors, who formed Fitchburg Operating LLC to restart the paper mill. *

Blue Water Fiber LP in Port Huron, Mich., filed for Chapter 11 bankruptcy protection Sept. 24. In a letter to suppliers, the 200 tpd wet-lap deinked pulp producer said it expects to remain operational while it seeks approval of a reorganization plan that would keep it in business “for the long term.” The company said its intent is to obtain court approval for a plan to make “appropriate provisions” to pay creditors’ existing claims.

Blue Water Fiber LP also said it anticipated no disruption in its ability to pay for goods and services following the bankruptcy filing. The company has been struggling for some time, and the letter noted that “current market conditions have already forced a number of our competitors to shut down and/or file for similar protection.”

Earlier this year, four distressed-bond specialists bought out Blue Water’s bonds and the company was reportedly readying for a restructuring. In addition, it had been involved in a performance-related suit and countersuit. Blue Water is a joint venture of Rust Capital Corp. and Port Huron Fiber Corp., a subsidiary of the former E.B. Eddy Ltd. Most of the mill production was originally targeted for the market. *

Sonoco Products Co. said it will permanently close a small recycled paperboard mill in Terrebonne, Que. The mill, which employs 35 people, produces approximately 21,000 tpy of uncoated tube and core stock on a single 74 in. wide cylinderboard machine. Sonoco said it would move certain pieces of machinery to other company paper mills. The property will be listed for sale, but not as a continuing paper mill.

In August, Sonoco announced the closing of its paper mill in Amsterdam, N.Y. Like Terrebonne, the Amsterdam mill was a small, older operation, producing about 18,000 tpy of tube and core stock. The company said the general economic slowdown combined with capacity increases at other Sonoco mills no longer made it feasible to continue operating these mills. Terrebonne had been part of Sonoco’s paper operations since 1961 and the Amsterdam mill had been a part since 1964.

“We had to make the difficult decision to close these mills because the age and size of the facilities made it uneconomical to upgrade for today’s competitive business environment,” said J.C. Bowen, vice president of North American paper operations for Sonoco. “We have excellent papermakers at these mills and wish we could have found cost effective alternatives to their closings,” Bowen said. *

Oconto Falls starts production

PCDI Oconto Falls Tissue LLC began production of jumbo rolls of colored tissue products at its new mill in Oconto Falls, Wis. The former Kimberly-Clark Corp. deinked pulp mill was shuttered in June 1997 and sold to a private investor group later last year. Installation of a new Voith Sulzer Crescent former began almost immediately and the machine began production in July. The new machine has a capacity of 115 tpd and will produce napkins, table covers, facial tissue, toweling and toilet tissue, primarily for the away-from-home markets. *

Bowater Inc. recently announced the sale of 1 million acres of its Maine timberlands and the Pinkham Lumber Co. sawmill to J.D. Irving Ltd. for $220 million. As part of the agreement, Irving will supply woodfiber from the timberlands to Bowater’s Great Northern Paper Co. mills in Millinocket and East Millinocket, Maine. Upon completion of the transaction, expected in the first quarter of 1999, Irving acquires roughly half of Bowater’s Maine timberlands and becomes the largest private landowner in the state.

Bowater’s remaining 1 million acres will continue to supply the Great Northern mills but a mill spokesman said he would not rule out the possibility that more acreage could be sold in the future, the Bangor Daily News reported.

In related news, Bowater Inc. announced it will proceed with its previously announced plan to invest $220 million to upgrade the newsprint-directory mill in East Millinocket, Maine, and to sell the coated and specialties paper mill in neighboring Millinocket.

The modernization at East Millinocket includes replacing the stone groundwood system with a thermomechanical pulp line, speeding up paper machines Nos. 5 and 6, and improving the mill’s energy and electrical system. The company said it expects to begin work late this year or early next year and that it will take up to two years to complete. The mill has capacity to produce 168,000 mtpy of newsprint and 103,000 mtpy of directory paper. The 242,000 mtpy coated and specialties paper mill in Millinocket, which was put up for sale in January, has been valued by one analyst at $100 million-$150 million. *

Sappi sells Maine acres to Plum Creek

South Africa-based Sappi said it will sell 905,000 acres (360,000 hectares) of timberlands in Maine to Seattle-based Plum Creek for $180 million or $199/acre. The deal, which accounts for 5% of Maine’s forestland, is apparently the second-largest by area in U.S. history, following the 1996 acquisition of 1.1 million acres by Willamette Industries Inc. from Cavenham Forest for $1 billion. The latest sale continues a trend of timberland monetization and acquisitions that have involved more than 9 million acres and $9 billion over the 1996-1998 period, according to estimates.

Plum Creek has agreed to a 40-year timber supply contract to sell pulpwood to Sappi’s 660,000 tpy S.D. Warren Co. coated free-sheet mill in Skowhegan, Maine. Sappi said it will continue to buy timber on the open market for its other mills, including its 160,000 tpy S.D. Warren paper mill in Westbrook, Maine. The timberland sale is expected to become effective by the end of the year, subject to regulatory approvals, but is not subject to financing. Plum Creek has no manufacturing facilities in Maine.

The acquisition places Plum Creek as the sixth-largest private timberland owner in the U.S. with more than 3.3 million acres. Sappi is also offering two prime tracts of land covering about 1,900 acres to the state as conservation areas. *

Union Camp Corp said it will eliminate about 540 jobs over the next year as part of a widespread reorganization and restructuring program to further improve profitability. The program involves the closing of Union Camp’s corporate research and development laboratory in Princeton, N.J., affecting 187 employees; a 190-person administrative staff reduction in the company’s packaging group; and 163 jobs cut across the balance of the company, mostly in administrative and support positions.

The company hopes to cut annual costs by about $42 million by implementing these actions. The cost savings will be in addition to the savings achieved through the earlier profit enhancement program announced in December 1996 and now nearing completion.

The earlier program, which eliminated 400 jobs, aimed to increase pre-tax annual earnings by $100 million. Union Camp’s board of directors also voted to increase the amount of common stock the company is authorized to repurchase by 5 million shares to 6.2 million. The existing repurchase program had about 1.2 million shares remaining to be purchased.

W. Craig McClelland, the company’s chairman and CEO, said, “In an environment where global economic developments have created difficult product pricing conditions, we are reducing costs and realigning assets to strengthen our competitive position. These new initiatives are a continuation of our company’s strategy to build long term earning power for our shareholders.”

The company will take a special pre-tax charge in the third quarter of approximately $49 million to cover costs associated with the job cuts and for asset write-downs. The company plans to sell the Princeton research facility and surrounding land, as well as other real estate and non-essential assets. The estimated proceeds of these asset sales are in the range of $35 million, said the company.

Union Camp’s packaging group consists of five operating divisions employing approximately 9,000 people and represents about 40% of total company sales. Linerboard, kraft sack paper, and saturating kraft paper are produced at two mills located in Savannah, Ga., and Prattville, Ala. The mills operate eight paper machines with total production capacity of 1,845 tpy of linerboard and 335,000 tpy of sack paper and saturating kraft grades. Corrugated containers, displays, folding cartons and flexible packaging are produced at 50 converting plants located throughout the U.S. and several overseas locations.

Chesapeake Corp. announced that its wholly owned subsidiary, Wisconsin Tissue Mills Inc., plans to build a greenfield tissue mill and converting facility in the U.S. Southeast to manufacture napkins and towel stock for the away-from-home markets. The expansion is subject to final approval by Chesapeake’s board of directors which is expected in first quarter 1999. Final site selection and engineering design activities are presently underway and the board was expected to make a decision on the mill’s location in November. The two sites under final consideration are Roanoke Rapids, N.C., and Florence, Ala.

The new mill would include one paper machine with an annual production capacity of 100,000 tons and a deinked pulp mill. The plans also include onsite converting equipment and a distribution facility. Production is expected to begin in first-quarter 2001 with total project cost projected to be approximately $160 million-$180 million.

The new 100,000 ton world-class operation in the Southeast will enable Wisconsin Tissue to remove up to 40,000 tons of higher-cost capacity from its system, lowering overall costs substantially, the company said. The final decision to shut down 40,000 tons of production capacity will not be made until late 2000 or 2001 and will be made according to market conditions at that time, according to a company spokeswoman.

Wisconsin Tissue, headquartered in Menasha, Wis., currently has a total capacity of 300,000 tpy of tissue, making it the fifth-largest producer in North America.