Conifex Timber Inc. finished 2011 with a net loss, but is well positioned for significant improvement in the coming year, CEO Ken Shields said Wednesday, even if benchmark lumber prices remain flat.
The strategy includes producing a "richer product mix," Shield said during a conference call, emphasizing heightened sales to Japan, "which is the most lucrative and most richly-priced lumber market."
Other reasons include closing down on Jan. 2 one of the three log breakdown lines at the Fort St. James mill and speeding up the remaining two lines. The move should reduce conversion costs by $7 per thousand board feet, Shields said.
Automated grading equipment will be added at the Mackenzie mill in April for $3.2 million, which Shields said should be paid back in 18 months and should improve EBITDA per thousand board feet by $10.
And the $1.6-million purchase of Welco Lumber Co. means Conifex's sale force is now within the company.
"The bottom line is we have a more cost-effective commission rate structure that's kicked in that will help our mill net," Shields said.
Conifex suffered a $16.9 million net loss, or $1.11 per share, for the year, compared to a $10.8 million net loss, or $1.02 per share for 2010.
Shields attributed the setback to some special factors beginning with a strengthened Canadian dollar that trimmed $11 off the Canadian price for Western Spruce, Pine and Fir (SPF) grade two and better, even though the U.S. price remained unchanged at $255 per thousand board feet.
Conifex's loss on earnings before interest, taxes, depreciation and amortization (EBITDA). declined to $8 per thousand board feet from $22 in 2010, Shields said, but Conifex still needed $260 Canadian to break even while the reigning price was $252 Canadian.
Competitors, meanwhile, appeared to need $240 to $245 Canadian to achieve break even, which was about $20 to $25 higher than they required in 2010, Shields said.
"So you see that the degradation in the sawlog base from pine forest is pushing break-even prices higher for the typical Interior B.C. lumber producer," Shields said. "On the other hand, we're trying to drive our break-even price lower."
Conifex's lumber shipments doubled to 375 million board feet in 2011 and Shields is expecting to see that total rise by 100 million board feet by the end of this year and for EBITDA to be positive as the company's mills run closer to capacity.
Conifex is operating two mills that have 535 million board feet of capacity while a third raises that to 745 millon board feet, and Shields said the two mills now operating will rise to 90 per cent from 72 per cent.
"This heightened shipment volume has the effect of spreading our fixed costs over more units of sales and contributes to a reduction in unit costs," Shields said, and added productivity gains from second shift crews, added 11 months ago, as they become more seasoned.
The Mackenzie mill ran into problems processing poor quality logs from legacy cutting permits put in place by the operation's former owner, Abitibi Bowater. Shields said construction of a road to Mount Milligan cut off a main logging road in the summer and prevented Conifex to access a second block of better timber and improve the mix.
"We now have much more log supply blocks identified for future harvest... and we're not just depending on one artery for log deliveries," Shields said.
