Tembec Slates $190 Million to Upgrade Temiscaming Mill

Tembec's Temiscaming pulp and paper mill in Quebec, Canada.

March 16, 2012 - Tembec has announced a $190-million capital investment to upgrade its specialty cellulose manufacturing facility at Temiscaming, Quebec. The investment will increase annual production of green electricity by up to 40 megawatts, reduce sulfur dioxide emissions by 70%, increase Temiscaming's annual production capacity of specialty cellulose by 5,000 metric tonnes, and make Temiscaming one of the world's lowest-cost specialty cellulose manufacturing facilities, the company said in a statement.

According to Tembec, the project is the first phase of a two-phase investment plan for the facility. It will involve the replacement of three old boilers with a new high-pressure boiler designed to burn waste sulfite liquor, a co-product of the specialty cellulose manufacturing process, producing green steam for use at the facility.The project also calls for the installation of a new electricity turbine that will be driven by this steam. The turbine will increase the Temiscaming facility's green electricity production capacity from its current 10 megawatts to, eventually, 60 megawatts.

The boiler is scheduled to start up in December 2013, followed by the turbine, in May 2014, Tembec said.

Hydro-Quebec will offtake the additional green electricity produced by this turbine under a 25-year contract at $106 MW/hour, indexed with CPI, which will strengthen and stabilize Tembec's revenues through the economic cycle. The $190-million investment in Phase 1 will be financed with $105 million of new debt, which includes a $75-million loan from Investissement Québec; the balance of $85 million will come from free cash flow from Tembec operations.

"This game-changing project for Tembec will make Temiscaming one of the most competitive mills in the global pulp and paper market," said James Lopez, Tembec's President and CEO.

"I want to acknowledge the critical support of the Quebec Government, through Investissement Quebec, and the continuing commitment of our employees to remaining competitive."

Once the new equipment is in operation, Tembec expects a four-year return on investment, through new revenues from green electricity, the additional production of 5,000 metric tonnes of specialty cellulose and lower costs.

Tembec's management expects the project will reach an annual run-rate EBITDA (earnings before interest, taxes, depreciation and amortization) contribution of approximately $40—$45 million by fiscal year 2015 assuming implementation as scheduled and planned.

The new boiler, turbine and emission control equipment will be sized to accommodate Phase 2 of the project, a follow-on investment of $120 million which is currently projected for 2014 - 2015, Phase 2 would increase Temiscaming's annual specialty cellulose production capacity by 30,000 metric tonnes, boost green electricity generation by 10 megawatts to attain full turbine capacity, and further reduce operating costs.

The overall project will increase Tembec's annual production capacity of specialty cellulose from the current 310,000 metric tonnes to 345,000 metric tonnes. The Temiscaming facility's production capacity will increase from the current 160,000 metric tonnes to 195,000 metric tonnes. Tembec's Tartas, France, specialty cellulose facility has a current production capacity of 150,000 metric tonnes.

Tembec is a manufacturer of forest products — lumber, pulp, paper and specialty cellulose — and a global leader in sustainable forest management practices. Principal operations are in Canada and France. With annual sales of approximately $2 billion, Tembec has 4,000 employees and is listed on the TSX (TMB).

SOURCE: Tembec