Catalyst Paper to Close Its Recycled Newsprint Mill in Snowflake, Arizona

Catalyst Paper will shut its Snowflake, Arizona recycled newsprint mill on Septemebr 30.

July 31, 2012 - Catalyst Paper yesterday announced the permanent closure of its Snowflake recycle mill located in northeastern Arizona (USA) and its subsidiary the Apache Railway Company. The operations currently employ 308 salaried and hourly workers..

The decision follows extensive efforts to improve the operation's financial performance in the face of intense supply input and market pressures, Catalyst said.

The operation is scheduled to shut production on September 30, 2012.

"The decision to close Snowflake is an extraordinarily difficult one given the exceptional effort that employees, unions and public officials have given to address the unique challenges at this mill, said President and CEO Kevin J. Clarke. "We understand and regret the difficult impact within the Snowflake community and surrounding region created by closure of the mill. I want to acknowledge and thank all who have given us their unwavering support and cooperation. There were no stones left unturned."

Catalyst implemented a number of measures since acquiring the Snowflake operation in 2008, to address market challenges and input cost pressures. These included production of higher-value specialty paper grades at what was formerly a newsprint-only mill, capital investment, productivity, quality and service improvements, full leverage of the mill's environmental attributes, and competitive labour agreements. Catalyst has also explored a range of alternatives, including attempting to sell the mill on a going concern basis.

However with newsprint demand down more than 10 per cent annually since the end of 2008, old newsprint (ONP) price volatility and higher freight costs as procurement and sales have been forced to go further afield to source recycled paper supply and secure product orders, the mill's profitability could not be restored. ONP prices have increased approximately 163% since 2009. A US$5 per ton increase in ONP price has a negative impact of approximately US$2 million on EBITDA and approximately US$1 million on net earnings. Snowflake generated negative EBITDA since 2009.

The closure of the mill is expected to result in savings of annualized selling, general and administrative expenses and avoid future operating losses associated with Snowflake. Catalyst recorded a $161.8 million asset impairment charge, required under GAAP, in the latter half of 2011. The closure will result in some initial cash costs, which are expected to be recouped from working capital and the sale of Snowflake mill assets in 2013.

"Reduced quality of ONP as municipalities moved to single stream waste recovery combined with ONP price volatility driven by export markets were obstacles on the input side. Added to these challenges are the protracted demand decline for recycled newsprint and other printing papers. While we did everything possible to prevent this outcome, employees, vendors and customers needed the certainty that today's announcement provides," Clarke said.

Clarke and other Catalyst executives met yesterday with employees and union representatives at the Snowflake Mill and Apache Railway Company to outline the closure plan.

Catalyst said that it will honor its obligations to employees and will work closely with suppliers, customers and regulators through the wind-down of operations.

The site will subsequently be prepared for sale and repurposing, the company added.

Catalyst said that it is contacting Snowflake customers to advise them of specific transition plans.

The closure is not anticipated to have any impact on operations at Catalyst's other mills.

The Snowflake Mill, located in the foothills of the White Mountains in northeastern Arizona, produces 100% recycled newsprint (289,000 tpy) and specialties paper (48,000 tpy) on two paper machines. Its products are sold primarily to newspaper publishers and commercial printers for a variety of uses. The facility is chain-of-custody certified to the Forest Stewardship Council standard.

Catalyst Paper manufactures diverse specialty mechanical printing papers, newsprint and pulp. Its customers include retailers, publishers and commercial printers in North America, Latin America, the Pacific Rim and Europe. With four mills, located in British Columbia and Arizona, Catalyst has a combined annual production capacity of 1.8 million tonnes. The company is headquartered in Richmond, British Columbia, Canada and is ranked by Corporate Knights magazine as one of the 50 Best Corporate Citizens in Canada.

SOURCE: Catalyst Paper