Catalyst Paper to Shut Elk Falls Pulp Mill

July 8, 2008 - Catalyst Paper yesterday said that it will permanently close the sawdust pulp and containerboard operation at its Elk Falls Division in Campbell River, British Columbia, effective Nov. 30, 2008.

The decision reflects the severe impact of a permanent loss of traditional sawdust supply, as well as significant energy and chemical cost inflation, high labor costs and the heavy toll being taken by the uncompetitive major industry municipal tax levied on the Elk Falls mill, Catalyst said.

"Our Elk Prime pulp product is made primarily from sawdust," said Richard Garneau, president and chief executive officer. "With the permanent closure of the TimberWest sawmill in Campbell River, other coastal sawmill shutdowns, and the reduced sawdust supply from the Interior, it has become clear the Elk Falls sawdust pulp and containerboard mill operating losses would increase significantly if we don't take this action."

Closure of the Elk Falls pulp mill will remove 200,000 tonnes of annual sawdust pulp and 131,000 tonnes of annual containerboard capacity.

Notice has been given to CEP Union Locals 630 and 1123, Catalyst said. Meetings with employees are underway to outline transition details and develop next steps for the coming months, the company added.

Approximately 440 hourly and salaried employees will be impacted by the closure with severance costs estimated to not exceed $21 million. The associated asset impairment charge is estimated to be $137 million.

According to Catalyst, Elk Falls has been a historically low-return business, with pulp operating losses that continued into the first quarter of 2008. With the sawdust shortage forecasted to increase, there is no realistic prospect of profitable pulp and containerboard production at the Elk Falls mill, Catalyst said.

"We know this decision will be difficult on employees and their families," Mr. Garneau said, "and we appreciate all that has been done at the mill to become more competitive. Still, we have not been able to overcome the sawdust supply challenge, which has only worsened with the U.S. housing crisis—and jobs can't be sustained on the basis of an unprofitable pulp operation."

The Northern Bleached Softwood Kraft (NBSK) long-fiber pulp business at Catalyst's Crofton Division is not dependent on sawdust supply and therefore is not affected by this announcement.

SOURCE: Catalyst Paper

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