Tembec to update Ontario sawmills, put off Quebec spending until wood costs cut

MONTREAL – Tembec plans to invest about $50 million over the next five years to upgrade it Ontario sawmills, but will put off any spending in Quebec until the province lowers wood costs, which are the highest in North America.

The Quebec-based forestry company said Thursday it can’t justify investing in the province where log costs are 20 per cent higher than Ontario.

Chief executive James Lopez said Quebec could lose hundreds of millions of dollars in investments if Tembec’s rivals also put off spending until the government changes its policies.

“The longer they wait, the longer we have to wait. I just hope they don’t wait so long that some of these mills become uncompetitive and we have to shut then down because they are losing money,” he told reporters before the company’s annual meeting.

Tembec is prepared to spend as much as $35 million to upgrade its three mills in Quebec if the provincial government makes changes to charge market prices for wood instead of using an auction system that establishes higher minimum prices.

The investments by the company would be used to modernize its equipment and bring its sawmills up to the same standards as the industry in British Columbia.

Some jobs would be lost with automation, but Lopez said shifts would be added at some mills to maintain overall employment. Tembec employs 450 workers at its Quebec sawmills and 650 in Ontario out of the 3,500 total it employs in Canada and Europe.

Earlier Thursday, Tembec (TSX:TMB) said it lost $62 million or 62 cents per share in the first quarter. That compared to a net profit of $2 million or two cents a year earlier.

The results were hit by lower sales, the impact of a strike that cost $5 million, a $37-million charge to refinance its debt and a $17-million non-cash loss related to the impact of the lower Canadian dollar on the value of debt denominated in U.S. dollars.

Sales for the three-month period ended Dec. 27 fell to $332 million from $354 million a year earlier.

The company expects to get some benefit from the lower dollar which makes its operations more competitive and boosts the value of exports. Lower oil prices should save about $10 million to transport logs to its sawmills.

However, Tembec says its cellulose pulp business will continue to face pressure because of increased capacity in the United States and Brazil that is reducing prices.