October 2003 - Logging and Sawmilling Journal -

There are still some big hurdles to overcome, but New Skeena Forest Products CEO Daniel Veniez remains confident that the northwest BC operation can get back on its feet.

New Skeena Forest Products CEO Daniel Veniez is working to re-start the company’s pulp mill, a move that would have an immediate ripple effect on harvesting and forestry-related roadbuilding activities in northwestern BC.

Daniel Veniez says that for the New Skeena Forest Products to attain its goals it must be creative and become an “out-of-the-box” thinker. New Skeena undoubtedly has an enthusiastic driver in its president and CEO. But skeptics remain, haunted by the stigma of previous incarnations of New Skeena and their devastating impacts on the people, communities and economy of northwestern BC. Veniez’s creativity and out-of-the-box thinking has obtained concessions from other stakeholders.

These include a 20 per cent hourly wage cut, cancellation of Evergreen logging contracts and an unprecedented move by the City of Prince Rupert to investigate an investment of $20 million to help New Skeena re-start its pulp mill. The last full year of Skeena operations was 2000, and the numbers tell the sad story. A staggering $750 million has been lost in the last five years. There has been a huge ripple effect on forestry and logging activities in the region. About 350 loggers in the Terrace area alone are out of work. The number of logging trucks operating from Terrace has dropped 50 per cent. People have been forced to liquidate. People want to wrest some control back over their lives. They want desperately to believe in Daniel Veniez and New Skeena.

Foresty related activities in the Terrace area: About 350 loggers in the Terrace area alone are out of work and the number of logging trucks operating from the community has dropped by 50 per cent.

The following is a recent dialogue between Daniel Veniez and Logging and Sawmilling Journal contributing editor Jim Stirling.

LSJ: What is the current estimated capital cost to get the Watson Island pulp mill (near Prince Rupert) up and running?
VENIEZ: The pulp mill requires $100 million. Roughly half is in place.
LSJ: I understand you were in Europe recently. Any promise of investors there?
VENIEZ: Yes. Another $10 million was secured largely through supplier financing arrangements.
LSJ: Has the city of Prince Rupert’s $20 million plan changed the investment climate for New Skeena?
VENIEZ: Yes, it has made a dramatic difference. The referendum and the 70.5 per cent result was a shot in the arm for the community. Many have written off the northwest, and Prince Rupert in particular. But through a strong voice, the people have said they want the mill to work and their community back on its feet. That is a pretty powerful message to any investor. And many have been watching. Suddenly, people are coming to take a look. It has now become politically acceptable for investors to contemplate participating in New Skeena’s renewal. That’s a real and positive change in tone.
LSJ: What’s the target date to have the company’s other assets contributing to cash flow?
VENIEZ: Early 2004.
LSJ: Is the deal with West Fraser on the Smithers sawmill and wood basket complete?
VENIEZ: Yes. The deal closed in June 2003.

Operating costs for the forest industry are too high, and resource-based communities in Canada have been “living in Lala Land” says New Skeena CEO Daniel Veniez. “The world has changed radically and unless we get ahead of those changes, our communities will be ghost towns.”

LSJ: What are your plans for the Carnaby sawmill. There’s been talk of a proposal to turn it over to the Gitxsan First Nations band?
VENIEZ: We have not made any firm plans for Carnaby. The CEP local (Communications, Energy & Papermakers Local 404) rejected our Fresh Start Labour Agreement on three separate occasions over the past 15 months while the three other unions in our system ratified new deals. For now, our plan is to focus our efforts on people and operations that want to rebuild for the future and are not stuck in the past. There is no time to waste.
LSJ: What about plans for the Kitwanga joint venture? And Terrace? Any investment plans for the sawmill there?
VENIEZ: Kitwanga Lumber is a profitable and good cedar sawmill with a very solid management and work force. It is non-core and non-strategic to our overall framework and we would entertain offers for a price that reflects its earning power and historical performance. If that does not happen, we plan to run it as soon as market conditions improve.
LSJ: In the unlikely event of an ideal world, would you envision a New Skeena comprised of the pulp mill and a modernized sawmill in Terrace?
VENIEZ: Yes, that’s where we are heading now. Sharply focused on core and rationalized assets, strengthening a solid asset base in need of TLC capital or quick pay-back modernization. This is very much in the realm of the reasonable and realistic. Changes to the Forest Act also allow us to make more intelligent economic decisions without being penalized for them. This way, jobs are secured through better run, leaner, more productive and modernized facilities. We can’t afford to artificially prop-up non-performers through a “social compact” that ends up hurting everybody.
LSJ: A cheeky question. Has NWBC Pulp & Timber (owners of New Skeena) paid the provincial government the full $6 million for Skeena Cellulose’s assets?
VENIEZ: Yes, we did. In fact, add another $2 million to that which was paid in April of 2002 direct to the monitor for payment to unsecured creditors. So, we paid $8 million, all of which was transferred at closing. Since that time we have invested $35 million toward re-structuring efforts to date.
LSJ: Do you think in your determination to cut costs and re-build New Skeena, that you’ve taken advantage of desperate residents and communities bloodied by the protracted Cancel/Westar/Repap/SCI fall out?
VENIEZ: Taken advantage? The company was left for dead. It would have become a parking lot or trailer park. This was another Gold River (a pulp mill operation on the BC coast which was shut down in 1998) waiting to happen. Those people were gone. The community would have permanently lost more than half its total wealth generation capacity. Home equity values have declined over 60 per cent in the last two years. Taken advantage? Almost $40/hour fully loaded base wage, a $5,000 advance on profit sharing and a 15 per cent profit sharing plan. Is that taking advantage? If a new company came to town and offered to employ 650 people on that basis, do you think they would say that the company was taking advantage of them? No, I don’t think so. Only in BC would you ask such a question when the company has been bankrupt twice in five years. But there is still a feeling that we’re entitled to enjoy “the way it’s always been” or “whatever everybody else is getting.” We put most of our net worth into a project people said could not be done. Arguably, these absolutely necessary changes could not have occurred without the protracted downtime. The sad part is that even as the community was staring into the abyss, we had to fight the unions. What does that say about us? Where’s our sense of realism? Where’s our knowledge of the world around us? Ask your neighbour if that kind of compensation is being taken advantage of? These communities have been bloodied for a reason: the companies have not been able to re-invest in themselves. Why? Costs were too high. Resource-based communities in Canada have been living in Lala Land for far too long. The world has changed radically. Unless we get ahead of those changes, our communities will be ghost towns. Are we taking advantage of anybody? What is the alternative to deep change?
LSJ: You’ve talked about everybody being in the New Skeena re-structuring together. What can—should—the provincial government do to help resuscitate the economic development of northwestern BC?
VENIEZ: First, I am a strong supporter of the general direction of the government. But they could do a lot more than what they are doing for regions such as the northwest. We have demonstrated that we will do our share of the tough work: unions have signed on to new agreements; municipalities have taken a hit to their tax base; First Nations are working to forge new and constructive partnerships with the industry and want to be part of the process and are signing treaties; loggers have shown flexibility and imagination. But the northwest fibre basket is sick and decadent. It is uneconomic. Provincial regulations make this fibre the most expensive in the province to harvest. The government of BC can and should recognize and designate the transition zone fibre basket of the northwest as a special forestry area. This would allow a clean-up of the pulp content on an economic basis and the engagement of an aggressive silvicultural program that would employ thousands, help our environment and rehabilitate the anchor of the regional economy—its trees. In 15 years, this area will be flush with valuable second growth. Doing this today will secure the health, viability and sustainability of the forest economy in the future for the northwest.
LSJ: In your estimation, what is the single biggest challenge facing New Skeena Forest Products?
VENIEZ: Skeena’s reputation—bar none. Today, our biggest challenge is overcoming the insidious herd psychology pervasive in the industry and financial communities: that despite the great work that has been done to re-construct our enterprise, it won’t work. We know we have the fundamentals in place: our people, an asset; the financing is coming together; markets are improving and general economic conditions are expected to be much better for the next two years at least. So, the reputational challenge will have to be overcome by performance. Pure and simple. But that’s where the chicken and egg problem has been. I hope and believe that’s behind us now.

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