Restructured Catalyst Paper Faces Headwinds

Catalyst’s Crofton mill on Vancouver Island
Catalyst’s Crofton mill on Vancouver Island

Catalyst Paper Corp., the Richmond-based manufacturer and marketer of specialty printing papers and newsprint, continues to divest assets, and faces increasing competitive pressure following its emergence from creditor protection last fall .

Catalyst emerged from creditor protection on September 13, and resumed trading on the TSX January 15 this year. To date, investors have given the company a vote of confidence; after resuming trading at $2, shares rose to a high of $2.75 on Feb. 14 before settling to their current $2.50 range.

CEO Kevin Clarke points to rising power prices as one of the headwinds Catalyst faces. The manufacturer, which claims to consume five per cent of BC Hydro’s output, faces $17.7 million in BC Hydro rate hikes by 2014.

Catalyst also faces an increasingly competitive market as stable commodity prices in recent years induced closed mills to restart production. “The biggest factor is these restarted mills which are driving prices lower,” says Kevin Mason, a forestry analyst with ERA Forest Products Research. “All the paper grades Catalyst sells are in decline,” says Mason; “pulp is grinding ahead, but will be falling by the second half of the year. All in all, it’s going to be a tough year.”

Catalyst announced earlier this month that it had sold its 50-per-cent interest in Powell River Energy for $33 million to an affiliate of Brookfield Renewable Energy, as required by an arrangement with Catalyst’s unsecured creditors, who opted for half of the sale’s net proceeds over receiving Catalyst shares.

A U.S. court last month approved the sale of Catalyst’s Snowflake mill in Arizona to Hackman Capital Partners LLC. Operations at the mill had shut down on September 30, and the 19,000-acre facility was sold at auction for $13.46 million on December 17.

Catalyst has meanwhile failed to close the sale to Pacific Deep Sea Terminal Inc. of its Elk Falls mill in Campbell River, which was mothballed last September. The 400-acre site is plagued with environmental liabilities, which in part derailed Pacific’s plans to turn it into an industrial park and port.

The company’s mills in Powell River, North Cowichan, and Port Alberni collectively employ 1,290 workers. Port Alberni sees $60 million in economic spinoffs, according to former mayor Ken McRae.  

Catalyst’s third-quarter 2012 results, released last November, indicate earnings of $655.7 million for the quarter, compared to a loss of $11.7 million the previous quarter. However, the earnings were attributed to a one-time credit arising from the reorganization, and “fresh-start” accounting valuation adjustments.

Another Vancouver Ilsland pulp producer, Nanaimo’s Harmac Pacific, faces somewhat brighter prospects. “The overall kraft pulp outlook is not that good for the next couple of years, but at least you’ve got long-term global growth, and they’re positioned to sell into the biggest market, China,” says ERA’s Mason. Harmac, which was bought by employees and a Victoria investor when it faced bankruptcy in 2009, is currently building a $45 million biomass energy plant.

Other pulp producers haven’t been so lucky. Left shuttered and abandoned, the Skeena Cellulose pulp mill in Prince Rupert is caught in an international scandal involving Chinese businessman Ni Ritao who bought the mill in 2006 for $9 million. Prince Rupert reacquired the property in 2010 following a dispute over unpaid taxes, and has spent $3.5-million to date on legal and maintenance fees. The mill remains idle.