Canfor Corp. (TSX:CFP) will permanently shut down its sawmill in Vavenby, B.C., and sell the forest tenure associated with that mill to Interfor Corp. (TSX:IFP).
Forests Minister Doug Donaldson may have something to say about the proposed tenure sale, however, thanks to a controversial new act, Bill 22, that requires the minister to sign off on any sale or transfers of forest tenure.
Canfor plans to permanently close its Vavenby sawmill in July and sell the associated tenure to Interfor for $60 million.
It is the second recent announcement of a permanent sawmill closure in B.C., and is not likely to be the last.
It is estimated that six to eight sawmills in B.C. will need to permanently shut down due to a shrinking annual allowable cut and high log costs.
On May 10, Tolko Industries announced it will permanently close its Quest Wood sawmill in Quesnel in august and eliminate one shift at its mill in Kelowna.
“Due to the current and long-term log supply constraints we face in the Vavenby region, along with the high cost of fibre, we have made the very difficult decision to permanently close the sawmill and sell the associated forest tenure to Interfor,” Canfor CEO Don Kayne said in a press release. “The ongoing depressed lumber markets have expedited this decision.”
The closure of the Vavenby sawmill will reduce Canfor's annual production capacity in B.C. by 250 million board feet.
Sawmill closures should come as no surprise. The closures have been predicted for years. B.C.’s timber supply is in a long-term decline, thanks to the Mountain pine beetle epidemic and forest fires.
Thanks to Bill 22, when a sawmill closes and a company decides to sell or transfer the tenure associated with it, the minister of forests must now be informed of the sale or transfer, and may intervene.
Before any sale or transfer of tenure is allowed, the Ministry of Forests will allow First Nations, workers and the general public to weigh in. It is expected that some of the tenure now concentrated in the hands of a few big players will end up with smaller organizations, including First Nations.
The B.C. government feels too much tenure is concentrated in too few hands, so it is expected some of the tenure currently owned by the larger tenure holders may be taken back and redistributed to smaller players.
“The intent of Bill 22 is to address concentration in the tenures in the forest sector amongst five companies or more,” Donaldson, minister of forests, lands and natural resource operations, recently told Business in Vancouver. “More diversity and more competition means a more vibrant sector.”
The industry has warned, however, that the uncertainty that Bill 22 introduces may mean a decline in investments in B.C.'s forest sector.