I think the simple and smart solution for Burns Lake would be to become the world leaders in charcoal export for the home cooking markets. They could be up and running by this summer. They have a vast supply of dead pine trees… a bigger resource than anywhere else on the planet.

Cooking charcoal is a massive market being one of the largest uses of a renewable resource anywhere in the world, and it has potential to be a steady secure business model with repeat sustainable customer base so long as people still eat food.

For most of the worlds population they will never have natural gas infrastructure because it is to expensive to build that kind of infrastructure for isolated communities geographically or simply as islands… but they still need to eat and people that eat like to have their food cooked (that will never change).

You could call it project Aboriginals helping Aboriginals… a win-win for all involved. Environmentalists would support it to save the endangered wildlife and plants where charcoal production is allowed to devastate sensitive micro climates because governments have no other options. Carbon offset programs would be tripping over themselves to help fund a project like this so they could sell their solutions to the world…. people in Burns Lake would have a host of jobs far more sustainable than producing 2×4’s.

Burns Lake could be what the Rockefellers are to oil, but in the cooking fuel industry.

IMHO

Bob Simpson sees the writing on the wall for his Quesnel constituents… so he sells his soul IMO to advocate a communities logs leaving that community to keep another sustained. I think that is wrong.

“The tragic fire at Babine Forest Products has finally brought to light the question about whether there is a long term log supply for all mills and all communities in the Mountain Pine Beetle zone”

Has it? Based on most of the stories I have read and comments I have heard, there seems to be this belief out there that it’s a simple matter of doing some paperwork, shuffling around some agreements and throwing some government money at the issue and wham o, the mill is back and running for perpetuity. I don’t think anyone is thinking long term, they are all focused on what needs to be done to get the mill re-built.

Forget the issue of long term timber supply and rebuilding the mill. Perhaps what this this tragedy should do is serve to force people to consider what is going to happen to the virtually every “mill town” in North Central BC for the next couple of generations starting in 5-10 years. Focusing on the short-term timber supply and mill re-building is a cop out and a complete disservice to the people living in that area of the Province. When is someone going to step up and take leadership on this issue?

Let’s be completely honest here. The support Burns Lake needs right now and the support they need to make sure they are still viable 50 years from now are two completely different things. It serves no purpose to speak of them as though they are one in the same because it turns the situation into this big ambiguous mess that is impossible to tackle effectively.

The planning for the future of Burns Lake and other similar cities should have been undertaken long ago and it should have been in place despite the tragedy that occurred with the mill. Finding a solution for the mill or timber supply WILL NOT result in a solution for the long term future of Burns Lake. I hope people start to see that soon or it will be too late to do anything about it.

“government must CONTINUE to look at the whole picture and make decisions based on potential impacts to all the operations and all the communities in the Mountain Pine Beetle zone.”

I would have liked Simpson to explain in this article what exactly he thinks the government needs to CONTINUE to do. There is no evidence that I have that tells me that they have done anything to deal with the Chief Forester’s continuing projected downfall.

The cards have been dealt a long time ago by Mother Nature and we keep on going as if nothing has happened.

We know what the impact has been and will be to the forests. What we do not know is the parallel projection of the economic and social impact on the communities which have been relying on the forests as the key economic drivers.

By pure coincidence, we have seen a mini-version of that through the loss of the USA market for the products we were putting out. We have seen a plywood plant not being rebuilt after a fire. We have seen a plant abandoned after a flooded river bank. We have seen other mills being closed, never to be reopened.

In fact, I would say that we have seen those losses as a part of the world economic downturn we see and so, psychologically it has been easier for us to accept.

The opening of opportunities to sell our products to China is great. It has lifted our hope. However, we seem to have forgotten about the impending results of the devastation which will be hitting us. How bad will it get? We have been funding such organizations as the Omineca Beetle Action Coalition, the Cariboo-Chilcotin Beetle Action Coalition, the Fraser Basin Council OBAC, and have heard nothing of how the communities around us as well as our own community will be coping.

The continuing message appears to be that the downfall will be taken care of by a switch of a portion of our economy to the mining sector. Recently we are continuing to get messages that our main problem will be human resources not natural resources.

I understand it is tough, but I am still old fashioned enough that I believe the key role of government is to protect the citizens of the country, provinces and cities. Private corporations are not going to going to protect communities of any size. Private corporations protect private corporations. We have seen ample evidence of that recently right here at home.

So, to Bob Simpson, Independent MLA, what is the plan from here on?

Hey NMG, did not see your post till I posted mine.

*HIGH FIVE*

Shift to mining, oil and gas development?

What is the word about any impending human resources issue in Ontario these days, NMG?

I am interested in knowing whether it will affect Ontario less than it might some other provinces, including BC.

I was thinking that the magnets for immigrants are primarily the GTA and GVRD. I suspect Quebec could be hit hard. I think Montreal has not been doing as well with attracting immigrants as other large urban areas and the “hinterlands” there are likely in the same predicament as BCs cetnral, northern and eastern regions.

Those are words that are easily spoken seamutt and you are certainly not the first one to say that.

What does not come with those words, however, are details.

1. What was the size of the forest industry in say 2000 as far as total number of people it employed in the beetle affected regions.

2. How much money was left in the communities it was based in and how much money did it generate for the government with respect to that portion which government put back into those communities to invest in infrasturcture and services.

3. Provide similar figures for those industries which can thrive in those same communities through underground, finite resources. (yes, it is important to remember that those resources are finite and must be in place to take up the 40 to 50% fall down slack for more than 40 years after 2020)

4. Identify the geographic regions which will benefit from any increase in underground resources extraction and compare those to the ones which have benefitted from forestrty. The identify which communities will be able to fill the gaps, which won’t be able to do that, and which communities will become the centres of the “new economy” which may only be a “transitional economy”.

I suspect there are not as many underground resource extraction jobs as there are forestry jobs in a 40 to 50% downturn forestry economy. But, I could easily be wrong. If there are some fiogures out there by now, I would like to see them. Surely someone has been looking at that by now.

And we are still sustaining raw log exports? I think its time that practise was revisited.

Preferrably stopped altogether.

Bob Simpson said “the question about whether there is a long term log supply for all mills and all communities in the Mountain Pine Beetle zone. This is a discussion that should have had much more profile than it has to date”
I believe Bob”s article was everything he hoped it would be.
It opened the public’s eyes to the question that he threw out there and now the discussions have started.
Keep the discussions going, there are some great opinions and ideas being tossed around in the many comments.

ONE YEAR SHOULD BE AMPLE TIME FOR THE COMPANY TO DECIDE IF THEY ARE GOING TO REBUILD. If the Company presently holding the timber rights opt’s out they should lose the timber rights, and the Government should then put this timber out to open bid.
It is my belief that this timber would draw a lot of interest and probably a much higher stumpage rate than the present .25 cents they are probably paying.
Once the Government sees how successful this can be, just maybe they will wise up and put all timber up for bid.

Sure hope Lakeland Mills stays safe and dry. Where else would our city get hot water from? Can’t happen? I remember the Titanic.

I wouldn’t just take all those assumptions for granted as in several areas hit with the MPB the AAC levels were increased whereas the actual harvest levels decreased. So just because the AAC levels drop doesn’t mean that harvest levels will drop from current levels.

The second issue that is going to be very important is just how much timber is required by a mill to be viable? Is it the amount that is always more or is it the amount needed to be profitable OR is it the amount to be extremely profitable?

Do we believe it to be what we are told as being the minimum amount or do we insist it be allocated and processed in each community at the rate of which can be sustained? This has been left to corporations to decide and convince our government that they know best..and communities simply live or die by those decisions. Take that one step further and corporations can justify exporting the logs from everywhere in this province.

If you are concerned about your future in small town BC then this is the question that must be seen for what it means.

I agree Give More we shouldn’t be exporting one raw log to sustain the economies of the
US or China. Seems to me that in the past logs came to Prince George (the city; not the poster) to the detriment of smaller surrounding communities. Don’t know if this still happens with the demise of some of the mills that used to operate here.

I wonder if anyone is looking at the economics of smaller mills rather than the move over the last couple of decades to larger mills. The reason I say that is because I understand from the Chief Forester’s report the ideal would be for mill operations to move closer to where the dead stands are for the next decade while they might still have some value. The epicentre of that is supposed to be the FS James area. The hauling distances are are projected to be becoming longer and longer.

“What is the word about any impending human resources issue in Ontario these days, NMG?

I am interested in knowing whether it will affect Ontario less than it might some other provinces, including BC.

I was thinking that the magnets for immigrants are primarily the GTA and GVRD. I suspect Quebec could be hit hard. I think Montreal has not been doing as well with attracting immigrants as other large urban areas and the “hinterlands” there are likely in the same predicament as BCs cetnral, northern and eastern regions”

I would tend to agree gus. When it comes to immigration, I would think that the major centres will continue to see the majority of the action. Quebec has been losing allot of jobs lately, but I suspect that between them, Vancouver and Toronto, they will still account for the vast majority of influx into Canada. I’ve noticed that Ottawa is also incredibly diverse and while it is a “smaller” major centre, it still has a great deal to offer. I think it’s a bit of a special situation though, just given the demographics here and the role it plays as the nations capital. That said, the growth here is still incredible, with new subdivisions and commercial activity popping up almost every day.

I’ll try to pay a little more attention to what’s going on out here and provide more updates in the future. Truth be told, I haven’t had much time to get tuned into my surroundings as much as I would have liked. Between the new job, taking in the fantastic things that the capital region has to offer, French night classes and everything else, I’ve found myself running short on time. We do try and head out to some of the smaller surrounding communities and that has been interesting. The more I get out and about, the more it drives home to me that the issue isn’t really “East vs. West”, it’s “urban vs. rural”. On many levels, small resource town Quebec isn’t really all that much different than small resource town BC. People really should travel more and experience the country for themselves. I think it would help us immensely.

The only other thing I can add is that Ottawa would probably never see an immigrant if they arrived here in January or February. I’ll never tell people here this, but I think the climate here may be worse than PG. Despite the “warmer” temps, the wind never seems to stop, the humid cold simply makes you numb and the ice storms and freezing rain are simply ridiculous. This has to be one of the most extreme climates on the entire planet, LOL.

The owners of the Burns Lake mill will not make any announcement on rebuilding the mill until.

1. They come to an agreement with their Insurance Co., This is what happened with North Central Plywood. They will then have to weigh the cost of rebuilding with the insurance money, and the amount they would receive if they did not rebuild.

2. They will need some sort of agreement for a long term timber supply. The fact that they state they need this agreement tells me that at present they dont.

3. The price of lumber has to go up. Nobody is making much of a profit when you are selling lumber at $240.00 per 1000fbm. I suspect the price for lumber to China is even less, because 90% if lumber shipped to China is 3rd or 4th grade,unplaned, and used for concrete forming.

I dont expect any of the above three issues to be resolved any time soon. In fact if the Russians lift their embargo on logs to China we could see a serious decline in lumber exports.

That’s right, Palopu. Many sawmill fire insurance policies are written in a way that insists on the destroyed assets being replaced.

Firms have to carry insurance to the full current replacement value to get coverage, and they don’t always get to just pocket the payout and run when disasters happen.

If there were a negotiated settlement where the mill was not going to be rebuilt, I think the insurance carrier wouldn’t be forking out near as much as they would be if it were.

Some of the long operating American insurance carriers that have traditionally specialised in insuring sawmills against fire are now bowing out of that field as the sole insurer, it is no longer profitable enough to be in that business even with premiums far higher than for insuring other industrial plants. Canadian insurers will likely follow suit, if they haven’t already.

One of the problems with rebuilding any sawmill has to be projecting the effects of inflation over its expected lifespan. Lumber prices often do not rise proportionately to the costs of production. Which latter often rises far faster.

Mills compensate by tweaking their production to get it up above their originally rated capacity. This would make projecting the amount of timber necessary to sustain a new mill over any extended period very difficult to accurately predict.

Given the declining nature of the timber resource in that area, a portable mill, or mills, (of which there are some fairly sophisticated modern versions ~ see the one that Vaagen Bros. Lumber has in Washington State on their website)may be a better choice than rebuilding a permanent one.

Foresight, it isn’t necessarily the ‘Corporation’ that makes the final decision on how much profit is required, but rather the banker of the corporation.

Most large Firms are highly dependent on ongoing Bank accomodation to carry on in business. Bank loans are amortised from profit, and if a Firm can’t provide a credible projection of profit under the possibility of wildly changing circumstances, it won’t be able to secure financing.

In Canada, our banking system is highly centralised compared to that of the USA. While that certainly has many advantages in regards to the overall strength and security of our banking system, it also often leads to Canadian banks being far more ‘risk adverse’ than American ones.

They are generally looking for greater collateral security before they lend, and transferable cutting rights to Crown timber held by the borrower to the greatest degree possible puts the banker’s mind at ease.

“Bank loans are amortised from profit”

They are? I have always considered the “cost of money” such as a business loan to be a cost of doing business the same as any other service that the business uses. As such, it is accounted for before the net profit calculation.

I would think that if a bank lends money and it depends on company profits to pay the interest and the principle, then the bank is more like an investor; you get your money when there is a profit.

No, that’s not how the accounting works, Gus.

The principal, the sum that the company borrows, is not treated as ‘revenue’ by that firm when it is received. And the repayment of that principal over time is not considered an ‘expense’ as it is paid back.

Only the interest paid on it is treated that way, and becomes just another cost such as logs, wages, hydro, telephone, fuel, insurance, property taxes, etc. The interest rate could be considered as the cost of money.

What the banker is doing in making the loan is sharing the expected profit with the entrepreneur until the principal sum is fully amortised.

At that point, what was created “out of nothing”, as the saying goes, returns to being “nothing”. The system is creditary. Loans create deposits, the repayment of loans destroys those deposits.

It is not well known, and perhaps kept purposefully so by the Banks themselves, but EVERY Bank loan, purchase of securities, or spending by the Banks for any purpose creates a deposit that didn’t exist before the loan was made, or purchase completed, or spending was done.

‘Money’ creation by the Banks is carried out by a process of bookkeeping. What they loan is not what someone has deposited with them, though those deposits do have a role in the process as the Bank’s reserves that are necessary to settle inter-bank transactions amongst themselves.

Very little of the total amount of money in existence at any point in time is actually represented by coin or currency, which in themselves are merely highly portable extensions of the same bookkeeping process created for convenience.

This is how banking has worked for centuries, and prior to that how all transactions involving ‘money’ have been carried on since the advent of money itself as an adjunct to barter.

Unless there are corporations out there with REALLY caring bankers, they are required to pay off or amortize their loans REGARDLESS of whether they are making a profit or not. So yes, gus is correct. Saying that loans are amoritized from profit, at least from a pure accounting point of view, is incorrect.

This is why the Income Statement can’t really be looked at in isolation. The Balance Sheet and cash flow projections are just as important and in many cases, much more so. Further complicating this whole issue is the fact that the “profit” as shown on the Income Statement IS NOT reflective of cash generated. You can’t just glance at an Income Statement and get a sense of what is going on in a company. It’s only one part of the picture.

I think what is fair to say in all of this is that a company has to generate sufficient cash flow in order to adequately manage their operations, pay off the debts they have incurred and generate a return for their investors. It’s very easy to get sidetracked and confused when using accounting related terminology because it often requires more than a casual understanding as to its relevance or application. Accounting is a profession for a reason, LOL :)

Oh and for the record, yes, only the interest portion is considered a line item expense on the Income Statement. The principal portion is not. The payment of principal does, however, require cash flow. And this cash flow can occur even if the company is not showing a profit on its Income Statement. Makes perfect sense eh? LOL.

Let’s take this a step further though and talk about the return on investment requirements that a company has. Some may say we need 15% to keep the investors happy, some may say 10% is okay and others may even be happy with 5%.

Obviously allot goes into this discussion including the cost of capital (basically what it costs a company to secure financing), the opportunity cost they are giving up by investing in something like a mill (the idea being that they should make at least as much running a mill as they would doing something else) and how much wealth the investors want to achieve as a result of their investment in the mill (as paid out through dividends), etc. Basically it’s a very complex issue.

What isn’t complex, however, is to come to the realization that different companies have different ROI requirements that are based on their unique situations. Technically, so long as someone could “keep the doors open” and keep servicing their debt levels, they could actually operate at a purely break even capacity. Now in reality they would need to have some income so that they could retain some earnings for future uses or to provide a buffer in bad times, but let’s keep this discussion simple for the time being.

Quite simply, there isn’t an inherent requirement anywhere that says one must make 10%, 15% or 20% ROI. These are arbitrary decisions made by management and they are often predicated by their philosophy. It is entirely plausible that a company could make a conscious decision to require less of an ROI, with that “excess” amount forgone going back to the employees, the community, etc. Obviously this would have to be approved by the shareholders, but if the shareholders were the community, the employees, governments (who would have an interest to keep people employed and paying taxes), etc., it could be done.

I think the bigger question is whether it would be done. It would require a fairly substantial change in how we view operations like mills and it would likely also mean giving increased power to stakeholders who don’t have that power under current structures and arrangements.

We, as owners of the resource should also have a debate on what % return we expect. This $0.25 stumpage has gone on long enough. If the log is good enough to go to the sawmill it should be paid for as such. If not send it for chips or pellets. Forest companies in BC have been less than honest and Victoria keeps letting them get away with it. West Fraser in Quesnel fined $4500.00 for falsisying documents( i’m sure that hurt). We need to have a major review of our forest management.

NMG wrote:-“Unless there are corporations out there with REALLY caring bankers, they are required to pay off or amortize their loans REGARDLESS of whether they are making a profit or not. So yes, gus is correct. Saying that loans are amoritized from profit, at least from a pure accounting point of view, is incorrect.”
——————————————-
They can’t pay off their loans unless they ARE making a profit, NMG. Short of increasing their Capital through additional investment, or selling off part, or all, of their fixed Assets. If they can.

Business profit is finalised on the Balance Sheet as an increase in Assets over Liabilities. And as you say, the Income Statement, or Profit and Loss, can not be looked at in isolation. Profit is not analogous to cash received.

Cash flow can occur from sources other than Sales. The owners of the Firm may be selling shares in it to others, or investing more capital in it themselves.

The ROI doesn’t disappear into a black hole, NMG. It IS spent back into the larger community already.

If a Firm wants to stay in business long term it pretty well has to spend at least as much yearly on its plant as that plant depreciates.

If it doesn’t, the shareholders will eventually recover their original investment through allocations for depreciation into their product’s prices, but they’ll be left with a plant that’s completely obsolete and worn out, too.

To do that the Firm has to have an adequate Return on Investment, for the shareholders would probably like to see some dividends along the way, too. Ones at least equal to what they could’ve got from putting their money into other more certain revenue producing securities. Once again, inflation has also got to be considered, for it can have a very adverse effect on what constitutes an ‘adequate’ ROI. It isn’t just the ‘dollars’, but what those each of those ‘dollars’ will BUY over time.

I set up a lemonade stand.

My mom lends me $10 to buy lemonade.

My mom also allows me to use a small table and chair as well as a patio umbrella for nothing.

I buy the lemonade and a bag of ice and the $10 is gone. I use some other things such as a pitcher and some left over paper cups from a garden party.

I am lucky and live right next to a fairly busy city park with a lot of kids using the park.

After two hours I find I had a gross income of $15.

I pay myself $5/hour for sitting and the time to assemble everything and take everything back down. I pocket the $15.

When my mom wants her $10 loan back, I thank her for the loan and tell her did not make enough money to make a profit. The money all went to supplies and wages.

My mom said she needs her money back. It was a loan, not a gift or an investment.

When she starts to argue the point, I tell her, “Tough beans. I had no profits after all costs were paid. I have no money to pay back the loan. Besides, my dad, Socredible, told me that loans are paid from profits. I have none. So you, mom, take the loss, just like banks.”

Gus, in this instance your wages and profit would be indistinguishable, and would be $ 5, and you’re simply lying to your Mom that you can’t pay her back the $ 10 she lent you. Shame on you!

If your analogy is trying to say that, unlike your Mom’s experience with her deadbeat son, no bank ever takes a loss because it parted with “nothing” in the first place, that’s not quite so.

While what the bank has created in credit on behalf of the borrower has come “out of nothing” , (because it is in the nature of a contract, between banker and borrower, and the terms of that contract as expressed on the Promissory Note the borrower has signed with his banker did not exist before they were created when the loan was made), this does not mean that the bank will lose “nothing” if the borrower defaults.

What has happened is that the bank has assumed a liability to any third parties that the borrower pays out of the deposit balance the bank has created as a loan for that borrower. The bank cannot refuse payment of any draws on that account made by the borrower to third parties so long as they are within that balance. The bank is on the hook for all payments made from it, whether the borrower subsequently defaults on his loan or not.

In the instance of such a default, this reduces the equity position of the bank’s shareholders. The bank does indeed lose “something”. There is Bank as ‘bank’, and Bank as ‘business’. And it can’t cover its losses as a ‘business’ by simply creating more credit to do so.

Its retained earnings or possibly even paid in Capital take a hit. If there are enough defaults, a bank can indeed go bankrupt.

Because banking is highly regulated, and a bank’s bankruptcy, or even potential difficulty would shake the confidence that is necessary to be maintained for the whole system to work, the bank regulators would require a troubled bank to increase its equity position, or its Capital.

This might be done (in Canada) by forcing that bank to merge with a larger bank that has a larger base of capital. That’s what happened with the Bank of BC, and why it became part of HSBC.

Sometimes, if the nature of the errant bank’s troubles are deemed to likely be short term, it may also be allowed to borrow surplus reserves from other stronger banks, or the Bank of Canada.

Socredible wrote: “Gus, in this instance your wages and profit would be indistinguishable, and would be $ 5, and you’re simply lying to your Mom that you can’t pay her back the $ 10 she lent you. Shame on you!”

I would like to ask you why you feel that wage and profit are ever indistinguishable.

I have seen too many small and intermediate businesses that have that philosophy. Primarily, those that I have observed, such as small and even a few intermediate sized building contractors/developersr as well as small forestry contractors have gotten themselves into considerable trouble due to the inability to cover their own salary and business expenses.

I do not know if you ever watch the Dragons on CBC. Many of those who come with business propositions likely fall into the same category. All too frequently it is obvious that their personal savings are involved in maintaining a livelihood while they try to start up a viable business. Had they been able to handle their finances many of them would likely not have persued the venture before they had a more viable operation.

In the instance you cited, Gus, your lemonade stand is a short term, one time proposition. So your ‘books’, if you were keeping such, would not be set up in the same manner they would be if you were going into the lemonade business on a more permanent basis.

If the latter were the case, you’d be wise to make a distinction between what you paid yourself as a wage, and what your business might book as a profit.

I haven’t ever seen Dragon’s Den, but I think that you’re right. To a degree. If many, probably most, budding entrepreneurs ever really knew what they were getting into before starting a business, most of them wouldn’t.

But while this would save a lot of them a lot of grief, it would also prevent them from “learning the hard way” what no one else can ever really teach them.

It’s a case of, literally, “You’ll never really know until you try”. And you won’t. Some WILL succeed. Most will fail, but there’s no shame in that.

“Failure”, as old Henry Ford remarked, “is only the opportunity to begin again more intelligently.” He should know, his early attempts at auto manufacturing didn’t turn out too well either. It took some doing of things “more intelligently” before he got it right. (Or more likely, plain old luck was on his side.)

I think any of us who’ve started and managed to survive in a business long enough to be considered successful (by others, we may not see things quite that way ourselves), could look back at some of the things we’ve done and wonder how we could have been so damned stupid and still survived. Hindsight is always 20/20. Foresight rarely so. Luck does have a lot more to do with it than many of the successful will likely ever openly admit.

“In the instance you cited, Gus, your lemonade stand is a short term, one time proposition.”

Did I say that? And if I did, what does the length of a business venture have to do with a financial/business plan? Whether it is a one time concert for an expected audience of 100,000 in a farmer’s field or a one time lemonade stand or an ongoing business in either of those two cases, it should not matter.

Even if I had, whether one time or whether this is a continuing weekend event for the rest of the summer, it is obvious that due to the mistake of not accounting for the lent money having to be paid back, I was overspending in my purchases and in what I was paying myself and/or I was pricing the lemonade too low.

In fact, when I decided to invest $10 of my own money just earned to do a repeat the next weekend, business was totally flat and I only made $7.50 in gross sales and I was out there for the whole day instead of just 3 hours.

To say the least, both my mom and I lost our shirts.

So much for wanting to buy an ipod for myself. :-(

Obviously, in the case of the lemoande stand, I made a mistake in not accounting for re-investment in inventory, in not accounting for upswings and downswings in sales and not accounting for a loan repayment plan.

Does that remind you of a simple example of the cause of many business failures?

BTW, my mome made me clean the house for 4 weekends to pay off my loan …. :-). I know she means well by teaching me my first business lesson. ;-)