'Nothing Is Sacred' At Pope & Talbot

By Michelle Cyr-Whiting

Admittedly cash-strapped, Pope & Talbot is ruling out nothing in its bid to survive the ongoing downturn in the lumber industry.

The Oregon-based company, which owns both Mackenzie Pulpmill and Fort St. James Sawmill and Timber, has recorded a net loss of $18.6-million dollars for the first quarter of 2007. (click here, for previous story)

And, although in compliance with the covenant levels in its credit agreement with senior lenders to the end of March, there’s uncertainty compliance will be met for the balance of the year, so the company has initiated discussions with its lenders to amend those levels. 

"We’re going to continue that dialogue over the course of May," says Pope & Talbot Vice-President and Chief Financial Officer Neil Stuart.  "We’re hopeful we can garner their support."

In a conference call to discuss the quarterly results, Stuart says the company is leaving no stone unturned in efforts to restore liquidity and improve its overall financial picture. "Everything is on the table and nothing is sacred."

While Stuart is reluctant to get into specific avenues being considered, he will say, “Virtually everything you can think of, we have looked at, addressed, and tried to look at the economic impact of - that involves sale of individual businesses, it involves the sale of individual mills, it involves the whole gamut of re-capitalization initiatives, so you can put the full laundry list down and that’s the challenge we have.”

Company President Harold Stanton adds, "I’d say that - to be clear - we’re prepared to be bold."

When questioned about the possibility of consolidating or selling off pulpmills, Stanton admits that side of the business continues to be a cash-drain.  "I think from Pope & Talbot’s perspective, the pulp industry – from a manufacturing point of view - is very capital intensive and we’re cash-strapped."

Already in the second quarter, a mechanical failure in the digester at Mackenzie Pulpmill caused a 14-day shutdown that cost the company approximately $4-million dollars in lost production, a planned maintenance shutdown at the pulpmill in Nanaimo will cost $10-million dollars and Mackenzie’s annual maintenance is scheduled for the third quarter at a price tag of between $6 and $7-million dollars.

And the quarter looks as bleak on the wood products side, with a continued slump in the U.S. housing market.  Stanton says, "As we become increasingly focused on cash management, we will be forced to curtail more lumber production."

The sawmill in Fort St. James has already seen four or five days of downtime this year, but Stanton won’t comment specifically on plans for production outages.

Neither will the CFO talk timeframes for any company moves.  Neil Stuart says, "We will not discuss in a public forum any initiatives in this regard until their successful completion cannot be adversely affected by such disclosure, or until we are required to do so."  But says, “Please be assured that we are addressing it and we’re addressing it urgently."

When asked whether the company is working with a financial advisor, Stuart says, "We have not made public that we’re working with an advisor."

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