Atlantic Forestry September 2022

Old mills, old memories

by David Palmer
I remember merchandising hardwood logs for the YSC Marketing Board in our wood yard at the Maritime College of Forest Technology site on Regent Street in Fredericton, N.B. The best and longest logs of the bunch always went to Columbia Forest Products in Presque Isle, Maine, whose buyers would come to our yard to scale and grade the logs individually. The second-tier logs went to Veneer Products of New Brunswick (1981 Ltd.), located 70 kilometres north of Fredericton in Napadogan. The company liked logs as short as 52 inches, then six foot six inches and greater, in one-foot increments. They didn’t pay as much, but it was a perfect complement to the higher-value logs, and enabled us to get the best return possible for our woodlot owners.

After the owners, Bruce Dorcas and his family, sold the veneer facility to Robbie Tozer’s Atcon group of companies, the mill plodded along. It wasn’t one of Atcon’s shining stars, and didn’t get the attention and money that other ventures received. Just before Atcon spiralled into bankruptcy (leaving the province of New Brunswick holding $70 million in loan guarantees), Kirk MacDonald and Jennifer Leduc Allen quietly bought the mill. They kept it running for 12 years, but in May of 2022 they sold it to a Wisconsin flooring manufacturer called From the Forest. This company’s supply of veneer, from a mill in Ukraine, has been interrupted by the war, so they bought the old veneer mill in Napadogan and are fixing it up, operating under the name ThorHammer Veneer.

The mill is not back on its feet yet, but a team of workers is plugging away replacing faulty valves, bearings, and shafts; insulating the log-heating steam chamber; building new bathrooms and a lunchroom; and eventually installing a new dryer. Recently I stopped by to take a look, and ran into Ron Belliveau, who had worked for us in the boiler room at the Wilkins mill. The encounter brought back a flood of mixed memories of our efforts to get that mill running after a six-year shutdown. Coincidentally, our skilled millwright for that project, Yvonne Durette, lived in Napadogan; our chief filer Barry Walker just down the road in Williamsburg; and saw operator Jim Sparkes was from Stanley. Along with Keith Munn, they were the core members of our start-up crew.

ALMOST IRRESISTIBLE

The lure of an old mill is almost irresistible, and the YSC Marketing Board, of which I was the general manager for 26 years, was not immune to that pull. The M.L. Wilkins sawmill, on the Royal Road, had been the organization’s best sawlog customer for years, so when it slid into bankruptcy in September 2007, it was very bad news for producers and woodlot owners.

The following spring, woodlot owners at a district meeting in Fredericton pledged personal investment, and voted for the marketing board to buy the mill. Not long after that, the YSC Board bid $2.2 million to acquire the mill, beating out two other bidders. YSC now had three months to raise the money, and most of that effort fell on my shoulders. Despite numerous verbal assurances of financial support prior to the acquisition, very little solid commitment was forthcoming, and it soon became obvious that we were going to fall way short, thus losing our 10 percent bid bond of $210,000.

So when longtime logging contractor and YSC supporter Murray Munn offered to finance the remaining $1.89 million to close the sale, YSC accepted this generous offer. We acquired the mill, inked a Joint Venture Agreement (JVA) with the Munns, formed a new company to run the mill called Maritime Fibre and Energy (MFE), moved the office across the river to the mill site, and began work on a financing and start-up plan.

BAD TIMING

That was in July 2008. Our timing couldn’t have been worse. Two months later, the housing and financial crisis hit the lumber industry like a sledgehammer. Mortgage companies collapsed, house prices fell, banks foreclosed on over-extended mortgages backed by now-worthless housing equity, U.S. housing starts dropped from 1.5 million to fewer than half a million, and the price of lumber went into a tailspin. It was out of the question to even think about restarting the mill until lumber markets recovered, and it was anybody’s guess when that would be.

We huddled with our lumber broker to pore over the latest forecast, looked for additional partners to spread the financial burden (for a while an agreement with a First Nations group looked very promising, and we even signed an MOU), and tried to figure out how we were going to pay for the ongoing operating cost while the mill sat idle. The property tax alone was initially $142,000 (later reduced to $71,000), and on top of that were insurance and power expenses. We rented out warehouse space, sold scrap metal and old sawdust, tried chipping pulpwood when the chip market was favourable, and met with many outfits whose business plans would fit with ours. We even offered to return shareholder money and scuttle the project, but only one shareholder accepted the offer.

The years slid away. By the fall of 2012, markets were showing signs of recovery, so the decision was made to take the first steps to restart the mill. A skeleton crew was hired to go over the facility machine by machine, with the goal of a restart in 2013.

PLAGUED BY DOUBTS

As the lumber market improved and the economy slowly shook off the effects of the financial crisis, a few more investors stepped up, and we found a bank that would talk to us. In the meantime, both Murray Munn and YSC had to put more money into the operation over the years, just to keep the mill idea afloat and protect their investment. The confidence and giddy elation of the early days had evaporated as the years dragged on. Although I tried to maintain a calm composure on the outside, I was terribly conflicted internally, and constantly worried whether YSC and MFE would have the financial resources to weather the start-up and get through to the sunny side.

The words of Al Rees, the wise retired manager of MacTara (once Nova Scotia’s biggest sawmill), kept ringing in my ears. “It’s a horrific project,” he had said, at one of our shareholder information meetings. Tellingly, he never did become a shareholder. However, others did – 56 in all. Altogether, we had a little less than half a million dollars. It was significant change, but not enough to cash-flow through any major delays or big issues. Everything had to go smoothly – which never happens.

There were big worries that the boiler had not been properly shut down and drained in 2007, and that parts of a critical software program were missing. But father-and-son team of Jim and Brad Rogers got the boiler up and running, it passed provincial inspection, and software whiz Bill Lamey was able to cobble together the software gaps. A major hurdle was cleared.

On the electrical side, a high-voltage short circuit brought the provincial inspectors in, nearly putting the kibosh on everything. They wanted the entire mill re-wired. A high-level meeting facilitated by local MLA Troy Lifford ultimately saved the day. We forged on, but we had to build a metal enclosure around the entire bank of electrical panels, which took six weeks and cost a bundle. By that time, winter was coming, so we drained the boiler and sent the crew home until spring.

The next major tasks were to find a manager, secure the wood supply, and line up the 29 employees needed to run the mill. The first manager, who was supposed to start in April 2013, got another offer and left us in the lurch. It took a few weeks to replace him, and by this time the clock was ticking. Private wood was rolling in, but Crown wood was on hold. We had roughly three months to get the mill into production before cash flow became a serious problem. It took until September, and by that time we were already behind the eight ball.

But what a feeling it was to arrive at the site, see the steam rising from the dry kilns for the first time in six years, watch the incoming log trucks roll across the scales, and note the growing pile of lumber being wrapped, bearing the distinctive MFE logo. It was a proud moment, but there were still a million things to work on – and the ongoing problem, as always, was money.

A BAD DEAL

The pressure forced us to accept a bad deal on a loan from the Regional Development Corporation (RDC) – one that would come back to haunt us. By this time (September 2014), MFE had been added to the JVA agreement with YSC and Murray Munn and Sons. That agreement said that if the business foundered and the enterprise had to be sold, each party would be remunerated on a pro rata basis, according to what they had invested. That gave terrific protection to all the parties, but particularly to YSC, which was being drawn into a deeper financial exposure. For some reason, the officials at RDC didn’t like that agreement, and insisted upon a two-party lease between MFE and the Munn family. This meant that should MFE fail, neither it nor YSC would get a cent. Declining the loan and its terms and conditions would have meant certain shutdown, so we signed.

The other problem was getting production up to 200,000 board feet a day, which was where we had to be to meet our targets. So far, our best day was 142,000. Once again, we hired a new manager with impressive credentials – but despite his best efforts, we failed to get to where we needed to be. A crippling breakdown in mid-January 2014 added to our woes, and by the end of February it was apparent that we would not be able to pay our bills if we kept going, so we took a shutdown. Despite our best efforts to get back up and running in April, it was not to be.

Worn out from the strain of this massive project, and now in my 65th year, I did some soul-searching and decided it was time to pack it in. It was an ignominious end to a long career, and not the way I wanted to be remembered. Inevitably, there were some who thought I was running away from my responsibilities. But basically, I just had no more gas in the tank or fire in the belly. Little did I imagine that the Forest Products Commission (FPC) would launch an “investigation” into the matter soon after I left YSC at the end of June.

The outcome was that the FPC dismissed the directors of YSC, took over the organization, and moved the office back to Regent Street, leaving Murray and his family feeling cut off and abandoned. Any chance of YSC salvaging any equity from the ruins was dashed. Even though the JVA agreement was legally expired, the Munns still felt honour-bound to respect it as a “gentleman’s agreement,” provided YSC was still a partner. With YSC’s departure from the site, and the FPC takeover, any residual affinity between the two outfits evaporated, as did that good-faith sentiment. On the other hand, when the Munns sold the mill and allocation to Delco in 2017, MFE shareholders were not forgotten.