October 16, 2007
What's Behind Quebec's Decision to Withhold Cutting Rights?
Analysis of:
Cutting Dispute Puts Domtar Deal In Limbo | www.canada.com
This analysis is solely the work of the author. It has not been edited or endorsed by GLG.
Implications: Domtar wants to be totally focused on (a) paper - Uncoated FreeSheet and (b) market pulp - hardwood, softwood and fluff. They feel it's necessary to free themselves of 12 sawmills and 5 joint venture mills. A newly formed company, Conifex, was prepared to take over all these mills and to pay Domtar $285 million. However, now the Nat'l Resources minister Claude Bechard has thrown a monkey wrench into the deal by saying the Province would withdraw the cutting rights to some 1.7 million cubic feet of timber. Can they do this since there is no precedent for such an action? Better still, can Conifex unilaterally withdraw from the deal simply because the cutting rights to just two sawmills have been withdrawn? They still have the cutting rights to just over 3 million cubic feet of timber? What impact would this unprecedented move have on future investment in Quebec since all cutting rights could henseforth be in jeopardy?
Analysis: Is it possible this threat to deny the transfer of cutting rights to Conifex is really designed to get them to agree to start up the two shut mills at Malartic and Grand-Remous? They've been shut since 2006 and 445 jobs have been lost in these two areas of high unemployment. Perhaps Mr. Bechard believes he can trade a cutting agreement for a promise by Conifex to start up these two sawmills?
Another highly unlikely (but still plausible) motive could be that Conifex wants to renegotiate this $285 million deal in light of the stronger Canadian loonie ($1.02 to the greenback) and the continuing weakness in the dimension lumber business because of very slow home sales? The deal was made back in June and perhaps prospects were more favorable then.
Mr Bechard has said other sawmills in the area are anxious to take over the cutting rights to the land in question and that he would like to see a re-distribution.
Domtar had planned to retain a 20% stake in Conifex. Is it possible Conifex wants to renegotiate this also and is the reason they were so quick to say the deal is now in jeopardy? Domtar, on the other hand, says it plans to do everything it can be push this deal through. There are no precedents for the Gov't to do anything like this. Plus, the contract with Conifex clearly states that their can be no unilateral decisions (which this appears to be).
Analysis: Is it possible this threat to deny the transfer of cutting rights to Conifex is really designed to get them to agree to start up the two shut mills at Malartic and Grand-Remous? They've been shut since 2006 and 445 jobs have been lost in these two areas of high unemployment. Perhaps Mr. Bechard believes he can trade a cutting agreement for a promise by Conifex to start up these two sawmills?
Another highly unlikely (but still plausible) motive could be that Conifex wants to renegotiate this $285 million deal in light of the stronger Canadian loonie ($1.02 to the greenback) and the continuing weakness in the dimension lumber business because of very slow home sales? The deal was made back in June and perhaps prospects were more favorable then.
Mr Bechard has said other sawmills in the area are anxious to take over the cutting rights to the land in question and that he would like to see a re-distribution.
Domtar had planned to retain a 20% stake in Conifex. Is it possible Conifex wants to renegotiate this also and is the reason they were so quick to say the deal is now in jeopardy? Domtar, on the other hand, says it plans to do everything it can be push this deal through. There are no precedents for the Gov't to do anything like this. Plus, the contract with Conifex clearly states that their can be no unilateral decisions (which this appears to be).
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