A recent Globe & Mail article on the woes of BC's forestry companies saw a silver lining to the ominous clouds of impending recession: 'the stocks are cheap, so buy now'. Mentioned favorably was Interfor as a probable survivor of the industry pundits' prescribed mergers, with real potential for upward turn in stock price 'since it couldn't get much lower'.

While Interfor may be familiar to residents only as the source of smoldering log dumps on the south side of the Skeena River (Scotia River), it is a major player in coastal BC including about 40% of the North Coast Forest District's AAC (Annual Allowable Cut). Like Doman and MacBlo it barges its logs south. Even its loggers tend to come from Terrace.

Provincially we entrust about 3.5 million cubic metres of old growth to them every year. That employs some 3000 plus people, including those seven sawmills down south that need most that to keep running.

Interfor has expanded rapidly in the 90's, acquiring two thirds of its AAC since then. With 70% of its $775 million revenues coming from lumber, it is presumably a model for the restructuring MacBlo envisions.

Unlike MacBlo its business strategy doesn't include foregoing old growth rainforests. In fact the company prides itself on selling clear grain, premium lumber that gets about twice what the interior wood goes for. Since the collapse of the Japanese market for "whitewood" (coastal hemlock, balsam etc.), Interfor is honing in on red cedar which demands premium prices in US markets, at present.

Serendipitously because cedar tends to grow up the sides of mountains, and Interfor is moving towards getting 25% of its cut from helicopter logging. That is cost saving because with the Forest Practices Code (FPC), road costs have risen from $5.53 a cubic metre cut (1992) to $15.44 in 1996. Interfor reduced that to $13.91 in '97.

The stumpage on heli-logged clearcuts is minimal (as low as 25 cents) in contrast to the $24.94 average per cubic metre in 1995. (Average stumpage paid in 1992 was only $8.42, as computed from Interfor's Annual Reports.)

Twenty-five dollars a cubic metre stumpage, when the finished product goes for average $878 per thousand board feet, up from $515 in 1992. I emphasize, 70% more in '97. In fact when you look at volume compared to price you see that most Interfor's doubling of gross revenues from '92-'95 was due to price inflation.

Or rather, to the differences in the value of the Yen. When the Yen collapsed in 1997, so did our coastal lumber industry. Japanese housing starts are down maybe 10%. It's the Yen that no longer commands premium materials.

So is Interfor a buy? It is a tightly held family corporation with ten of the eleven directors appointed by the Sauder family. No dividends have been paid since 1991. Huge amounts of debt are coming due. And business cycles mean the trend line is a returning toward 1992 prices.

Data Sources Interfor Annual Reports 1996 & 1997 found on SEDAR site

Written at request local newspaper June 98, but not published

Since this story written Interfor's CEO fired (quit?) And Sauder is again openly in charge.

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