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Chinese firm eyes Skeena pulp plant Add to ...

Skeena Cellulose Inc., the British Columbia pulp mill that refuses to die, is back on life support, just eight months after the mothballed operation was placed in receivership.

China Paper Group, the company that recently agreed to buy the equipment in the dormant pulp mill, is negotiating to acquire the Prince Rupert site with a view to restarting the 350,000-tonne-a-year operation plant.

"We are right now trying to get to a definitive final agreement that we can support as a receiver and that affected municipalities will back as well," said receiver Larry Prentice of Ernst & Young in Vancouver.

"Assuming we can get to a definitive agreement for purchase and sale, it will be taken to the Supreme Court of British Columbia for approval," he said. "They want to buy it to operate the mill."

China Paper Group is an agency of the Chinese government which already operates several pulp and paper mills in China. Industry officials say it has decided that it would make more sense to keep the mill intact then ship its parts to Asia.

News that it is in talks to buy the site comes after Canadian investors spent three years trying to refinance its reopening. Since March, 1997, when Skeena filed for protection under the Companies' Creditors Arrangement Act, the mill has had five different owners, including the British Columbia government, which led a $500-million bailout, the Royal Bank of Canada and Toronto Dominion Bank.

New Skeena Forest Products Inc. ended its quest to restart the mill last year after failing to secure backing from Woodbridge Co. Ltd., a holding company of the Thomson family, which was prepared to invest $70-million. That deal fell through after Woodbridge was unable to line up an industry partner.

Analysts said the bid by China Paper Group, may be the last "kick at the can" for the Skeena pulp mill, which was formerly a linchpin of the Prince Rupert economy but which has been in financial difficulty for almost a decade.

"The market would react very negatively if they succeed in doing it," said Mark Bishop, a forestry analyst with RBC Dominion Securities in Vancouver. He said this is because many high-cost producers of Northern Bleached Softwood Kraft pulp are struggling to break even with prices at around $470 and $480 per tonne in China's spot market.

Mr. Bishop said he suspects it will cost about $100 million to get the mill - which has not operated since 2000 - restarted, a process which he believes could take up to a year to complete. "It is hard to believe they will be able to pull this off," he said.

Dan Veniez,, former president of New Skeena Forest Products, was much more optimistic. Because Skeena's related saw mills and harvesting licences and their associated liabilities have recently been sold, China Paper would only have to worry about operating the pulp mill. As a result, he estimated it may cost no more than $50- to $60-million to get it back in production.

He said the mill benefits from Prince Rupert's deep water port and local railway infrastructure. Therefore, any agreement to restart the mill may hinge on an agreement with Canadian National Railway Co., he said.

It is expected China Paper would use pulp produced in Prince Rupert to support its business in Asia.

Still, Mr. Prentice said China Paper is not the only party that is eyeing the Skeena site.

"There may be a contest before it is known which proposal wins the approval of the court," he said.

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