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An agency of the Chinese government won B.C. Supreme Court approval yesterday to acquire one of the province's most troubled pulp mills from a receiver, setting the stage for the rapidly growing Asian giant to expand its presence in the Canadian resource sector.

Sun Wave Forest Products Ltd., a unit of China Paper Group, has agreed to buy the Skeena Cellulose Inc. pulp mill in Prince Rupert for $3.3-million, hoping it can reopen the mothballed site, which was once an economic bedrock of the hard-luck city's economy.

Subject to some key conditions, Sun Wave is expected to spend about $100-million to restart the 350,000 tonnes-a-year mill, aiming to use 80 per of the output to feed its paper operations in China.

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"These people seem very committed to the project," said Harjit Sangra, a Vancouver lawyer who is acting for China Paper.

News of the group's interest in the notoriously troubled Skeena mill comes as Chinese state oil companies have been tip-toeing into Alberta in search of crude oil to feed China's massive energy needs. China is scouring the world for raw materials to fuel its fast-growing economy.

China is a big buyer of market pulp, annually importing up to about six million tonnes of chemical market pulp as feedstock for its paper and packaging industries. Northern bleached softwood kraft pulp, traditionally produced at Skeena, represents about 40 per cent of that amount, analysts say.

But China Paper has some hurdles to overcome before it makes a commitment to restart the Skeena mill, which has had five different owners since it filed in 1997 for protection under Canada's Companies Creditors Arrangement Act.

"This is an unusual transaction with a lot of conditions attached,'' said Michael Fitch, a Vancouver lawyer acting for receiver Ernst & Young Canada.

For example, China Paper seeks commitments that would relieve it of any obligation to repay about $25-million in past property taxes. It is also working out agreements with the Pulp, Paper and Woodworkers of Canada union Local 4.

The issue of tax relief raises difficulties because there is nothing in the Canadian Bankruptcy and Insolvency Act that would allow the B.C. Supreme Court to override provincial tax regulations. As a result, the community of Prince Rupert remains cautious about prospects for a reopening that analysts say would not be welcomed by major players in the Canadian pulp and paper industry.

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"We are a long way from banking on this," said Prince Rupert's Mayor Herb Pond. But he said China Paper's involvement represents what he believes is the operation's best opportunity for survival. "As long as they can make the numbers work, they have their own market and they have the money.''

If China Paper is successful, Skeena Cellulose is expected to become a key customer for a new $170-million container port at Prince Rupert, which is due to revitalize the local economy once it opens in 2007.

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