Paper rollPaul Politis
Indonesian agri-business conglomerate Sinar Mas, which has been besieged by accusations of deforestation, is rapidly expanding in Canada, reopening a pulp mill in northern British Columbia and recently purchasing another near Vancouver.
The company's strategy is to add to its supply of pulp to produce paper and other products for customers in Asia, as well as to use a separate corporate arm to try to distance itself from controversy.
Through a Netherlands-based company called Paper Excellence, Sinar Mas on Tuesday officially opened its pulp mill in Mackenzie, B.C., an industry town that at one point saw every mill shuttered during the severe forestry recession.
It bought the mill for $20-million in the spring and is spending as much as $40-million more to fully restart it, bringing 220 direct jobs back to Mackenzie.
Paper Excellence was created in 2007 as a separate entity from Sinar Mas, though the two are both owned by the family of Sinar Mas founder Eka Tjipta Widjaja, one of Indonesia's richest men. Paper Excellence's first Canadian purchase, in 2007, was a pulp mill in Meadow Lake, Sask.
Sinar Mas landed the Mackenzie mill in the spring, as well as two pulp mills in France from Tembec Inc. in April for roughly $130-million of equity and debt.
Last month, it bought the struggling Howe Sound pulp and newsprint mill from Canfor Corp. and Oji Paper, a Japanese partner. The price was not disclosed.
To supply its hungry customers - primarily located in China - Sinar Mas is buying existing assets, which is much cheaper than building new mills.
"Mackenize and Howe Sound weren't doing so well previously, but for the long term, given our customers in Asia, the growth of pulp demand will be rapid over the next five, 10 years," said Peter Wardhana, president of Paper Excellence who is based in Jakarta with Sinar Mas (for whom he previously worked directly).
Sinar Mas has come under attack from the environmental group Greenpeace, which last week called it "a notorious forest destroyer" for its activities in Indonesia.
Companies that have shied away from Sinar Mas because of Greenpeace lobbying include the bank HSBC, which recently said it sold shares of a subsidiary of the company; and Carrefour SA, the French global retailer, which said it will stop buying some products from the company.
Mr. Wardhana said Paper Excellence has established a sound record in the past three years in Saskatchewan. "Whatever happens in Indonesia, I frankly am not involved and responsible," he said.
Sinar Mas's move to diversify from Asia makes sense for supply, as well as reputation, said analyst Kevin Mason of Equity Research Associates in Gibsons, B.C., which focuses on forest products research.
"The more pulp they can source from certified sources, the better," said Mr. Mason. "It helps takes away the bull's eye on their back."
Pulp shortages in Asia are "driving the frenzy to purchase assets where they can," agreed Russ Taylor, president of Vancouver-based consulting company International Wood Markets Group.
Canadian environmental groups, including Greenpeace, have protested against the sale of Canfor's Howe Sound mill to Sinar Mas. "We have a global responsibility and should not be inviting companies who apply 'worst practices' in other parts of the world into Canada," said Will Craven, a spokesman for ForestEthics, an environmental organization, in a statement.
The Howe Sound mill filed for creditor protection in 2008, after years of trying to deal with debt. It was opened in 1988 and Canfor wrote off its investment there in 1998. Dundee Capital Markets estimated the purchase price was $270-million.