REGINA — Domtar Corp. is selling a pulp mill in Prince Albert, Sask., to Paper Excellence Canada Holdings Corp. in a move those in the province hope will rejuvenate the forestry industry.
Montreal-based Domtar (TSX:UFS) said Monday that Paper Excellence, a company based in the Netherlands, will spend $200 million to convert the mill to the production of dissolving pulp, which is used by the textile industry to make rayon.
There were several potential buyer for the assets, but Domtar spokeswoman Bonnie Skene said Paper Excellence came forward with the best offer.
“We carefully evaluated the options before us and frankly the Paper Excellence proposal was more comprehensive and most likely to be able to finalize something, so that’s the one who was successful,” Skene said.
The conversion is expected to take between 18 months and two years to complete. The operation is expected to expected to employ 200 people.
As part of the deal, the Saskatchewan government has agreed to allocate softwood pulp fibre to the mill.
Saskatchewan will also ensure new pension plan agreements are put in place to respect the obligations to previous employees and the province will provide about $1 million over two years for the training of new mill operators. The provincially owned utility, SaskPower, will also buy surplus energy from a biomass power facility to be incorporated into the mill.
The deal is expected to close in the second quarter of 2011.
The mill, often called the lynchpin of the community, was closed in 2006.
Domtar acquired the assets in 2007 as part of a transaction with Weyerhaeuser and dismantled the mill’s paper machine and converting equipment in 2008. It was expected to start dismantling the remaining assets this year.
Saskatchewan Energy and Resources Minister Bill Boyd said forestry companies and area First Nations are welcoming the deal with Paper Excellence.
“They think that this will certainly anchor the forestry sector in Saskatchewan,” said Boyd.
“Clearly, they will opportunity to sell their woodchips to the facility and other residual products into the facility, as well as their pulp wood. So this opens the door for future investment unquestionably.”
It isn’t the first time hopes have been raised for the future of the mill.
In September 2007, the previous NDP government signed a memorandum of understanding with Domtar to redevelop the mill into a northern bleached softwood kraft operation producing high-grade pulp for North American and offshore markets.
The NDP pledged $100 million to the project and said it would have created as many as 425 jobs.
But the Saskatchewan Party accused the government of making a desperate announcement ahead of an anticipated fall election in which the two Prince Albert ridings were expected to be hotly contested.
That deal was dumped after the Saskatchewan Party won the election and took power. Boyd said at the time that while the government was interested in talking with Domtar about reopening the mill, it wouldn’t invest taxpayers money to do it.
Over the years, there have been talks between Domtar and Iogen Energy about part of the former pulp and paper mill site becoming a state-of-the art ethanol plant.
Then were talks about a sale.
As recently as last November, Domtar said selling the mill to a pulp company such as Paper Excellence was unlikely because they’re the competition.
Paper Excellence already owns three other mills in Canada, two in British Columbia and one in Saskatchewan.
“The fact of the matter is, Domtar did not want Paper Excellence, or anyone else for that matter, competing in the space, the pulp and paper space. They wanted something different than that,” Boyd said Monday.
Saskatchewan Premier Brad Wall said the sale announced Monday is good news for the province.
Wall also said the timing is not politically motivated ahead of a provincial election Nov. 7. We did not control the timing for the announcement or the deal, he said.
“The first objective here was to get the mill open for all the right reasons in terms of the economy of our province, the health of our forestry sector and the economy in Prince Albert. That’s the objective. To the extent that there’s some salutary benefits politically to that, I guess there is … but that’s not the first objective,” said Wall.
“Sure, we’re very pleased, but I bet the people in Prince Albert are happier than any political party is and so they should be.”