West Fraser Timber to Acquire U.S. South OSB Mill
The acquisition is expected to finalize if U.S. regulatory reviews are completed and customary conditions are met.
On West Fraser’s third quarter results conference on October 28, 2021, management will provide an update and further details about the deal. All monetary values in this news release are in US dollars.
The Allendale plant, which began producing OSB in 2007, has been idle since late 2019. It has a stated capacity of roughly 760 million square feet (3/8-inch base).
The Company aims to invest an additional $70 million in capital to modernize and optimize the facility in preparation for its restart, which is expected to take about nine months.
After the optimization is complete and the mill has scaled up to full production, which generally takes 18-24 months after restart, the mill is planned to directly employ around 135 people and be one of the lowest cost mills in the Company’s OSB portfolio.
The Allendale acquisition provides West Fraser with another chance to create value by leveraging the Company’s expertise in effectively reinvesting in and restarting idled OSB mills.
West Fraser OSB mill restarts in recent years have included Chambord, Quebec in March 2021, Huguley, Alabama (2017), and Jefferson, Texas (2013).
With its favorable position in the United States South, where fiber is abundant and low-cost, the Allendale facility will boost West Fraser’s OSB portfolio after renovation.
The mill’s extra OSB capacity will also allow West Fraser to better satisfy customer demand, particularly in significant, rising end-markets in the southeastern United States.
“We look forward to acquiring and upgrading the Allendale mill to make it another component of West Fraser’s low-cost production portfolio. Further, the additional production capability will provide greater operational flexibility across our OSB mill portfolio to meet demand growth for our engineered wood products, including for our specialty and value-added products,” Ray Ferris, President and CEO of West Fraser said.
“We have the leadership, people and know-how to execute on the capital and upgrade plan for this mill and expect to be ready for a restart within nine months of the acquisition closing based on current demand conditions.”
West Fraser aims to fund the purchase using funds on hand.
The entire expenditure for the Allendale acquisition is estimated to be significantly lower than the costs of a comparable greenfield OSB mill, with a shorter time to initial production.
According to West Fraser’s most recent internal research, the returns on this mill acquisition and investment are estimated to be comparable to those of other capital projects of comparable size.