Release Date: November 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Conifex Timber Inc (CFXTF, Financial) reported a significant reduction in losses for 2024 compared to 2023, indicating improved financial performance.
- The company has successfully reduced its delivered log costs due to adjustments in stumpage charge impositions and supply-demand dynamics.
- Lumber prices have strengthened, with Conifex Timber Inc (CFXTF) achieving a 17% increase in selling price realizations in the third quarter.
- The Mackenzie timber supply area has a surplus of sawlogs, ensuring a stable supply for Conifex Timber Inc (CFXTF).
- The company is planning to move to a two-shift operation, which is expected to enhance production efficiency and profitability.
Negative Points
- The new allowable annual cut (AAC) for the Mackenzie timber supply area is 20% lower than historical levels, potentially impacting long-term supply.
- Conifex Timber Inc (CFXTF) faces borrowing constraints that limit its ability to expand operations to a two-shift system.
- The company is involved in legal challenges regarding the suspension of power interconnection transactions, which could affect future business plans.
- Despite improvements, Conifex Timber Inc (CFXTF) still reported a negative EBITDA for the third quarter.
- The company requires open market sawlog purchases to meet its annual requirements, which could expose it to market price fluctuations.
Q & A Highlights
Q: Can you provide an update on the new allowable annual cut (AAC) for the Mackenzie timber supply area and its impact on Conifex?
A: The new AAC is set at 2.39 million cubic meters, a 20% reduction from historical levels. Our internal timber supply is now 640,000 cubic meters, or 80% of our annual requirements. We will need to purchase 150,000 cubic meters from the open market, which is only 10% of the available supply. This surplus in the Mackenzie area ensures no challenges in securing sawlogs going forward. - Unidentified_2
Q: How have recent developments affected your cost structure?
A: Two key developments have impacted costs: adjustments in the Ministry of Forests' methodology for cost allowances and stumpage charges, and changes in supply-demand dynamics due to sawmill closures. These factors have led to a modest reduction in delivered log costs, potentially providing more affordable log costs in 2025 and beyond. - Unidentified_2
Q: What are your expectations for lumber prices and financial performance in the near term?
A: We expect lumber prices to remain firm due to supply contractions and strengthening demand. Our average selling price in Q3 was CAD $436 per 1,000 board feet, and it increased to CAD $512 in early Q4, a 17% improvement. We anticipate a dramatically reduced EBITDA loss in Q4, with a possibility of reporting positive EBITDA. - Unidentified_2
Q: What are the plans for expanding operations at the Mackenzie site?
A: Our main objective for next year is to move to a two-shift operation at our sawmill complex. This would double shipments and spread fixed costs over a higher production base. However, we need additional borrowing capacity to support increased inventory investment. We are working with lenders to achieve this while maintaining appropriate liquidity. - Unidentified_2
Q: Can you elaborate on the legal challenges related to BC Hydro and their impact on Conifex?
A: We are appealing a decision by the Supreme Court of BC regarding a moratorium imposed by the provincial cabinet, which we believe is not legally valid. This moratorium halted our plans to leverage power expertise for high-performance computing and AI use cases. We expect the BC Court of Appeal to hear the case before the end of the year. - Unidentified_2
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
