"The decision to close Snowflake is an extraordinarily difficult one given the exceptional effort that employees, unions, and public officials have given to address the unique challenges at this mill, said President and CEO Kevin J. Clarke. "We understand and regret the difficult impact within the Snowflake community and surrounding region created by closure of the mill. I want to acknowledge and thank all who have given us their unwavering support and cooperation. There were no stones left unturned."
Catalyst implemented a number of measures since acquiring the Snowflake operation in 2008, to address market challenges and input cost pressures. These included production of higher-value specialty paper grades at what was formerly a newsprint-only mill, capital investment, productivity, quality and service improvements, full leverage of the mill's environmental attributes, and competitive labor agreements. Catalyst has also explored a range of alternatives, including attempting to sell the mill.
However, Catalyst explained that with newsprint demand down more than 10% annually since the end of 2008, old newsprint (ONP) price volatility, and higher freight costs as procurement and sales have been forced to go further afield to source recycled paper supply and secure product orders, the mill's profitability could not be restored. ONP prices have increased approximately 163% since 2009, it adds, pointing out that a $5 per ton increase in ONP price has a negative impact of approximately $2 million on EBITDA and approximately $1 million on net earnings. Snowflake generated negative EBITDA since 2009.
The closure of the mill is expected to result in savings of annualized selling, general, and administrative expenses and to avoid future operating losses associated with Snowflake. Catalyst recorded a $161.8 million asset impairment charge, required under GAAP, in the latter half of 2011. The closure will result in some initial cash costs, which are expected to be recouped from working capital and the sale of Snowflake mill assets in 2013.
"Reduced quality of ONP as municipalities moved to single stream waste recovery combined with ONP price volatility driven by export markets were obstacles on the input side. Added to these challenges are the protracted demand decline for recycled newsprint and other printing papers. While we did everything possible to prevent this outcome, employees, vendors and customers needed the certainty that today's announcement provides," Clarke said.
Clarke and other Catalyst executives met this week with employees and union representatives at the Snowflake Mill and Apache Railway Co. to outline the closure plan. The operations currently employ 308 salaried and hourly workers. Catalyst says it will honor its obligations to employees and will work closely with suppliers, customers, and regulators through the wind-down of operations. The site will subsequently be prepared for sale and repurposing.
Catalyst produces diverse specialty mechanical printing papers, newsprint, and pulp. With four mills, located in British Columbia and Arizona, the company has a combined annual production capacity of 1.8 million metric tons.
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