LIVERPOOL, N.S. - The Nova Scotia government claimed Friday that it has staved off the closure of the Bowater Mersey paper mill with a $50-million financial lifeline, but one analyst cautions there are no guarantees of long-term survival in such a troubled industry.
Premier Darrell Dexter made the announcement of the five-year deal in the municipal town hall in Liverpool, saying he believed the package of forgivable loans, a training grant and the purchase of woodlands from Resolute Forest Products (TSX:ABH) will keep the mill going.
"I said a few weeks ago that it would not be acceptable to anyone in Nova Scotia to just hand over taxpayers' dollars to see the mill operate for another six or eight months," he said during a news conference.
"The solution to keep the mill operating ... had to ensure long-term sustainability of the mill. This agreement does that."
The deal has the province providing a $25-million forgivable loan to the firm in $5-million per year portions, provided Resolute keeps the two paper machines operating and makes efficiency improvements in the mill and upgrades to a power-producing plant. Another $1.5 million will be given to the company over three years to train workers.
The province will also spend $23.75 million to buy about 10,120 hectares of woodland from the company, said Dexter.
The bailout is part of a series of concessions that have unfolded over the past month after the company threatened to close the plant, which employees 300 people, unless it gets help from the government and reductions in its costs.
Unionized workers at the mill recently voted to cut 110 full- and part-time jobs in an effort to reduce labour costs and help save the operation. And on Tuesday, the province's Utility and Review Board ruled that the mill would receive a three-year discount on its electricity costs.
The local municipality has also approved a 15 per cent property tax reduction for the mill worth about $135,000 a year.
Forest products analyst Paul Quinn said the concessions will help the company and the government package will likely buy some time to keep the plant running. But he said there are market forces beyond the company's control that might inevitably make it difficult to maintain.
"It sounds like a pretty decent package and I'd be surprised if, at the end of the day, all these things aren't enough," said Quinn, an analyst with RBC Capital Markets in Vancouver.
"The problem overall is that you've got newsprint declining six to seven per cent a year, so one mill's got to come out. ... It looks like they've done enough to save this mill at this point."
Pierre Choquette, a spokesman for Resolute, said he was pleased with the infusion and insisted it would make the mill competitive for at least the next five years.
"We're optimistic those investments will provide a bit more leverage to make the mill viable," he said from Montreal, adding the mill's proximity to a port makes it well-suited to shipping product to growing markets such as Brazil.
"The mill is well-placed to export its newsprint to markets that have shown growth in the past, like Latin America."
He said Resolute planned to spend about $18 million on long-fibre refining and roughly $7 million on a new turbine for the Brooklyn power facility.
Pat Roy, a vice-president with the Communication, Energy and Paperworkers Union of Canada, said he has received no firm assurances from the company that the mill is now saved for the next five years.
"There's no guarantee. There's lots to be done. I know all of the pieces of the puzzle are together, but we still have to be efficient at the mill. The company could say in a year from now, 'We're not efficient enough, we have to close."'
He also noted that for the workers losing their jobs, the future remains uncertain.
Still, Dexter told reporters he was optimistic the company is now committed to the mill because it is willing to invest its own money in dredging the harbour and the factory itself.
"These are investments that will continue to deliver efficiencies and continue to take costs out of the structure, year after year after year," he said.
"In the end, I believe that in the newsprint industry it is the lowest-cost mills that are going to survive, and once the newsprint industry reaches an equilibrium, those companies will make money and they will be long-term businesses."
