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Executives

Don Kayne – President and Chief Executive Officer

Alan Nicholl – Senior Vice President, Finance and Chief Financial Officer

Alistair Cook – Senior Vice President-Wood Products Operations, Canada

Mark Feldinger – Senior Vice President-Forestry/Environment and Energy

Wayne Guthrie – Senior Vice President-Sales and Marketing

Brett Robinson – Executive Vice President-Operations

Analysts

Pierre Lacroix – Desjardins Capital Markets

Sean Steuart – TD Securities

David Quezada – Raymond James

Mark Kennedy – CIBC World Markets

Paul Quinn – RBC Capital Markets

Joe Licursi – BMO Capital Markets

Canfor Corp New (OTCPK:CFPZF) Q3 2012 Earnings Call October 24, 2012 11:00 AM ET

Operator

Good morning, ladies and gentlemen. Welcome to the joint Canfor Corporation and Canfor Pulp Products Inc. Third Quarter Results 2012 Conference Call. A recording of the call and a transcript will be available on the Canfor’s and Canfor Pulp’s website. During this call, Canfor and Canfor Pulp’s Chief Financial Officer will be referring to a slide presentation that is available in the Investor Relations section of each company’s website. Also the companies would like to point out that this call will include forward-looking statements, so please refer to the press releases for the associated risks of such statements.

I would now like to turn the meeting over to Mr. Don Kayne, President and CEO of Canfor Corporation and CEO of Canfor Pulp Products Inc. Please go ahead Mr. Kayne.

Don Kayne

Thanks operator and good morning everyone. Thank you for joining us this morning and what is the first joint Canfor and Canfor Pulp quarterly results conference call. I will briefly discuss our third quarter results before turning the call over to Alan Nicholl, who will speak to the financials for both Canfor and Canfor Pulp.

With me today is Brett Robinson, President of Canfor Pulp, Alistair Cook, Senior Vice President, Wood Products Operations, Wayne Guthrie, our Senior Vice President of Sales and Marketing and Sean Curran our Vice President of Sales and Marketing for Canfor Pulp.

So my colleagues and I will take your questions following Alan’s remarks. Canfor Corporation posted a profitable quarter in Q3, with consolidated operating income of $22.3 million, down slightly from our Q2 performance of $26 million. Numbers from our lumber operations were positive with operating income for the quarter of $34.9 million compared to $18.9 million in quarter two.

Our Canfor Pulp Products posted a quarterly loss in Q3, with an operating loss of $8.2 million, down from Q2 operating income of $10.4 million.

Pulp and paper results were below expectation, these results are in part driven by overall lower NBSK list prices, one-time expenses for lump sum payments for union contracts and restructuring costs related to management changes combined with below target operating rates.

The Prince George mill completed its annual plan maintenance outage in consumption with $50 million of capital upgrades and one line of the Northwood mill restarted after an unbind outage in June.

With the completion of the Northwood plant maintenance outage in October all facilities have returned to normal operation. As you are aware Canfor Pulp announces the suspension of its dividend for the quarter, the Board decision refresh the very challenging quarter both from a market and operational perspective. The Board will continue to review the dividend level each quarter and there decision will take into account of markets, operational performance, capital requirements, and any other relevant factors at the time.

Lumber markets improve moderately in the third quarter of 2012, reflecting solid demand in both North American and offshore markets. U.S. held the activity continue the upper trends seen in the prior quarter with housing starts for the quarter, reflecting a seasonally adjusted annual rate of 786,000, which is up 7% from the previous quarter. Canadian housing starts were down 3% from the previous quarter to 223,000 units on the seasonally adjusted annual rate, and up 8% however from the third quarter of 2011.

Market conditions in China continue to reflect all the demand, and demand in Japan also remains solid throughout the quarter. Global softwood pulp market weaken through the summer months with price erosion occurring for most of the quarter.

Overall in the market we saw NBSK pulp pricing harden in Q3 as producers box increased and summer demand drop off. We are expecting to see some moderate recovery in Q4 driven by plant maintenance shuts, seasonal demand up tick and strengthening Euro and Canadian Dollar. Also encouraging, is that we continue this year steady improvement in productivity and unit conversion cost at our lumber operations.

These gains reflect our targeted capital expenditures and a strong focus on continuous improvement across all operations. Throughout the quarter, we have executed on our capital programs to upgrade our Radium mill, which will reopen next week and we are extremely pleased to be in a position to restart, what will be a top performing facility as market conditions continue to improve.

With this point, now I’ll turn things over to Alan Nicholl, to provide some more details on our quarter three financials. Alan?

Alan Nicholl

Thanks Don, and good morning everyone. My comments will be principally focused on our financial performance for the third quarter of 2012, by reference to the second quarter. I will discuss the results of Canfor first and then turn to Canfor Pulp.

In my comments, I’ll be referring to our third quarter over few slide presentations, which you will find on either the Canfor or Canfor Pulp websites, in the Investor Relations section under webcast. Full details and the lines are contained in the Canfor news release issued yesterday and the Canfor Pulp’s news release that was issued on Monday.

For the third quarter of 2012, Canfor reported an equity shareholder net income of $22 million or $0.16 a share. This compares favorably to shareholder net income of $5 million or $0.03 a share, second quarter of 2012 and a shareholder net loss of $22 million or $0.15 a share for the third quarter of 2011.

On slide three of our presentation, we highlight various non-operating items, net of tax on non-controlling interest, which affect comparability of results between the second and third quarters. The net impact of these items in the third quarter was approximately $7 million or $0.05 a share and related to foreign exchange gains on long-term debt, gains on various financial derivatives net of restructuring costs related to the integration of Canfor Pulp.

After taking a kind of these non-operating items, Canfor’s third quarter adjusted net income was $15 million or $0.11 a share. This compares to similarly adjusted net income of $11 million or $0.08 a share for the second quarter of 2012 representing an improvement of $4 million or $0.03 a share.

With respect to Canfor’s third quarter operating performance you’ll see on slide four of our presentation that reported operating income was $22 million, a decrease of $4 million from the prior quarter. Excluding quarter-over-quarter inventory valuation adjustments, the adjusted operating income for the third quarter was $22 million, up $3 million from the $19 million reported for the second quarter. The increase reflected higher lumber sales realizations, but weaker pulp results, the latter being primarily due to the lower market prices that we saw in the quarter. I will speak more on Canfor’s operating performance in a few minutes when I discuss the individual segment performances.

Slide five shows the Western SPF benchmark lumber prices for 2x4 #2&Btr and U.S. housing starts. The U.S. lumber demand continued to slowly improve during the quarter reflecting historically low mortgage rates and the continued gradual strengthening of pricing markets.

The 2x4 #2&Btr price in Canadian dollars was relatively unchanged in the quarter, but price increases were seen at certainly all the grades and the wood. Total seasonally adjusted U.S. housing starts averaged around 786,000 units in the third quarter, a 7% increase from the previous quarter. The September seasonally adjusted number was 872,000 representing the highest level in almost four years.

Turning to slide six, you will note that Canfor’s lumber segment reported operating income of $35 million for the third quarter, an increase of $60 million from the previous quarter. The improvement in the results was largely reflected the improved sales realizations in both North American and offshore markets with sales for slightly both improved market prices and in the case of shipments to the U.S. all over I think export tax rates. Overall, operational productivity at our mills was up slightly from the previous quarters despite a 2% drop in total production, and largely offset the type of market related stumpage price increases on our law accounts.

Turning to slide seven, Canfor’s pulp and paper segment comprising both the results of Canfor Pulp products and Canfor’s Taylor BCTMP pulp mills recorded the third quarter operating loss of $7 million, $19 million worsening of results from the previous quarter.

And with that, I’ll now turn to the results of Canfor Pulp products. as you would see from the slide eight, Canfor Pulp products recorded the net loss of $5 million or $0.06 a share for the third quarter of 2012. This compared unfavorably to net income of $3 million or $0.05 a share for the second quarter and net income of $24 million or $0.33 a share for the third quarter of 2011.

Canfor Pulp recorded an operating loss of $8 million, a decrease of $19 million from the previous quarter. The decrease reflected lower NBSK pulp prices in shipments as well as the one-time cost that Don alluded to earlier.

As you would see on slide nine, the Pulp segment’s operating loss for the third quarter was $8 million, a decline of $17 million form the second quarter. North American list prices were down of at $60 per ton from the previous quarter on a Canadian dollar basis, reflecting a 5% decrease in the U.S. list prices as well as the $0.015 stronger Canadian dollar over the quarter.

Our pulp production was up slightly quarter-over-quarter, shipments were down almost 16,000 tons due to the weaker market conditions and the effects of the Prince George Pulp Mill outage in the current period. Unit manufacturing costs were slightly higher; reflecting the lump sum payment related to the new five-year collective bargaining agreements with the company’s unions partially offset by the impact of a higher production volume.

Turning to slide 10, Canfor Pulp’s paper segment recorded third quarter operating earnings of $5 million and this was in line with the previous quarter, an increase in the realized sales prices in the quarter was offset by 6,000 ton reduction in shipments that principally reflected timing.

price realizations were positively impacted by increased paper prices on a higher percentage of pine bleached products. At the end of the quarter, Canfor Pulp had a net insurance receivable of $7.5 million as a result of the on schedule shutdown of the Northwood recovery boiler in the second quarter. The company received account payments from insurance of just under $3 million in the third quarter.

As Don mentioned, the Canfor Pulp Products Board suspended dividend payments in the quarter. the Board will be reviewing the dividend every quarter and we’ll take a kind of key financial drivers, both external and internal in making their determination of amounts going forward.

Total capital spending for Canfor and Canfor Pulp for the third quarter amounted to $54 million of which $24 million just for the lumber business and $30 million for Canfor Pulp. Canfor Pulp has now completed its Green Transformation Program standing and in the third quarter, collected the final $10 million reimbursement connected with that program. The $30 million bridge loan credit facility that was initiated to help manage cash flow timing differences from this program was also terminated in the quarter.

At the end of September, Canfor excluding Canfor Pulp had net debt of $187 million with available liquidity of $322 million. Canfor Pulp had net debt of $120 million with available liquidity of $32 million. Net debt to total capitalization excluding Canfor Pulp was around 15% for Canfor Pulp, it was close to 24% and at the consolidated levels, it approximated 19%.

And with that, Don, I’ll now turn the call back to you.

Don Kayne

Thanks, Alan. So I’d now like to open the lines up for questions.

Question-and-Answer Session

Operator

Thank you. We will now take questions from the telephone lines. We’ll take questions from the financial analysts. (Operator Instructions) We have our first question from Pierre Lacroix of Desjardins Capital. Please go ahead.

Pierre Lacroix – Desjardins Capital Markets

Thank you very much, good morning. The first question I have is, in the press release, you mentioned that you had some weather related issues in the U.S. south. can you expand a bit on that?

Don Kayne

Yeah. for sure, just in the southeastern part of States, just that during the quarter, there is some significant weather and some tough weather conditions through the quarter that we had some impact on some of the operations overall.

Pierre Lacroix – Desjardins Capital Markets

And where was that? Was it more in South Carolina or?

Don Kayne

South and North Carolina exactly.

Pierre Lacroix – Desjardins Capital Markets

Okay, perfect. Also wanted to know a bit more about the mix going into China pricing and what do you see there?

Don Kayne

Yes. So in terms of China, we continue to see a solid takeaway there, as we see in each quarter throughout this year and prior years. In terms of the product mix, we continue to see improvements in terms of some of the higher grades, which continued to expand above and beyond just some of the low grades that you’ve heard us speak about before. But overall, our view in China is that remains positive, and working hard to continue to expand some of the opportunities in that market.

Pierre Lacroix – Desjardins Capital Markets

What would be the percentage of shipments from Canada that you shipped to China?

Don Kayne

Just Canfor, you’re speaking about here.

Pierre Lacroix – Desjardins Capital Markets

Yeah, yeah.

Don Kayne

Yeah. So both approximately, 30%.

Pierre Lacroix – Desjardins Capital Markets

30%?

Don Kayne

Correct.

Pierre Lacroix – Desjardins Capital Markets

And in terms of the pricing situation there, what is the breakdown between monthly, quarterly, and [stock pricing?]

Don Kayne

Yeah. I think if there is some variability there and that can change. but for the most part, we’ll probably close the half of that on a monthly basis and the rest is, and it is probably some percentage, 10% to 15% that will be quarterly and the rest some other type of method.

Pierre Lacroix – Desjardins Capital Markets

Okay. And it’s been on the SPF two-by-four and better?

Don Kayne

Excuse me.

Pierre Lacroix – Desjardins Capital Markets

And it’s based on the benchmark grade, which is the SPF number two and better?

Don Kayne

Yeah, correct.

Pierre Lacroix – Desjardins Capital Markets

Okay. and just one final on Radium, are you extending the capacity on the mill or it’s going to be the same capacity as before?

Don Kayne

The Radium will be up a little bit, somewhat for sure with the capital that we’re putting in there. and that’d be up in the neighborhood probably 5%, 10%.

Pierre Lacroix – Desjardins Capital Markets

5% to 10%, so around $200 board feet?

Don Kayne

Yeah. Maybe a little slightly ahead of that, but you’re in the neighborhood for sure.

Pierre Lacroix – Desjardins Capital Markets

Okay, thank you very much.

Don Kayne

Okay, Pierre. Thanks.

Operator

Thank you. Our next question is from Sean Steuart with TD Securities. Please go ahead.

Sean Steuart – TD Securities

Thanks, good morning everyone. Alan or Don, I guess a question on Canfor Pulp, really as it pertains to the dividend policy, working cap requirements, maintenance schedules. Can you comment on, I guess the magnitude of available liquidity you’re comfortable with, appreciating that down at $30 million, $32 million that might be tighter than, we’re comfortable with in the current market context. But is there a level you target over a cycle in terms of available liquidity for Canfor Pulp?

Don Kayne

Yes, Sean, good morning. So yeah, we’re comfortable with that amount of liquidity, but we are as you aware, we have that U.S. dollars coming up year-over-year and make pulp next year. So we’re going to be looking at refinancing here before too long, just to make sure that we preserve a strong position. And with respect to kind of a comfort level around liquidity, we are keen as you probably will guess to keep and preserve a strong financial position in Canfor Pulp, so we’ll be keeping a close eye on that.

Sean Steuart – TD Securities

And have you guys given thought around, I appreciate you’re saying, take this quarter-by-quarter, but have you thought about a longer term payout ratio target for Canfor Pulp in terms of long-term thinking around the dividend?

Alan Nicholl

The Board actually indicated in the press release will continue to look at this on a quarter-by-quarter basis, taking a kind of all the practice that Don mentioned in his opening comments, yeah.

Sean Steuart – TD Securities

Okay, one last question, just an update with respect to Canfor Corp, I guess where you are on the discretionary CapEx spending in the sawmills, appreciating you’re most of the way through the original $300 million program and I know you’re spending on your newer acquisitions as well, and in relation to that, can you give any thoughts on lumber acquisition opportunities in the U.S. south, and opportunities you might be seeing there?

Don Kayne

First of all as you say the CapEx program that we’re currently underway and progress a while and by the end of this year, we should have or by the end of 2013, we’ll kind of be, where we said we would be on all of that. In terms of acquisitions, I mean that’s just something, it’s something that’s kind of normal coarse that we’re looking out all the time, clearly that as we said before we like the south, we like the U.S. operations and we have investment there already, so yes we’re looking at a lot of different opportunities, always are as they come up. And so we’ll obviously keep in touch, keep you updated on that as we move forward, but at this time I can’t say too much more on that other than, we definitely we’re looking at those as they come up.

Sean Steuart – TD Securities

And Don, rest of you not wanting to comment on this, I mean, and I've decided to whirl with some of these opportunities in the U.S. that don't materialize. I mean, can you speak to interest and may be taking in the minorities taking Canfor Pulp over the long run. Are you happy with 50.2%, your thoughts on potentially consolidating on investment?

Mark Feldinger

I think at this point what I can’t is that we are certainly three years and as far as I’m concerned, 50.2% is the right number at this point. We have not considered that at all, going forward, we think that it’s all if they have the integration that we have in place today. The integrated companies that we have and going forward, we like that and as I don't see any change with that at all going forward personally.

Sean Steuart – TD Securities

Okay. Thanks Mark.

Mark Feldinger

Okay. Thanks.

Operator

Thank you. Our next question is from David Quezada of Raymond James. Please go ahead.

David Quezada – Raymond James

Yeah thanks. I was just wondering if you guys comment quickly on what you are seeing with sort of contract availability like loggers and truckers both in the BC interior, and also in the U.S. House? And how that would be affecting log costs going forward?

Don Kayne

That’s a great question that we continue to work with our contractors in the areas. Trucking is becoming thrice in all of the areas that we’re working in today. Spending a lot of time with our contractors around some of the opportunities that we can develop going forward. No question our log costs are under pressure in certain regions, availability of drivers, not supposed to be mill that it used to be. So our hauling distances are becoming longer as we move forward, so great question and we continue to work with our contractors.

Unidentified Company Representative

And maybe to add to that as on the south, no material changes there at all, log costs have been relatively flat there and (inaudible) that we’re aware of.

David Quezada – Raymond James

Yes, sir, thank you.

Don Kayne

Okay, no problem.

Operator

Thank you. Our next question is from Mark Kennedy of CIBC World Markets. Please go ahead.

Mark Kennedy – CIBC World Markets

Good morning. First, I guess a couple of questions on Canfor Pulp, so firstly from an operational point of view, just wondering if you can give us any indication of when you are hoping to see productions were to get back to a more steady state level, because I would argue that should we think production closer to 260,000 tons a quarter in the last couple of quarters obviously because of outages and downtime and different things within, this lowered our levels so just wondering, if we can get any guidance as to how you see that summing up from Q4 going forward?

Don Kayne

Thanks Mark. I’ll let Brett, maybe answer that question.

Brett Robinson

Yeah, thank you. With the one line of the Northwood mill restarted late last week, we’re through our plant outages and all facilities have returned to normal operations.

Mark Kennedy – CIBC World Markets

So aside from some sort of normal maintenance next year were pretty safe to be budgeting sort of rate of capacity kind of thing?

Don Kayne

Correct, yes.

Mark Kennedy – CIBC World Markets

Okay. That’s helpful. And then just another way of sort of looking at this dividend issue but unfortunately as analysts we still have to figure out a way to project what could happen here, so if I took a scenario like next year, if Canfor Pulp had $100 million of cash that it generated in less than a year discretionary and non-discretionary capital with $50 million, what would be a reasonable way to think about the dividend amount, would it be a portion of that remaining $50 million or with half of that remaining $50 million go to debt repayment like it's just hard for us right now, just to see how we should be gauging that?

Don Kayne

Yeah. So, this not something that they given that I have been an analyst, they want to look forward and I want to look forward, I mean the reality here is this is the Board decision that's going to be made every quarter, and ultimately will reflect a lot of the market outlook as well as our operating performance and capital requirements too. Because there are a number of potentially attractive energy projects Mark, but I think Brett and his guys will be keen to move on as they come to fruition.

Mark Kennedy – CIBC World Markets

But like I said, in a scenario like that, where there was a reasonable level of cash generation above and beyond capital requirement, should we still be forecasting some percentage of dividend payout or should we not be forecasting anything in just if it happens, just take it as it happens.

Don Kayne

I think maybe market is gone, I think maybe the way and we totally appreciate as Alan said, it’s a difficult for you all to forecast, but I mean I guess going on forward, as we said and you’ll see going forward, we’re going to just take a much more critical look at exactly look, how the quarters performed as well as what our needs are going be, we had some immediate longer term in terms of CapEx in factoring in terms of what we think the markets going to do and what not, and we’re just going to take it in a lot of more of a critical look at it before we make that decision.

So and here is the scenario that you painted there is, that one probably would result in some change from where we are at today. But again, it’s hard to nail that down exactly without knowing some of those other considerations that I met, not trying to skate around that hallmark, but I guess it’s just safe to say that we’re going to look at performance and face the dividend a lot more along that, combined with some of the future interruptions or future risks that we may see going forward is really as simple as that and it’s really hard to get too much more concrete than that.

Mark Kennedy – CIBC World Markets

Okay, okay. All right, that’s fine. And then switching over to the lumber side now, just we kind of interested in getting your read on what you’re seeing, especially in the U.S. distribution system, because clearly, it looks like from the future’s market, and the cash market, the lumber price really bottomed, three weeks ago and they are showing some pretty good strength here and what normally is a pretty weak part of the years. so just be curious to see if you have any other sort of anecdotal read on what you’re seeing in terms of demand fall through the distribution or things like that?

Don Kayne

May be I’ll let Wayne speak about that, maybe Wayne.

Wayne Guthrie

We’ve certainly explained that we’re pleased that we’ve seen the demand that we have and the price appreciation we have in U.S. and you’re right it’s certainly going against the historical trends. I think it speaks to the continuous demand offshore, and so that we haven’t seen a big rush of a product into the U.S., based on the higher prices. So I think all markets being healthy and helps the U.S. stay in balance in terms of inventory. I think businesses are little bit better than most of our customers expected. and as a result of that, there’s still an exhibition to learn that they need to replenish inventory, helped also we haven’t had any bad weather yet this fall. So yeah, it looks very positive and quite frankly, yeah, we’re pleased by the results and look forward to balance of the quarter.

Mark Kennedy – CIBC World Markets

And just one last question, just in terms of your approach to future’s market here like if we do see strength, is your intention still to sort of just play a minimal role as far as any kind of hedging goals and pretty much just sort of take more or less the cash market as it comes next year?

Wayne Guthrie

I think that we will analyze that on a day-to-day, week-to-week basis. I certainly don’t want to comment on the day trading that’s happening there today. It’s positive, it’s a good indicator, we’ll use it when it’s best for our company, but quite frankly, we’ll stick with our strategic plan, we’ll stick with our diversification, and we’ll look at any opportunity that comes out.

Mark Kennedy – CIBC World Markets

Okay, great. Thanks guys.

Don Kayne

Yeah. Thanks, Mark.

Operator

Thank you. Our next question is from (inaudible). Please go ahead.

Unidentified Analyst

Thank you. Just curious to whether your CapEx plans for the rest of this year and for 2013, if you can split it between pulp and lumber?

Unidentified Company Representative

(Inaudible) lumber side.

Alistair Cook

Sure, Alistair Cook here again. We try and intend to continue to investment in our mills pending market conditions and cash availability. we still want to execute on our $300 million capital plan, which we’re roughly two thirds away through. So we’ll continue to look at opportunity to invest over the next four quarters.

Don Kayne

Hope so (inaudible) you can just comment on that one.

Unidentified Company Representative

Yeah. For 2012, we are largely done our capital spend. we have some modest items left into 2013. we would be looking to have a normal capital investment, we’re typically around $30 million, and I guess difference maybe if we have some energy projects that came that were attracted to us.

Unidentified Analyst

So in total, for next year for Canfor Corp consolidated?

Don Kayne

Yeah, I think in terms of just at this time, I think we’d anticipate something in order of 100, 125 to 150 at our brand.

Unidentified Analyst

Great, thank you.

Operator

Thank you. (Operator Instructions) Our next question is from Paul Quinn of RBC Capital Markets. Please go ahead.

Paul Quinn – RBC Capital Markets

Yeah, thanks very much. Good morning, during the call, you might have talked about it. But just if you could go through the Canfor Pulp’s 2013 maintenance schedule?

Don Kayne

Hi Paul, it’s Don. And you just really referred to what our plans are in terms of additional maintenance, shut scheduled through 2013. is that your question?

Paul Quinn – RBC Capital Markets

Yeah. Just trying to figure out which mills are going down in which quarter, because it seems to have an impact on our financials?

Don Kayne

Sure, maybe Bret, you can.

Brett Robinson

Yeah, absolutely. so hi, Paul, we would be taking our normal outage at the Northwood Mill in the spring. small, mini-shut if you will at the Intercon in the spring, which is a regulatory three-day. and then the bigger PG would be in the fall probably in the October, September-October.

Paul Quinn – RBC Capital Markets

Okay. thanks very much, Bret. And I guess, I’m just sitting back and listening to all of these questions coming at you, and I think you’ve had a lot of questions on Canfor Pulp dividend just because we’re all having the vast majority of the analysts, as they’re expecting higher pulp prices next year, and they’re figuring out what the heck you’re going to do with them, with the cash? I just wanted to ask you on your outlook for the pulp markets; we’re seeing quite a few capacity as on both the hardwood and softwood side. What do you expect at half and going forward here? Are you bullish on pricing?

Don Kayne

I’ll let Sean handle that.

Sean Curran

Hey, Paul, it’s Sean. How are you this morning?

Paul Quinn – RBC Capital Markets

Good.

Sean Curran

Good. We look at where we are sitting right now, we’re coming into obviously seasonal demand up tick and we have the regular maintenance shift outages that are happening. So you see modest increases that are going to be announced, which I think one supply is already out in November. Coming into next year, we’re following basically around the same level as most of the analysts where we expect pricing to be better coming into next year than it was in the third quarter for this year. But really, when we look out for next year, probably on our north European price level, somewhere in the 820 to 830 level, somewhere in that area. That’s done a per dollar.

Paul Quinn – RBC Capital Markets

Okay.

Don Kayne

I think Paul, maybe just similar to how we’ve been treating the Wood Products business for a long time here and if there’s any question, it will be on a conservative side whatever we do to.

Paul Quinn – RBC Capital Markets

Yeah.

Don Kayne

And that will be the case going forward here for a while until we get some certainty that any price increases that we do see are sustainable. we’re not at this point convinced if that’s the case. and so we’re going to really be, real cautious, real conservative going forward in which we think this is appropriate.

Paul Quinn – RBC Capital Markets

Sounds reasonable, maybe a question just on the lumber side, you’ve obviously, two thirds of $300 million of CapEx project there, just wondering if you could give us a range of what you think lumber production is going to be for 2013 that’s split between Canada and the U.S.?

Alistair Cook

Yes, Paul, it’s Alistair Cook here. we expect our production in 2013 up another 10%, 15%; the south will be somewhat similar.

Paul Quinn – RBC Capital Markets

Great, that’s all I had. Good luck, guys.

Don Kayne

Thanks.

Operator

Thank you. Our next question is from Pierre Lacroix of Desjardins Capital Markets. Please go ahead.

Pierre Lacroix – Desjardins Capital Markets

Yeah thanks just one follow-up on your shipments, lumber shipments from the West, from Canada. What would be the splitting out, now we know that 30% is going to China, what would be the split to the U.S. and then in the U.S. South and West?

Alan Nicholl

Right now we are in the 45%. What was the second part of the question?

Pierre Lacroix – Desjardins Capital Markets

Yeah 45% is going to the U.S. and then U.S. South versus the Western side of the country?

Don Kayne

Wayne you have to answer that.

Wayne Guthrie

I don’t have those numbers right in front of me, we have a broad distribution across the entire United States.

Pierre Lacroix – Desjardins Capital Markets

Okay. Perfect. Okay and last one, Don, are you starting to think about [Polar] board or this mill is kind of more longer term play, if anything, if there is any consideration to bring that back?

Don Kayne

Yeah, of course we’re looking at all the time and we’re encouraged as I think Alan mentioned in his comments around OSB and OSB pricing, but we’re certainly not at the level of all yet, that we are confident that you would want to bring up much production on yet. So that decision, we will continue to look at on a quarterly basis. And when we’re convinced that this recovery is well in place and our confidence are growing. Then we will make more, look at that more from an operation standpoint. But at this point, there’s no consideration yet.

Pierre Lacroix – Desjardins Capital Markets

And is there major issues in terms of securing the labor back into the mill given the location of the mill and the competition with the shale gas in the industry.

Don Kayne

Absolutely, I mean I think the industry basis, that not only in BC, but across Canada and the United States and globally really that’s a global issue and certainly it exist out there as well.

Pierre Lacroix – Desjardins Capital Markets

Okay thank you

Don Kayne

Okay.

Operator

Thank you. Our next question is from Joe Licursi of BMO Capital Markets. Please go ahead

Joe Licursi – BMO Capital Markets

I think operator my question concerns wood cost, can you give us some guidance what you’re expecting in Q3 in Canada and your U.S. South operation.

Don Kayne

Okay, the U.S. South is easy as flat basically.

Joe Licursi – BMO Capital Markets

Okay.

Don Kayne

And we’re expecting any change or has been any change that we will see a lot of change already in terms of Canada, Western Canada particularly, yeah, we’re seeing some increase in overall log cost, mostly related to stump, it’s related to hauling business and so forth, so that for sure, we’ve seen some of that that’d be probably the major reason for the increases.

Joe Licursi – BMO Capital Markets

Okay. You won’t give a percentage increase from quarter-to-quarter, what they should be looking for.

Don Kayne

Yeah, in the percentage wise, I mean it’s probably an area of $1 or $1.5 something like that.

Joe Licursi – BMO Capital Markets

Okay. That’s per thousand board feet, right.

Unidentified Company Representative

Per cubic meter.

Joe Licursi – BMO Capital Markets

Cubic meter thank you. The another question to add like it doesn’t concern Q4, but we hear a lot about pulp producers like in the South and like and we hear about like the production going from three years to 10 million tons, like 2014, according to RISI, in U.S. South operations would this mean that, your wood cost would take a hit, like if this was to happen?

Unidentified Company Representative

Hit being an increase

Joe Licursi – BMO Capital Markets

Right.

Unidentified Company Representative

Yeah. I mean, I think that’s going forward what I can comment on is our fiber position in South Carolina in particular, but also North Carolina, more so in South Carolina is in excellent shape, we produce significant amount of fiber there. So it’s something dramatic what happened and there will be probably be some impact potentially, but the way we see it, it won’t be material, will be minimal impact. And we’re quite confident in our fiber position there that’s good not only today, but it’s sustainable in the future.

Joe Licursi – BMO Capital Markets

All right, good. It gives us so many role. Okay, thank you very much.

Don Kayne

Okay.

Operator

Thank you. And we have no further questions registered at this time. I would like to return the meeting back over to Mr. Kayne.

Don Kayne

All right. Thank you, operator and thank you everyone and we’ll look forward to speaking at the end of the year. Thanks very much.

Operator

Thank you. The conference is now ended. please disconnect your lines at this time and thank you for your participation.

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