Conifex Timber Inc.

Good afternoon, ladies and gentlemen. Welcome to the Conifex Timber Incorporated 2021 Q1 Results Conference Call. I would now like to turn the meeting over to Mr. Ken Shields. Please go ahead.

Well, thank you and good afternoon, everyone, and welcome to this call covering our Q1 2021 results. With me today, we have Chief Financial Officer Winnie Tang and Operations VP Andrew McClellan. So I'm going to make some opening remarks, and then I'll hand the call over to the two of them, and then I'll have some closing comments, at which time all three of us will be pleased to respond to your questions. Before moving ahead, first we wish to reemphasize that our number one priority continues to be protecting the health and safety of our employees and their families. And the men and women at our harvesting locations, our sawmill site, our power plant, They all deserve the credit for ensuring a safe work environment during this unprecedented global pandemic. Second, let's quickly deal with a housekeeping item. We will be making forward-looking statements and references to non-IFRS measures, and therefore call your attention to the warning statements set out on pages one and two of the MD&A document that we released earlier today. Turning to our first quarter, net earnings were $4.5 million, or 10 cents per share, and EBITDA was $9.7 million. And I know many of you skilled and knowledgeable forest products analysts on this call were expecting stronger results from us in the first quarter. One reason our Q1 results came in below consensus was that we expensed 13 weeks of power plant costs, but produced electricity for only six weeks. On our last call, we alerted you that the proceeds from our business interruption insurance claim will likely be booked in Q2 or Q3 of this year. Had we booked what we estimate the insurance proceeds to be, Q1 EBITDA would have been right in line with consensus. The other reason that our Q1 results came in below consensus was that we only shipped 10 weeks of the lumber we produced in the 13-week reporting period. Although Q1 lumber production climbed to 51 million board feet, shipments of 37.8 million board feet were much lower. Our ratio of SPF shipments to production was 74%. Far below the 90% shipment to production ratio, BC's two largest SPF producers averaged in Q1 of 2021. Clearly, CN railcar delivery shortfalls were more pronounced in the McKenzie region than in other parts of the province. To mitigate the buildup in finished lumber inventories, our sales and logistics team stepped up truck deliveries And by doing so, we incurred extra delivery costs in the quarter. Subsequent to the quarter end, we've shipped the lumber that was built up. The mill net selling prices we realized on these shipments were $200 per thousand board feet higher than we achieved on our Q1 shipments. The key point here is that besides lowering revenues, Railcar shortages added to our costs and lowered the mill net selling price realizations we recorded in Q1. Had we achieved a ratio of shipments to production in line with the two majors, we would have exceeded consensus Q1 EBITDA forecasts. We are encouraged that to date in the current quarter, railcar deliveries have improved and weekly shipments have consistently exceeded production. Should this continue for the next few weeks, our lumber production and shipments are expected to be in balance by the time we report results for Q2 in this year. I now have the pleasure of turning the meeting over to Andrew McClellan, our Vice President and General Manager, Northern BC Operations for Confex.

Thank you very much, Ken, and good afternoon, everyone. Let's start with lumber. Our Q1 lumber production was 5% higher than Q4 of 2020. However, our shipments were approximately 23% lower. On my last call with you, I explained how we and certain other sawmillers in the northern interior region of BC experienced challenging weather conditions last winter. which led to log harvest and delivery shortfalls and retarded lumber production in the first half of 2021. We plan to boost lumber production as soon as we have the benefit of summer log delivery starting next month, and we continue to anticipate our full operating rate will exceed 90% of our two-shift rated capacity of 240 million more feet in 2021. Any number of pandemic-related or unanticipated production and or shipment disruptions could hold us back and prevent us from achieving the production target. However, on a full-year basis, 2021 lumber production is anticipated to be 70% higher than our 2020 results. The BC Ministry of Forests has a timber supply review underway for the McKenzie Timber Supply Area, and the Chief Forester expects to release a new harvest level determination sometime around the end of the year. We have two major studies underway at present that are related to this coming announcement. One focusing on the characteristics of the saw log supply we expect to process over the next decade and beyond at our saw milling facility. And a second study focusing on the potential to boost our lumber production capacity at McKenzie by approximately 25%, lower our cash conversion costs, as well as improve our lumber recovery and grade out turns at our McKenzie facility. We expect to settle our plans for expanding and modernizing our McKenzie sawmill site shortly after the release of the new harvest-level determination. I'll turn now to the power generation business. Our power plant continues to achieve its daily power production targets since the plant restarted in late February. And at this time, I'll turn the discussion over to my colleague, CFO Win Fang. Thank you.