Conifex Timber Inc.

Conference is being recorded. This conference is registered. All participants can be standing by. The conference is ready to begin. Good morning ladies and gentlemen. Welcome to the account of December 8th, C1 2025 results conference call. I'm going to ask for a meeting over to Mr. Henshin. Please go ahead.

Good morning everyone and welcome to our call covering our C1 2025 results. I'm in our Vancouver office today, but our Chief Operating Officer Andrew McClellan and our Chief Enanthalopso Trevor Fruity are participating on this call from our regional office in Prince George. Let's quickly deal with the housekeeping items. We will be making forward-looking statements and references to non-IFRS measures and therefore call your attention to the warning statement set out on pages one and two of the Management Discussion and Analysis that we released this morning. Turning to our T1 results, all of us at Conifect are most pleased that our T1 2025 net income allowed us to join Russ Frazer as the second member of the Club of Public SPS Producers operating facilities in Western Canada that managed to achieve positive net income after tax in T1. We barely made it. We reported net income of $600,000 or just under two cents for fully diluted Conifect shares. But we generated E-50A in T1 of $4.9 million, which incidentally is equivalent to roughly 30% of our present equity market capitalization. Two years ago, we alerted our shareholders that the Chief Forrester's May 2023 harvest determination, coupled with some other forest ministry initiatives we were pursuing, would enable our McEmsey site to migrate to a lower and more enviable ranking on the North American lumber industry cost curve. Our T1 results illustrate the E-50A we are capable of achieving when we access an affordable supply of quality cell loss to support a key drift on our operation. Our T1 results, as you'd be aware, are fully consistent with the guidance we provided you on our March call when we explained how transitioning to a T-5 dormal operation would potentially boost E-50A. We would like to take about five minutes or so of your time now to provide our perspective on where we rank on the North American software lumber industry cost curve and the thoughts we have about our ability to continue to generate positive E-50A after duty deposit rates increase in the second half of 2025. The simple fact is that our Q1 2025 E-50A, the thousand board feet of lumber produced and sold from our integrated McEmsey sawmill and power complex, has not been matched by any other public forest products company in North America. We have achieved E-50A of Canadian $4.9 million on shipments of 38 million board feet and this translates into E-50A of Canadian $129 for thousand board feet of lumber produced and sold in the quarter. This is equivalent to approximately $90 per thousand board feet. In the opening quarter of 2025, traditional low-cost STF producers, warehouse, potlatch, Celtic and West Timber earned between US$35 and US$53 per thousand board feet of the lumber they produced and sold. I think camphor's North American lumber business earned something like Canadian $48 per thousand board feet and the other four appears to have earned around about $56. So our Q1 results reflect reasonably strong E-50A margins for two main reasons. The first is that in Q1 we benefit from relatively low log costs because our winter harvest is sourced from relatively close-fins, low-cost truck delivery stands. Our delivered log costs are higher in the summer and fall because our harvesting activity takes place in the northern half of the McEmsey Timbers supply area and in the north, because the harvesting and delivery costs are greater than they are in the south. And the second reason we typically do well in the opening quarter of the year is that the prices we receive for the electricity we sell to the BC Hydro rig under our energy purchase agreement are higher in the opening and closing months of each calendar year but lower in the middle months. And typically our Q2 E-50A contributions from power generation is held back by the annual maintenance down time that we take at our plant. So against that backdrop we've looked at a variety of scenarios to project our results over the remainder of 2025. Our mid-case projections assume higher duty deposit rates but it assumes that there are no additional tariffs. Our pricing assumptions for the year align with the price assumptions made by the leading forest products analyst in Canada. Our mid-case projections indicate that a full year E-50A for 1,000 board feet of lumber produced and sold in 2025 is expected to be in line with or a bit higher than what forest products analysts presently expect to be able to achieve in 2025 from their North American operation. On our recent calls with you we discussed the May 4th 2023 release by DC's Chief Forester of a new harvest level determination for the McKinsey Timber Supply Act. Included in the release was the removal of the previous requirement to secure 55% of our saw lawn supply from dead pine delvedge stands, most of which had already lost their commercial value for saw lawn. The current annual allowable cut for the McKinsey TSA is 2.32 million cubic meters. We operate the only sawmill. Our annual fiber requirements are roughly 800,000 cubic meters. So you can see that the new AAC is roughly 2.9 times our present requirement. And this confirms our view that we do not face supply constraints in McKinsey, similar to those that are presently challenging many sawmill operations in DC and in certain other regions. We are fortunate to operate in a fiber supply region that has a degree of saw log belt sufficiency that is unparalleled in the interior region of DC and perhaps in any other major saw log supply region in Canada. As a company, we've gone through a transition period over the past two years, and our current harvest is now primarily sourced from green, commercially viable saw lawn stands. This shift in log quality is the main reason our EFSA loss fell in half in 2024 from what we incurred in 2023, and the main reason we are capable of achieving, in our opinion, low double-ditch EFSA in 2025 with further improvement in 2026. So summing up on this point, after funding some minor projects that will improve the reliability and consistency of our T-shift operations, we are confident that the EFSA per thousand board feet of lumber we produce and sell will be in line with or slightly higher than the EFSA reported by the other major public lumber companies whose diversified operations are viewed as being fully cost-competitive and economically sustainable by knowledgeable industry observers. Turning to duty deposit, you'll note that we have spent $2.8 million of duties in this quarter representing the full amount of countervailing and anti-dumping duties incurred on shipments that stop with lumber from Mackenzie to the U.S. at a combined duty deposit rate of 14.4%. As of March 31, we had two of those duties of $40.3 million U.S. held in trust by U.S. customs and border protection. On a pre-hatch basis, these deposits are equivalent to approximately Canadian $56 million or $1.38 per ton of that share. Except for roughly $11 million recorded as recoverable and effective overpayment, Conifect has reported the duty deposits as an expense. With two months of duty for the $1.38 per share and recent trading prices of $0.30 to $0.40 per share and the tiniest pack shelter that we have, Conifect shareholders should benefit by more than the shareholders of any other publicly traded lumber company if an eventual trade settlement includes the provision for partial repayments of two detailed on deposit. As everyone on the line that covers our industry knows is that some preliminary duty rates have been announced regarding duty deposit rates that are projected to increase from .4% presently. And in our case, if the preliminary rates hold, we expect to pay something like .81% in September and perhaps .45% in November and beyond. So, turning to our book value, our book value for share is $2 per share and as you know that's, that's, that's fees every share is rated by five or more times. In closing, and before taking your questions, on behalf of our board of directors, I wish to express gratitude and deep appreciation. First, to our employees for their continued hard work helping strengthen the economic sustainability of our company in an environmentally responsible and safe manner. And secondly, to our lenders who continue to demonstrate their confidence and trust in the economic sustainability of our integrated site at McKinsey, as well as the asset values underpinning our fiber procurement, lumber manufacturing, and power production platform. This employee and lender support is crucially important given the present cost during, in the British Columbia lumber industry and the broader North American economy. I differentiate this from high quality fiber supply coupled with the contributions from $100 million we've invested in power generation, provide us the foundation we require to sustain a profitable lumber business that is set in McKinsey, BC. All of us at Conifest, thank you for your interest in our company and Andrew Trevor and I look forward to responding to any questions and what some shareholders may have. And so we'll turn our discussion back to the operators.

Thank you. You may press star one to answer the question. First question from Kirk Runke from Imperial Capital. Please go ahead. Hello, Ken. Appreciate the call.

Hi, Kirk. So I just wanted to, with respect to the guidance, I heard physical 25 adjustities are done, the low double digits, is that what I hear there correctly? Yep, very low double digits and if you look at what the general forecasts are for the major companies, the forecast is generally coming in around $40 or $50 per thousand board fees at the CS that's produced and sold. And so, you know, we do $170 or $180 million and we get $70 per thousand board fees over the 12-month period. We would be in the low double digits for the E-58 for the calendar year.

Okay,

thank you. That's helpful. And so that assumes no additional tariffs, but it does

assume...

It assumes the ramp up of duties to .45% in the second half of 2025. Okay. And can you characterize the pricing assumption there? Is it roughly in line with today's pricing or is it being assuming from ramp? Nope, we are assuming ramp. We are, you know, we monitor what the major analysts on the street have been forecasting and, you know, the latest number I have is that one bank dealer is at benchmark prices of $5.28 and $25 and $5.48 in 2025. Others are generally $4.75 to $5.50 and one analyst is at $4.85 and $4.90. So our pricing assumption as we get towards the end of the year represent an improvement from today's price. They probably are materially different from the Q1 average price that we had on the benchmark of $4.88. And, you know, the November futures are 18% higher than the current cash market prices. So we expect that some of the costs of the incremental tariffs will be borne by lumber consumers, not producers. And so we expect to have some place release that partially offsets the higher the revenues will be incurred. Don, I appreciate it. Thank you. And on the last call you mentioned positive either Don or second quarter. Are you still thinking it will be positive? Yes, but it will be quite a bit lower. And the main reason for that is that our power plant is down for maintenance for at least four weeks. So the power plant goes from our source of ETA to consume ETA for repairs. And so that knocks our ETA back in the quarter. And secondly, that our team did a great job transitioning from a single shift to a two shift operation early in the new year. But the weather didn't cooperate with us enough and so we didn't get enough logs in the yard to sustain a full two shift operation. So we're running that mill four days a week now on two shifts rather than five days. And we're hoping we can maintain that rate going through the balance of the year. But we might have to take a few extra days of downtime. So we're not going to have capacity utilization rates that are what we expect to be able to achieve on a two shift basis. That's why we're going to go forward basis. And that's because we had a relatively great start to shifting our harvest activity and boosting them up to support a two shift operation. So we don't plan to use the rest 10 for the ETA and Q2, but it's going to be more significantly reduced from E1. Got it. Okay. Appreciate it. And then my last topic would be liquidity. How do you feel about it? Do you need to borrow additional monies to fund the ramp and working capital or not? Yes. Well that is the subject. We have a very close relationship with our main lending. We have two lenders, one for the power plant and one for our sawmill basement. They're separate demand businesses. And we really appreciate the efforts that the lenders have taken to understand the competitiveness of our facilities. But the fact of the matter is that in the sawmill side of things, we have a 14% interest rate. And we expected a higher interest rate because we did not want to be burdened by a fixed charge coverage ratio. So, and you know, in the current year there are going to be some one-time charges once the duty rates are finalized. And there will be some accounting adjustments taken against the ETA probably in Q3 of this year. But in terms of our loan agreement, I think that will not create any charges for us. So the second point I'd make is that 14% is expensive. So we don't like keeping a whole bunch of cash around and paying 14% interest on it. So we don't have much sort of liquidity at all. We'll be spending some time with our lenders in the next four weeks or so reviewing our second half plans in more detail and looking at, you know, factors such as several small capital projects that we have that have very rapid paybacks on them. And then secondly, we work to spend the money developing stands for winter harvest season and next summer's summer harvest. And so we're going to be putting some capital to work developing stands for future harvest. Thank you. I appreciate it. Thank you.

Thank you. As a reminder, you may press star one if you have a question. We all know for the questions registered at this time, I'm about to turn the meeting back over to Mr. Shou.

Well, thank you for that very comprehensive question and thanks to everyone on the call for monitoring our project and showing interest in our company. It's much appreciated by all of us. Enjoy the rest of your day.

Thank you. Thank you. The conference has now ended. Please flip the next two lines at this time and thank you for your participation.