Conifex Timber Inc.

All participants, thank you for standing by. The conference is ready to begin. Good morning, ladies and gentlemen. Welcome to the Reconnaissance Chamber, Inc. Q1 2025 results conference call. I would now like to turn the meeting over to Mr. Ken Shields. Please go ahead.

Good morning, everyone, and welcome to our call covering our Q1 2025 results. I'm in our Vancouver office today, but our Chief Operating Officer, Andrew McClellan, and our Chief Financial Officer, Trevor Frugge, are participating on this call from our regional office in Prince George. Let's quickly deal with the housekeeping item. 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 1 and 2 of the management discussion and analysis that we released this morning. Turning to our Q1 results, all of us at Conifex are most pleased that our Q1 2025 net income allowed us to join Russ Fraser as the second member of the Club of Public SPF Producers operating facilities in Western Canada that managed to achieve positive net income after taxing Q1. We barely made it. We reported net income of $600,000, or just under two cents for fully diluted Conifers shares. But we generated EBITDA in Q1 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 McKenzie site to migrate to a lower and more enviable ranking on the North American lumber industry cost curve. Our Q1 results illustrate the ecosystem we are capable of achieving when we access an affordable supply of quality saw logs to support a T-shift sawmill 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-shift sawmill operation would substantially boost VFDA. We would like to take about five minutes to 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 EBITDA after duty deposit rates increase in the second half of 2025. The simple fact is that our Q1 2025 EBITDA for 1,000 board feet of lumber produced in schools from our integrated McKinsey sawmill and power complex has not been matched by any other public forest products company in North America. We achieved EBITDA of Canadian $4.9 million on shipments of 38 million board feet. and this translates into EBITDA of Canadian $129 for 1,000 board seats of lumber produced in golden quarters. This is equivalent to approximately $90 for 1,000 board seats. In the opening quarter of 2025, traditional low-cost SPF producers, Weyerhaeuser, Potlatch Celtic, and West Timber, earned between U.S. $35 and U.S. $53 per thousand board sheets of the lumber they produced and sold. I think Canfor's North American lumber business earned something like Canadian $48 per thousand board sheets, and Interfor appears to have earned around $56. So our Q1 results show reflect reasonably strong EBITDA 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-end, 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 McKenzie timber supply area. And in the north, 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 who sell to the BC Hydro grid 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 G2, G8 contributions from power generation is held back by the annual maintenance downtime 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 projection assumes 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 product analysts in Canada. Our mid-case objective indicates that a full-year EBITDA 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 board product analysts presently expect Canfor, Interfor, and LexRaiser to achieve in 2025 from their North American operations. On our recent calls with you, we discussed the May 4th, 2023 release by D.C.' 's Chief Forester of a new harvest level determination for the McKenzie timber supply area. Included in the release was the removal of the previous requirement to secure 55% of our stall-off supply from dead pine salvage stands most of which have already lost their commercial value. The current annual allowable cut for the McKenzie 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 requirements And this confirms our view that we do not face supply constraints in McKenzie, similar to those that are presently challenging many sawmill operations in D.C. and in certain other regions. We are fortunate to operate in a fiber supply region that has a degree of saw log self-sufficiency that is unparalleled in the interior region of D.C., and perhaps in any other major saw loss supply region in Canada. As a company, we've gone through a transition period over the past few years, and our current harvest is now primarily sourced from green, commercially viable saw loss stands. This shift in raw quality is the main reason our E50A 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-digit EBITDA 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 C-SHIFT operations, We are confident that the EBITDA for 1,000 board feet of lumber we produce and sell will be in line with or slightly higher than the EBITDA 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 deposits, 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 of softwood lumber from McKenzie 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 for Tronifex shares. Except for roughly $11 million recorded as recoverable and respective overpayments, Tronifex has recorded 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 plenty of tax shelter that we have, contract shareholders should benefit by more than the shareholders of any other publicly traded lumber company if an eventual trade settlement to increase the provision for partial repayments of duty held 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 14.4% presently And in our case, if the preliminary rate holds, we expect to pay something like 26.81% in September and perhaps 34.45% in November and beyond. Turning to our book value, our book value per share is $2 per share. And as you know, that's... It exceeds our share price 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 McKenzie, as well as the asset values underpinning our fiber procurement, lumber manufacturing, and power production platforms. This employee and lender support is crucially important given the present cost in the British Columbia lumber industry and the broader North American economy. I differentiate it in high-quality fiber supply coupled with the contribution from $100 million we've invested in power generation. provide us the foundation we require to sustain a profitable lumber business at our site in Trinity, D.C. All of us at Conifers thank you for your interest in our company, and Andrew, Trevor, and I look forward to responding to any questions analysts and shareholders may have, and so we'll turn our discussion back to the operators.

Thank you. You may press star 1 if you have a question. First question from Kirk from Imperial Capital. Please go ahead. Hello, Ken. Appreciate the call.