Conifex Timber Inc.

Thank you for signing by. This is the conference operator. Welcome to the Confex Timber Inc. First Quarter 2026 Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, you may reach an operator by pressing star then 0. I would now like to turn the conference over to Ken Shields, CEO. Please go ahead.

Well, thank you, and good morning, everyone, and welcome to this call covering the CONIFEX results for Q1 of 2026. As mentioned, I'm the Chairman and CEO of CONIFEX, and I'm pleased to be joined today by our CFO, Trevor Pruden, and our President, Andrew McClellan. Let's deal quickly 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 the first two pages of the MD&A materials that we've released this morning. On our most recent call with you in late March, we made the point that we viewed 2026 as a transition year for CONIFAC. We expected curtailments and single-shift operations would produce EBITDA losses for us in the first half of 2026. We also disclosed our intention to do everything in our power to achieve steady-state C-shift operations and to generate positive EBITDA prior to the end of 2026. As a result of curtailments in our lumber and power business, we incurred a net loss of $9.4 million or 23 cents per share in Q1, and that compares to a higher net loss of $11.4 million in the preceding quarter. However, it trails the year earlier net income of two cents a share that we managed to report. Our EBITDA loss in Q1 was $7.7 million. an improvement over the Q4 loss of 12.6 million, but nowhere near the positive effect of 4.9 million we reported in Q1 of 2025. Lumber production for the most recent quarter of 21.7 million board feet was equivalent to 36% of capacity. When summer logging resumes, We expect to rebuild log inventories to a level that enables us to achieve a consistent two-shift operation at our McKenzie sawmill complex and power plant, and we expect this to occur during the closing months of 2026. Based on analyst consensus estimates for S3F prices in 2026, We do not expect to be positive while we're operating on a single shift. However, with the lower unit cost associated with spreading our fixed harvesting and manufacturing costs over a larger production base, coupled with the expectation that duty deposit rates will be more modest later this year, we expect our two shift operations will be EBITDA positive in the closing months of the year. I want to talk about a one-time earning charge that will be showing up later this year, and it relates to the fact that on April 9th, the U.S. Department of Commerce released its preliminary determination under its seventh annual review, which covers 2024 lumber exports to the U.S. from Canada. Our preliminary rates are set at 10.66% for anti-dumping and 14.17% for countervailing duty versus the prevailing rates that are higher than that today. During 2024, our export shipments were assessed at a much lower rate of 50%. slightly more than 10% on a combined basis. So because of the earlier underpayment, if the interim rates remain in effect towards the end of this year, we will record a likely non-cash export expense of around US $5.7 million or Canadian $7.8 million. together with accrued interest of approximately US $0.8 million or just over $1 million Canadian. So expect that to show up at the time the final duty deposit rates are set. All of us at Conifers greatly appreciate the support our two lumber business lenders, Pender Fund and the Business Development Bank of Canada, as well as the support our power plant lender, Sierra, have provided us. Their combined support has enabled us to overcome liquidity challenges flowing from the punishing duty and tariff and position number export to the U.S. Over the past several months, we've learned more about the details on eligibility and funding timelines for other government programs, some of which appear to have been specifically designed to help tariff-impacted export-dependent companies like Conifex. The intention of these programs is to fund operational cash flow deficits as well as facility upgrades to reduce costs and support the production of value-added lumber products. Part of the study and analysis of financial professionals that the government funding agencies undertake includes an assessment of the competitive position and economic sustainability of various Canadian dominant complexes. It is well known that log costs generally represent two-thirds of the total costs of producing lumber, and therefore log costs are the single most important determinant of mid- and long-term competitiveness. Since we operate in a timber supply area where the annual saw log harvest greatly exceeds local saw log consumption, we have access to plentiful supplies of quality saw logs, and they're available at affordable costs. With respect to our conversion costs, over the next two years, we intend to complete several high-return rapid payback capital projects designed to improve groundwater reliability and boost our lumber finishing capacity. We're satisfied that our cost structure, coupled with the revenue generation enhancements we intend to put in place at our McKenzie site, position our mill to be in the bottom half of the SPF cost curve compared to all other Canadian producers. Our immediate priority is to secure additional capital to ensure we maintain robust, solid inventories sufficient to sustain two-shift operations, as well as the fund payback capital project, both of which move us to a lower and more enviable position on the North American lumber industry cost curve. We continue to believe that the mid- and long-term demand fundamentals for SPF remain strong and will contribute to an improved pricing environment. And our beliefs are reinforced by the contractions and Canadian supply that have occurred over the past three years. So we're presently involved in negotiations determining how the new credit facilities we expect to receive will be integrated with the credit facilities presently in place with our lumber power plant lenders. Summing up, first, A cautionary note, although we are encouraged by the positive discussions and progress we've had to date with the financial specialists representing government funding organizations, there's no guarantee that we will be successful obtaining funding. For this reason, we plan to continue working holistically with our existing lenders to obtain additional flexibility under our existing credit facilities, including potentially amending certain repayment terms and amortization . My final point and the more important point is that I sense that some of the options we have to create value are underappreciated by many of you on the line. We believe that we have numerous drivers that will assist us in generating incremental cash flow over the next few years. And for this reason, we believe the economic sustainability of a two-shift operation at our McKenzie site is sufficiently compelling for Conifax to receive favorable consideration from government funding agencies. Thank you for your interest in our company. Andrew, Trevor, and I look forward to responding to any questions analysts and shareholders may have. We'll turn it back to the operator.

Thank you. We will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You'll hear a tone acknowledging your request. If you're using a speakerphone, please pick up a handset before pressing any keys. To withdraw your question, please press star then two. The first question comes from Christian Ritter with Raymond James. Please go ahead.

Hey, Kenneth Christian here. I was just wondering where you see the VC cost curve right now and what sort of relief do you expect when AR7 takes effect in the back half of the year?

Okay. Good question, Christian. I think a little-known fact is that dumpage rates in the interior region of BC have fallen a great deal. And in Q1 of 2026, the interior BC dumpage rate was $2.68 per cubic meter. I believe the Alberta dumpage rate was about twice that. And I believe that stumpage rates in Ontario and Quebec were three to four times the B.C. level in Q1. So what we found in our area is that we are seeing very low stumpage rates. It looks like about 55% of the harvests in B.C. that are 25% stumpage as under present. conditions. And so the other thing that's happened in our operating area is that we believe the sustainable log supply in the northern Prince George, southern McKenzie region is about 10 million cubic meters, and the demand is only 8 million cubic meters. So we think that the supply-demand balance in saw logs has enabled BC companies to migrate to much lower positions on the industry cost curve. Your analysis of Can-4's consolidated North American lumber results, which includes their remaining mills in BC, but some of the mills that have closed by Can-4 and West Fraser lately were clearly high-cost mills that... are no longer upping the average cost incurred by VC mills. So we think that our analysis indicates that we have a competitive advantage over Quebec and Ontario mills. As you're probably aware, an Ontario company recently reported that its E50A loss per 1,000 board seats in Q1 was something like $186 per 1,000 board seats. And I see females that operated on a T-shirt basis in Q1 would not have incurred operating losses at that level. That's probably more information than you wanted, Christian, but that's our view of it.

I appreciate it. That's great, Kelly. Second question I have here is what specific financial and market conditions would you need to see before considering ramping to two shifts and increasing your mill utilization?

Okay. The big variable there, Christian, is the availability of funding to support the log inventory build-up. And so we... But, you know, we've got... For time, people in D.C., I think, will be aware that they have some close-in stands that have a... a low delivered log cost, and then they've got some remote stands and more difficult terrain that would have higher log costs. So we think that lumber production in BC is going to be quite sensitive to price changes because if there is some weakness in prices, some of it The operators that have high-cost stands, those stands will not be economic, and we could see the downtime adjust if there's any material further price weakness in SPF.

Perfect. That's all I have. Thank you so much.

Once again, if you have a question, please press star, then 1. Since there are no further questions, this concludes the question and answer session. I would like to turn the conference back over to Ken Shields for any closing remarks. Please go ahead.

Okay. Well, for those of you on the line, thank you for your interest in ConEffect. All of us are working hard to get rid of the red ink around here and be on a profitable trajectory. Thank you.

This brings to a close today's conference call. You may disconnect your line. Thank you for participating and have a pleasant day.