VANCOUVER, B.C.  - Conifex Timber Inc. reported record results second quarter, with sales $116.4 million, and income of $14.8 million - 39 percent ahead of of the 2016 period. But the results exclude $4.6 million the firm set aside for countervailing duties imposed by the U.S. on softwood lumber imports.
 
Net income for the second quarter of 2017 was $4.2 million, compared to a net loss of $1.4 million in the previous quarter. 
 
Lumber production totaled approximately 132 million board feet during the second quarter of 2017 and represented an annualized operating rate of 100 percent compared to 94 percent in the previous quarter and 103 percent in the same quarter last year. Unit log costs increased by 2 percent over the previous quarter and 18 percent over the same quarter last year.
 
The higher log costs were mainly attributable to higher market based stumpage and purchased log costs. British Columbia fires to date have had no material financial impact on its operations, though "a continuation of the current hot and dry weather in the B.C. Interior could increase the risks of disruption to our fibre procurement efforts, operations and transportation."
 
"We expect continued uncertainty around the softwood lumber dispute, including the suspension of preliminary CVD in September 2017, and timing related to the final determination of CVD and antidumping duty rates and the potential resolution of the dispute, will contribute to further volatility in U.S. market conditions and pricing," Conifex said in its earnings release.  While sales to China and Japan will be stable, "We expect our mill net price realizations from the sale of construction grade lumber to the Canadian market will be somewhat discounted as a result of the duty impositions on U.S. exports."
 
Conifex is buying capacity in the U.S. in part as a hedge against the trade dispute. The El Dorado Mill Capital Project, an $80 million restart of a former Georgia-Pacific mill in Arkansas that commenced in January, will incorporate significant capital upgrades to the log processing yard and sawmill and planer and add two continuous dry kilns. Upon completion later this year, El Dorado is expected to have approximately 180 million board feet of annual lumber capacity on a two-shift basis, Conifex says. It is expected to hire 120. 
 
"We believe our planned expansion into the U.S. South will provide an important source of revenue diversification and reduce cash flow volatility in our lumber segment, particularly in light of punitive trade actions on Canadian softwood lumber recently initiated by the U.S.," the company said, offering a summary of the status of the dispute:
 
On April 24, 2017, the U.S. Department of Commerce announced its preliminary determination on Countervailing Duties (CVD) and imposed a preliminary duty rate of 19.88 percent on a majority of Canadian lumber producers' lumber shipments into the U.S., including Conifex. During the second quarter of 2017, we recorded an operating expense of $4.6 million related to the CVD deposits. On June 26, 2017, the USDOC announced its preliminary imposed a preliminary duty rate of 6.87 percent on our lumber shipments into the U.S. We did not incur any expense related to the deposits in the second quarter of 2017.
The USDOC also made a preliminary determination that "critical circumstances" existed, which resulted in CVD and ADD deposits applying retroactively for the 90 days prior to April 28, 2017 and June 30, 2017, respectively. We have not paid or accrued any retroactive CVD or ADD deposits, which could total US$5.6 million and US$1.6 million, respectively. Management believes, similar to management of other lumber producers, that the critical circumstances finding by the USDOC will not be upheld by either the USDOC or the U.S. International Trade Commission ("USITC") in their final determinations.
Like other Canadian forest product companies, the Federal Government and Canadian provincial governments, we deny the U.S. allegations and disagree with the preliminary determinations made by the USDOC and USITC, and, collectively continue to aggressively defend the Canadian industry in this trade dispute.