BC sawmill curtailments affecting Pinnacle’s 2019 margins

Pinnacle Renewable Energy announced Sept. 30 that it expects a shortfall in its guidance for adjusted earnings before interest, tax, depreciation, and amortization for Fiscal 2019. The expected guidance shortfall is driven by the ongoing sawmill curtailments in B.C., which has caused higher fibre and cash conversion costs, including maintenance and repair costs, at Pinnacle’s B.C. facilities due to a decreased and intermittent supply of sawmill residuals and a higher supply of more expensive harvest residuals being processed at the facilities.

While the company has made progress in actively managing the availability and impact of replacement fibre for sawmill residuals in response to sawmill curtailments and expects to make further progress in the fourth quarter of 2019, the higher cost of harvest residuals and related operating costs have continued to impact operating results into the third quarter of 2019. Despite positive production gains at the Smithers and Aliceville facilities, the company’s same facility production in the third quarter of 2019 was down over 14 per cent compared to the third quarter of 2018, primarily as a result of the sawmill curtailments.

Pinnacle continues to make operational changes to mitigate the current impacts of the sawmill curtailments and position the company to drive adjusted gross margin and production volume improvements in B.C. in the future under this more challenging fibre environment as follows:

• Commenced upgrades at the Williams Lake and Meadowbank facilities to increase dryer capacity to enable processing of a broader array of available fibre sources in the Cariboo region of B.C.;
• Increased harvest residuals processing capabilities by increasing chipping and grinding units from two in 2018 to eight in 2019;
• Increasing fibre deliveries to the Company’s B.C. mills by a forecasted 20% in Q4 2019 compared to the same period in 2018 to build strategic inventory to mitigate the potential impact of temporary seasonal or maintenance related sawmill shut-downs going forward; and
• Increasing fibre suppliers in Q4 2019 by over 25% compared to the same period a year ago, significantly improving supplier diversification.

“While the sawmill curtailments have been impactful to the business, we have fibre for continuous operation of our facilities to meet our contracted customer commitments. Our long-term fibre procurement process has developed and strengthened to improve the flow and consistency of fibre to facilities,” said Rob McCurdy, CEO of Pinnacle. “Through the remainder of the year we are actively focused on reducing costs related to processing harvest residuals and improving the operating efficiencies of our B.C. facilities. As we continue to execute on operational improvements, optimize our fibre inventories, and benefit from the growing diversification of the company, we expect margins to improve.”