Harmac Avoided Scrap Heap
Despite dire predictions, the mill is still operating six months later

By GORDON HAMILTON, Canwest News Service
February 27, 2009

Harmac pulp mill president Levi Sampson (right) and worker-owner Bob Smiley.
Photograph by: Bill Keay, Canwest News Service

Last July, as he sat in a Vancouver hotel coffee shop, Harmac pulp mill worker Bob Smiley saw with shocking clarity what lay ahead for him if a plan failed to restart the mill where he had worked for 30 years.

Smiley was part of a coalition of workers, managers and B.C. investors who had come up with a shoestring bid to buy the mill out of receivership.

They were in Vancouver that morning to put their plan before B.C. Supreme Court Justice Donald Brenner.

Sitting at the next table were two men with a blueprint of the mill spread out between them.

They were discussing how much per pound they could get for the mill's stainless steel parts.

"Our table got real quiet. They were talking about the best way to cut Harmac up. Basically, they were looking at scrap metal. I had seen them before in court. I had no idea who they were but I could tell the blueprint on the table was the Harmac site," Smiley said. "It was a real eye-opener. Either we are successful here, or this is what the future holds for our mill."

The plan was successful.

In a ruling that was not supported by receiver PricewaterhouseCoopers, Justice Brenner approved the sale of the pulp mill to the coalition for $13.2 million.

In making his precedent-setting ruling, Brenner said he was taking into account benefits to the community in keeping the mill alive.

Brenner was one of very few people at that time who had any confidence in the plan succeeding.

It was widely believed that the employee-management-investor coalition would fail, saddling the province with a $50-million environmental liability to clean up the site.

The mill, located on tidewater south of Nanaimo, was considered the weakest asset owned by failed forest giant Pope & Talbot. It was almost 60 years old.

Analysts had dismissed it, saying it needed upgrades that could cost $100 million.

Today, six months later and in the midst of the worst economic downturn since the 1930s, Harmac is still operating, selling its pulp to markets in Asia, Europe and the United States.

And Smiley, a pulp worker and treasurer of Local 8 of the Pulp, Paper and Woodworkers of Canada, now sits on the same side of the table with company president Levi Sampson as they explain to the Vancouver Sun how their company, Nanaimo Forest Products, has put together a new business model that appears to be working.

They have resurrected the mill's old name: Harmac Pacific.

"Despite what was said in the markets, that we would only be running a couple of months, we have surpassed that," Sampson said. "Then it was, 'Harmac is going to be shut down over Christmas,' and we have surpassed that."

Under its new ownership model, Harmac has shaved more than $100 a tonne off production costs, Sampson said.

The list price for pulp slipped this month to $675 U.S. a metric tonne, low enough to trigger closures at North American mills.

Catalyst Paper announced Wednesday it is shutting its Crofton mill down indefinitely.

"Other operators are going to be pretty envious if Harmac has trimmed $100 a tonne off their costs. That's substantial," investment analyst Kevin Mason, of Equity Research Associates, said in an interview.

However, long-term financing remains unresolved.

Workers increased their stake in the venture earlier this month when the company tapped into PPWC Local 8's strike fund for an additional $1.2 million in bridge financing while Sampson seeks long-term financing.

Local 8 president Arnold Bercov said the loan is fully secured.

Further, the drop in pulp prices still raises questions about how long Harmac can remain operating when other Vancouver Island pulp and paper mills are closing.

Sampson said there are no plans to shut down despite the blood-letting in pulp markets.

The mill is cost-competitive, he said.

Sampson and Smiley are proud of the changes that have taken place in the work culture at the mill by bringing workers on board as owners.

It's a new business model that could be a template for the rest of the pulp industry, Sampson said.

The ownership is diverse and 100-per-cent local.

Harmac Pacific's parent company, Nanaimo Forest Products, is owned by its 230 employees, who have a 25-per-cent interest, and three other groups that hold 25 per cent each.

They are:

• Pioneer Log Homes, of Williams Lake.
• Totzauer Holdings, a Fraser Valley construction company that used to provide services to the mill when it was owned by Pope & Talbot.
• Vancouver's Sampson family, which has private holdings in the Canadian oil and gas business.

Levi Sampson is the son of business founder Ed Sampson.

All four groups had initially been following the summer-long bankruptcy proceedings separately.

To finance their share, each staff member and worker at the mill paid $10,000 and is committed to another $5,000 over each of the next three years for a total cost of $25,000.

"Now that employees have skin in the game, we have an extremely motivated workforce," Sampson said. "We at the Sampson Group got involved because we saw what the employees were trying to do.

"The company that they have come up with there is stronger now than it ever was under Pope & Talbot."

Smiley said the difference is that the employees all chose to come back to work at Harmac.

The owner-workers are motivated to see their jobs survive as well as their investment.

An unheard-of 11-year labour contract along with flexibility -- workers now perform any job they are qualified to do -- were two of the major changes they agreed to.

Worker-owners also contribute cost-saving ideas and costly, time-consuming grievances have become a thing of the past.

"It really makes a difference to the guys on the shop floor," said Smiley. "They feel their contributions make a difference. And they do."

Harmac has several other advantages: It has no outside debt at a time when credit is extremely tight, and it has a guaranteed fibre supply with logging and sawmilling giant Western Forest Products. Further, it produces a specialty pulp made of cedar chips, which commands a higher price.

Cedar pulp is ideal for making breathable surgeons' gowns.

Harmac Pacific also has other less apparent but equally valuable assets: a water licence that far exceeds the pulp mill's needs; 500 hectares of land, not all of which is taken up by the millsite; and a modern effluent-treatment plant that could be used to treat sewage from nearby Nanaimo.

Sampson believes that once the current downturn is behind them, the company can develop those assets as additional revenue streams. "We are going to be around well into the future."

© Copyright (c) The Victoria Times Colonist