Conifex Timber is reporting a net loss of $6.5 million in its first quarter of 2012. In comparison, the company posted a net loss of $7.5 million for the fourth quarter of 2011, and a net loss of $3.6 million in the first quarter of 2011.
Lumber segment EBITDA was negative $2.7 million for the first quarter of 2012 compared to negative $4.1 million for the previous quarter and negative $0.3 million for the first quarter of 2011. Current quarter lumber segment results include those of our newly acquired marketing and transportation and logistics subsidiaries. These businesses made a modest positive contribution to lumber segment EBITDA during the quarter that was in line with management expectations. The improvement of $1.4 million lumber segment EBITDA over the previous quarter was generally attributable to an increase in unit mill net realization, increased profit from lumber derivatives and lower unit cash conversion and marketing and administrative costs due partly to a higher operating rate. Compared to the first quarter of 2011, current quarter improvements in unit cash conversion and SG&A expenses were partially offset by increased log costs, change in inventory valuation adjustment, and a decline in mill net realizations.
The 12% improvement in average benchmark lumber prices during the current quarter over the fourth quarter of 2011 was partially offset by a 2% strengthening of the Canadian dollar over the U.S. dollar. Low grade prices remained at unusually wide discounts to the #2 and Better prices during most of the quarter before showing a marked improvement over the closing weeks. Unit mill net realizations were hampered during the first quarter of 2012 as the Company worked off an abnormally high proportion of low grade inventory and lower priced export order files and built up inventory of premium grade products ahead of strong second quarter order files.
Lumber segment revenue totalled $47.4 million during the first quarter of 2012, an increase of 22% over the previous quarter and 124% over the first quarter of 2011. Shipment of Conifex produced lumber totalled 115 million board feet, a 7% decline from the previous quarter. The company continued to ship heavily to export markets, particularly China, during the first quarter of 2012 with approximately 62% of total shipment volumes going to these markets compared to 53% in the previous quarter and 44% in the first quarter of 2011.
Operating rates were 60% for the first quarter of 2012, during which the company produced 111 million board feet of lumber, compared to 51% for the previous quarter and 34% for the first quarter of 2011. Production efficiencies during the current quarter were challenged by the recent conversion of the Fort St. James mill from a three-line to two-line configuration and weather related disruptions in January.
The completion of the installation of an automated grading system at the Mackenzie Site II planer mill in April 2012 is expected to result in improved grade outturns, productivity gains from increased throughput and lower labour costs. The Company also expects an increase in production and shipments of premium grade products to Japan during subsequent quarters.
Mackenzie, B.C. bioenergy cogeneration budget
Conifex also announced that it has approved a capital expenditures budget estimated to be $79 million, including a $7 million general contingency, to develop its bioenergy cogeneration project at Mackenzie, B.C.
The $72 million amount, net of the contingency, represents an increase over previously estimated amounts with the increase largely due to the acceleration of certain project enhancements originally contemplated to be undertaken during the first three years of commercial operations and funded out of segment cash flows. The company has decided to include these additional components within the initial construction phase in order to avoid further construction related disruptions to ensuing future bioenergy activities at the site. The expanded scope is expected to increase EBITDA as a result of improved uptime and fuel efficiency and reduced operating and maintenance costs.
The existing project site and infrastructure carries a book value of approximately $10 million and as at March 31, 2012, the company has invested an additional $9.1 million in project development and equipment costs. The company expects to invest an additional $7 million in the project and expects to secure debt facilities to finance the balance of the expenditures. Proceeds of incentive funds from a Load Displacement Agreement with BC Hydro should also be available to the company. The company expects project financing to be in place and construction to commence in or about the third quarter of 2012.