The man who bet on Quebec forests

Philippe Mercure
La Presse

"We see a very bright future in the timber industry in Ontario and, in particular, in Quebec."

You have to admit it’s been a long since we’ve heard this kind of talk. But that’s what we’re hearing from Eacom Timber Corporation president and CEO Rick Doman.

And it’s not just talk.

Until just recently, Eacom was a small B.C. business listed on the TSX Venture Exchange that owned only one sawmill and what’s more, had stopped production.

But on July 1, Mr. Doman and his team officially acquired Domtar’s Forest Products division.

Seven Domtar sawmills, including those in Matagami, Val-d'Or, and Sainte-Marie, Quebec, passed into the hands of Eacom. The company also acquired the wood processing plant in Sullivan, Quebec, and Domtar’s shares in a sawmill and plant in Ontario.

Are more assets going to owners outside Quebec? No. Because this time it’s the buyer that’s pulling up stakes. Eacom is in the process of relocating its head office to Montreal. And British Columbia native Rick Doman is currently shopping around for a house in the city.

But what the devil would possess a man to invest in wood when the industry’s setbacks are front page news?

Rick Doman has a whole slew of responses to this question, each one backed up by an arsenal of figures and statistics.
And they’re supported by Jean-François Mérette—former manager of Domtar’s Forest Products division, now vice president of operations at Eacom—who agreed to share his vision with La Presse Affaires.

With a little help from insects

Ironically, one of the main reasons Mr. Doman is investing in eastern Canada comes from his home province—and is no bigger than the head of a pin. It’s known as the mountain pine beetle, an insect that is in the process of ravaging the forests of interior British Columbia.

―A number of sawmills have experienced a drop in production in recent years, as Mr. Doman and everyone else have observed. Why? To start with, because of the collapse of the American housing market. But we often forget the fact that B.C. sawmills were also in overproduction.‖

His observations can be summed up quite simply: Seeing their trees being infested by insects, B.C. loggers hurried to harvest as much wood as possible, dumping a surplus onto a shrinking market.

But Mr. Doman sees the day when the situation will turn around. According to his predictions, British Colombia will reduce its annual production by 20 million cubic meters in three to five years. This is equivalent to all the wood harvested in Quebec in one year.

What’s worse, according to Rick Doman, is that a large portion of the wood harvested in B.C. will be of inferior quality because of the mountain pine beetle, and will be shipped to Asia rather than the United States.

―According to our vision, sometime between now and 2015, there could be up to 8 billion fewer board feet shipped here across the country and to markets that we supply. We think this decline will be compensated by sawmills such as those in Val d’Or, Matagami, and Sainte-Marie.‖

Then there’s the situation in the U.S. The subprime mortgage crisis has inundated the market with vacant housing, halting new home construction and therefore demand for wood. But Mr. Doman believes this won’t last forever.

―We think the residential market in the United States will bounce back. It may not happen before 2011–2012, but demographics show that 1.3 to 1.6 million American households are formed every year. There’s a future potential homebuyer in every household.‖

In short, Eacom believes the market will recover and wants to position itself to take advantage of it. But to do so, it admits it will have to lower sawmill production costs. Are there more salary cuts in store for workers?

―No. That’s already been done,‖ says Mr. Doman, pointing out that Domtar recently reached an agreement with its workers. He is talking instead about investing in equipment—and maintains he has the means to do it.

It should be mentioned that Eacom got a good deal on Domtar’s assets—$126.5 million in all, which is much less than the $285 million Conifex would have paid in 2007 if its transaction had not been aborted due to the issue of transferring cutting rights by the government.

And because Eacom raised $145 million among private investors prior to the transaction, it now has some flexibility.

―We are a debt-free company with surplus cash. I don’t think there are many of us in the forest industry. We did this deliberately so that we could invest in sawmills at the right time,‖ says Mr. Doman.

Eacom asserts that it will invest ―a few million dollars‖ in its sawmills starting this year. Mr. Doman is talking about spending a total of about $20 million between now and 2011–2012, perhaps more if recovery steps up. But the pace of investment will depend a lot on market development.

―We have to be careful. We don’t know exactly where we are in this wood crisis. If we invest too much and prices remain low for a long time, we could run out of money. We don’t want that,‖ explains Jean-François Mérette.

Similarly Mr. Doman, who is quite familiar with foreign markets through his family business experience (see sidebar), wants to export Eacom products abroad, notably to northern Europe, the United Kingdom, and the Middle East.

―We’re going to take the time to analyze the European market over the next two to three months, then we’ll start shipping a little wood over there to test the market,‖ says Mr. Doman.

If things go well, Mr. Doman is even talking about making new acquisitions in Quebec ―within a year or two.‖ He also wants to have Eacom go from the TSX Venture Exchange to the ―real‖ TSX within six months.

―In our opinion, Quebec is currently a good place to be,‖ sums up the president and CEO. ―The wood is good and the Quebec government provides tremendous support. We were welcomed with open arms. The road will be bumpy and we’ll have to expect challenges. But we think recovery is on the horizon, and we have to be ready for it.‖