Wednesday, February 18, 2009

McKinleyville Staring at a 30% increase in their water bill if Pulp Mill stays closed!

Thomas Marking stated that he is preparing his McKinleyville Community Services District board for a potential 30% increase to water customers if the pulp mill does not come to a resolution with the Humboldt Bay Municipal Water District for a long term contract.

Samoa Acquisition Corporation (SAC) head, Robert Simpson, presented a check to the water board and said he had come to a temporary lease agreement with the district that was to be finalized today. SAC is prepared to pay $21,230 per month until April 30. On May 1st, a new long term agreement is supposed to be in place, or another short term agreement might take place. If the water district does not make concessions, SAC is prepared to put a plug at the end of the outfall line until they are prepared to start the mill. Mr. Simpson's feels it is unfair to charge full price before the pulp mill is generating any revenue. He also made it clear that he does not have a definite timeline when the mill could be restarted, because of economic situations beyond his control. One example he gave was the situation with Southcoast Lumber. Their mill relies on the pulp mill buying residual chips to the tune of 4 million dollars a year, and are currently running only 1 week a month, with their chippers completely shut down. (Marking pointed out that each job lost at the pulp mill affects 6 workers down the line in the economy, or 1,200 workers.)

Director Bruce Rupp was adamant that he wants to see the pulp mill be successful, and that was the consensus with the rest of the water board.

Quick notes:

Bob Simpson said that it will take a credit line of 50 million dollars to start the mill.

The U.S. Environmental Protection Agency will have to be dealt with, concerning the limits of Biochemical oxygen demand (BOD's) discharge into the ocean. The first hurdle will be a California Regional Water Quality Control Board North Coast Region Meeting in Santa Rosa on March 12th.

Assuming the facts that water costs run the pulp mill 1% to 2% of the cost to run the mill, and the water bill runs about $150,000 per month, the costs to run the plant is around 180 million to 360 million a year. That means the pulp mill would have to average 600 ton a day and pulp would have to be selling for $825 a ton to make a profit at the low number.

No banks are financing this project. There are 3 main stakeholders. Don Nolan from Fortuna has been identified as one.

17 comments:

Anonymous said...

Surely you realize that revenue of 400 million a year is irrelevant to anything. I don't care if their revenue is 400 billion if it costs more than that to make it. These numbers you guys throw around are deceptive and immaterial to your point of the place being a cash cow.

I thought that you said that the bills were only going up 3 bucks a person? If we could get one line of straight talk and forthrightness we may actually be able to figure out the truth. But, alas, I do not hold my breath.

samoasoftball said...

6:27pm-I was just throwing out how much the the water cost and how much of the operating budget it represented. You are correct that it may not be bringing that in.

Simple math: 80,000 ratepayers. Loss of $240,0000 from mill per month. 80,000 pay $3 more dollars per month= $240,000. I did not say there could be a 30% increase. Marking did. McKinleyville residents should be at the next MCSD meeting.

Anonymous said...

There's something seriously wrong with district management if it has grown dependent upon a sugar daddy to keep water rates reasonable for the general public.

Anonymous said...

The mill has gross revenues of less than $90 million in today's market.

In an extraordinary year, the mill can produce 220,000 tons of pulp (man that would be a good year!).

The mill would be very lucky to get $400/ton in today's market ($350/ton or even less is more likely, if you can even find a buyer).

That is $88 million of gross revenue.

$88 million would be just about break even bottom line for the mill, if the start up costs were minimal.

The Water Quality Board demands will require at least $5 million in start up costs alone.

Bottom line, I don't know what Simpson is playing at, but the mill will not restart in today's pulp market.

Anonymous said...

Looks like the mill is thinking about selling water.

samoasoftball said...

Here is the actual price of pulp

http://www.paperage.com/foex/pulp.html

$742 a ton as of Dec 2008

Not A Native said...

Richard, what are the details of your calculation of gross sales. It seems way too high.

Using your numbers that $2M is 1.5%to 2% of cost, the result is a total cost estimate of $100M to $133M.

It seems unreasonable that the revenues could be $400M. That would mean the gross profit margin is 300-400%.

If the gross profit margin is 10%-15%, total revenues would be $110M to $153M. But if those were the financials today, the plant would still be running.

I've no idea of the financials going forward, but the article below was written by industry insiders.


Seattle, USA--January 22, 2009-- As a result of weakening markets for lumber and pulp, many US forest companies announced temporary, and even some permanent plant closures this past fall. There are no signs that the pulp market will turn around in the first quarter, so with continued slow demand for wood raw-material it is likely that pulpwood and wood chip prices will continue to fall in many markets in 2009.

The biggest price decline for wood fiber in the US in the 4Q/08, occurred in the Northwest, where softwood chips and pulpwood prices fell by over 10%. The price decline has been dramatic the past six months with prices down as much as 30% from the 13-year high in the 2Q 2008.

Demand for wood fiber declined dramatically in 2008, with consumption during the 4Q being the lowest ever recorded in the US Northwest. So, instead of an expected scarcity of wood fiber, there has been a glut, with most pulpmills having inventories they have not had since the record year 1995. Wood fiber inventories were just over 50 days in November, obviously a very costly and undesirable position to be in when financial times are tough. Some wood chips are now being burnt rather than consumed by pulpmills or board plants as a result of the reduced demand for wood fiber. There is now even a concern by lumber producers that they will have to reduce production because of the difficulty in finding users of the by-products from their plants.

Contact Information

Wood Resources International LLC
Seattle, USA

samoasoftball said...

NAN: Thanks for that info. My numbers are not concrete of course. I am not privy of all the nuts and bolts.

The information from Wood Resources International LLC sure is gloomy. That is why I don't think this plant will open until next fall.

Not A Native said...

Richard, if you can't justify your numbers, explain where they come from, and be willing to stand behind them, you shouldn't put them out there. In my eyes, it makes you look untrustworthy, like a bait and switch artist.

As to water rates increasing if the mill stays closed, there's more analysis that needs to be done. I do believe the mill has been subsidizing water for everyone else. Now, they're talking about needing to replace the Mad river wells soon. Thats a big expense. If there's no large industrial water user the wells might last a lot longer.

Theres also a concern about retaining legal rights to the water that the mill uses. That doens't cut much weight to me. If LA could buy the Owens Valley to get water, they could easily buy the mill and just take the water. In that scenario, the mill owners make out like bandits but the community loses water AND jobs.

If Bob Simpson is crying poor, essentially asking the public to subsidize mill water, I think there needs to be a fuller disclosure of the mill's finances before it support it.

samoasoftball said...

Untrustworthy? Bait and switch artist? I am transparent. My blog has my name. You are blogging anonymously! Give me a break! Who are you to post so high and mighty?

I posted my source for the price of pulp.

Past money controllers for the Pulp Mill have went Public that the water costs represent 1.5 to 2%of the total costs of running the mill. I have heard that at more than one water board meeting. If that is true, and the mill pays upward of 2 million a year, that would be at least $200,000,000. Right? I don't know the variables.

Some of your other analysis or thoughts just scare me.

Anonymous said...

The pulp mill revenues are $100-$120 million per year. The 2008 water cost was approximately $2 million dollars. Therefore, the cost of water was approx. 2% of annual sales. The question is, why should the pulp mill and the municipalities have a "cost share allocation" when the pumps, electricity and maintenance are completely separate?

Not A Native said...

Richard, no your calculation is incorrect. Putting your name on it doesn't compensate for being wrong. And wrong numbers can mislead people about the mill's financial status.

Three times here you've demonstrated that 8th grade algebra is outside your grasp. Apparently, up to now, you've gotten by using just arithmetic.

Maybe you should acknowledge your limitations and leave analysis of business financials to others.

samoasoftball said...

NAN-Uh, whatever. Didn't say I was the sharpest tool in the shed. I know little of the mill's financial status. I wish I knew more and have posted my claim to generate comments. But now you are attacking me anonymously. Pretty tacky. You are now on my wiener list.

samoasoftball said...

Nan, I sure hope Carl Del Grande, my Algebra teacher at St. Bernards doesn't read this. He taught and coached while I attended St Bernards in the early 70's.

Anonymous said...

Richard,

If your seek the truth the answers will be provided. Please note the 11th response.

Anonymous said...

OK, so Richard's math is off and he admits to being a little slow on the uptake sometimes. I don't think that he means harm or doesn't have the best intentions for the people he's worked with for many years. Some of you obviously have more math aptitude and business sense, so help him out or watch these local jobs disappear. I see a list of questions for him or the new union leadership to ask.
1)Why does restarting a pulp mill in the current market make sense?
2)What wage or other concessions are going to be required of the union?
3) If pulp doesn't make sense, what are the fall back options?
4) How is the new ownership going to deal with the regulatory and rabid environmental groups that have driven out many of the traditional industries in our state and county?

samoasoftball said...

7:33pm-Thanks. What they said.