Ketchikan veneer plant to make another AIDEA pitch in August
At its June meeting AIDEA’s board declined to act on an application from Gateway and Wells Fargo Bank for the authority’s participation in a $14 million operating loan to the Ketchikan company, which experienced financial problems at the start-up of its veneer plant in January and filed for bankruptcy protection.
"They didn’t turn us down," Erickson said of the AIDEA board meeting in June. "They told us they needed more information."
Bob Poe, the authority’s executive director, agreed.
"We’re interested in working with Gateway. The company does represent a viable business," he said.
"Its plant is in operation, employing two shifts, making a high-value manufactured wood product from low-value trees. It’s a major employer in Ketchikan. Still, it must make financial sense to our board," Poe said.
Poe said the board was uncomfortable acting on the loan participation request before Gateway had finalized its bankruptcy reorganization plan.
"There are several options being discussed. It’ll be up before our board again at its Aug. 9 meeting," he said.
An independent consultant’s report indicates that Gateway is well positioned to take advantage of increasing demand for wood veneer. Despite Gateway’s location in Ketchikan and added transportation costs, the Beck Co., a Portland-based consulting firm specializing in the forest products industry, said the Ketchikan company has a cost advantage over competitors in the Pacific Northwest because of rising costs for logs in Washington and Oregon.
In a related development, the Ketchikan Gateway Borough Assembly agreed to extend repayment of a $2.5 million loan to Gateway from June 30 to Sept. 15 based on progress the company is making in its reorganization and financing plans.
Gateway was formed by former managers of Ketchikan Pulp Co. and Sealaska Timber Corp. after Ketchikan Pulp Co. closed its pulp mill in the Southeast city.
The start-up company, aided by some $15 million in loans from the borough, purchased an operating sawmill from Ketchikan Pulp and built the veneer plant at the site of the former pulp mill.
Problems developed when there were construction cost overruns on the veneer plant and its start-up was delayed from September of last year until January, according to a report put together by AIDEA’s staff.
The company was also hit by declining prices in lumber markets, affecting revenues from the sawmill, while it was also stuck with fixed-price contracts to purchase logs from the U.S. Forest Service.
The combination of these factors had a $6 million negative effect on the company just as it was starting operations of the plant in January, the AIDEA staff analysis indicated.
"This year we’re in a lot more flexible position," Erickson said. "Veneer markets have improved in the last month and a half and our plant is now operating."
Erickson said the company is now buying logs from a variety of sources, including from the Tongass National Forest, from loggers on state and state Mental Health Trust lands, and from private landowners.
There are always concerns about timber supply from the Tongass National Forest, "but we can support the plant at current harvest levels in the Tongass," Erickson said. Gateway is also discussing purchases from British Columbia, Canada, and from other areas of southern Alaska, such as Yakutat and Afognak if transportation problems can be worked out.
Erickson said the company will have its reorganization plan completed by mid-July and that a variety of longer-term financing options are being discussed, including a plan that could include AIDEA and U.S. Department of Agriculture loans. A plan with KeyBank is also being examined, he said.
The plan presented to AIDEA’s board in June by Wells Fargo would have AIDEA lending $10 million over 10 years and Wells Fargo lending $4 million over four years. The money would be used for operations, but would also retire an equipment loan from Foothills Capital, a Wells Fargo subsidiary.
Gateway began commercial production at the veneer plant Jan. 19 with one shift and began a second shift in April, according to Cliff Skillings, Gateway’s director of corporate relations. The business plan is to have a third shift operating in the spring of 2002, he said.
Strips from logs as small as 6 inches in diameter are used to make veneer in sheets 8 feet by 4 feet or 2 feet, Skillings said. Sheets of veneer are bundled and shipped to the Port of Tacoma every two to three weeks and then trucked or shipped by rail to customers in Oregon, he said.