Good morning, ladies and gentlemen. Welcome to the West Fraser Timber Co. Ltd. Second Quarter 2011 Results Conference Call. During this conference call, West Fraser's representatives will be making certain statements about potential future developments. These forward-looking statements are intended to provide reasonable guidance to investors, but the accuracy of these statements depend on a number of assumptions and are subject to various risks and uncertainties. Actual outcomes will depend on a number of factors that could affect the ability of the company to execute its business plans, including those matters described under Risks and Uncertainties in the company's annual MD&A, which can be accessed on West Fraser's website or through SEDAR and as supplemented by the company's quarterly MD&As. Accordingly, listeners should exercise caution in relying upon forward-looking statements. I would now like to turn the meeting over to Mr. Hank Ketcham, Chairman, President and Chief Executive Officer. Please go ahead.

Thank you, operator, and good morning, and welcome to West Fraser's second quarter conference call. Today, I'm joined by all our vice presidents, including Gerry Miller, our Executive Vice President, Finance and CFO, who'll be retiring at the end of this month after 25 years with the company. Yesterday, we reported net earnings for the quarter of $10 million and EBITDA of $62 million. Gerry will discuss our financial performance more fully in a few minutes. Our major operating divisions performed well during the quarter with the exception of our U.S. sawmill division, which continues to be hampered in many instances by a lack of investments in efficiency enhancing technology over the years. We've embarked on a capital program to modernize many of these mills to substantially improve their relative cost positions. Our Canadian sawmill division continued to run at full capacity and performed well during the quarter. The benchmark lumber price expressed in Canadian dollars declined by 20% during the quarter, primarily as a result of increased North American production and the strengthening Canadian dollar. Log cost increased by 17% during the quarter due to spring breakup when our overhead costs are not offset by log deliveries. Manufacturing cost in our Canadian sawmill division were flat quarter-over-quarter, while lumber recoveries improved somewhat. Lumber shipments were slightly above production for the quarter. Direct and indirect shipments to Japan and China accounted for over 30% of our overall shipments, representing our strongest period of lumber exports ever. While Japanese shipments remained stable quarter-over-quarter, our shipments to China increased substantially. Unseasonably wet weather in many of our Canadian operating areas is significantly impacting log supply at several of our sawmills. While we don't anticipate any unscheduled downtime due to lack of logs, our inventories are quite low at certain mills. While the…

Thank you, Hank, and good morning, everyone. For the second quarter, we reported earnings after discontinued operations of $10 million and basic earnings per share of $0.24. The diluted earnings per share calculation has changed significantly under IFRS from previous Canadian generally accepted accounting and for this quarter results in a dilutive loss of $0.09 per share. IFRS requires that the recovery on the revaluation of our cash-settled share option plan be deducted from earnings and calculating the numerator in the calculation. I refer you to Note 14 of our interim financial statements for details related to the earnings per share calculation. Note that in periods where there is an expense on the revaluation of outstanding share options, diluted earnings per share are not increased as diluted earnings per share cannot be in excess of basic earnings per share. Earnings per share adjustments renewed long-term equity based compensation, the foreign exchange gain on long-term debt and the Eurocan discontinued operation was a loss of $0.09 per share in the quarter. EBITDA for the quarter was $62 million compared to $80 million in the first quarter. Adjusting EBITDA to remove the long-term equity based compensation announcement results in an adjusted EBITDA of $48 million in the second quarter compared to adjusted EBITDA of $106 million in the first quarter. The majority of the EBITDA difference was due to sharp lumber price declines in the quarter and higher Canadian log costs. Log costs are normally higher in the second quarter than in the first quarter as the company expenses its fixed forestry cost in the second quarter as log deliveries in Canada in the second quarter are reduced significantly due to spring breakup conditions. The company's effective tax rate for the quarter was 35.6% compared to a statutory rate of 26.5%. The…

Okay, thank you, Gerry. And we'll open it up for questions. Operator?

[Operator Instructions] We do have a question from Daryl Swetlishoff with Raymond James.

First question is just related to -- if you could give some more color on log costs, the delta, how much of that would be due to diesel and other things with what we could expect to be ongoing? And how much would be variable with respect to, say, lumber pricing and stumpage?

Daryl, it's Gerry. I think the largest part is related to the kind of our period cost from the second quarter where we don't have an inventory to roll that through, so it gets charged directly in earnings. And, of course, we're also cutting logs that are in inventory, and those have -- those kind of cost -- in their cost from previous quarter. So the second quarter, there's always an increase in our log costs as a result of that.

Okay. Maybe asking just slightly different. Can we get some guidance on what you expect the delta might be in subsequent quarters, third quarter, fourth quarter?

We think log prices in Canada are going to go up relating to fuel costs, haul distance and general pressure on the contractor community. So we do expect to see log costs rising throughout the rest of the year.

Okay. Switching gears just a little bit. Hank, could you comment on just logistics with respect to getting your part to market? I know you mentioned some of the issues with respect to shipments in the quarter, but I'd also be interested in some of the measures you've taken to try to improve the flow of lumber to offshore markets like Asia, China for instance.

Well, there's a ton of product going over there from a lot of producers. So there's some pressure, but we're doing some great bulk shipments to China to take the pressure off the container business. But currently, we're able to ship what we need to ship over there.

Given the growth rates that we've seen and just based on your comments where you think that markets could keep growing, any concerns down the road in terms of the ability to service that market, just again, from not a production point of view, but logistical or you think you'll be in good shape?

Well, no, I think there's always going to be -- there's going to be pressure, so we're just going to have to continue to look for alternatives and make sure that ports in Prince Rupert and in Vancouver are doing the stuff that they need to do to give us the capacity, work with the railroads, work with the trucking companies. So obviously as shipments grow, we're going to have to continue to find ways to make sure that they move smoothly. But as I said, at the current time, shipments are moving the way they need to.

Last question. Given the weakness in the U.S. market, obviously, China is a bigger factor now. If you have to guess, what do you think the impact of China is on the Western SPF posted price today? Is it $30, $50, $60, $1000? What's your guess?

I don't think we'd want to guess at that. Certainly taking the pressure off the North American market, but I would not hazard a guess on that.

The next question is from Paul Quinn with RBC Capital Markets.

Just a couple of questions and maybe a clarification, just to start. I understand, Gerry, that log costs were up for Q2, and I understand the reason behind that. But it sounded like Hank was saying that he expects rising log costs for the balance of the year. How do you reconcile those 2?

Sorry, Paul, just ask that again.

So we had a higher log cost, and it looks like we're up 12% primarily on fuel in Q2 in these forestry expenses. Are we seeing a delta between our log cost between Q2 and Q3? And then what's the expectation that log costs move up from Q3 to Q4? Is that the way I should read that?

Well, I think it's 2 pieces. The period costs when we're really not bringing in any logs, there's no fuel in there. I mean, those are kind of variable costs with bringing logs in. So it's kind of a fixed cost thing that we allocate or we're taking to the P&L. As we get into Q3 and Q4, we start logging again, then we're going to see the pressures of higher fuel costs and all those things. So it's kind of 2 different cost items, and I don't know in Q3 whether we're going to see higher log costs necessarily than Q2, but certainly there's going to be pressure from rising fuel and other costs as we get into a new logging season.

Okay. Then a question on the BCTMP. In the MD&A, you mentioned impending new supply in China. I was just wondering what that was. And then, could you get a read on your long-term or actually even your medium-term outlook for BCTMP on both supply and demand?

Let Ted Seraphim.

Paul, in terms of new supply, the new supply has been coming on in China. BCTMP, I think it's ramping up. The BCTMP has brought on a fair amount of capacity and that's ramping up and a few others are bringing the capacity on. And in terms of your second question, in terms of -- what's your second question again with pricing?

Just if you could give me a feel for your medium long-term supply-demand outlook for BCTMP? Is that going to be balanced? Is it going to be short? Is it going to be long?

Well, I think that's a difficult one to answer. I think at the end of the day, it's not a large market, about 4-million-ton market. So if demand does not meet capacity, we will see capacity come out. It doesn't take a lot of capacity to come out. I mean, our whole view is being focused on being a low-cost producer and with that expectation, we believe that it will be a good business for us to be in. If demand is not there, high-cost folks demonstrated that they will go away.

Okay, I get your point. Okay. And just switching back to lumber finally here. Hank, you mentioned this lawsuit [ph] lumber dispute. I understand early August, it looks like the U.S. will file their petition. What are we expecting in terms of the dollar figure?

We don't have the faintest idea, but really can't predict that at this point in time. But you're right, it'll be a lot clearer mid-August and we got -- we're really -- we got all of the forces we have here in Canada working on this, and we think we have a strong, strong defense, and we're going to defend it right to the end.

The next question is from Sean Steuart with TD Securities.

A couple of clarification questions, I guess, for Ted. Just revisiting BCTMP, I appreciate your color on the market there. Just wondering if you can reconcile Hank's comments in the early part of the call, saying he expects prices to sort of settle out where they are now and versus what we're seeing in softwood, which I would argue is seasonal correction and inventory destocking. Maybe just talk a little bit about what you're seeing in your order books for BCTMP that differentiate the expectations in price momentum for that grade versus softwood.

Well, I think first of all, as Hank noted, I think that BCTMP prices fell quite dramatically actually, second half of 2010. And I think we're at the point now where the price differential is quite large, even though NBSK prices are falling. And because of that, we've seen frankly, -- because of the large grade differential, we've seen very strong order books in our BCTMP business throughout this year, and we see that at least through the third quarter.

Got it. And then just a point of clarification. I won't go through the log costs rationale for the increase again, but I heard a couple of different numbers. Hank, were log costs up 17% quarter-over-quarter? Is that the right number?

I believe so.

[Operator Instructions] Your next question is from Pierre Lacroix with Desjardins Capital Market.

A question coming back on the log cost, sorry about that. But in the U.S. South, have you noticed any kind of impact coming from the fuel pressure?

U.S. South log comps are pretty flat.

Okay. So basically the fiber itself is offsetting the pressure coming from the fuel, I guess.

Try that once again?

But the fuel is the same, I guess, in the U.S. South, so I guess it's offset by some other items for the overall log costs is pretty much flat, I guess?

Yes, that's correct. Something's kind of offsets the increase in fuel costs.

Okay, perfect. Just want to have your view on the panel profitability now. We are on the negative territory. I think it's the first time for many years that we see that. How do you see the outlook for the profitability going in the next couple of quarters and into 2012, especially that the currency still pressure your results there? So can you give us some kind of outlook there?

I hesitate to do that. I mean, currency is unpredictable. It's strengthening, so we don't really know where that's going to go. But obviously, our rising currency on the short term affects profitability. We have not been -- I don't think anybody has been a very good predictor on lumber consumption. So I don't think we're going to try to do that either. I think we just have to take it quarter by quarter. And again, I think we have to read this with you that we're really focused on being low-cost producer, have great plans, modern, efficient. We got a large capital spending program that is going to drive costs even lower. We're well in the middle of that right now. And in the U.S. South, we're really focused on turning some of those higher cost mills into low cost mills. In the South, it's going to take a little bit longer because we've got a lot of capital we've got to spend. But in Canada, both in our pulp and lumber divisions and panel divisions, we've got great assets. And I guess all I can say is we're just going to keep doing what we do.

Your next question is from Stephen Atkinson with BMO.

To begin with, in looking what's going on with the log costs, were you -- historically, I would say, the profitability of the U.S. South assets would be similar to Canada. Certainly, if you have a 17% increase in log costs and you got a currency running up, I think it would make more sense to increase production in the South and when appropriate, pull back in Canada. Is that a good way to look at things?

Well, we just -- I'd say we look at this weekly as to where we can -- what our operating rates should be in every single one of our mills, and what our cost structure is and that's just a weekly process for us, Stephen.

Okay, but I guess it would be safe in saying that the U.S. South is going to be a low-cost area considering what's happening with currency and Canadian log costs.

Well, you got to take into account lumber selling prices down there as well, and they've been tough.

Okay. And how much -- are you able to tell us how much you're shipping to China and Japan right now?

In terms of actual volume?

Yes, or just percentage or whatever you're comfortable with.

Well, I think we're roughly -- it's hard for us to accurately predict, because some of it is indirect, some of it is direct. But our direct shipments are somewhat around 25%, and then we got indirect shipments on top of that, which I mentioned earlier in the call. We estimate somewhere around -- it's just an estimation on our part, but somewhere around 30%, 35%.

Overall?

Overall.

Okay, out of BC and Alberta?

Yes, out of the Canadian operations.

Yes, right. Were there any inventory write-downs in the lumber or panels or anything?

No, not very significant, Stephen.

How about the impact of Slave Lake, are you able to quantify it? Is that significant or were some -- any costs covered by insurance?

No, it's not really significant, probably nothing covered by insurance. Seven days of downtime at veneer and pulp. And then we had to shut down our -- we took a little bit of time out of our plywood plant in Edmonton, but it's not like we're making a lot of money in those businesses right now. So it hasn't had -- not a really material impact.

That concludes today's Q&A session. I would now like to turn the meeting back over to Mr. Ketcham.

Okay, thank you. I guess just to clarify log costs, they were up 17% in the quarter. That's not the base on which they're going to be rising going forward. I hope you understand, it was a fixed cost. They're not covered by volumes. So we expect a much more modern increase in log costs from a base in the first quarter. I think I just wanted to clarify that. And I guess, finally, if there are no more questions, I think all of us, as vice presidents, we're here to wish Gerry Miller a great send out. He's been with us for 25 years. He's been an outstanding part of our team. And fortunately, he's left a bunch of outstanding people to fill in for him. So again, we want to thank you for joining our call, and we'll talk to you next quarter. Thank you.

Thank you. The conference has ended. Please disconnect your lines at this time. And we thank you for your participation.