Good morning, ladies and gentlemen, and welcome to the West Fraser Timber First Quarter 2017 Results Conference Call. During this conference call, West Fraser 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 depends on a number of assumptions and is 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. It is now my pleasure to turn the conference over to Mr. Ted Seraphim, President and CEO. Please go ahead, sir.

Thank you very much and thanks to everyone joining us today on this call. On our last call in February when we look back at our 2016 results, I express my optimism about our future performance, mainly on the basis of the progress that I’ve seen in two key areas, our recruiting, development and retention of great people, and our goal of achieving industry-leading margins driven by operational excellence. Yesterday, we announced our first quarter results, which I believe reflect a continuation of the progress that our company is achieving. I’m not going to go over our results in detail, but I will note that each of our Lumber and Pulp segments produced improved results quarter-over-quarter, while our Panel segment continue to make a strong contribution to our results. We achieved several operating records for the quarter. We continue to invest heavily in our recruiting and internal education and training programs, and it is exciting for me to see more and more young women and men recognizing that we are very much a high-tech industry. In fact, West Fraser was recently recognized as one of Canada’s top employers for young people. At our Annual General Meeting in Quesnel last week, I was very impressed and inspired by the levels of engagement and excitement throughout our management group and then all our employees. Our first quarter results also reflect stronger pricing across all three of our operating segments. Demand for softwood lumber is being driven by improving U.S. new home construction and steady offshore markets. Canadian plywood prices remain strong, as residential construction in several major Canadian cities drive steady demand. And finally, strong demand from China has been the main contributor to the continuing strength of our pulp markets. If you would like to discuss specifics of our quarterly results,…

Thank you, sir. [Operator Instructions] And your first question will be from Sean Steuart at TD Securities. Please go ahead.

Thanks. Good morning, everyone.

Thanks, Sean.

Few questions, Ted.

You bet.

With respect to the preliminary countervailing rate, maybe just walk us through the process towards litigating, and I guess, appealing the rate? I take it the first part is just the administrative review that the Department of Commerce has to undertake over the next several months. Can you walk us through your thinking on how NAFTA and WTO dispute resolution mechanisms will work for you guys this time through?

You’re asking me to write a book here. Well, first of all, it’s day one – day one of the process. And I think all I can say is, what we expect to happen this year, I don’t know how things will unfold over the next year or potentially the next number of years. But I think, as I understand it, we will be paying a CVD rate until the end of August, then we will be not paying deposits from the end of August till the end of the year. And then we’ll receive our final determination on CVD, which will put – it will be in place for 2018. In terms of litigation and so on, obviously, that’s a government to government discussion. And I guess, the only thing I can say here is, I feel tremendous alignment with the Province of British Columbia, with the Province of Alberta, where our operations are, and we’ve had tremendous dialogue and cooperation with the federal government. So I know I’m not giving you the answer you want, but ultimately this is going to be solved by the Canadian and the U.S. government. And I think, that’s all I can really say on that.

Okay, understood.

Yes.

Next question on pulp markets. We’re hearing anecdotal reports of peaking prices and maybe even a little bit of weakness in China right now. Can you give us some context on what you guys are seeing for NBSK and BCTMP in that market?

I think, first of all, to be frank, I think pulp markets have been stronger in the first-half of the year than I think most people would have anticipated in the fall. And I think part of that has to do with the new pulp capacity hasn’t come on stream as quickly as people had anticipated. And I think that includes buyers in China. I think people had quite low inventories. And then the other thing that is extremely positive is that, paper demand in China continues to be quite strong, quite consistent, and and we’ve been quite encouraged by that. So, we produced two main grades. And I think about a year ago what we said about BCTMP is, we really felt that the supply demand dynamics were going to improve for BCTMP. One, when your BCTMP capacity was coming on; and two, the China board market, which is a big consumer BCTMP was very strong. And so we still see extremely strong BCTMP demand. And as you probably saw in our first quarter results, part of our improvement has to do with the lower discount that BCTMP is having vis-à-vis NBSK. So we’re quite positive about the demand for BCTMP as we look out at the rest of the year. In terms of the broader market, which is Kraft – the Kraft pulp market, which includes NBSK, from our perspective, things are still strong. We keep hearing that things will weaken, but we have not really seen that yet, Sean. And with more capacity coming on, I think we need to plan for it, but we just haven’t seen it yet.

Okay.

Let’s start, it wasn’t surprised to be honest with you.

Thanks, Ted. I’ll get back in the queue.

Okay. Thanks, Sean.

Thank you. Next question will be from Mark Wilde at BMO Capital Markets. Please go ahead.

Good morning, Ted.

Good morning, Mark. How are you?

Good, good.

Yes.

I wondered that the lumber markets have been stronger than I would have expected over the last four or five months. We’ve had a pretty significant move up. I wondered when you look at these markets right now, how do you sort of think about what’s driving them? Is it kind of a concern over the duties? Is it the strengths of the housing market down the U.S., or the rail issues playing in here? what – how do the pieces fit together for you?

I think you can answer the question. But I just want to go back to one of the comments I made in my sort of opening comments. And about three or four years ago, I know you – I don’t think you’ve been covering us that long, Mark. But about three or four years ago, we made a comment, we said, we expect volatility in lumber markets until we hit 1.3 million in housing starts. And the reason we said that is, we just kind of looked out towards production growth. We see limited production growth in North America. We see demand for lumber continue to improve. And I think we’re in a position today, where the supply demand dynamics are as strong as they’ve probably been in the last five – probably last, sorry, 12 years. And so, I think that’s number one. I think number two, when there’s uncertainty, it creates volatility in markets. And so I think we’ve seen that. Transportation has definitely been a challenge, particularly in Jan and February, I mean, that affected our shipments. But I think just over – I think just overall, the macro fundamentals are very positive. So. I think that really is what’s helped improve market conditions. And I think we see that going forward regardless of shipping shipping issues or the – frankly, the softwood lumber dispute.

Yes. I guess another issue kind of related on the lumber side is, we kind of are seeing something very unusual now, which is the strengthening in these lumber markets, but in the Southern U.S. log prices, saw log prices continue to fall. Do you have any perspective on that and what you guys expect over the next two or three years in terms of Southern log cost?

Well, I guess what we expect is a little bit different than the coalition expects. I think what we expect is slow growth in lumber production down there, I mean the last peak was 19 billion feet, last the U.S. itself produced 17 billion feet, there will be growth there and we will be part of it. But again, I mean we’ve had – we got an inventory down there, a log inventory down there in terms of standing timber that is extremely mature. And so I really expect that this is going to continue on. I think it will be slow growth in lumber production down there. I don’t think the response to the SLA will be any different in terms – materially any different in terms of growth in lumber production U.S itself, so I would expect that we are going to see muted log prices for some time to come.

And then finally, I wondered we could just turned out that WestPine MDF plant, it sounds like it was an EBITDA drag in the first quarter and I wondered if you could help us sort of cadence what we should expect from that as we move through this year? And then given the consolidation that we’ve seen in kind of particleboard and MDF capacity in North America, is there a situation where it might make sense to have somebody else own that mill?

Well, I’m to ask – answer the second question very quickly. We have an integrated strategy in Canada and in Cornell we’ve got a plywood plant, two pulp mills in which one is a joint venture in the MDF plant. We also produce energy in Cornell. So we have a – we fully utilize our resource and as we are competing for timber in the Caribou, we think having that MDF mill is a huge advantage to our integrated strategy. And frankly we like the business and I say this too much, but I only say it because I really mean it. We have an unbelievable group of employees working at WestPine and so we were always planning to rebuild that mill. It’s taking longer than we thought; it did affect our first quarter results. We aren’t going to blame this on Rodger sitting across the room if you want more detail, but we’ve taken a very conservative approach to accounting for this. You know we’ve taken a very conservative approach on this and we’re obviously going to continue to be in negotiations with our insurers. We expect that we will recoup all our costs. So I think we’ve been very conservative. We stopped accounting for business interruption late in the fourth quarter and we expect that we will receive that until we start up. It’s been delayed for a couple reasons, one we’ve put in state-of-the-art fire detection and suppression equipment and we want to make sure that everything is running a 100%. We’re working closely with our vendors and we’re in the startup mode right now. So, it is quite a visible issue for us, but from a materiality standpoint, Mark, it’s pretty mire.

Okay, all right, that’s helpful. I’ll jump back in the queue. Thanks, Ted.

Yes, thanks, Mark.

Good luck for the rest of the year.

Yes, I appreciate it.

Thank you. Next question will be from Hamir Patel of CIBC Capital Markets. Please go ahead.

Hi, good morning. Ted, I was wondering if you had a view on whether Canadian customers will get a full discount for the duties this time or something less, because I understand during lumber four, they were getting a full discount at some stages over the process when a refund is looking remote, but you obviously got back 80% last time, so perhaps discounting too much will leave money on the table, curious what you think might happen there?

Well, frankly Hamir, I don’t talk about pricing. The market will determine what that will be and really I think at this point that’s all I’ve really got to say. I don’t if Chris McIver, he is Cornell, if wants to add any of those comments, but supply and demand will determine what the price will be and obviously any funds we put on deposit in the U.S., we expect to get a 100% of them back. Not 80%, a 100%. That may give you an indication of what we’re thinking.

That’s helpful Ted. And just a second question I had was your release referenced expectations for further escalation in log cost in Canada this year. Wouldn’t duties result in lower stumpage costs in DC or is that just not enough of an offset to the typical log cost inflation?

Well, we’ve been saying this for a long time. We have excess demand. We expect lumbar market to continue to be strong. So, I think we should expect that, you know some small escalation in lumber, in log cost because frankly of our – the way our stumpage system works and the fact that we’re out in the marketplace everyday bidding up the price of timber.

Great, thanks Ted. That’s all I had.

You’re welcome.

Thank you. [Operator Instructions] And your next questions will be from Paul Quinn at RBC Capital. Please go ahead.

Yeah, thanks very much and good morning.

Good morning Paul.

A couple questions, one on just lumber and taking a look at the run-up in Western SBF prices at the end of January to – probably the end of February that’s sort of 25% move. Was – I guess, the idea was that it was around the potential of retroactivity at which we’ve seen the Department of Commerce rule on now. So, you had that Western SBF widen out from Southern Yellow Pine; but following that Southern Yellow Pine prices moved up significantly to close that gap and we’re still sort of sitting at, you know what we’ve seen the pricing differential for the past little while. Does that surprise you at all or you expect that the current price gap between both on a 2/4 basis is going to hold true for the rest of the year?

That’s a really tough question. I mean given the fact that we’re going to have duties on for, till the end of – or CBD on and from until the end of August and then it’s coming off. I mean there is lot of unpredictability I think this year, Paul, I mean we don’t know how to forecast. Ultimately, I got to be honestly, I mean, you know my experience always is when markets are moving up, the customer is setting the price and when markets are moving down we’re setting the price. And I think demand has been strong enough and customers I think probably got caught short and that’s probably why things moved up quite a bit on the SBF side. And then when you look at the gap, I think when you look at not so much May price, because it’s still not May yet, but in terms of April, the differential is kind of come back to what you call historical, historical differential Paul. Where it goes from here, I know I’m not answering your question. I don’t know where it’s going. All we know is that we feel pretty bullish about the medium term, but I expect volatility and pricing through this year, just given how this softwood lumber dispute is going to go in terms of how the U.S. decides to administer duties.

Yes, fair enough. To be honest, I don’t know where they’re going either, so I just thought I’d ask an expert. And maybe just –

Our medium term sense is that supply and demand is quite favorable to lumber. That’s kind of how we look at it. We don’t spend a lot of time thinking month-to-month or quarter-to-quarter here or vice versa [ph], as you know.

Okay and then in terms of on the pulp and paper side you’ve got 6,000 tons of maintenance in Q2 and I think it’s 19,000 in Q3 –

Yes.

What’s – do you have an idea of where the cost impact of those shuts will be on your performance in both quarters?

Rodger is telling I can’t say anything; but just to let you know, I mean we do a shutdown at Caribou every second year. I think I’m going to get into trouble for that one. We do a shutdown at Caribou every second year, so that’s our share of the 12,000 tons at Caribou, and then Hinton we do a major shut every three years. And in terms of the cost of those – the cost of that shutdown, I’ll tell you this much, we amortize it over the period. So, the actual shutdown cost. The loss production, you know the margin we would get on that loss production will affect us in the quarter. So, we’ll lose margin on 6,000 tons and in the second quarter at Caribou and 19,000 tons at Hinton in the third quarter. Is that correct, Rodger?

Yes.

Yes, and one for one for Rodger’s point.

Well, thanks for the answer. And you don’t really have to listen to Rodger, if you don’t want to.

I do, but I do.

Come on, Paul.

Just a question on plywood prices. We’ve seen those move up materially in Q2 here.

Yes.

Do you think that price is sustainable going forward? And most of your stuff stays in the Canadian market. How are you looking at that housing market, given all the news around, maybe an overzealous turnaround in Vancouver market?

I mean, are you trying to get me to predict housing prices in Vancouver and Toronto, or price of plywood?

Just plywood, just plywood?

I mean, it just continued to be a strong product for us and demand is strong. I mean, house – I think housing starts a lot that just came out a few weeks ago for Canada, we’re extremely strong. So I recognize there’s – they’re trying to do things to suppress the market in terms of the housing market in terms of pricing on houses, but it doesn’t really seem to impact demand. I think at the end of the day here, the reason house prices are going up is pretty clear. I mean, population is growing in Toronto and Vancouver and people want to buy houses. So at the end of the day here, I expect plywood and housing to continue to be strong this year.

Okay. And last question I had is, it looks like there’s a relief rally going on in the marketplace on a Canadian lumber names are all seem to be up materially. You guys had some great quarterly results, so I can kind of justify yours. But across the other names, I’m a little bewildered, because I look at the duties that were assessed and the all other’s rate is still 20%, we still haven’t got the AD and we’ve got retroactivity on the majority of the Canadian industry. I don’t a how you look at that as a positive. Maybe you could comment on that?

I didn’t realize that was an analyst, but I’m just kidding you, but I mean I just think about West Fraser. And we’re still waiting for the dumping dip – margins to come out. I can tell you this much that we expected to be a respondent for both CBD, but actually we expect to be respondent for ADD. We didn’t expect to be respondent for CBD, that was new. So we’ve managed our company in a manner expecting to be an ADD respondent for quite sometime. So we’ll see where we end up relative to our competitors when those duties come out. But I think ultimately, and I can only speak about West Fraser. I think we’re getting rewarded for like hard work our employees are doing there. All that capital we spent easy to talk about hard to run a company while you’re spending all that capital. We’re seeing the rewards for that. And as I said many times, I don’t want to get so focused on softwood lumber. I mentioned I think last time in the call, it’s not in the top ten things I worry about. It takes a lot of my time, but it’s none of the top 10 things I worry about, and I still feel that way about it. What I’m excited about is not just the improvements in our performance, but the targets that our folks have set for the third quarter, for the fourth quarter for 2018. We still see a tremendous upside in our company with the capital and our folks. So hopefully, the market are just starting to recognize that, and that’s what’s Fraser, I can’t speak for others.

Great, that’s all I had. That’s very helpful.

Thanks, Paul. You bet.

Thank you. Your next question will be from Benoit Laprade at Scotiabank. Please go ahead.

Thank you. Good morning, gentlemen. Just curious…

Good morning.

…to see, if you could reiterate your CapEx guidance for 2017?

Yes, Benoit, it’s Rodger. We’re still thinking $300 million is the target for 2017. Of course, as you know, there’s some sometimes we advance things, sometimes there’s delays. But that’s still what we expect.

Okay. And just curious in your MD&A, you’re talking about increased lumber production about 250 million board feet year-over-year. What would be the split between Canada and the U.S.?

Benoit, I’d say roughly 50-50, we’re expecting an increase in both jurisdictions might be slightly weighted towards the U.S. So but pretty close.

Great. Thank you.

Okay.

Thank you. Next question is a follow-up from Mark Wilde at BMO Capital Markets. Please go ahead.

Yes, couple of follow-ups. Is it possible, Ted or Rodger to get any sense of just how you’re thinking about sort of capital spending if we look beyond 2017 and 2018 and 2019? I think, given the strength in the lumber and pulp markets that we’re seeing right now, you’re performing very well. You’ve got plenty of capital available to you?

Yes. Well, I think, first of all, we’ve got a number of projects that we’re looking at throughout the company. I mean, our run rate is probably going to be in the order, I think, Rodger, the guidance you give us like 25 something like that $25 million.

Yes.

But we’ve been so delighted with our capital program. We continue to look for new technology. And with 20 sawmills, we develop something that improves at one now before you and not your – one small project becomes $50 million to $60 million across the company. We’re challenging our mill managers and this how we run the company. We’re challenging our mill manager how they run their mills to come up with more projects. Our balance sheet is strong, and we really believe our best chance that we have controlled over to develop shareholder value is through – is frankly through spending capital within the company as long as it generates good returns. So I wouldn’t be surprised if this run rate of $300 million doesn’t continue for a couple more years to be perfectly honest with you.

Ted, is there a lot more catch up to do yet at those southern sawmills? I know you’ve spent a lot since about 2010 at the southern sawmills.

Yes.

But they were way behind the curve when you bought them?

Well, if you’re talking to Hank, if Hank was on the call, he would say that, he would be pushing us to continue to look for more projects. And if you talk to our operating VPs, they would be doing the same, and I’m in the same spot. So, what we’ve really done up until just recently was, our focus is primarily on getting more value out of lumbered lot of planar upgrades. We put, I think, 22 continuous counts in the cell. So, we just did our first major sawmill upgrade at Newberry and and Kudos starts focus at Newberry, they’re way ahead of target in terms of achieving production. So, I think, we’ll be doing a bunch of things in our sawmills to improve our recovery, improve performance, maybe there might be some marginal increases in production. So I think we’ve got some opportunities down in the south to improve our sawmill. So, with 15 sawmills down there, you can – the capital can add up pretty quickly if you’ve got some good opportunities.

Okay. Then the last question for me, you did a lot better at pulp this quarter than we expected. Are the pulp mill issues that have been out there for the last two or three years with reliability and operating efficiency, are those fixed at this point, or is there still some work to be done?

Well, I think a couple things is, our BCTMP business, we produce more tons of BCTMP than NBSK. That’s always been a tremendous performing business from an operating standpoint. And we’ve seen the discount against Kraft pulp shrink for that. So that’s number – that’s one point. The second point is and I don’t want to just continue to focus on him, because we used to pick on him too much and I think we’ve given him too much credit. But we’ve seen a tremendous improvement in performance, or in terms of production. We still have reliability issues. I mean, frankly, if you look at our peak performance there on a weekly, or over a two-week period, I would challenge our folks at Hinton to say, there’s still 20% improvement there. So probably isn’t, but there – but in terms of production. But we are so far down, where we’re so much further ahead than we were three years ago, I’m delighted. As we improve reliability, we can take maintenance cost out. We think there’s still a lot upside in EBITDA at that business. But I’ve got to tell you, Mark, I don’t spend time worrying about him and pulp anymore. I think we don’t want to get cocky, but we’re definitely on the right track there.

Okay.

But we still got room for improvement. So the folks at Hinton are listening, we’ve got a ways to go.

All right, very good. Thanks.

Okay, thanks.

Thank you. [Operator Instructions] And at this time, Mr. Seraphim, it appears we have no other questions. So I would like to turn the call back over to you, sir.

Well, thanks very much. And if you’ve got any further questions, please feel free to give Rodger a call. And with that, we’ll thank you for joining the call. Bye now.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Have yourself a great day.