Montrose Lumber Mill Back at Work, But Still Not Out of the Woods
by Beverly Corbell
Oct 14, 2010 | 1947 views | 0 0 comments | 13 13 recommendations | email to a friend | print
<b>MILL LUMBERS ON — </b>Intermountain Resources, the largest lumber mill in the state, is still struggling to hold on after being placed in receivership last spring.
MILL LUMBERS ON — Intermountain Resources, the largest lumber mill in the state, is still struggling to hold on after being placed in receivership last spring.
MONTROSE — Intermountain Resources, the big lumber mill in Montrose that was placed in receivership in May, is again working at full speed, but the economy and problems with Forest Service contracts are keeping high profits at bay.

Pat Donovan, a principle with Cordes and Company, is charged with overseeing the receivership and keeping the mill afloat. He said the majority of the timber being processed at the mill is from the pine and spruce beetle epidemics, which have left millions of acres of dead trees on public lands.

The mill, which employs 95 people, has been running full steam all summer, Donovan said, but several problems are keeping it from getting in the black.

“We are still dealing with the economic reality with the slowdown in the housing market, decreased demand for framing lumber and a decrease in prices,” he said. “We have been able to acquire logs and convert them to lumber at a modest profit.”

But the company still has between 200 and 300 unsecured creditors who have not been paid, and higher profits are needed.

Another problem is old contracts with the U.S. Forest Service, which Intermountain cannot honor without losing money.

In the past, the Forest Service put out competitive bids to clear specified areas of timber, and Intermountain won many of those bids. But that was back when the housing market was very vibrant and the commodity price of lumber was high, Donovan said.

“Now the majority of those contracts can’t be performed because the price of raw materials – the logs – is more than what the mill could afford to pay and convert to lumber and still make a profit,” he said.

Those old contracts account for about two million board feet of timber, mostly beetle-kill timber, he said.

“The Forest Service continues to send demands for payment under those contracts,” he said, “which the mill is not going to pay.”

At present, the mill is getting its timber from loggers who contract out with the Forest Service to remove the dead trees, but the way the Forest Service is going about it is unfair to the mill, he said.

“They’re paying loggers about $1,200 to $1,400 an acre to remove trees, and if you convert it to dollars per thousand board feet, they are paying loggers $200 to $250 per thousand board feet to remove timber,” he said.

At the same time, the Forest Service is demanding that Intermountain pay $330 per thousand board feet for timber, which Donovan said is “a big disconnect.”

“The mill can’t afford to buy that lumber because it would create a loss,” he said.

The Forest Service grants “stewardship contracts” to loggers to remove the timber, which is where the mill gets its raw material he said, making the mill a third party.

“We’re selling it, but not selling at quantities or prices comparable to what the mill has done historically,” Donovan said. “But we are selling it at enough of a price that it supports keeping the mill open.”

But if the Forest Service would give the mill the same deal as loggers and let them harvest the wood through stewardship contracts, it might make a huge difference, he said.

“My argument with the Forest Service is that this mill is an integral part of their dealing with the beetle situation in Colorado, and the next closest [large] mill is over 700 miles away,” he said. “It would be wonderful if stewardship contracts were awarded to the mill and would also be helpful if the mill were included in the stewardship contracting process.”

Loggers aren’t paid for taking the timber until they have removed it from the forest, he said, and if they can’t sell it, many simply store it on vacant land. Loggers also take the beetle-kill wood to the two pellet mills in the state, which doesn’t make sense to Donovan.

“Those mills have large-diameter logs converted into wood pellets as an alternative energy source,” he said. “But in order to shred or chip up a tree into wood pellets, they use more conventional energy than the energy generated by wood pellets.”

The Forest Service responded to questions about the mill contracts with the following statement by Ken Anderson, Forest Management Group Leader of the Rocky Mountain Region: “The Forest Service values its partnership with the timber industry which brings good jobs to communities and helps maintain healthy forests. Currently, the Forest Service has timber contracts with Intermountain and we’re looking for opportunities to be flexible, but we are also abiding by the law when required.”

At present, Donovan said, the best hope to keep the mill alive in the future is to find a new owner.

“The court has charged us with preserving and protecting assets, and hopefully we can find a buyer for those assets at a number that we can repay the debts that have been incurred by Intermountain,” Donovan said.

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