Interfor Corporation

An Industry Left for Dead Presenting Significant Opportunity

Market Cap: $486,440,000

P/B: 0.45x

Net Debt: $646,620,000

EV: $1,133,060,000

Shares Outstanding: 51,450,000

*All Numerical Figures Stated in USD*

Business Overview

Interfor Corporation is the third largest softwood lumber producer in North America with just shy of 30 facilities across the United States and Canada. Interfor’s assets are located in four main fibre baskets in North America including British Colombia (16% of Production), Eastern Canada (23%), US Northwest (12%), and the US South (50%) through these assets the business has name plate capacity of five billion board feet of lumber. Over the last decade the business has undergone a significant period of transformation underpinned by one of the worst boom and bust cycles for lumber pricing in history following the COVID-19 pandemic where prices peaked in May of 2021 at over $1600 p/thousand board foot versus what is the average cash cost for producers today of $500 - $550. Given the structurally tight supply of harvestable fibre, the demonstrable demand we see over the next 3-5 years, and the amount of capacity being taken offline we think the industry is headed for significantly higher lumber prices and that Interfor will disproportionately benefit from that fact.

Historical Overview

The history of Interfor Corporation begins in 1930 with a single sawmill in Whonnock British Colombia before officially incorporating in 1967 as Whonnock Industries. In 1977 Sauder Family Holdings bought a controlling stake and by 1988 renamed the firm International Forest Products. For a decade spanning 1980-1990 the business went about acquiring a footprint along the coast and interior of British Colombia by getting timber licenses and sawmills from the likes of Fletcher Challenge and Weldwood which were transformative for the business from a productive capacity standpoint. In the early 2000s Interfor began pursuing acquisitions and sold some its British Colombia operations to buy the first of its US based assets in Washington and Oregon via the Port Angeles and Adams Lake sawmills.

From the period of 2013-2015 the business began aggressively acquiring productive capacity in the US South by way of Rayonier’s Wood Products division in Georgia and South Carolina as well as Keadle Lumber (Georgia), Tolleson Lumber (Georgia) and a few assets from Simpson Lumber Co. in South Carolina and Washington before finishing this particular entry to the US markets with the purchase of Monticello Mills in Arkansas from Price Companies. Post the expansion there remained no single majority shareholder and Lawerence Sauder of Sauder Family Holdings held the title of Chairman.

The final major string of purchasing began in 2017 and was concluded in 2022 and saw the company acquire Westrocks Summerville assets, Georgia Pacific’s portfolio of assets spanning from Oregon to Mississippi with the 720M board feet of new production from Georgia Pacific being paid for with cash on hand. Rounding out this final stretch of business building by way of acquisitions the firm acquired two major Canadian producers, Chaleur Forest Products two sawmills in New Brunswick (350MMBF) and seven mills from EACOM Timber Corp throughout Ontario and Quebec adding 985MMBF and paying an implied asset price per thousand board foot just shy of $400. Most of these deals between 2017-2022 were well financed and paid for mostly in cash with Interfor boasting a net cash position at the end of 2021. While the balance sheet today is the business’s largest detractor, we would remind you of ArcelorMittal’s run of acquisitions throughout the boom years in steel and how they really galvanized themselves as a business in the decade that followed. Sawmills are not a business ripe with capital and new build plants therefore, we believe the business saw an opportunity to optimize its footprint and is now is in a position on the other end of this bear market in lumber to pay down its debt, retire stock and reap the rewards of a consolidated industry providing Interfor with significant pricing power when the cycle does normalize. Today the business has 28 sawmills throughout North America and 5BBF of annual productive capacity.

Hidden Assets: Softwood Lumber Duty Repayments