G-P mill’s future analyzed Shutdown no surprise; products still needed

OLD TOWN – The financial viability of the local Georgia-Pacific paper mill – like beauty – is in the eye of the beholder, according to two paper industry analysts.

The two experts, interviewed separately, gave differing viewpoints Monday on what might be in store for the mill, which was closed down last week. One of the experts is a financial analyst who specializes in publicly traded paper companies, the other is a vice president of a natural resources business consulting firm based in New Hampshire.

More than 400 millworkers will receive wages and benefits for the next 60 days while the state and G-P search for a buyer for the facility, officials have said. If a new buyer cannot be found in that time, G-P will shut down the mill permanently and lay off the mill employees.

Steven Chercover, a financial analyst who heavily researched Georgia-Pacific before it became a private company late last year, said Monday it’s not surprising that the mill has been closed, even though G-P spent $29 million last year to purchase and upgrade a biomass boiler for the facility. He said it could be argued that the installation of the boiler – which was expected to save the mill nearly $6 million a year in energy costs – did, in fact, extend the life of the facility, even if only for a year.

“It has been on the verge of closure for a number of years,” Chercover said. “[The closure] is not surprising.”

Chercover said that if the mill is sold or permanently shut down, the boiler could continue to operate where it is – or not.

“Presumably they could sell electricity back to the grid,” Chercover said, or “maybe that biomass boiler could be moved elsewhere.”

When the closure was announced, a G-P spokesman said the company intended to consolidate its tissue-production capability at other G-P facilities.

According to Chercover, G-P is “focusing more than ever” on tissue production. He said it’s unlikely the Atlanta-based firm would sell the Old Town mill to another major paper manufacturer. Looking at it from a competitive standpoint, he said, it seems more likely that the mill’s assets would be sold piecemeal.

“That’s not a logical situation,” he said of selling the mill to a competing large-scale company.

Jack Cashman, commissioner of the Maine Department of Community and Economic Development, declined Monday to comment on what Chercover had to say.

Eric Kingsley, a consultant with Innovative Natural Resources Solutions, offered a more upbeat view. He said tissue products such as napkins, paper towels and toilet paper are less susceptible to the market changes that have had a more severe effect on other types of paper products.

Though the availability of information on the Internet has affected the demand for writing and printing paper, he said, there is nothing about the Internet that has affected the demand for tissue products.

And because tissue products are relatively lightweight, it is not profitable to ship them over long distances. As a result, it doesn’t matter how advanced or cost-efficient newer tissue mills in Brazil and China might be, he said, they cannot compete in North America with local tissue mills.

“Tissue’s a very regional market,” Kingsley said. “It tends to be produced closer to [retail outlets] than other grades of paper.”

Kingsley, whose firm has done work for the state, said that though another large corporation is not likely to end up owning the mill, he could see it ending up in the hands of an entrepreneurial, small-scale producer. He said he does not have any inside knowledge about who may be interested in buying the facility, but he knows of two tissue firms looking to expand their capacity in the region.

One is Lincoln Paper & Tissue, which took over a mill in Lincoln after Eastern Pulp & Paper Co. went out of business, and the other is Quebec-based Cascades Tissue Group, which owns a recycling facility in Auburn.

G-P and state officials have said that despite installation of the biomass boiler, energy costs remain a concern for the Old Town mill. Cashman and Gov. John Baldacci have said they have a plan to further reduce those costs by $5 million a year, but they have declined to release details about the plan because other private companies would be involved.

According to Kingsley, energy costs are a concern for paper companies everywhere, not just in Maine. He said that the Old Town mill might need some upgrades to make it more profitable, but that he thinks it is “highly plausible” that someone will find a way to keep it going.

“The mill is not in a position where that can’t be addressed,” he said. “I think there’s a very likely scenario where it can.”