All participants please standby, your conference is ready to begin. Good morning, ladies and gentlemen. Welcome to the West Fraser Timber Co. Limited Third Quarter 2015 Results 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 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. I would now like to turn the meeting over to Mr. Ted Seraphim, President and CEO. Please go ahead, Mr. Seraphim.

Thank you, and good morning, everyone. Thank you for joining us today. I’ve got Larry Hughes, and most of our executive group with us today either in Vancouver on the phone. First of all, West Fraser earned $56 million, or $0.67 per share in the quarter. Adjusted earnings for the third quarter was $38 million as compared to $13 million in the second quarter. Adjusted EBITDA in the quarter was $82 million, or 8% of sales, up $10 million from the second quarter. Stronger panel and pulp results offset poor lumber markets. Our lumber business generated $26 million in adjusted EBITDA, a decline of $19 million from the previous quarter. We experienced a significant slowdown in lumber demand from China over this summer, which further contributed to weaker market dynamics. We’ve experienced improved lumber demand from China over the last month or so. Lumber markets are improving, but we still expect volatility, as U.S. housing starts slowly recover. Our panels business generated $29 million in adjusted EBITDA, an increase of $8 million from the second quarter. Higher plywood prices and stronger MDF results contributed to improved earnings. Our pulp and paper business generated $25 million in adjusted EBITDA, an improvement of $17 million from the previous quarter, substantially, due to improved production in our BCTMP and NBSK mills. We’re starting to experience ongoing improvement in production at our Hinton Mill, as we benefit from improvement in reliability. Production per day at the mill is up approximately 8% from last year, and we expect production to continue to trend upwards over the next few quarters. I would like to quickly comment on expiration of the Softwood Lumber Agreement. As you know, West Fraser is supported and expensed in that agreement. Nevertheless, this is the government to government negotiation. With Canadian federal actually behind us, we expect that SLA will be an important area of focus for our federal and provincial governments. On October 30, we will complete the acquisition of Manning Diversified. I’m very pleased to welcome Manning to West Fraser family. Manning Diversified has a strong culture that will fit very well with ours modern facilities and a very high-quality timber base. Finally, I’d like to let you know – let you all know that West Fraser is celebrating our 60th anniversary this year, and we’ve enjoyed celebrations in many of our communities this year. The values of this company were built on a clearly evident today with our employees and their families. With this, I’ll turn the call over Larry Hughes.

Thanks, Ted, and thanks to everyone joining us today. Please refer to the advisory contained in our quarterly MD&A concerning our use of terms such as EBITDA, adjusted earnings, and adjusted basic earnings per share. For the third quarter, we reported earnings of $56 million or basic earnings per share of $0.67. In the quarter, we had several significant non-operational items, which affected our results. These are shown in the table on Page 3 of our MD&A, if we adjust the $55 million recovery related to equity-based compensation and the loss of $25 million related to the translation of U.S. dollar denominated debt, as well as the negative $17 million fair value adjustment to the power agreements. The results on an after-tax basis is adjusted earnings of $38 million, or adjusted basic earnings per share of $0.46 for the quarter. The equity-based compensation recovery reflected a decrease in the company’s share price over the quarter. The loss on the U.S. debt resulted from a weakening of the Canadian dollar on a period ending basis, and a negative adjustment to the value of the power agreements reflected a weakening of the Alberta electricity futures market. On a similarly adjusted basis, results of this quarter improved compared to those of the second quarter of 2015, when we achieved adjusted earnings of $13 million and adjusted basic earnings per share of $0.16. From an operating earnings and adjusted EBITDA perspective compared to the previous quarter, our lumber results declined, while our panel and pulp and paper results improved. Adjusted EBITDA margin for lumber declined to 4% from 6% in the previous quarter, and 18% in the same quarter of 2014. For panels, adjusted EBITDA margin reached 20%, up from 15% in the previous quarter and equaling the 20% achieved in the third quarter…

Great. Thanks, Larry. And we’re ready to open it up for questions.

Thank you. We will now take questions from the telephone lines. [Operator Instructions] The first question is from Mark Wilde with BMO Capital Markets. Please go ahead.

Good morning, Ted. Good morning, Larry.

Good morning. Hi, Mark.

Can you first of all just help us with kind of what’s going on in China right now? You said in the last month or so, it sounds like, you’ve seen volume pick up again. So I wondered if you could just kind of break China apart how much – what’s the underlying demand doing? And just how much pressure are you seeing from more Russian wood or New Zealand logs, or whatever coming into the market?

Yes, what we’ll do is that, Chris McIver, who manages our sales is on the line. So maybe, I’ll ask Chris, to comment on that, because we’ve got some folks over there right now. So I think he can give you a pretty up-to-date flavor. Chris, can you comment?

Sure. Thanks, Ted. Hi, Mark.

Hi, Chris.

Hi, it’s – yes – it’s been really kind of an interesting ride in the last call it six months, most of this year actually. And I think, a couple of things happened. Early on pricing dropped month after month after month. And lot of our customers ended up with higher price inventory than they generally would have liked, and we’re having trouble moving it. At the same time, there were some financial issues going on in China that claims up credit, which put pressure on them on opening letters of credit, which is really important for us to get the flow of business working. If you put all that together and really, it severely constrained the business for two or three months. And now it’s really through the month of September. And we’ve really seen a pretty good rebound in both volumes and interest out of China certainly in the last month and going forward for the next couple of months, for sure. We’re seeing a bit of a shift from construction to more, what I would call, R&R and furniture-related activities, as well as some of the business moving from the traditional Tier 1 cites to the Tier 2 and Tier 3 cities. So it’s still not where we wanted to be, but it’s much improved from where it was.

So, how do you guys deal with that?. Do you – are you reallocating export volume into the North American market? Are you looking for other export markets? How do you manage that?

Yes, it’s – firstly, it’s difficult. A lot of it has been low grade product, and we have shifted an awful lot of that to North America. You could see that in our low grade if you – low grade returns in the U.S. have been dramatically hit by that. And as we see the things recover there, I think, you’re going to start to see returns be more normalized going forward. So, yes, we’ve shifted product all around, and we’ve done things as far as production as well.

Okay. All right. And then, Ted, I wonder if you can just comment on any changes you’ve seen in competitive behavior with the expiration of the SLA. I know in the weeks leading up to the expiration, it seemed like volumes from Western Canada into the U.S. had fallen off quite a bit. And I didn’t know – I assumed that that was people just holding back until the SLA expired and they could ship in duty-free?

Well, I don’t really know if that’s the case, at least, for large companies, I mean, we can’t manage our inventories that way. We’ve got to ship our products everyday. And so, from our perspective, we really haven’t seen a ship. I think, it’s more and maybe if you like Chris can expand on it. But I think it’s more from the market side, the brokers and the distributors. So I think in U.S. we’re just kind of sitting on their hands, trying to figure out what was going to happen? And I think that’s why we’ve seen an improvement in the markets the last little while. They were not carrying very high inventory. So, at least, that’s my understanding. So I think that’s – it’s really more of the behavior on the buyer side than the – than at least companies like West Fraser. And, yes, just to further add to Chris’s comment about how we’re doing in China. I mean, there are things we can do around recovery and grade in terms of how we manage our mills to reduce our production of low grade – low grade production as well. So that had a bit of an impact on our third quarter results as well in terms of our production.

Okay. And then just one last one for me right now. Could you just talk a little bit about plywood prices, because it has really surprised us. I mean, we follow the pricing in the trade papers and a lot of those indices were down pretty sharply quarter-to-quarter, second quarter into third quarter, and you guys held up really remarkably well.

Well, it seems like this call is moving to mostly about markets. And I think I’ll have Chris, add onto my comment. But, again, the weakening Canadian dollar helps us a lot, because we sell almost all our plywood in Canada market. So I think, if you are looking at the U.S. market, there you maybe seeing things a little differently in Canada. But I don’t know, Chris, if you want to expand on that at all.

Yes, Ted, Mark, I would just add, there’s a definite separation between Canadian plywood and southern yellow pine. And Canadian plywood prices have held up much better. And there’s always a lag effect on pricing. So has – pricing has weakened a little bit at the end of the third quarter, and of course, shows up in the fourth quarter, not so much in the third.

Okay. All right. That’s helpful. I’ll turn it over.

Thanks, Mark.

Thank you. The next question is from Paul Quinn with RBC Capital Markets. Please go ahead.

Yes, thanks very much. Just in your MD&A you disclosed the Manning acquisition for $66 million plus working capital, maybe you could give us a couple more financial metrics around that acquisition?

Well, first of all, good morning, Paul. As you know, we always disclose all the information you’d like us on acquisitions, that a bad joke. But fundamentally, I think, that acquisition was $66 million with normalized working capital over and above that. And I guess, the other key metric is that, we expect with some debottlenecking and actually the current owners who will shortly be the previous owners, who are working on that, and some small capital at the front-end of the mill. And so with that, we expect that we’ll be able to get the mill with 130 million feet of production. It’s a very modern mill. It’s a very good timber supply. And as we look at the financial metrics, we’ve got five other sawmills in Alberta, so we have a pretty good understanding of what it takes to be successful in Alberta. So we’re very delighted to have that mill in our – in West Fraser family.

Well, it’s a quite good mill, given the high cost on a per unit basis.

Yes.

So maybe you could give us trailing 12 months EBITDA? Maybe that would be helpful.

We don’t disclose that on individual notes, Mark – I’m sorry, Paul.

Okay. Then just moving onto just log cost inflation what you are seeing there in Canada and the U.S., is that still coming up quite a bit in Canada versus flat in the U.S.?

Yes, I think, in terms of the U.S., we saw some increases in the first quarter. But it’s really been quite – on average quite flat since and in terms of log cost. And in Canada, we are kind of looking at the 5% year-over-year increase from 2014 to 2015, that’s kind of how we see that for a Canadian business.

Okay. And just on Hinton, you outlined the 8% improvement in productivity, I guess, that’s per day. What is that benchmark compared to your other half interest in Cariboo, are you closing the gap there as you have so significant room?

Well, I think, I mean from a financial standpoint, Hinton is the one that has the big impact on us for two reasons. One, we want a 100%. And two, the gap from where that mill should be and where it was, was pretty significant. We still think we’ve got significant room to improve production there. I mean, we’ve had some very strong months that are significantly higher than that 8% improvement. So Hinton is where we’ll have the biggest impact on our financial results. Cariboo, that mill has – typically run closer to plan. We’ve had a few issues. This year we’ve had a few challenges, but nothing really material. So I don’t have significant concern about that, and actually our view towards Hinton today is very positive, and we’re pretty encouraged with where we are going with it.

So for planning purposes we should continue that 8% improvement would be on a conservative side there?

My – our expectation is that, we are going to surpass our quarterly production from the third quarter into the fourth quarter and continue to see upside in production there.

That’s good. And just lastly, just on SLA, because you guys mentioned it, expectations going forward here?

Well, I think, first of all, as I said, it really is the government to government negotiation. And I guess we’re probably the first ones out of the block. So, I think, it’s important now we comment on it. I think the fact that we didn’t get an extension is probably due to multiple reasons. But one of the big reasons was the federal government shutdown this summer because of the election. So now with the expiring, as everybody knows when a standstill period, and I do believe that there’s interest on both sides of the border to find a solution here. And we’re still waiting for our Trade Minister to be announced federally, I think, that’s hopefully November 4. And our expectation is that, at least, at some point later this year or early next year, we’ll see that Canadian and the U.S. government engage and see if we can find the solution here. But there’s – I think there’s – I think both sides of their border are motivated to find the solution here.

Okay. That’s all I had. Best of luck, Ed.

Thanks, Paul.

Thank you. The next question is from Sean Steuart with TD Securities. Please go ahead.

Thanks. Good morning, guys. Couple of questions. You ran your BCTMP pulp mills fall out again in the third quarter. We continue to see prices, in US dollar terms, roll over fairly steeply. Are you guys close to a point where you’d consider taking any market downtime at those operations, as some of your competitors have?

Well, I think the best way to answer that question is, we have an excellent BCTMP business. And if you look at history. If you look at over the last five to 10 years. West Fraser runs at a much higher operating rate than the competition. And we expect with our cost structure and the capital we’ve invested in our BCTMP business for that not to change. So nothing we would ever comment on curtailments. But I can tell you we’re very focused on bringing our all our pulp mills at a 100% and don’t really see that changing.

Okay. The next question is just on sawmill M&A opportunities. I guess Ted, just generally, what’s the opportunity set look like, I guess both in the US South and Alberta now? It felt like maybe some of the easy opportunities have transacted already. What’s the deal flow look like from your perspective?

Well, I think every company has a different view towards M&A and I think ours is very much not on – we’re not primarily focused on growth, we’re primarily focused on acquiring great assets with strong timber basis and hopefully with some synergies with our current asset base. So from our perspective if we don’t look at every opportunity out there. And so we’ve been very selective, so I can’t really comment on what’s out there in the pipeline I would imagine now that given what’s happened lumber market over the last few months that the expectations on the seller side maybe changing, but from our perspective – from that perspective it’s really hard for us to say where this is going to go I think as Larry, kind of mentioned to me foreign exchanges revenue impact when you look at U.S. acquisitions. We continue to look at things, but we’re really focused on mills that fit well with ours. And Manning really fit well us I mean we’re – who are just one of the producer in Alberta by significant margin. This is a third sawmill we bought in Alberta in last couple of years. We’ve modernized four of our five sawmills, so Alberta is really core for us.

Understood. Okay, that’s all I had, guys. Thanks very much.

Thank you. You bet, Sean.

[Operator Instructions] The next question is from Daryl Swetlishoff with Raymond James. Please go ahead.

Thanks, good morning guys. Sean asked all my questions, but maybe I’ll ask a follow-up. Just on the pulp segment, we were a bit surprised by the quarter over quarter – how much better you did. I mean you lost CAD8 million EBITDA in the second quarter. Is that mostly – if we just look at the second quarter and into the third, is the improvement mostly related to performance improvements in Hinton?

Well, first so we went from positive CAD8 million EBITDA to CAD25 million – sorry first of all good morning.

Okay.

But in terms of – I mean really it’s at least some struggle for their BCTMP business in the second quarter as well as you can see our production is up by about 14,000 tons at our two BCTMP mills. We also had our major maintenance shutdown even now we take 50% of the cost out of the Cariboo in the second quarter. So I think when you look at Cariboo shutdown BCTMP running better. And our – Hinton running sequentially better in the third quarter those are probably the main contributors to our improved results.

Okay. And looking at Manning, so Manning is the second recent data point we’ve seen where a BC major has paid around CAD150 a cubic meter. Do you think that’s an accurate reflection of the value of Canadian AAC going forward?

Wow, that’s an – it’s an interesting question. I think as we look at Alberta that’s probably a reasonable way to look at it. But over and above that you got to look at quality of the mill. And I was just up there – Larry and I were just up there with our operating VPs two weeks ago and maybe it’s a spectacular mill I mean it – it’s one of the cleanest mills I have ever seen it. They’ve done a lot of capital they’ve got an energy system in there. They’ve got a very modern drawing with their kilns. They put a major point of upgrade in there a few years ago, they put in a new line in the saw mill, upfront in the saw mill a few years ago. So they spent a lot of really well capitalized mills. So, to say a $150 a cubic meter on its own I don’t think that will be the right way to look at it. It is probably the combination of great timber base and an excellent mill. And I guess a last thing I want to add and I said in my comments, but I really do want to reinforce this. When we walked into that mill, I felt like we were walking to a mill that West Fraser was doing for many years. We are really delighted to end that operation and you realize that you will view this as a premium price, but we got a premium asset. We are very excited about it.

Thanks a lot, Ted.

Thanks, Daryl.

Thank you. The next question is a follow-up question from Mark Wilde with BMO Capital Markets. Please go ahead.

Yes, just a couple of follow-ups. Is there any thoughts on how you guys see the housing market as we move towards 2016?

They are going to through this to Chris, but I don’t think it’s fair, so I will take a shot at it. I mean really it’s just a forecast. Our forecasts are as good as yours.

Yes. Mine not much.

So yours are probably working a little bit more than ours, but we actually did a fair amount of work on segmenting lumber demand this summer. We did a fair amount of work as a company and I think fundamentally I feel like we had multi-family, you look at repair, remodel, you look at all the uses for lumber, the one area that kind of sticks out that we need to see material improvement and a single family housing and we also need to see housing number and we’ve been saying this for a couple of years. So, I think we are starting to sound like a broken record, but we really believe that if we see an incremental, say 20,000 housing searches in the U.S. if you add – that’s on average, few billion feet of demand and if you look at further growth and the other uses, those are the things that we think are what’s necessary to see a robust strong sustained up market and whether that’s next year or the year after we’re not sure, but we do believe it is coming and our medium term view of the lumber business has not changed at all, but in terms of picking the time and the number, I would really pay for your – I would really hear what you have to say about it maybe off line one of these days.

Okay. Two other things. One, do you have any visibility on your log cost in the Southern U.S. for 2016, I mean are you starting the buy stumpage, your contract for logs right now?

Not really, I mean we tend to be in the market just about every day, as you know it’s more of a day to day week to week, month to month market, but we really don’t see any material pressures on average in terms of log cost, so this year is even flat for really on average for two quarters. So, I think we are either going to be flattish or potentially maybe just up a little bit, but we don’t really expect a lot of log price inflation in the U.S. though for 2016.

And the last question I had is for Larry. Larry, we missed your inventory charge by quite a large margin this quarter, I wondered if you could just give us some help in thinking about how that inventory charge or inventory adjustment moves for West Fraser going from a quarter to quarter basis?

I’m going to ask Rodger Hutchinson who is here with me to respond to that one.

Good morning Mark.

Good morning Rodger

The inventory write-down Mark mostly related to the lower grade of, lower grades of lumber, utility and economy lumber and there was a dramatic price decrease at the end of the quarter compared to the quarter before. So, essentially that’s what drove the inventory write-down.

Okay. Really just a function then of the proportion of your business that’s kind of low grade, I guess coming from the interior and the drop that we saw in that market in the third quarter.

Yes. Quarter to quarter comparison right at the end of the quarter Mark and since then we’ve some recovery in prices. So, shouldn’t be as much in the fourth quarter, not on wood.

Okay, all right, sounds good. Good luck in the fourth quarter guys.

Thank you very much.

Thank you. The next question is a follow-up question from Paul Quinn with RBC Capital Markets. Please go ahead.

Yes thanks guys. I thought because you’re so good at answering the questions, I thought I would throw a couple more on you.

Okay Paul.

So, the first one was, you said contribution from your two BC bioenergy plants, they were I guess wholly commissioned what was the contribution in the quarter, ballpark?

Sorry, which plans are you talking about the...

Fraser Lake and Chetwynd.

Right, okay. I think you should assume no contribution for this quarter, it is minimal and they’re still ramping up, and we’re going to see a contribution by the end of this year, as well on the biomethanation plant we look for contribution by the end of this year.

Okay. And then you mentioned CapEx coming down from where we had it, what’s your expectation for 2016? Are we at sort of a run rate CapEx now for West Fraser?

Yes. That’s a very good question. We are doing our plan right now Paul and I expect that we might come in a little higher next year. We are staging a little bit more, we’re trying to make sure that some of the current capital projects we let the folks get those running and get our feet on the ground in some of the areas and then we’ll go back, so it’s possible that we’d be slightly higher in 2016, but we’ll have a lot better view of that at the end of the next quarter or this quarter.

Okay. And then just lastly on China, the expectations for volumes this year is that going to be flat to 2015 or you’re going to be slightly down because of the weakness we saw in Q3 and then how do you think about that market for 2016 is that going to hold up or are we going to see a decline?

Yes. So, you want us to compare this year to last year, we expect – to the first two quarters we were, I believe a little bit higher than 2014, but I think as we look at this year, we’ll be down and a lot of it depends on the next couple of months, but as Chris says we’ve got pretty strong order flow. And in terms of our outlook, as we look at China, I think the BC interior shipped just around 3 billion feet or a bit more to China last year. It will be a little bit less than that this year and so we can’t truly forecast what’s going to happen, but we still expect China to be a significant buyer of lumber from British Columbia. So I don’t know what the number is for next year. If it’s less, it might be 10% or 15% less or it could come back. I mean we’ve seen this in other commodities where we’ve had experience in China, part of this could be demand, but the other part of it as Chris mentioned is a number of these distributors are getting weeded out through the challenging market that we had for the last few months. So this may be actually a good thing where we get to a bit more stable distributor base and hopefully we can see demand rebuild and then we’re very focused on developing the China market and so we do see this long-term market for us Paul. What the numbers will be next year, I think it’d be hard for us to really forecast, but it will continue to be a core market for us.

Great. Thanks guys, that’s more helpful.

Okay. Thanks Paul.

Thank you. The next question is from Hamir Patel with CIBC World Markets. Please go ahead.

Hi, good morning guys.

Good morning.

Most of my questions have been answered, but just one follow-up I had on the pulp business, just wondering if you had any thoughts about how contract negotiations in the industry going for 2016, are you seeing signs of buyers may be cutting back on their contract volumes in favour of putting more in the stock market?

Well, my memory must be escaping. I should know this, but I’m pretty sure it’s 2017 that we’re looking at negotiations, but we’ll get back in case I’m wrong, but I can tell you this much. It really hasn’t been an issue for us in the past. I mean we don’t see the buyers being too concerned about it and we’re really not that we’re taking our negotiations lightly. But I mean we are extremely focused on our relationships with our employees at every one of our mills, whether they are a union or non-union, and so that’s where our focus is. We’ve had very successful negotiations over the last number of negotiations and I don’t expect that to change going forward, but we’ll get back to whether it’s 2016, but I’m pretty sure it’s 2017.

Okay. No, I guess I was referring more to the actual contract prices in the NBSK market in terms of buyers potentially wanting to play more in the stock market versus...

Oh I thought you mentioned negotiations. I think that really I mean there’s so much fluidity to the pulp market and at the end of the day I think a lot, we are getting more and more to roll price, so whether you have a contract or not I don’t think it is all that rolled and it is really, what’s going on with the rolled price of pulp. So, I think people want to be kept competitive and so that’s what our expectation is, really no change from how pulp markets are, or how you manage our relationships to stay with our customers, we don’t really see that changing.

Fair enough. That’s all I have. Thanks.

Thank you. There are no further questions registered at this time. I would like to turn the meeting back over to Mr. Seraphim.

Well first of all thanks very much for calling in and hopefully we did our best to answer your questions and Larry and Rodger and I will be available if there are any follow-up questions later on today. So with that enjoy your day and thank very much for calling in.

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