Good morning, ladies and gentlemen, and welcome to the West Fraser Q3 2021 Results Conference Call. During this conference, West Fraser's representatives will be making certain statements about potential future developments. These forward-looking statements include certain statements about West Fraser's future financial and operational performance, including the impact of foreign exchange rates, credit ratings, and mill maintenance shutdowns; West Fraser's business outlook, including forecasted U.S. housing starts, market conditions, demand for products and available supply, and expectations concerning costs; West Fraser's capital plans, including the completion and ramp-up of capital projects and the benefits of such projects; the softwood lumber dispute, including adjustments to duty rates and related proceedings; the integration of Norbord into the West Fraser business and expected synergies; and recent developments, including the impact of wildfires, the recently announced acquisitions of Lufkin, Texas SYP lumber mill and the Allendale, South Carolina OSB mill, and West Fraser's plans to start the Allendale OSB mill. These statements include forward-looking statements within the meaning of Canadian and United States securities laws and are intended to provide reasonable guidance to investors. The accuracy of these statements depends on a number of assumptions and is subject to various risks and uncertainties that may cause future events to differ materially from the events implied by these statements. 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 management's discussion and analysis as supplemented by other risks and uncertainties as set out in the company's quarterly MD&As. These filings can be assessed on West Fraser's website or through SEDAR for Canadian investors and EDGAR for United States investors. Accordingly, listeners should exercise caution in relying upon forward-looking statements. After the speakers' remarks, there will be a question-and-answer session [Operator Instructions] Thank you. I will now turn it over to Chris Virostek. You may begin your conference.

Thank you, Chris. Good morning everyone and thanks for joining our Q3 2021 earnings today. Chris Virostek, CFO and I'm joined today in our Vancouver office by Ray Ferris, West Fraser's President and CEO; Chris McIver, Senior Vice President, Marketing and Corporate Development; and several members of our Executive team. This morning, I'll start with a brief recap of our Q3 financial results and then I'll pass the call to Ray, who will provide an update on the business, including a discussion about some of West Fraser's recent activities, the opportunities we see ahead for the company, followed by a few concluding remarks before we transition to Q&A. In the third quarter, we experienced a significant product price reduction from levels in the first half of the year across lumber, OSB and plywood. In addition to softer demand in the third quarter, we faced several other challenges, including a very active wildfire season in BC, which affected our ability to access the land base and to ship our products, transportation availability constraints and raw material and other input price challenges. We had three separate shutdowns in our pulp business, including an unscheduled outage at our Cariboo mill and an extended annual shut at pulp. Higher power costs in the summer also negatively affected the pulp mill. We also faced disruptions from a log yard fire at our shipment BC lumber mill. Throughout the period, we adjusted the pace of our operations across our business to respond to these challenges. This resulted in a lower level of shipments than we experienced in the first half of the year. Despite these headwinds, in our core markets, the benefits of our product and geographic diversity of production were a significant advantage in the quarter. We had continued strong results in our EWP business,…

Thank you, Chris. And now thanks to everyone for joining our call today. I will be referring to a few specific slides in our deck during my comments today. As Chris has noted, despite quite challenging operating conditions in several regions, I'm pleased to report that the third quarter 2021 was another strong quarter for West Fraser, as our team remained resilient and agile working diligently to minimize COVID-related business disruptions. In particular, our BC interior Cariboo lumber and plywood operations were the most heavily impacted in the quarter due to wildfire activity. It's important to note that these operations are highly integrated and that we often extract both a plywood log and a saw-log from the same tree. I'm proud of the agility of our BC team to manage the integrated wood, plywood and lumber and MDF products business in a responsible manner and overall profitable through a very challenging time. On February 1st, 2021, we acquired Norbord and although we are just nine months renewed, it is very exciting to see the benefits of the product and geographic diversity that acquisition has brought to Fraser. And although there's several areas that I can highlight, I thought I would just pick a few. So, first, product diversity. Our OSB team experienced market and operational challenges as well in Q3, yet despite these hurdles, our results were strong, driven in part by our continued growth in our specialty OSB business. So, as you can see on slide three, the specialty business, which comprises sales of our OSB products into industrial and export markets has continued to expand and now accounts for approximately 30% of our North American shipments, up from approximately 23% five years ago. Looking at the numbers, you'll see that this ongoing and strategic shift to specialty has…

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Mark Wilde, BMO. Mark, please go ahead.

Thanks. Good morning ray, good morning Chris.

Good morning Mark.

To start out, I wondered, Ray, could you just give us a little perspective on the rally that we've seen in the Wood Products markets over the last eight weeks and some of your thoughts on where you see us going through the balance of the year?

Well, good morning Mark and perspective, that's a good one. So, I'm going to ask Chris weighing on that, but I -- go ahead, Chris.

Good morning Mark.

Hi Chris.

Yes. Just I mean, I think there's a few things. Housing, we've slowed down sort of in the second quarter, or late second quarter or the third quarter. But the really big change for us was around R&R and DIY. And we've really seen both those sectors come back very strongly as prices come back possible OSB Lumber. And housing is still struggling a little bit I think with supply chain issues, but the underlying demand is there. So, I think a combination of all of those. I think the big factor for the drop in pricing, by the way, we fully expected sometime was that it was really the R&R and DIY, not as much a single-family housing back-up. And as it's come back and people have kind of reengaged, we've seen a pretty good rally into a spot where we think that for the next little while, we will see some sort of seasonal slowdown. We expect in the next month or two. And all those sectors, we see the demand, future demand is pretty strong.

Okay, that's helpful. Ray, the second question I have is -- for as long as I've dealt with West Fraser for many years, the thing you've always talked about is the importance of being vertically integrated how it was in Canada. And I'm just curious whether your experience in the Southern US and in Europe, where you're not vertically integrated, has -- is leading you to kind of rethink the strategy in Western Canada at all?

Well, thanks, Mark. And what I think we've said before, I mean, as we look, particularly in the US, where I think there's some very significant differences between our Western Canadian operations is that the need to be vertically integrated in the US, South in Europe. There's frankly a lot more markets and opportunities for chips, residuals and those types of things. And so, when you think about how the company started and how it's grown and how -- we were very much of BC, Western Canada centric with less -- you needed to control or be involved and have those. It's less important in these other areas or regions and markets. So, it hasn't been key to our strategy. And so, as going forward, I mean, our Canadian business remains to be integrated. And we like that platform. But in the US and Europe, it's just not that important and it's not part of our focus on being vertically integrated in those other regions.

Okay. All right. And then the last one is, one for Chris Virostek. I wondered, Chris, if you could just talk about the input cost pressures you're seeing, because the third quarter number, I mean, $50 million is not insignificant. But given what's going on in transportation, given sort of the -- some of the appeals we've seen in areas like resi, I might have actually expected that number would have been a bit bigger. So can you give us just some perspective on the third quarter and what you're expecting in the fourth quarter?

Sure. We'll try to give a bit more color on that, I guess. We operate in a number of different fiber baskets and the dynamics of how those fiber prices move is kind of different in each of those things. And I think the other thing to remember is that in the case of the fiber procurement in the regions that we operate in the north, it's not a sort of linear procurement of fiber throughout the year. So, there's a big seasonal element to that. So, -- and a lot of those things are linked to the commodity prices with varying degrees of lag. So, I think, we're starting to see in some regions on the fiber cost some relief. In other regions like BC is going to be into the first quarter before we start to see that relief. On the other inputs like energy, transportation, we've dealt with challenges there for a while. It's just the order of magnitude of those. Transportation, it's been availability has been a challenge there. I think, we're starting on tower. As we move into the winter, it's probably getting a little better. But we've got to manage through these things all the time, right? And fiber being the biggest element, we think, particularly in BC, there's one more quarter before we turn the corner on BC fiber as that in the public domain in terms of the stumpage. But the others, we've got to work our way through that every time.

Chris, has the energy issue over in Europe have been big enough to cause any disruptions for you in the European operations?

It's been a cost pressure. It's not disruptive us or taking us off or kind of our offering. And I think recently, they've started to ease. But operationally, no impact, certainly an impact on cost. But hopefully, that's an answer for it. But it does look like things are easing somewhat. But energy prices around the world are quite frankly an issue I think from a company point of view, kind of how I think through that Mark is sometimes it's hard to predict what will happen, whether it's in the China or Europe or Alberta or the U.S. itself on some of these types of things. But what I do like is our diversity is that that platform and that portfolio have allows us to kind of shift things around as needed to respond to the market and/or muted the impact of those issues.

Yes. Okay, that's helpful, Ray. I'll turn it over. Thank you.

Thanks Mark.

Thank you. Your next question comes from Sean Steuart, TD Securities. Sean, please go ahead.

Thanks. Good morning guys. If you're listening in congratulations to Peter on a really great run. A couple of questions. Europe was exceptional this quarter and very strong price momentum across your product portfolio there. Can you give us a sense of how that's trended into the fourth quarter? There was in the MD&A wording around strength continuing into Q4? And should we read that as prices continuing to improve or leveling off at really high levels, how should we think about the trajectory near-term?

So, good morning Sean. And so listen, Peter is sitting right here beside me. So, thank you for that. And with respect to Europe and things has softened a little bit in the fourth quarter. But I think that's -- third quarter was exceptionally strong. Maybe the market has softened a little bit, whether it's seasonal or rather it's leave that to others. But I think the message really is, is that our operations continue to strengthen there, that we're well positioned to kind of execute on the opportunities that are there. And I think our view is that that is a strong business. As we look forward to coming into 2022, we kind of expect that with reasonable markets to perform quite well.

And with the strength in Europe, has the M&A opportunity set there changed in light of how strong markets have been, especially through the back part of this year?

I'm not sure I can answer that well, Sean. I think anytime, whether it's Europe or the wherever you are, I think, strong pricing, good results brings stuff to the market. So, I can't say whether it's changed or whether it's the same. But I do think these sort of times do encourage probably more opportunities. But I'm not sure that's relative to change from quarter-to-quarter sort of them.

Okay. Last question for me. Allendale, it was our impression that the current owner of the asset, part of the reason to take the mill down was labor issues in that region. How do you guys assess the labor availability in South Carolina? And does that informed the pace at which you expect to restart the asset? Any context on that issue.

So, what I would say is that, look, we're very excited that this opportunity came on. And we think about the well a, the quality of the outset, notwithstanding there's some debottlenecking that we need to do, and we're going to invest to -- Peter and his team are I think they've got their arms around that, and we're confident on our plan. The fiber basket, the proximity of the markets, proximity to our other businesses, those types of things, we feel pretty strong about. Labor markets are difficult everywhere. And so I -- whether it's route the U.S. South or in Northern Canada, these are challenges. I think what I'm most -- I think, we've talked about this, the critical mass that we have and particularly in the U.S. South, I think our people are well suited to kind of take on the challenge of overcoming a difficult labor market. So, I think that's part of our underlying strategy to quite frankly achieve our expectations in the USA. So, I would draw a circle around Allendale. I'd say that that's a challenge that we have in every one of our operations. And I think the team has done a very good job demonstrating that they're up to that challenge.

That's helpful detail. Thanks very much Ray. That's all I have.

Thanks Sean.

Thank you. [Operator Instructions] Your next question comes from Paul Quinn with RBC. Paul, please go ahead.

Yes, thanks very much. Morning guys.

Morning Paul.

Interesting quarter. You did a lot lower in lumber than I anticipated but a lot better in OSB. But so maybe just to start on the lumber side, you were down like over 90% sequentially versus a competitor has got a less favorable geographic footprint and it was down in North America only 76%. Is there something that happened within your lumber operations in the quarter that that was problematic for you?

Well, that's a good question, Paul and I'll try and address it. I'd say, BC wildfires activity was heavily concentrated in the areas which we operate. And we were pretty -- and we're significantly impacted. And so, saying that, we did continue to ship at some of our operations even though our saw mills were down. But with a lot of our mills down and that increases cost significantly, even though, we were still able to shift out some of these regions and kind of bringing our inventories down. The other part of it is that I think if you recall, the record high pricing that we saw in our lumber markets a few months ago. When we think about and we think about what the stumpage that was being paid in Alberta, which was very, very high. A lot of those costs were still in our Alberta operations, even though markets have dropped. So, there's a couple of things that I think that we think are very short-term, that we'd expect as we go into Q4 and Q1 of next year that shouldn't replicate. But it's a little bit of a lag in Alberta. And quite frankly, the significant impact West Fraser saw in British Columbia around wildfire and what happened there.

Okay, that's really helpful. Maybe just discussing Angelina's acquisition. I mean, it's an expensive acquisition. On your Investor Day, you highlighted deadly, which was this idea of building a new sawmill adjacent to existing? And it sounded like you had a runway of those opportunities. Why do you think Angelina is supposed to a deadly like do over?

It's not one or the other. It's both. I'd say, no, we do have other projects like LA Project. We're either to continue on that path. The opportunity for Angelina came up. And so, we don't take when those things come available and -- but it's not one or the other. It's really both. And so -- and I think we're -- should those similar opportunities come up in the next year, where we do want to do another Dudley. And gosh, there's another Angelina. I hope we'd be there doing both of them again.

Okay. And then moving over to -- I'd like to offer my congratulations to Peter for to making it to retirement. And just maybe a question for them, because on the Allendale facility, $70 million you guys are spending there, what is the issue with that mill? And everybody in the industry has wondered why it hasn't been brought up in the last number of years. But the majority of the $70 million, is there a big bucket even that needs to be replaced or fixed in that?

Morning Paul. Well, I think this mill has a very solid press and finishing line for the present finishing. It is, in our view overly complex feeding into that part of the process. And so, this $70 million really has two intentions. One is to this military idle for a number of years in each bunch of maintenance. But more importantly, we would like to take that complexity out of the system, so that the mill is more easily to operate both, instead of work. And that also will help us with an earlier question around hiring people to operate the mill. So, that's the intent. Peter and Kevin have convinced us and the rest of the team not convinced us, but world-class back end, and I think Peter and the team have a very good idea, well, not a very good idea, to know exactly what we're going to do in order to kind of fix the front end and then transform this well. But it is front-end versus back end.

Great, that's helpful. Thanks guys. Best of luck.

Thank you.

Thank you. Your next question comes from Mark Wilde, BMO. Mark, please go ahead.

Thanks. Ray, just to talk maybe your other acquisition, Angelina. Is it possible to get a sense of like why it would take three or four years to get a mill that's already been running for almost two years? How would take that long to get it ramped up to full production?

Mark, I'm agreeing with you. I think that's too long. So, I think you're bang on. I think I would say that, what we -- believe it or not, we're pretty conservative on how we do analysis and kind of -- and how we look at doing some of this stuff, and that's probably too conservative, and our expectations would be do it much quicker than that, but it's kind of in a way, to me that's too long. But that's kind of how we looked at it when we were assessing the opportunity.

Okay. I wanted to also just talk a little bit about kind of southern fiber prices, which have been really, really low for the last 12 or 14 years. I'm picking some stuff from not large brand managers. But we are starting to see some pockets of acceleration maybe Central Alabama and some other places, where there's a lot of new demand coming to the market. First, I'm curious, are you seeing any of that? And then, secondly, when you look at deals across the south in lumber, have you been underwriting as kind of anything close to kind of current log price levels going forward?

So, just maybe help on the second one here. But on the first one on fiber prices. Look, yes, we've seen -- I don't know if it's different than years past. But we've certainly seen pockets where there's been significant -- or short-term log price spikes. It's much less of a kind of supply and demand, it's more about weather. And it's become more around contractors, the number of contractors, the amount of supply. And when you have extreme weather events, which we saw in kind of that Florida, Georgia region for an extended period of time, the industry can't respond with the logs are out there, but can also have a difficult time responding to -- get back to inventory levels. So, -- but I'd say primarily driven by wet weather and then once weather returns, because the logs are there and generally, we typically see the prices come back. But there's no question we're seeing pockets of issues, but weather. And then, the second part of it is constraints on suppliers, contractors and labor.

On the second question, Mark, I think, when we do these evaluations, it's very specific to the regions. And I think we have pretty good insights in the regions that we operate and the regions that we look at around long-term fiber availability and security, right? And that's part of the calculus that we do. It's, I think, as both of you have friends, it's very region specific. And we take those regions specific considerations into consideration, when we're looking at whether it's M&A or whether it's organic capital, it's a region specific fiber availability that held part of the capitalize.

Okay. All right. Last one for me. Just possible to get an update on the ramp-up at Chambord?

Sure. So Mark, I think, we're ahead of our start-up schedule. And Peter may want to jump in here. But we've been certified across pretty much all of our key products and thicknesses and from an AP point of view. But -- but we're on track or ahead of track of what our forecast was. It's proceeding well. And I'm not sure that's a great answer to your question, but the start-ups going well at this point.

Okay. Well, let me just add my congratulations to the other folks to Peter. It's really been a great thing to see kind of the transformation of Norbord over the last several years and then the combination with West Fraser.

Thank you.

Thank you. There are no further questions at this time. Please proceed.

Well, look, thank you, everyone for joining us today. And we look forward to talking to you in the fourth quarter. Thanks everyone.

Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.