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Risk Analysis of Forest Industry Mills: Sun Paper

How well capitalized are mills in a given market? How viable and likely to succeed are announced greenfield investments in the U.S. forest products industry? This is an important concept for understanding risk, returns and future market prospects in a given wood basket or timber market.

For the ranking and assessment of operating mills, we have used versions of the following criteria to evaluate the health – the likelihood of longer-term operations (10+ years) in the market – for facilities in a given market.

  • Operating: is the facility open, buying wood, and producing end product?
  • End market: does the facility produce a competitive, in demand end product?
  • Capital investment: has the firm/parent company made a capital investment in the mill within the past five years?
  • Commitment: has the firm/parent made other, non-capital, commitments indicating support for the facility? This may include certifications, hiring and investing in the community.
  • Parent company: is the owner/parent company of the mill financially secure based on debt ratings and, when available, RiskMetrics assessments of Corporate Governance?


All criteria are scored on a 1 (yes/positive), 0 (unknown, unclear, not noteworthy) and -1 (no, negative) basis. This approach relies on and leverages public data sources, financial statements and communications with individuals knowledgeable with the local market. Repeated application of this approach over the past ten years has found that this type of systematic analysis efficiently and accurately highlights mills and markets that require further due diligence and capital investment opportunities.

When assessing newly announced mills, it helps to add other factors. Consider the Sun Paper mill project in Arkadelphia, Arkansas. This to-be-built project has been on the table in our analyses since 2011, when reports surfaced of the firm exploring sites in Arkansas. While Shandong Sun Paper Industry has experience with U.S. firms, such as a joint venture with International Paper in Southeast Asia, this would be their first U.S. mill. And since going public, the project has modified specs, moved timelines and leveraged public funding.

Originally announced as a fluff pulp mill, it appears the firm now plans to produce dissolving pulp for export to China. While construction was supposed to start by mid-2017, Sun Paper lacked required permits as of November 2016, according to firm statements. And the state of Arkansas and Clark County have been generous and patient. According to ArkansasBusiness.com, a partial list of the public financial incentives include:

  • $10 million in cash from Clark County’s economic development sales tax for infrastructure costs;
  • 65% abatement of property taxes for the project, worth about $92 million over 20 years;
  • Create Rebate: a 10-year cash rebate equal to 5% of new payroll;
  • Tax Back: sales tax refunds on building materials, taxable machinery and equipment;
  • $12.5 Million Grant: provided for site preparation and equipment through a combination of Community Development Block grant funds and the Governor’s Quick Action Closing Fun;
  • Training Grant: Arkansas Economic Development Commission (AEDC) providing up to $3 million in workforce training funds; and
  • $50 Million Fully Collateralized Loan: provided through multiple state sources.


For announced wood-using facilities, our experience with tracking bioenergy projects has been that delay equals doubt. This is especially true for pulpwood using plants in the U.S. South, where pulpwood supplies continue to tighten, requiring higher assumed raw material costs for these projects in the future. For a 3 million ton-per-year project like Sun Paper, each year of delay can increase the year one raw material budget by $1.5 to $4.5 million, depending on the mix of wood types and availability of residual chips from sawmills.

The post includes topics addressed in the upcoming “Case Studies in Timber Finance and Forest Industry Capital Investment” on January 18th, 2017 in Vancouver, Washington. For more information, click here.

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