05 Aug

Take me somewhere expensive

Source: Internet


By accident, I’ve got involved in lumber, more precisely in lumber stocks, to be exact, one stock.
I can’t already remember why I wanted to buy lumber stock, but I’ve found this nice company Conifex Timber Inc. and what I liked about them was their power plant.
Exactly! It was a lumber producer that made an interesting decision and built a biomass (lumber waste) power plant.
I thought it was a smart way to diversify the lumber business, so in January 2019 I bought a tiny bit of shares at C$1.88.
As it can be seen in the chart below, my timing was really off, but back then I was thinking I was buying at the bottom, price just dropped from the height of ~C$6/share… yeah, right. 🙂

Anyway, stock price kept falling and I made the biggest “mistake” of all the rookie-investors and averaged down.
I bought more in May 2019 at C$1.24, but the stock was falling nevertheless.
I have to admit, I didn’t know much about lumber back then, I was just hoping (hope is not an investment strategy, hope is not an investment strategy, repeat after me: hope is not an investment strategy!) that a company with stable revenue from power plant can’t bankrupt.
Then came this:

October 1, 2019, Vancouver, BC – Conifex Timber Inc. (TSX: CFF) (“Conifex”) announced today that it has amended its lumber segment senior secured credit facility with its senior lenders to, among other things, provide additional short-term liquidity and waive certain covenants and milestones. Pursuant to the terms of the amendment, Conifex is required to provide an asset divestment and restructuring plan that is acceptable to its senior lenders on or before November 25, 2019, which could involve asset divestitures in addition to the previously announced sale of its Fort St. James sawmill complex and associated tenure to Hampton Lumber. Conifex is working collaboratively with lenders and intends to present and implement an acceptable asset divestiture and restructuring plan. If Conifex does not present a plan that is acceptable to its lenders by such date, it will be an event of default under its credit agreement and unless waived, Conifex would commence consensual voluntary proceedings under applicable debtor relief laws.

And the stock price dropped to C$0.20 and… I bought more shares! 😮
What happened is the USA imposed anti-dumping (thanks goodness not anti-dumpling, cause I like dumplings!) and countervailing duties on Canadian lumber back in 2017 and Conifex took on too much debt to buy some mills in the US at the top of 2018 lumber prices.
But in December 2019 they were able to sell those mills and pay the debt, they even had some cash left.
Share price came to life and rose to ~C$0.70.
Then happened coronavirus, lockdowns, and lumber prices collapsed along with share price.
I bought some more shares at C$0.42 in May 2020 as I saw that then Conifex CFO Jordan Neeser was buying in the public market.

Source: ceo.ca

Even though lumber wasn’t profitable yet for Confiex, power plant was generating electricity and making money, CFF was able to avoid bankruptcy.
Of course, CFO buying 50k shares added some confidence.

And then lumber prices took off…

The only lumber mill in Mackenzie, BC reopened in July 2020 and basically started printing cash.
I was buying more stock up to C$1.50 and Conifex announced buybacks in November 2020.

Lumber prices were shooting higher destroying demand along the way.
I think somewhere around this time “Take me somewhere expensive” lumber meme was born. 🙂
I’ve started to feel a bit uncomfortable watching lumber and see forum posts about the stock hitting C$5.00 soon when the price just crossed C$2.00.
In the end of March 2021, I have slowly started selling my shares and I’ve sold my last batch on May 10, 2021, at C$2.80.
I was able to make ~217% profit on my lousy investment!

Lumber prices still falling, but maybe they will stabilize at ~$500, but there are some headwinds for Canadian lumber.
The USA moves to double Canadian lumber tariffs, BC increased the cost of trees for lumber producers, forest fires, transportation shortages.
Canfor is even curtailing production in Canada:

VANCOUVER, BC, July 20, 2021 /CNW/ – Today Canfor Corporation (TSX: CFP) is announcing the curtailment of approximately 115 million board feet of production capacity at its Canadian sawmills during the third quarter of 2021 due to the significant supply chain challenges and transportation backlog in Western Canada as a result of the extreme wildfire conditions.

Even so, lumber prices are still historically high, will Conifex be able to produce and make any meaningful amount of money in the future?
Can it become a meme-stock? A petite lumber producer all alone against this cruel world. 😀

There were forum talks about a possible buyout, but looks like no lumber company wants a power plant and another mill in BC and no energy company wants a lumber mill.
I assume, selling them separately is a challenge as well.
Mackenzie power plant is a blessing and a curse for Conifex.

While owning CFF stock, I was researching more about lumber and stumbled upon YouTube channel of Uneducated Economist, which helped me a lot with my lumber education and trade decisions.
I owe him a beer or at least a couple of 2×4 SPF studs. 🙂

Also on April 12, 2021, GreenFirst Forest Products Inc. decided to buy six lumber mills and one newsprint mill from Rayonier. They have closed the deal on July 26, 2021.
Lumber prices have topped in May 2021 and are still falling.
Will GreenFirst have insolvency problems like Conifex in 2019? I don’t know, that the problem of GFP shareholders now.

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