Canadian Manufacturing

Purchase of larger boiler pushes cost of Tembec’s Temiscaming upgrade up 24%

Replacing three low-pressure boilers with single boiler to burn waste sulphite liquor

MONTREAL—The cost of Tembec’s “game-changing” upgrade at its specialty cellulose mill has grown by 24 per cent despite securing more favourable construction bids.

The forest product company has selected a larger, more efficient boiler than originally planned for its mill in Temiscaming, Que., which has raised the project’s price tag to $235-million.

Most of the $45-million increase is due to higher labour costs to accommodate bigger concrete footings and other changes to the scope of the design.

“There has been a major evolution in the project,” CEO James Lopez said during a conference call to discuss second-quarter results.

Tembec is replacing three low-pressure boilers with a single boiler to burn waste sulphite liquor generated in the cellulose manufacturing process.

The upgrade is slated to be completed in September 2014, about four months later than originally planned.

The boiler being purchased is 20 per cent larger, more efficient and calls for less planned maintenance downtime.

The annual financial benefits of the project have also been increased by $6-million to $48-million.

“It certainly provides us with that extra capacity, a better fit for Phase 2 of our Temiscaming investment,” Lopez said of the planned capacity expansion.

The company put its most expensive capital spending project in years up for rebidding after high submissions forced it to delay construction last September.

“The good news is that that has paid off,” he told analysts.

After many large mining projects in Quebec were cancelled or delayed, contractors that chose not to bid on Tembec’s project showed an interest, while existing bidders submitted lower offers.

“So we’re now coming in with certain major portions of the equipment and building erections that are looking much more competitive,” Lopez said.

A total of $94-million has been spent on the project so far, with $80-million expected to be spent this year and the rest in 2014.

The company is negotiating with lenders for the extra funding.

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