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A West Fraser lumber mill

JOHN LEHMANN/JOHN LEHMANN/GLOBE AND MAIL

West Fraser Timber Co. Ltd. says it will permanently close its Eurocan paper mill in Kitimat, B.C., on Jan. 31, putting more than 500 people out of work.

Vancouver-based West Fraser blamed the move on the recession's impact on the forestry sector and the rising Canadian dollar .

After years of cost cuts and reviews of Eurocan's operations, West Fraser president and chief executive officer Hank Ketcham said closing the mill is "the only reasonable alternative."

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"We deeply regret the impact the mill closure will have on our 535 employees, their families and the community and we will ensure those who are affected are treated with fairness and respect," Mr. Ketcham stated in a release Wednesday.

West Fraser said the 40-year-old mill, which produces linerboard and kraft paper, has struggled over the years with high costs and negative returns.

It said sawmill curtailments in the region, as a result of a slump in demand for lumber, has reduced the supply of lower-cost wood chips to Eurocan. That has left the mill to rely on more expensive whole log chips, the company said.

In the past year, West Fraser said prices for the mill's products have fallen by 40 per cent.

The company listed the global economic slowdown, the rising loonie and severe competition from low-cost paper producers in other countries as reasons for the drop in prices.

West Fraser said it will take a $138-million charge in the third quarter related to assets at the Kitimat facility.

It also expects to incur costs of about $70-million over the next few quarters related to the shutdown of the facility, which is located about 640 kilometres north of Vancouver.

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Eurocan was built in the late 1960s and West Fraser became a joint venture partner in the 1980s. It acquired the operations in 1993.

Eurocan produced about 450,000 tonnes of paper products annually, or about 2 per cent of total Canadian pulp and paper production.

About 75 per cent of Eurocan's paper production is linerboard, used in cardboard boxes, and about 25 per cent is kraft paper, used in a variety of applications such as cement packaging.

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