RusForest AB (publ) (“RusForest” or the “Company”) (NASDAQ OMX: RUSF), a Swedish forestry company with operations in Russia, has engaged AS Hekotek (“Hekotek”), a mechanical engineering company, to build a wood pellet production facility at the Company’s LDK-3 sawmill in Arkhangelsk.
RusForest has completed a review of its Arkhangelsk assets and has identified the region as a core focus for the Group. Following the recent divestment of the Shenkursk sawmill, the remaining assets in the region include the LDK-3 sawmill with annual sawnwood capacity of 120,000 cubic meters and forestry leases with annual allowable cut (“AAC”) of 958,800 cubic meters. The Company has recently hired a new management team in Arkhangelsk led by Mihkail Papylev, the former CEO of the Arkhangelsk pulp and paper mill.
As previously disclosed, the Arkhangelsk region is suffering from financial difficulties in the pulp sector, and the Company’s sawmill residual revenues are at risk. In order to address this situation, RusForest has engaged Hekotek to build a wood pellet production facility with up to 100,000 tons of annual capacity. The pellet facility will allow RusForest to monetize its sawmill by-products by exporting wood pellets to Europe.
Total investment for the pellet plant is estimated to be approximately EUR 10 million before value added tax (“VAT”), with approximately 70 percent expected to be financed by local bank facilities. The investment will benefit from the Company’s previous EUR 1.6 million deposit made to Hekotek in 2008.
Anton Bogdanov, the Company’s COO, commented, “We are fortunate to have Mihkail Papylev and his team join RusForest, and I believe they will add significant value to the northwest assets. The pellet investment is crucial to make our Arkhangelsk sawmill profitable. The LDK-3 sawmill benefits from a unique port location with favorable logistics for shipping sawnwood and pellets to Europe. A pellet facility will help insulate our operations from the financial situation of the local pulp mills.”
Mikhail Papylev is the former General Director of the Titan Group, which has forestry operations in the Arkhangelsk region with 1.5 million cubic meters of AAC and a sawmill with annual sawnwood capacity of 350,000 cubic meters. Before Titan, Mr. Papylev was General Director of Sawmill 25 and the Tsiglomen sawmill in Arkhangelsk. He has extensive experience with capital intensive projects in the region, including building the two most modern sawmills there, as well as wood pellet production facilities with annual capacity of 75,000 tons. Mr. Papylev has overseen total investments of more than EUR 110 million and has arranged local bank financing of more than EUR 50 million.