By Ian Ross
The proponents of a North Shore wood-fibre mill will likely take their proposal to the capital market without the support of a lead equity partner.
Saying he had "no alternatives left," Graeme Lowry, president of Algoma Mill Works (AMW), will approach private and Bay Street financial institutions this fall to find investors to build a $105-million birch plywood mill.
Before severing ties in July with the Elliot Lake and North Shore Business Development Corp. (ELNOS), a venture capital firm, Lowry was hoping to secure about $5 million in leverage capital as a "show of faith" of regional support before approaching the private financial market.
In marking time for eight years to receive the provincial wood allocation needed to proceed with the mill, Lowry says "the time for waiting is passed" and they will shop the project on the capital market.
"We're in a tough spot because the company is going to try to launch the whole program, and it doesn't have significant funding in the bank to get all the work kicked off in terms of lawyers, financiers and getting a road show going to talk to institutional people about the project.
"It would help matters and assure the outcome if lead equity investors were to materialize, but at the moment we have to basically go to the market. There are no alternatives left, and we have to hope for the best outcome."
If built, the mill would represent a major economic shot in the arm for many of the stagnant communities along the north shore of Lake Huron. The project is projected to employ 200 in mill operations, plus a further 100 in harvesting and transportation. The annual payroll is tabbed at $13 million.
AMW believed they had secured some lead equity funding through the new Patten Post Diversification Fund Group. Eleven North Shore communities stretching from Thessalon to Spanish were eligible for funding under a special $14.6-million economic development fund. But since the money is administered by the Northern Ontario Heritage Fund, there are strict guidelines in place against directly subsidizing private-sector projects.
"There have been discussions with Algoma Mill Works as to what their needs are," says Mike Tulloch, chairman of the Patten Post communities, "but it won't be a case of getting money from us, because to fit heritage fund criteria they won't give money to the private sector. Anything done directly by Patten Post communities, whether it's studies or infrastructure development, is going to be working somewhat at arm's length from Algoma Mill Works."
A Patten Post delegation approached ELNOS officials in July offering to purchase their shares in AMW. ELNOS agreed and is asking for more than $500,000 for the shares, the amount the corporation says it has invested in the mill project since 1994.
Tulloch says the Patten Post communities are mulling over the offer and are reviewing the business and technical plans of the project before fully jumping on board.
"There's a certain due diligence that has to take place to ensure that the project is in fact viable," says Tulloch. "There's certainly an interest (among the 11 communities) to purchase them, but when you jump in, you jump all the way in."
Lowry says the Patten Post communities are taking a proposal to the heritage fund to obtain funding for further marketing, engineering and forestry research work for the mill, critical studies that could not take place without the wood allocation. With AMW being tied up in negotiations with ELNOS, many of those studies had to be sidetracked for the summer.
"We started this project with nothing and, while we still have next to nothing," laughs Lowry, "we've already cleared some unbelievable hurdles in terms of putting together an excellent business plan and in being one of the two successful proponents in the request for proposals (for the wood allocation).
"We would have been in a much stronger position in having a show of faith from the region and a vote of
confidence in the project. Time will tell if we will see any of this through."
