Ms. Winny Tang reports

CONIFEX ANNOUNCES FIRST QUARTER 2023 RESULTS

Conifex Timber Inc. has released results for the first quarter ended March 31, 2023. EBITDA (earnings before interest, taxes, depreciation and amortization)* was negative $6.9-million for the quarter compared with EBITDA of $20.1-million in the first quarter of 2022. Net loss was $8.1-million or 20 cents per share for the quarter versus net income of $11.4-million or 28 cents per share in the year-earlier quarter. The results reflect reduced operating earnings on lower lumber prices and reduced shipments, reflecting transportation challenges which impacted lumber production.

Selected financial highlights

The attached table summarizes the company's selected financial information for the comparative periods. The financial information reflects results of operations from its Mackenzie sawmill and power plant.

Consolidated net earnings

During the first quarter of 2023, the company incurred a net loss of $8.1-million or 20 cents per share compared with $200,000 or nil per share in the previous quarter and net income of $11.4-million or 28 cents per share in the first quarter of 2022.

Outlook

The company expects lumber markets to continue to experience weakness through 2023 as global market conditions continue to evolve. Inflationary pressures and higher interest rates affecting consumer spending in the housing and repairs and remodelling markets have resulted in weaker lumber market prices than seen in recent years, and are expected to persist through the rest of the year. While lagging U.S. housing completions and tempered repair and remodelling activity, as well as elevated levels of offshore lumber imports, have affected market demand for lumber products, demand and market prices are expected to see a gradual increase in the second half of 2023.

At its Mackenzie sawmill, the company expects to see an increase in lumber production over 2022, with the expectation of achieving annualized operating rates of approximately 85 per cent for the remaining nine months of 2023 on improved sawmill operating rates. It anticipates an improvement in operating costs in 2023 as a result of decreased unit fixed costs on higher lumber production volumes and availability of sufficient logs for continuous operations at its sawmill. It is optimistic that the company will realize a high volume of lumber shipments in 2023 that matches its sawmill production as the transportation challenges faced in 2022 have largely been resolved.

Its power plant is forecasted to generate a steady and diversified source of cash flow throughout 2023 following its restart on Jan. 31, 2023. It expects its power plant to average uptime in excess of 90 per cent for the rest of 2023. It anticipates that BC Hydro may not exercise its turndown option in 2023 based on anticipated energy requirements and expects that its power plant will largely be generating electricity continuously through 2023.

It anticipates maintaining high levels of working capital through the balance of 2023 and anticipates that operating cash flow levels and available liquidity will be supported by its working capital levels as the company progresses through the year. It continues to prioritize financing quick-payback sawmill upgrades and exploring the potential development of its HPC business.

Annual allowable cut (AAC) determination released

On May 4, 2023, the Chief Forester's rationale for allowable annual cut (AAC) determination for the Mackenzie timber supply area was released. Effective from the release date, the new AAC for the Mackenzie timber supply area (TSA) will be 2.39 million cubic metres per year. This AAC will remain in effect until a new AAC determination is made, which generally must take place within 10 years of this determination.

The new AAC for the Mackenzie TSA is below the current AAC and the base-case harvest projection released in July, 2022. However, the actual harvest within the Mackenzie TSA over the past 20 years averaged 2.5 million cubic metres per year, which are in line with the current AAC determination. Further, the abolition of a biological or salvage partition means its harvest will be directed entirely at a green timber profile. The Chief Forester has also set a maximum of 1.17 million cubic metres that may be harvested in the southwestern area of the Mackenzie TSA (the area that is west of Williston reservoir and south of Omineca Provincial Park and the Omineca arm). It believes the specified partition should assist the economic sustainability of its lumber manufacturing and power plant operations.

The harvest level determination also implies sawlog surpluses are likely to persist in Mackenzie relative to current local milling capacity and sawlog demand. This fact is unique compared with other TSAs in the B.C. Interior, where sawlog availability is insufficient to support capacity operations at converting facilities. As a result, the company has the potential to expand its traditional forestry business in Mackenzie by modernizing and expanding its sawmill complex once the Ministry of Forest's apportionment and related regulatory decisions, if any, are settled.

Revenue diversification opportunity

In March, 2023, the company entered into a hosting service agreement with Greenidge Generation Holdings Inc., a Nasdaq-listed data centre and power generation company. Tsay Keh Dene Nation is collaborating with the company in supplying hosting services to Greenidge. Under the agreement, the company expects to host 750 miners at its three-megawatt HPC site located on its Mackenzie property. Its hosting services include the supply, maintenance and operation of critical electrical infrastructure and the performance of certain data centre services related to security, safety, information technology and continuing operations. In return for its services, the company will be paid a hosting fee and a market-based performance fee.

On Dec. 21, 2022, the Lieutenant-Governor in Council for the Province of British Columbia (LGIC) issued an order in council (the OIC), directing the B.C. Utilities Commission to, among other things, accept BC Hydro's request to suspend its obligation to supply service to certain new cryptocurrency mining projects in British Columbia for a period of 18 months.

Two of its proposed HPC projects were impacted by the OIC. As a result, in April, 2023, the company filed a petition in the Supreme Court of British Columbia, seeking judicial review of the OIC. It believes that the OIC exceeds the statutory powers granted to the LGIC under the Utilities Commission Act, is discriminatory, and breaches statutory and common law restraints on the LGIC's delegated power. It is seeking an order quashing and setting aside the OIC as unauthorized or otherwise invalid.

Concurrently, the company filed a notice of civil claim against BC Hydro in the Supreme Court of British Columbia, seeking an order requiring BC Hydro to supply service to its HPC projects. The claim also seeks general damages. The notice of civil claim alleges that BC Hydro's failure and refusal to supply service to its HPC projects are in breach of BC Hydro's common law obligation to supply electricity and unfairly discriminate against Conifex vis-a-vis other commercial customers.

Conference call

The company has scheduled a conference call on Tuesday, May 9, at 2 p.m. Pacific Time/ 5 p.m. Eastern Time, to discuss the first quarter 2023 financial and operating results. To participate in the call, please dial 416-340-2217 or toll-free 1-800-806-5484, and enter participant passcode 9831403 followed by the number sign. The call will also be available on instant replay access until June 8, 2023, by dialling 905-694-9451 or 1-800-408-3053 and entering participant passcode 7214513 followed by the number sign.

Its management's discussion and analysis and financial statements for the quarter ended March 31, 2023, are available under its profile on SEDAR.

About Conifex Timber Inc.

Conifex and its subsidiaries' primary business currently includes timber harvesting, reforestation, forest management, sawmilling logs into lumber and wood chips, and value-added lumber finishing and distribution. Conifex's lumber products are sold in the United States, Canadian and Japanese markets. Conifex also produces bioenergy at its power generation facility at Mackenzie, B.C.

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