Tuesday, January 24, 2012

The loss of another mill

The explosion at Babine Forest Products is horrific in the short term for the community.  The death of some of the mill workers will hit the community in a way that people in urban centres can not understand, in a town of 3500 people, everyone will have known the guys that died.  

People are already considering what will happen to Burns Lake now that the mill has been destroyed.

The Babine Forest Products mill had a capacity of 350 million board feet of lumber per year, this is the largest mill operated by Hampton Associates.  Hampton Associates still has a smaller sawmill in Burns Lake, Decker Lake Forest Products, but this mill only has a production level of 85 million board feet per year.

Rebuilding the mill has a several issues that need to be addressed:

  • The cost to build a new mill - in this case one should expect to pay over $100,000,000 to build a comparable mill.
  • The volume of timber needed to supply the mill.   The current mill needs somewhere around 900,000 cubic meters of timber per year to operate.    That is a lot of wood.   To justify building the mill you would need to have at least 15-20 years of secure timber supply.   I have no idea if there is the timber volume available for another mill of this size.

In theory there could be a smaller mill built in Burns Lake, but I do not see how this makes much sense for Hampton.   The money needed to build a mill of the size and scale of Decker Lake is still more than a community like Burns Lake can afford.  

I have no idea how the mill was insured, but there could be an insurance windfall for Hampton from the mill being destroyed.

The loss of the mill is a loss of 250 direct jobs in Burns Lake.   There are about 2000 to 2200 people in the work force in the Burns Lake area.   The loss of these jobs is about an 11% increase in unemployment all at once.   I suspect the unemployment rate in Burns Lake is now around 20%.  

To put this in terms of Victoria BC, this is as if 25,000 lost their jobs all on one day.

The impact of the loss of these jobs on the community is more than just the immediate jobs.   Anyone that serviced or supplied the mill will have lost most of their work.   In the next year the loss of mill worker wages in Burns Lake will amount to something around $7,000,000 - workers should get EI which means this loss will not be as big as it could have been.   This may not sound like a lot, but it represents a reduction in the local economy of about 6%.  

If we look at the wider economy, the unemployment rate is likely to rise to more than 30% within a few months.   The economy is likely to shrink by 15% or more within the year.  

Burns Lake is going to see a large out migration in the next year which means the value of houses will fall.  People will not be able to pay their mortgages and will end walking away from their homes.   Businesses that have bank loans are very likely to going to asked to repay them in full and from that be forced into bankruptcy.

For the Village of Burns Lake this means a loss of property taxes.   But their property tax loss does not end there, the mill property is also within the village boundaries.    Burns Lake's property tax rate is 6.3 times higher for industrial properties than residential properties.   The impact on the loss of the mill will not be felt in 2012, but in 2013 when the assessed value of the property falls dramatically.

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