AbitibiBowater ignites election firestorm with permanent mill closure (AbitibiBowater)

MONTREAL _ Newspaper giant AbitibiBowater Inc. (TSX:ABH) ignited a political firestorm in the midst of the Quebec election Thursday by quietly announcing the permanent closure of an idled paper mill.

The Montreal-based paper producer announced in its third-quarter results the closure of the Donnacona mill, along with a paper mill and sawmill in Mackenzie, B.C. Both facilities had been temporarily shut earlier this year.

The union representing about 250 workers in Quebec were incensed by the move and accused Premier Jean Charest of abandoning workers by agreeing to let the company to walk away from its obligation towards the mill until 2011.

``We have been betrayed,'' said Robert Drolet, local president of the Confederation of National Trade Unions.

But Economic Development Minister Raymond Bachand countered at a news conference on the campaign trail that the government had saved hundreds of jobs at two other facilities that have received transferred work.

``Donnacona will close but there was at maximum a five per cent chance that it could stay open. We succeeded in saving two and have done our job,'' he told reporters.

AbitibiBowater said the changes to permanent closures were accounting moves.

``These sorts of things are always difficult but we can't deny the economic and market realities that we're facing,'' company spokesman Seth Kursman said in an interview.

``It's our job to manage in that environment and to do so in a way to protect the long-term viability of the whole enterprise and that's what we're doing.''

After cutting 28,000 tonnes of capacity in the third quarter, AbitibiBowater plans to trim 35,000 tonnes monthly in the fourth quarter, primarily at mills that use recycled paper.

These include facilities in Thorold and Thunder Bay, Ontario.

In 2009, it expects to take 50,000 tonnes of temporary monthly downtime at a variety of sites.

But decisions about permanent closures will have to wait because of the volatility of energy, currency and recycled fibre costs, AbitibiBowater CEO David Paterson said during a conference call to discuss third-quarter results.

He said the dramatically lower Canadian dollar and plummeting price of recycled fibre may prompt U.S. mills to bear a bigger brunt of the layoffs.

``Canada is very competitive at 85 cents,'' he told analysts.

The lower loonie changes the dynamic as it focuses taking downtime or curtailments at the highest cost mills across its North American network.

Each one cent drop in the Canadian dollar adds $29 million in annualized earnings. The dollar has dramatically dropped to about 85 cents US on Thursday, from an average of 96 cents US during the third quarter.

During October-December period of 2007, Canada's dollar was worth more than the American buck for the first time in decades, putting incredible pressure on companies depending on U.S. exports.

AbitibiBowater lost US$302 million or $5.23 per share during the period ended Sept. 30, on sales of $1.7 billion.

Year-ago numbers are not comparable, dating from before the October 2007 combination of Abitibi-Consolidated Inc. and Bowater Inc.

AbitibiBowater shares closed down 13.28 per cent in trading on the Toronto Stock Exchange, falling 32 cents to $2.09.

RBC Capital Markets analyst Paul Quinn said the plunge resulted from disappointment over the results.

He said the company faces a real challenge deciding where to close mills because of the volatility of key costs.

``It's a real fluid thing,'' he said from Vancouver. ``The Canadian dollar really helps with the economics of the Canadian mills, but there is a lot more virgin capacity in Canada than there is in the U.S.''

AbitibiBowater, which keeps its books in U.S. dollars, said Thursday that excluding one-time items _ notably a $154-million charge for closure costs, asset impairment and severance _ the net loss for the quarter was $104 million or $1.81 per share.

The financial performance of the company is expected to improve in the fourth quarter as energy prices have fallen 20 per cent and recycled fibre costs are down 40 per cent from the second quarter.

AbitibiBowater has achieved $320 million worth of annualized synergy savings as of the end of the third quarter as a result of its corporate merger. Total savings are expected to reach $375 million by the end of next year.

It is also looking to obtain $750 million from land and hydro asset sales. It has achieved about $200 million from selling its Snowflake facility in Arizona to Catalyst Paper (TSX:CTL), along with the sale of land and small sawmills.

Despite the freezing of financial markets, AbitibiBowater said it continues to receive unsolicited offers for its assets and expects to make significant progress in the next six months.

``Given all of the volatility in the market, there isn't any diminished interest in the high quality hydro assets,'' said Paterson.

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