Chinese to buy a stake in Canadian viscose rayon fibre producer

China's largest producer of rayon fibre has bought an ownership position in a northern Vancouver Island pulp mill, providing it with needed capital and assured access to the Chinese market.

Port Alice's Neucel Specialty Cellulose announced Friday that it has entered into a deal with Zhejian Fulida Ltd. that will inject new capital and ownership into the northern Vancouver Island pulp mill. Part of the deal includes a long-term supply agreement.

"Fulida is a new part owner. Our ownership base has changed," said Jim Herculson, Neucel vice-president of finance. "It's also an infusion of capital. We are not going to use it for working capital. It's going to be used entirely to enhance the business."

Neucel is a northern Vancouver Island success story in the otherwise gloomy coastal forest sector, not only surviving the market downturn that has battered the coast's logging and pulp and paper companies, but emerging as a profitable company. It is owned by a consortium of investors led by two U.S. financiers, Wellspring Capital Management and the Granite Street Capital Group.

Herculson would not reveal the amount of the Fulida capital injection but said it is significant, far more than the $6.5 million the company received through the federal government's recent Green Transformation program.

Jainer Qi, chief executive officer of Fulida, said in a news release that the investment provides Fulida with a smooth and stable supply of dissolving pulp, the specialty product made at Port Alice.

"Viscose rayon fibre production capacity has increased greatly in China and competition has become intense," Qi said.

Neucel was salvaged from bankruptcy after being sold, stripped of equipment and re-sold after the Doman Industries failure. It has struggled to recover through the market downturn by improving performance without new capital and a limited chip supply.

Herculson said the company improved productivity and reduced costs by applying basic business techniques. With limited access to chips, it brings in whole logs by water and chips them to make its specialty pulp. Dissolving pulp is used for making rayon filaments, pharmaceuticals, food thickeners and other products.

"We've basically come from a heap of bolts on the ground to the point where it looks like we are going to have a thriving business here," Herculson said.

"We have put ourselves into a healthy cash position basically on our own thrust."

Herculson said Neucel ended 2009 with positive earnings. The company has been seeking new capital, which it was wooing by showing that by fine-tuning operations, it can turn a profit even under adverse conditions.

The new capital, combined with the $6.5 million in federal funds, will be applied to generate even greater productivity improvements and reduced use of fossil fuels, he said.

With a staff of 400 workers, Neucel is the largest employee on northern Vancouver Island.

The cash injection and the stability it brings was welcomed by Port Alice Mayor Gail Neely.

"We are directly influenced by what goes on at the mill, as is the entire north Island," she said.