Vancouver, B.C. (News release) -- West Fraser Timber has entered into an agreement to acquire Georgia Pacific's oriented strand board ("OSB") mill near Allendale, South Carolina for approximately $280 million. The transaction is anticipated to close following successful completion of U.S. regulatory reviews and satisfaction of customary conditions.
The Allendale facility, which initially began producing OSB in 2007, has been idle since late 2019 and has an estimated stated capacity of approximately 760 million square feet (3/8-inch basis). The Company intends to invest an estimated $70 million of additional capital to upgrade and optimize the facility in preparation for its restart and this upgrade is anticipated to take approximately nine months to complete. The mill is expected to directly employ approximately 135 people and be one of the lowest cost mills in the Company's OSB portfolio after the optimization is complete and the mill has ramped up to full production, a process that typically takes 18-24 months after restart.
The Allendale acquisition offers another opportunity for West Fraser to create value by deploying the Company's expertise at successfully reinvesting in and restarting idled OSB mills. Recent West Fraser OSB mill restarts include Chambord, Quebec in March 2021 as well as Huguley, Alabama (2017) and Jefferson, Texas (2013). After modernization, the Allendale facility will enhance West Fraser's OSB portfolio with its attractive location in the U.S. South where fibre is abundant and low-cost. The mill's additional OSB capacity will also give West Fraser the flexibility to better meet customer demand, particularly from large, growing end-markets in the southeastern U.S.
West Fraser intends to finance the acquisition with cash on hand. The total investment for the Allendale acquisition is expected to be at a significant discount to the costs of an equivalent greenfield OSB mill while requiring a shorter time to initial production. Based on West Fraser's latest internal analysis, the returns of this mill acquisition and investment are expected to be commensurate with those for other capital projects of similar magnitude.