July 1st 2008

By John Driscoll
The Times-Standard
July 1, 2008

A number of longtime Humboldt County timber and ranching interests have thrown their loyalty behind a bid by Sierra Pacific Industries to take over and radically overhaul the Pacific Lumber Co.'s Scotia sawmill.

Former sawmill owners, ranchers, sawmill venders and others filed declarations in U.S. Bankruptcy Court in Corpus Christi, Texas outlining their decisions to support Sierra Pacific instead of Mendocino Redwood Co., which they had backed earlier.

Dennis Scott, president of defunct Eel River Sawmills, ranchers John Rice and Graham Cottrell, landowner Bob Barnum, Bettendorf Trucking manager Ron Borges, former Palco President and CEO John Campbell and others weighed in.

They declared that Mendocino Redwood's plan to run one shift in Scotia is less viable than Sierra Pacific's promise to pour $70 million into building two sawmills, fed by timber from its 1.7 million acres as well as the Palco lands. The Mendocino plan wouldn't produce enough to feed the wood-burning power plant in Scotia, they said.

"Sierra Pacific Industries has a demonstrated track record that proves their knowledge and ingenuity," Barnum said, as did the others.

The new sawmill operation would be able to use logs from a number of local landowners, provide more employment and support independent contractors, they said. Sierra Pacific has said it would close its Arcata operation in the event the plan goes forward.

Sierra Pacific entered the picture in recent months, hitching itself to the noteholders who are owed $714 million in the case. The noteholders have proposed to auction off Palco's 210,000 acres over a period of months.

Sierra Pacific President Red Emmerson declared that its proposed investment would be recouped by building a "top-flight sawmill."

"As compared with operations today, the overall capacity of the Palco mill will be greatly increased, along with the mill's efficiency and accuracy," Emmerson said.

Bankruptcy Judge Richard Schmidt in early June ruled that he would not confirm the noteholders' plan, saying it was rife with conflict and infeasible. Schmidt instead said he'd confirm the plan proposed by Mendocino Redwood and Palco creditor Marathon Structured Finance Fund, which earned overwhelming support from unsecured creditors.

That plan looks to pay about $530 million for the timberlands, shed hundreds of millions in debt, infuse $7.5 million into the Scotia sawmill, and reduce logging. The judge found that the plan would more readily get approval from California regulators, and did not introduce the uncertainty of an auction.

But Schmidt ordered some changes to the Mendocino plan, and Mendocino told him that the changes could be a deal-breaker.