Are Paper Mills Bad Investments?

If you’re reading this and work in the paper mill industry, take a second and congratulate yourself for making it to 2024.

Pactive Evergreen - Canton (2023), Westrock - Tacoma (2023), McKinley Paper Company - Port Angeles (2024), Putney, Mill (2024), International paper, Orange (2023), and the 470+ mills that have closed in the last two decades cannot say the same. Why?

Over the last six months I’ve traveled to over a dozen paper mills and interviewed everyone from engineers to mill managers to maintenance workers. From Washington to Alabama, one thing has surprised me the most.

Paper mills, if they’re able to survive at all, are constantly being bought and sold. For one Arkansas plant, this constant transfer of ownership amounted to five times over a 12-year span!? It’s literally a game of hot potato wherein various investment groups buy and sell mills as if they’re hustling on the floor of the New York Stock Exchange.?

Yet despite all the back and forth, it’s become shockingly obvious to me that these investors don’t know what they’re buying. Specifically, investors are blind to the health of the mill’s critical infrastructure. Is that pulp digester going to last another thirteen years or another thirteen minutes? Will those acid tanks soldier on for decades or will they fail catastrophically before the For Sale sign is even taken out of the front yard?

Case in point: A mill in Ontario was purchased for $500 million. Thirteen months later, it required $100 million of capital expenses in order to continue production at all – effectively increasing the original purchase price by 20%. Not understanding the health of the infrastructure was a nine figure mistake.

Until recently, “buying blind” was the only way. Traditional inspection methods covered less than than 1% of an asset’s surface area, meaning investors had no way of knowing the health of the other 99%. And if that weren’t challenging enough, the only other marker for asset health was an accountant’s depreciation schedule. Not helpful.?

So, where does this leave the paper industry?

On the investor side, it’s a flag of caution: Do not trust traditional inspection data or an accountant’s spreadsheet. If you don’t have real world, comprehensive health data on a mill’s critical infrastructure, you’re at risk of buying a beat up NYC taxi cab when you think you’re buying a shiny Cadillac that grandma drove only to the grocery store.

On the mill side, get ahead of those blind spots!? Your infrastructure is old. Given today’s labor shortage and increased production demands, it’s not fair for you to push assets to their limit without knowing where the danger zones lie that threaten your safety and your mill’s future.

Want to know how the smartest investors are winning this game? How cutting edge mills are breathing new life into old assets? I’d love to share some insights with you that are already transforming some paper mills at a time others face such an uncertain future.

Written by Ben Lawrence , Director of Manufacturing Sales at Gecko --> Contact me at [email protected] or Book Time Here.