RusForest sold Arkhangelsk assets and may consolidate with Lesresurs

Swedish company RusForest announced sale of Arkhangelsk assets in Northwest Russia for approximately $31 million, including the related debt. The company executed a definitive sale and purchase agreement with several buyers, including Lesozavod 25 (Arkhangelsk, belongs to Titan Group). The deal includes Arkhangelsk LDK-3 sawmill and related pellet mill, as well as all forest leases and harvesting companies in the Arkhangelsk region. The mill is capable to produce 120,000 m3 of sawn timber and 100,000 t of pellets. The sawmill and the harvesting company, Severny Les, hold forest leases with 851,000 m3 of annual allowable cut.

Last year, RusForest intended to grow the Arkhangelsk business segment due to the attractive port location. The company successfully completed the pellet mill earlier this year as the first step in the Arkhangelsk investment program. The current sawmill in Arkhangelsk is outdated and requires significant investment to maintain profitability. The management of RusForest evaluated the possibility of building a new sawmill in Arkhangelsk, but, due to the on-going crisis in Ukraine and the related sanctions against the Russian financial sector, RusForest concluded that it is not possible to finance the construction of a new sawmill at the LDK-3 site without significant shareholder dilution. The company has therefore decided to divest the entire Arkhangelsk operation in order to focus on RusForest’s profitable operations in Eastern Siberia.

Following the divestment of the Arkhangelsk assets, RusForest will be a debt-free company with a profitable core business in Magistralny, Eastern Siberia. Matti Lehtipuu, the Company’s Group CEO, commented, “Now that we have divested all loss-making and non-core operations, we are committed to increasing profitability and identifying new growth opportunities. We plan to begin negotiating the merger of RusForest with Nova Capital’s profitable forestry business in Eastern Siberia, Lesresurs.”

Lesozavod 25, meanwhile, announced that the acquisition of 24.9% of the shares in Rusforest took place on 2 December 2014. As stated by the General Director of the mill Dmitry Krylov, the acquisition of shares fits logically into the corporate strategy, and in the future the company intends to increase its shareholding in LDK-3. Lesozavod 25 currently produces 60,000 t of pellets and 500,000 m3 of sawn timber annually.