Modern milling equipment is the answer, we have undertaken not to export logs if our application is granted

http://www.stabroeknews.com/index.pl/article?id=56523686

Modern milling equipment is the answer, we have undertaken not to
export logs if our application is granted
Stabroek News
Sunday, July 1st 2007

Dear Editor,

Simon & Shock International (SSI) is pleased to respond to the letter
by the Forestry Producers Association (FPA) headlined "Those who demand
a total ban on log exports fail to understand the market" (07.06.24).

The FPA concluded their letter by welcoming "constructive criticism,
new investors and new practical ideas". There is an old saying that
says; "You should watch out for what you ask for, you might just get
it". So here it is.

Let's start with constructive criticism. I personally have been working
in Guyana since 1993 and began work in the lumber industry in 1997. In
2000 Mike Shock and myself created SSI in the hopes of purchasing
lumber manufactured in Guyana for distribution into the world markets.
We have spent the past seven years buying lumber in Guyana. What we
found regarding the state of the milling industry in Guyana stunned us.

Almost every mill we visited in Guyana was utilizing a used softwood
mill. There is a big difference between softwood machinery and hardwood
machinery. Constant breakdowns were often attributed to the toughness
of the hardwood species in Guyana, when in fact the machinery was
undersized and underpowered to get the job done. Gang saws that are
non-existent in the hardwood industry in the US and Europe (they are
used for softwood only) are commonplace in Guyana.

The newest machinery we witnessed, in even the largest foreign owned
mills, was outdated by US standards, and technology based methods
commonplace in modern US and European mills were nowhere to be seen.
The only brand new equipment SSI has witnessed in Guyana of late has
been logging equipment, an indication of where these producers'
priorities lie.

The FPA states that the "majority of mills are technologically outdated
and many are inoperable and beyond economic rehabilitation." What they
do not acknowledge is the fact that most of these mills are their own.

They then go on to state "The average recovery rate of 40% is inclusive
of prime, select, standard and merchantable grades and is taken from
records kept over many years by our members who are producers and saw
millers, who understand the processing business and the requirements
for complying with market criteria.

Saw milling rate recovery is, we know, an extremely subjective
business. It depends on the quality of log inputs that is, the sawmill
grade of the log input. It depends on the market criteria. Export grade
of sawn timber will not accept sapwood, ring shakes, knots, soft heart,
end splits and trimming loss of log lengths.

The requirement, therefore, for high quality contributes to lower
recovery rates."

This is rubbish of the highest order. The 40% recovery rate is purely a
factor of the state of the production machinery used to produce the
lumber. In the US, any hardwood mill that can only maintain a 40%
recovery rate will soon face bankruptcy. 50% is an absolute minimum
with 60% to 70% recovery being a standard that must be maintained to
effectively compete (more about this later).

The FPA goes on to warn of "insufficient milling capacity", "withdrawal
of investment, loss of income, reduction of employment…. minimized
social investment". In effect, they are stating that if the status quo
cannot be maintained, the forestry industry in Guyana will crumble
before our very eyes. Their position seems to be that there is
absolutely no alternative to the existing system. Any consideration of
an effective policy that does not include unabated log export is not
even considered.

The FPA has however stated that they welcome new and practical ideas.
Here's where we get back to the watch out for what you ask for thing.

SSI has spent the past 3 years formulating and implementing just such a
new and practical approach to milling in Guyana.

SSI has proposed to government the most advanced hardwood sawmill ever
constructed in the tropics. There exist in the world today only 5 mills
of this type (4 in the US and 1 in Europe). We propose to build the
6th, and most advanced, in Guyana. This mill will be able to service
both the foreign and domestic markets with tens of millions of board
feet of both green and kiln dried lumber manufactured to the highest
specifications in the world, at prices that will be more than
competitive.

This computer controlled, laser driven mill will achieve recovery rates
that regularly exceed 65%, and at times will exceed 70%. This leaves
only enough waste to heat the kilns necessary to capture the vast
market for kiln-dried lumber both in Guyana and the world market. By
using our waste to create added value to our lumber, we will achieve
100% utilization of every log entering our facility.

SSI began this process in late 2004 when we approached Prime Minister
Samuel Hinds to locate a site that would meet very exacting criteria.
We spent four months working with the PM's office, Linmine, Lands and
Services and many others before locating a very attractive site in
Linden.

In early 2005 SSI engaged Mr. Geoffrey Da Silva, and Mr. Chion Proffit
at Go Invest to work out the details of an MOU that would be acceptable
to both government and SSI. This took a few additional months and
resulted in a draft MOU that is ready for completion should the rest of
our objectives be achieved.

During this process we were in constant contact with the Guyana
Forestry Commission (GFC), led by Commissioner James Singh.

In November of 2005 Commissioner Singh and the late Minister Sawh
arranged an open meeting of all the relevant stakeholders in forestry
that would be affected by this new technology. Included in this meeting
were members of the Forestry Commission technical staff, the FPA, the
Guyana Wood Manufac-turers Association, Go Invest, Minister Sawh, and
members of the Forestry Commission Board among others.

In this meeting SSI made a full presentation of its advanced milling
complex including videos of the technology in use in the US, a
45-minute power point presentation on the scope of the project, and a
two-hour question and answer period.

In other words: the FPA has been fully aware of the availability of
these advanced technologies at the very least since November of 2005.

With tens of millions being spent on an advanced milling operation, SSI
could not possibly proceed without its own source of raw material to
feed such a large enterprise. Although SSI had been in contact with the
GFC, it was not until December of 2005 that we where able to identify a
proper concession to accommodate the needs of our operations. It was at
this time that we made an application for two exploratory permits in
Region 9.

For those of you who remember the state of the forestry concession
situation in late 2005 and early 2006, it was a particularly difficult
period in which to apply for a new concession.

Thus began a fourteen-month due diligence process with the GFC. Both
the GFC and SSI knew at that time that no quarter was to be given by
the GFC where any new applications were concerned. Every rule and
procedure would be strictly adhered to. Although we felt this process
was a bit unfair at times (we're entitled to our own opinion), and
downright contentious at others, we found Commissioner Singh to be a
fair arbiter between the needs of the GFC and those of a private
company. He was always open to the middle ground when one presented
itself, and often led us through the more difficult regulatory
requirements.

SSI as a direct result of these negotiations made three very important
written guarantees to Government:

SSI will not export logs from Guyana (SSI is a lumber company, not a
logging company).

SSI will build the advanced milling complex as advertised in Linden
before any logging activity can take place.

If SSI does not build the advanced mill in Linden in a set period of
time, all logging concessions granted to SSI by the Government will be
returned un-cut.

In March of this year the GFC sent a recommendation to The Minister of
Agriculture the Hon. Robert Persaud to grant the requested Exploratory
permits to SSI.

SSI's senior staff had an opportunity to meet with Minister Persaud
regarding our project, and gave him a personal presentation. Our
impression is that he received this proposal in a positive light.

As it stands now Minister Persaud has submitted our proposals to a
sub-committee in cabinet for a final review. We can only hope their
decision is both positive and timely.

With regard to the FPA's statement that they will welcome new
investors, SSI is willing to invest millions of dollars to prove that a
very robust marketplace for finished lumber products produced in Guyana
not only exists, but also is waiting at Guyana's door.

In defence of the FPA, I can say that no mills of this type exist
anywhere in the tropics. Both the local and foreign members of the FPA
have no experience with this type of technology. They may know of its
existence, but to our knowledge, have no experience in the operation of
such a complex process. This may be why they have not considered this
option in their own operations abroad or in Guyana.

The United States is the largest producer of hardwood lumber in the
world. The US produces almost twice the amount of hardwood lumber
produced in Brazil. This is accomplished in spite of the most highly
regulated forestry sector in the world. The concept of sustainable
forestry was born in the US; selective sustainable cutting is regulated
in the US by Federal, State, and Local laws, and has been for decades.
Yet the US Forestry Service has stated that the hardwood forests in the
US have grown by over 30% over the last 4 decades. How can this be?
Simply put, the cost of such heavy regulation has forced US producers
to be as efficient as humanly possible, thus the gradual creation of
the advanced milling technologies SSI plans on introducing to Guyana.

The FPA takes Mr. Kowlessar to task for suggesting that portable mills
are the solution to the problems faced in Guyana. In this they are
partly correct and partly incorrect.

There are literally thousands of these portable mills operating in the
US. Although they are not quite as efficient as the largest mills, they
are less expensive to run. They are sold extensively to small and
mid-sized companies in the US for a host of reasons. They can be
brought into smaller stands of timber that large companies pass by.
They service customers that want small custom orders that the large
mills will not take. They can service areas that are uneconomical for
bigger companies because of geographic location and terrain etc…

Should SSI be allowed to build the mill we propose in Guyana, we will
be servicing customers who are buying in the 100,000's of board feet of
lumber, if not in the millions. As more and more buyers of quality
lumber enter this marketplace, where is the smaller purchaser to go? A
large mill in the middle of a huge order will not stop production to
take on a 20,000 board foot order. Either SSI will subcontract that
order out to a smaller producer, or the buyers will contact them
directly.

Portable mills will complement the production of the larger mills in
Guyana. They will fill a market segment that the large mills cannot
reach. In aggregate their total production nationwide could very well
rival that of the largest of mills. In short, portable mills are part
of the solution in Guyana. We view them as a vital ingredient to a
healthy industry centered on lumber production as opposed to log
export. As Guyana becomes known for its quality lumber production, a
host of new buyers will enter the marketplace. A rising tide lifts all
boats.

Yours faithfully,

Kelly Simon

CEO

Simon & Shock International LLC.