"The Third Mill": Labrador Linerboard Ltd., 1973-1977
The province's first Deputy Minister of Public Welfare in Newfoundland Frederick W. Rowe wrote, “If there was one project which preoccupied Smallwood more than any other, it was the possibility of getting a third paper mill either on the island or in Labrador” (Rowe, 22). The two other pulp and paper mills at Grand Falls and Corner Brook had operated since 1909 and 1925 respectively and had brought much prosperity to both areas. Smallwood's fascination with the third mill likely stemmed from the fact that the others were established by his two favourite political heroes, Sir Robert Bond and Sir Richard Squires.
The initial talk of the third mill in the 1960s placed it in the community of Come By Chance. With its deep-water port, a geographic convenience, there were also plans for a petrochemical plant and other industrial development in the area. Electrification was not an issue; sufficient power could be obtained from the Gander River, the Terra Nova Rivers, or from Bay d'Espoir. Resettlers moved in to the communities of Arnold's Cove, Southern Harbour and Little Harbour during the resettlement programmes in preparation for the employment opportunities that would occur in Come By Chance.
However, government was unsure if there was enough pulpwood left on the island to justify the existence of a third paper mill. Particularly in and around the Come By Chance area, vast quantities of prime land had been destroyed by devastating forest fires years before and what existed was in difficult terrain that was costly to remove. Government knew very little about the province's timber resources. As a result, a royal commission on forestry was undertaken in 1953, in part, to determine whether a third mill was necessary. The report published in 1955 suggested the island could support a third mill, but only if the other two existing companies, Bowater and Abitibi-Price, who held the tenure for over 60 percent of the island's prime wood-cutting land, worked together to rationalize wood supplies on the island. Neither company was interested in such an agreement.
Smallwood was disappointed, but the logical choice for the third mill had always been Labrador. The Lake Melville area, adjacent to Goose Bay, was described as having, "…rolling hills and lush valleys, covered by millions of cords of black spruce and other species, some of which were larger and more superior to anything on the island of Newfoundland" (Rowe, 22). But, could the wood be economically harvested? The answer was no, even though the eventual linerboard venture was based on wood shipped from Labrador, a factor which ultimately caused its demise. Lake Melville and the Hamilton Inlet leading to the Labrador Sea were frozen over for nearly half the year. Market-bound ships could not have ready access to the new mill's products, and of equal concern was the cost of storing the product in Labrador until the spring break-up. Labrador had the wood supply, but many limitations.
A Joint Venture
Independent of Smallwood's plans for another mill in Newfoundland, industrialist John C. Doyle was planning to establish a pulp, paper or linerboard operation in Labrador. Smallwood and Doyle agreed upon a linerboard joint venture for the third mill. During the early to mid 1970s, linerboard was a highly marketable product fetching close to $500 per ton in Europe by 1974. The same prices were reported in North and West Africa, and prices were even higher in the Middle East. Doyle, owner of Canadian Javelin Ltd. and also the major stockholder in NALCO, held the timber rights to large tracts of wooded land in Labrador. Product for the linerboard mill was to be harvested at a rate of 800,000 cords per year: 300,000 cords would be exported and the rest would be used by the linerboard mill. Wood chips would have to be shipped from Goose Bay to the island. Smallwood rationalized that if it was economically feasible for other companies to cut wood and ship it out for processing then it could also work for the Linerboard Mill.
Smallwood and Doyle agreed upon the mill's location in the community of Stephenville, approximately 650 miles from Labrador on the province's west coast. Establishing a mill in Stephenville would bring some much needed economic development to the area. The United States military had withdrawn from Harmon Field in December 1966, eliminating 1,200 jobs and decreasing Stephenville's population by around 4,500 people. More importantly, Stephenville's port was deep and ice-free year-round. Stephenville also had paved roads, water and sewerage, schools, a hospital, numerous unoccupied dwellings, and an airport, as well as a sizeable population; the perfect location for a mill. Not only would a mill bring economic security to Stephenville, but the wood cutting operation in Labrador was believed to have the potential to sustain 8-9,000 people in the Happy Valley area as well.
In 1967 the Newfoundland Legislature passed authorization to let the government enter into an agreement with Melville Pulp and Paper and Melville Forest Products, both subsidiaries of Doyle's Canadian Javelin, to build a linerboard mill in Stephenville. The projected cost was $75 million. In order for the mill to be viable though, the government sought international investors and markets. Deals were struck with an international group of companies including the French businesses ENSA and the Ateliers et Forges de la Loire, the same year plans for the mill were announced. A deal was also negotiated with an American paper company in Massachusetts to market the product. Given the market prices for linerboard there was much optimism about exporting most of the mill's product to Europe. Stephenville was much closer to European markets than any other linerboard facility in North America, thus transportation costs were forecast to be well below shipping rates for other North American mills.
Canadian Javelin commissioned technical advice about the transportation of pulpwood to Stephenville and were advised against using barges for the task. Upon that advice, a five-year deal was negotiated with a Norwegian shipping company (Tenax) based out of England to operate large capacity cargo ships. The company agreed to move pulpwood to Stephenville at $5 a cord. However, John Crosbie, Chairman of the Board and Chief Executive of the Labrador Linerboard Ltd., vetoed that decision in favour of barges. Smallwood claims that as a result, thousands of cords of wood were washed overboard on the way to Stephenville and this was a factor in the project's failure. When government finally reverted to the usage of cargo ships, the cost of transporting the wood had skyrocketed to $19 a cord.
There was a four-year gap between the time when the government announced the plans to build the mill and the actual construction. This may have been because the government was trying to secure enough investors or a buyer for the mill. Construction of the mill began in 1971, the same year Smallwood's Liberals were defeated. By the time the Conservatives came into office in January 1972, with Frank Moores as premier, the projected cost of the mill had ballooned to $122 million. In 1972 the Moores government purchased the mill from Canadian Javelin. They took control of the mill and some months later turned it into a Crown Corporation. Construction was completed in 1973 and production began; the final cost was approximately $155 million. However, it was far from a smooth operation. Instead, it proved to be a financial disaster, marred by cost-overruns. Doyle was arrested for fraud in connection with the operation, but later fled to Panama. He left a string of government loans and international transactions that have never been entirely unraveled. The deal had placed all of the risks and investments in the government's hands, but all the profits in Javelin's accounts. The government made a grave error in their negotiations when they left in an "open-ended" clause in the 1967 Melville Pulp and Paper Ltd. Authorization of Agreement Act (or Bill 44), allowing themselves the leeway to exceed initial funding projections and provide whatever monies were necessary for the completion of the project.
The Fate of the Mill
At the official opening of the mill in August 1973, Moores stated that had the Conservatives been in power when the project first started, construction probably would not have gone ahead. In November 1976, the government appointed an advisory board to decide what to do with the mill. In an interesting twist, representatives from the province's two other pulp and paper companies, Bowater and Price, were on the board. Not surprisingly, the board's final report, issued on July 22, 1977, found that the operation of a linerboard mill in Stephenville was not viable in the long term. If it closed down it would save $38.4 million over three years, avoiding an additional $15 million of debt. The board also recommended that should the mill continue to operate, that it be in conjunction with one of the two existing pulp and paper companies. Less than a month later the mill was closed. Approximately 1,600 employees from the mill's labour force, which included workers in wood operations associated with the mill, were out of work.
By then the Newfoundland government had invested over $300 million dollars including construction costs and erratic infusions of money. The financial losses were abysmal. The project was such a white elephant that Moodys cited it as a factor in Newfoundland's low credit rating. (Moodys is a private company in New York tracks the ability of corporations to repay their debt). Not only was the mill too far away from linerboard markets, but it was too far away from its own wood supply. Transporting wood chips from Goose Bay was simply too expensive, driving up the price of the finished product. For example, in 1975 orders from Italy, France, and the United States were turned down because linerboard was more expensive to produce in Stephenville than its market price in those countries.
Months before closing, the mill's manager, Howard Ingram had angrily resigned. He blamed the government for mismanaging the mill, and cited the government allocation of wood tracts as the key factor in its demise. More to the point, the government had previously granted both Price and Bowater exclusive land-lease agreements in specific wood-cutting areas on the island. However, Labrador Linerboard Ltd. was never granted the same luxury when it was owned by Doyle, and even when it was owned by the government. Ingram felt the government should have re-divided the wood grants and given the Stephenville mill closer access to wood, rather than forcing the costly transportation of Labrador wood. Ingram had always recommended, and did so again at the time of his resignation, that the linerboard mill should be converted to newsprint in order to be economically viable. This is largely due to the fact that linerboard takes twice as much raw material to produce than newsprint.
With the linerboard operation mothballed, the province began negotiations with several companies to sell the mill. In December 1978, Abitibi Paper Company paid the province $43.5 million for the mill, its shipping and docking facilities. They also secured an agreement for the allocation of a larger timber supply on the island, in conjunction with the land they already held in tenure. In exchange Abitibi converted the mill to newsprint, with a 150,000 ton per year capacity. The eighteen-month conversion employed approximately 600 people (including previous employees), and employed around 250 during normal operation. The Stephenville mill reopened in September 1981 and operated for 25 years under Abitibi Consolidated before closing its doors in the fall of 2005, over issues partially relating to the high costs of electricity.