WEST FRASER TIMBER CO., LTD

Canada

A significant majority of our Canadian log requirements are harvested from lands owned by a provincial government. Provincial governments control the volumes that can be harvested under provincially-granted tenures and otherwise regulate the availability of Crown timber for harvest. Our access to the crown timber is governed by Provincial, Federal, and more recently Indigenous Governments. The United Nations Declaration on the Rights of Indigenous People (UNDRIP) has been endorsed by the Federal government and the Province of B.C. B.C. has also implemented a Declaration of the Rights of Indigenous Peoples Act (DRIPA) in order to implement their UNDRIP commitments through the eventual modernization of all Provincial legislation. The Forest Act was an early DRIPA modernization effort with the implementation of shared decision making, resulting in multiple overlapping governance processes and unclear and more complicated outcomes to prior well understood, aligned, and straight forward processes. The policy landscape continues to shift in dynamic and difficult to predict ways, affecting both our short-term access to fibre, our operating costs, and long-term AAC confidence in B.C.

Determinations by provincial governments: (i) to reduce the volume of timber, to issue or not issue operating permits to harvest timber; (ii) to limit the areas that may be harvested under timber tenures; (iii) to restrict the transfer or acquisition of timber tenures; (iv) to regulate the processing of timber or use of harvesting contractors; (v) in response to jurisprudence or government policies respecting Indigenous rights and title or reconciliation efforts, land use management and planning processes, including those agreements between the B.C. provincial government and the Blueberry River First Nations or potential reallocation of harvesting rights to Indigenous Nations or communities and other reconciliation measures; (vi) to restrict log processing to local or appurtenant sawmills or to mandate amounts of work to be provided or rates to be paid to harvesting contractors; or (vii) to change the methodology or rates for stumpage, may reduce our ability to secure log or residual fibre supply, may increase our log purchase and residual fibre costs, may adversely impact lumber grade and recovery and may impact our operations, including require us to reduce operating rates. These determinations may be made by the provincial government with the objective to protect the environment or endangered species, species at risk and critical habitat or to address the impact of forest fires, mountain pine beetle infestations, harvest and caribou conservation plans. Accordingly, forest fires, mountain pine beetle infestations, environmental protection measures and policies respecting indigenous rights and reconciliation efforts may result in government actions to reduce annual allowable cuts and timber supply that may adversely impact our access to fibre supply for our Canadian operations, including in Alberta where we expect our accelerated AAC levels to normalize post mountain pine beetle over the next several years, and may significantly increase the cost of our Canadian operations. Our inability to access secure, economical and sustainable fibre supply has resulted in decisions to permanently curtail production at certain of our Canadian operations and may result in future curtailment of production.

In addition, our timber supply in B.C. may also be negatively impacted by rapid and on-going forest policy review by the B.C. Provincial Government. The current B.C. Government is more focused on conservation and preservation of forests without any balance in focus to committing a working forest landbase available to support the wood fibre needs of the forest industry. This has led to sustained uncertainty, and has had the most substantial impact to the performance of B.C. Timber Sales (BCTS). BCTS is a provincial government program that is mandated to auction 20% of the Provincial harvest, but have been selling <10% during the ongoing policy review and transition period. Many of our mills require significant amounts of their log supply from BCTS. The lack of BCTS performance has increased our dependency on other purchase sources and our tenures which may negatively increase the costs of operations. Meanwhile, the Province of B.C. has amended Forest Act legislation affecting their process for permitting and this has resulted in substantial delays and impacts to the amount of volume we can source from our tenures. The continued evolution of B.C. forest policy is creating sustained uncertainty and constraining access to the timber harvesting land base. This development and implementation of updated forest policy is ongoing and the impacts to timber supply will not be fully understood for some time. These actions could have a material impact on both the amount of our AAC forest tenures and the amount of timber that we are able to harvest from these tenures. Without significant policy change in B.C., the B.C. forest sector may continue to experience further contraction.

We have entered into joint development agreements with Indigenous Nations in B.C. to ensure continued fibre supply for certain of our mills in B.C. There is no assurance that these arrangements will be successful in securing the long-term supply of fibre for these mills in B.C.

We rely on third party independent contractors to harvest timber in areas over which we hold timber tenures. Increases in rates charged by these independent contractors or the limited availability of these independent contractors or new regulations on the work to be provided and rates to be paid to these contractors may increase our timber harvesting costs.

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We also rely on the purchase of logs through open market purchases and private supply agreements and log exchange agreements and increased competition for logs, or shortages of logs may result in increases in our log purchase costs.

Weather fluctuations, including unusually cold or warm weather in Canada, may hamper our ability to conduct logging activities which has the potential to limit our ability to accumulate the necessary log inventories, constrain our ability to manufacture and ship SPF lumber or necessitate reduced operating schedules. For example in the 2023/2024 winter, unusually warm weather in Canada challenged our ability to accumulate log inventories for certain of our operations.

United States

We rely on log supply agreements in the U.S. which are subject to log availability and based on market prices. The majority of the aggregate log requirements for our U.S. mills is purchased on the open market. Open market purchases come from timber real estate investment trusts, timberland investment management organizations and private land owners. Changes in the log markets in which we operate may reduce the supply of logs available to us and may increase the costs of log purchases, each of which could adversely affect our results. In addition, changes in the market for residuals may reduce the demand and selling price for the residuals produced by our operations and increase the disposal costs, which could adversely affect our results. We may experience higher competition for sustainable log supply sourcing as supply is limited by alternative demand for forests in carbon sequestration and through the increase in conversion to forest plantations or non-forest use where there is significant regional forest area decline.

While the U.S. South remains a critical area of lumber supply growth and a key region for West Fraser’s growth strategy, it is important to note that this region’s economic fibre supply, cost profile and access to end-use markets for sawmill residuals are not homogenous, and that all of these factors could limit our growth opportunities. Our ability to source log supply and log costs may be impacted by regulatory changes impacting our business and the counterparts we do business with, including as a result of regulatory changes like the European Union Deforestation Regulation.

U.K. and Europe

Wood fibre for our U.K. and Belgium OSB, particleboard and MDF operations is purchased from government and private landowners. Changes in the log markets in which we operate and regulatory changes, like the European Union Deforestation Regulation, may reduce the supply of logs available to us and may increase the costs of log purchases, each of which could adversely affect our results.