Good afternoon, ladies and gentlemen. Welcome to the Conifex Timber Inc. Q1 2022 Results Conference Call. I would now like to turn the meeting over to Mr. Ken Shields. Please go ahead.

Well, thank you, Eric and good afternoon, everyone and welcome to our call covering our Q1 2022 results, which happened to represent the second best quarterly result we have ever had the pleasure of reporting. On revenues of just over $70 million, we achieved EBITDA of $20.1 million and net earnings of $11.4 million, equivalent to $0.28 per share. We are pleased with these results considering the ongoing transportation and pandemic headwinds we faced throughout the quarter as well as the extremely harsh winter weather conditions we contended with in January. These quarterly earnings boosted our book value from something like $3 to $3.25 at the end of the year to just over $3.50 per share presently. We also added $5 million or $0.12 per share in duty deposits in the quarter, bringing our potential refundable duties on deposit to $23 plus million, which works out to CAD0.73 per share and of course, that number is before any potential holdbacks and income taxes done with their fleets. And while we appreciate that the likelihood and timing of a full or partial refund is highly uncertain, we expect that our future finances will be further strengthened when this off balance sheet asset is monetized. Andrew McLellan, who heads up our operations and Winny Tang, our CFO are here with me today, to recap our Q1 performance, to preview our Q2 performance and all three of us will respond to questions that analysts and shareholders may have. But the three of us also wish to reemphasize that our number one priority continues to be protecting the health and safety of employees and their families. The men and women at our harvesting site, sawmill complex, and power plants deserve the credit for ensuring a safe work environment, while we work through the numerous challenges we face, and despite the challenges delivered a strong opening quarter to the 2022 fiscal year. Let me quickly deal with the housekeeping item. We will be making forward-looking statements and references to non-IFRS measures, and therefore, call your attention to the warning statement set out on Pages 1 and 2 of the MD&A of today’s date that they released earlier. I will now turn the meeting over to Andrew McLellan, our Vice President and General Manager for Operations at Conifex.

Thank you very much, Ken and good afternoon, everyone. Our power business performed as expected during Q1, except for a two-day unplanned outage which meant we achieved approximately 99% of our target production and experienced a minor EBITDA shortfall in Q1. All production targets have been met so far in Q2. And in the next – sorry, recently, we took our power plant offline and will remain offline until early July in accordance with the typical BC Hydro dispatch. We are confident that our power plant will produce solid results in Q2 of 2022 when we record the benefits of the take-or-pay feature of our contract that we have with BC Hydro while the plant is offline. Moving to our forestry operations, we had a very successful winter logging season and have ample supplies of greener, lower cost logs at our site in Mackenzie. Our hourly production at the sawmill has improved every month this year initially because weather conditions improved after a very cold period in January, but more recently because of the benefits of processing greener sawlogs with fewer defects. Our Q2 lumber production is expected to comfortably exceed Q1. Early in Q2, we successfully updated the technology associated with our automated lumber scanning and grading system and are now capturing the dual benefits of a richer grade outturn and improved mill net selling price realizations. The sawlog supply available to us, we have no intention of reducing our operating hours and are looking forward to a strong Q2. I will now turn the discussion over to our CFO, Winny Tang.

Thank you very much, Andrew and good afternoon, everybody. In terms of some financial considerations, one of the single largest usage of cash that we had in the fourth quarter of 2021 and the first quarter of 2022 was to build up our log inventories, which we boosted by $17 million in Q4 and by $15 million in the most recent quarter. We believe that this investment supports our target to achieve a 90% capacity utilization rate at our sawmill complex throughout the 2022 year. With our increased sawlog deliveries and higher lumber production, we are expected to spread our fixed costs over a larger number of units, which has the effect of lowering our cash cost on lumber production. And turning to our balance sheet now. Overall, debt was $64.4 million at the end of the first quarter and this is mainly represented by a long-term power loan, which has limited recourse to our lumber operation. This loan, of course, is at fixed interest rates and has a lengthy amortization period. As well, we had a $6.5 million draw against our secured revolving credit facility. After deducting cash balances, we ended our first quarter with net debt of approximately $43 million in net debt to capitalization ratio of 23% and available liquidity of just over $23 million. And clearly, with the lumber inventories returning to seasonal lows through the second quarter, our lumber business will be in a substantial net cash position after really repaying down the drawdown on our secured credit facility. We currently anticipate our capital expenditures in 2022 to slightly exceed our annual amortization charges of approximately $12 million. We continue to fund capital expenditures necessary to maintain compliance with safety and environmental obligations and prepare sites for future harvests. We are also focused on smaller, quick payback projects that are designed to improve the reliability of our sawmill operations. And now, I will turn the meeting back to Ken.

Well, thanks, Andrew and Winny and for you listeners. On our last call, we spent considerable time reviewing some forest industry regulatory developments that could have an impact on sawlog supply in our operating area in the Mackenzie timber supply area. And we continue to await the release of what I would classify as a long, overdue public discussion paper that’s once released will set out for the forest ministry’s view on potential harvest levels in our operating area. Turning to our diversification initiative, on our last call, I outlined the value-added opportunity available to us to host and I emphasize the word, host, high-performance computing customers in Northern BC. We are evaluating the results of the trial program and are well advanced in the design of a business plan that we anticipate will enable us to increase and stabilize cash flow generation at our Mackenzie site. Our aim here of course is to position Mackenzie to generate positive EBITDA over an even wider range of commodity lumber prices. I would encourage you all to participate in our Annual General Meeting of Shareholders which was scheduled for 2

00 p.m. Pacific Time on Tuesday, June 21. We have an important Board meeting scheduled for that day. And at the Board meeting, we intend to, number one, review management assessment of the likely future quality and cost competitiveness of the sawlog supply available to us in Mackenzie and that will enable us to revisit our sawmill modernization and upgrade plans. The second key agenda item at our board meeting is to review the final results from our trial hosting initiatives and settle on an optimal path forward for making maximum use of the underutilized power infrastructure assets we have in place in Mackenzie and our strong power operating team. And the third item is that we will make some decisions around capital allocation, including the merits of additional share buybacks as well as other meetings that are available to us to return surplus capital to shareholders. Before turning it over to your questions, we are pleased to report that we are off to a very good start so far in Q2. There has been a little bit of slippage in our mill nets in May, although April was right in line with the first quarter mill net realizations and we expect a little more slippage in mill net as we progress through the closing month of Q2. But our Q2 shipments are off to a good start and railcar deliveries have improved a great deal. So, our Q2 shipments could be as much as 30% higher than in Q1. And based on what we see happening to mill net sales realizations and shipments, we have every reason to expect to report a sequential improvement in net income when we release our Q2 results to you in early August this summer. So, thank you all for your interest in Conifex. Winny, Andrew and I would be pleased to answer any questions you have. So on that basis I will turn the meeting back over to Eric, our operator.

Thank you, Mr. Shields. [Operator Instructions] And we will take the first question. Please go ahead, Paul Quinn.

Yes, thanks very much. Hey, Ken. I know you are waiting on this AAC decision ultimately, but can you remind us what the process is? They released the public discussion paper and then what’s the timeline from that period to actually getting the AAC determination itself?

Okay. Well, I can give you an idea as to what the timelines are supposed to be, Paul. After the public discussion papers’ release, there is typically a 2-month period for the public to provide feedback. And then there is a 2-month or so evaluation period by the Chief Forester’s Office to consider the impact and do their final analysis. And against that background, we expect that the final harvest level and mix determination will be released right at the end of the calendar year. Then the follow-up to that, of course, is how that harvest in the portion between this area of license fees, including the new First Nations license placement fees that are part of provincial government policy. So, my best guess is that, that will not be happening until earlier in 2023. Lastly, the situation in Mackenzie is complicated because as you talked about on our last call, Paul, the Canfor Corporation has built its Mackenzie tenures to two First Nations. And based on everything we see, that appears to be moving forward. So, there will be some public hearing on the Bill 22 tenure transfer approval taking place while the harvest level determination and a portion of work is underway. So, it’s clear that our forestry team will be quite busy dealing with these developments over the next several months.

Okay. Thanks for that. And then maybe you could just help us understand the power side and it looks like you have done a trial for 3 megawatts. You have got a 36-megawatt power generation facility. What requirements or how big can your, I guess, your high performance computing portion be while you can still maintain your agreement with BC Hydro?

Okay. Well, I will answer that, Paul. And for some contracts, first of all, our generator set is the 36 megawatts per hour capacity. We have sustained an operating rate of delivering 25-megawatt to the grid and 3 megawatts being used for our internal consumption. Should we proceed with this new venture, there will be no fundamental change in those arrangements. We will continue to deliver power to the grid. And the HPC operation will secure power from the grid. We’re looking at 25 megawatts, which coincidently is the same amount of power that we deliver to the grid. But there isn’t necessarily a one-to-one relationship between what we deliver to the grid and what power is delivered to our HPC operation. So putting it another way, it’s quite likely that the HPC operations could be down, and we could still be delivering power to the grid or, alternatively, we could be in a maintenance shutdown at our power plant, and there’ll be some power still going to the HPC operation.

Okay. So that’s helpful. I’m still slightly confused as to – what – you’ve always talked about $14 million in EBITDA from power generation. What is the potential, the way you look at it, provided everything happens lines up and goes your way?

Well, Paul, reach – listen closely, the 25 megawatts at our existing Mackenzie site was viewed as Phase 1. There are other locations in Northern BC adjacent to our Mackenzie operations for the considerable surplus hydro power. You may be aware that a public digital asset company called Iris Energy has an 85-megawatt facility that is under construction, and recently commenced the operations in Mackenzie and they have another one in Prince George. And we think that we have the power expertise and the HPC industry contact to develop something along those lines. So the $14 million of potential is my guesstimate as to what sort of EBITDA could potentially be available to us if we had 100 megawatts of power from the BC Hydro grid, utilized and hosting off – and hosting operation. So if we are doing 25 megawatts at the end of Phase 1, realistically, we would expect to capture about one-third of that $14 million target.

Okay. That’s helpful. And just it sounds like in your commentary, you’re still pretty positive on lumber markets here. Prices have come off from Q1 levels. What do you expect for the balance of the year?

Well, we spend a lot of time looking at our EBITDA and our disclosure. And there is some estimates floating around that have lumber prices at around $600 dollars in the back half of the current year. We truly believe that, that is unlikely to happen. It strikes us as it being too low, not because we have any particular deep insight into the demand side, but based on what we know on the supply side in terms of all sorts of harvest deferrals, other regulatory uncertainty and a continued underperformance by the timber sales in supplying auction wood to the market, so the harvest level in Northern BC is definitely going down. On the last call, we noted that in the 3-year plan from the Ministry of Forests that were approved by the provincial budgets that there would ultimately be a 1.4 billion board feet of lumber withdrawn from the BC market. And so – we also have a lot of evidence of several mills that are operating on reduced ships, which are going through less supply going forward. So we think the supply-demand balance favors producers much more than with the associated with the $600 lumber price. So we think it’s going to be higher than that. So Paul, my best guess is that last year, we had $51.7 million of EBITDA, and that was just a tick under $1 million a week. And I am hoping and believe that lumber prices could be sufficiently robust in the closing 6 months of this year to enable us to match last year’s consolidated EBITDA. That’s a long-winded answer to your short question, but that’s sort of it.

Well, that’s helpful. Best of luck, Ken. Thanks.

Thanks.

Thank you. We will take the next question, please go ahead. Hamir Patel.

Good afternoon. Ken, could you give us a sense as to how your exports business, what share of the mix is that? And it seems like prices are actually holding up quite well in Japan. So do you expect to maybe increase your weighting there?

Well, my recollection from looking at the tables, Hamir, is that we have a pretty significant share going to Japan in the past two quarters that we reported. And part of that robustness was delays in shipping containment. So we were a late shipper into Japan. My understanding is that today, we are doing virtually zero business in China. And we have the preponderance of our shipments, by far, going into the U.S. market where we’re very pleased with the pricing and demand.

Great. Thanks, Ken. That’s helpful. And Andrew, a quick question for you. I just want to get your sense as to – for sort of BC interior as a whole, what kind of stumpage increases are you expecting July 1? And on an annual basis, how do you see Conifex’s stumpage varying ‘22 versus ‘21?

So good question, Hamir. Thank you. So our stumpage forecast is actually, in Q2, we should see a drop here in terms of our stumpage in Northern BC. And then in Q3, Q4, we will see an increase. We’re expecting our stumpage to be around $33 in Q3 and drop off to about $18 in Q4. So it’s fairly close to what we saw in 2021 in terms of the variation in stumpage kind of quarter-over-quarter, and we expect our low cost to come in essentially the same as 2021.

And related to that, Hamir, I just wanted to point out that I was just reading some ministry information the other day. And in Mackenzie, we have a heavy harvest orientation still to salvage wood. And it looks like the stumpage rate for Mackenzie are about $10 per cubic meter lower than they are across the interior BC as an average. So if you’re guesstimating what our stumpage costs are doing, just take your BC average and justify $10 to pick up the heavy salvage orientation.

Great. Thanks, Ken. That’s all I had.

Thank you. [Operator Instructions] And we will take the next question, Rick [indiscernible].

Hi, Ken, it’s Rick. Just a quick question. So if I’m doing the math correctly here, after the Canfor sale, I mean, the market is basically pricing in the sawmills at – it’s close to a zero valuation. So even if the new AAC comes out favorably, would it still make sense to buy back shares at this price instead of using the – some growth CapEx body to expand capacity? We’re just wondering what you were thinking around those lines.

Well, Rick, thank you for your question, and it’s a very good question. And we had a good exchange of views at our Board meeting earlier today addressing those questions that you posed. As a Board, we agree on one thing unanimously, which is we think our fundamental value per share is probably 50% greater than our book value of $3.50 per share. And what we are charged with is, for our June meeting, identifying actions we could take to attempt to have the market trading price come closer to what our estimate is at the fundamental value. So – and I am not the first to hearing from the Conifex shareholders such as yourself on what to do. So I’m sure I’ll be liaising with you on that topic early in June.

Alright. Thanks so much, Ken.

Thank you. There are no further questions registered at this time. I would now like to turn the meeting over to Mr. Shields.

Well, thank you, Eric, and thank you, all of you on the line for your interest in Conifex. And I look forward to speaking to you along with Andrew and Winny at our AGM in June. Enjoy the rest of your day. Thanks.

Thank you. The conference has now ended. Please disconnect your lines at this time. Thank you for your participation.