Thank you for standing by. This is the conference operator. Welcome to the Conifex Timber Inc. Third Quarter 2026 Results Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may reach an operator by pressing star then 0. I would now like to turn the conference over to Ken Shields, CEO. Please go ahead.
Well, thank you very much, and good morning, everyone, and welcome to the call covering our Q3 2026 results. I am Ken Shields, the Chairman and CEO of Conifex, and I have the pleasure of being in the company of Conifex President and Chief Operating Officer Andrew McLellan, as well as our recently appointed Chief Financial Officer, Spencer Bell. Let us quickly deal with a housekeeping item.
We will be making forward-looking statements and references to non-IFRS measures, and therefore, call your attention to the warning statements on pages one and two of the MD&A document dated today that we released this morning. Looking at the 2026 quarterly results, we did not operate our Mackenzie sawmill complex, nor did we operate our power plant in Q3. Our power plant was down because we had scheduled a major maintenance program that we planned to conduct in the quarter and complete this month.
We incurred a net loss of CAD 7.9 million in Q3 versus CAD 9.5 million in Q2 and CAD 9.4 million in Q1. Our per-share loss was CAD 0.19 versus CAD 0.23 in each of the two prior quarters. Our EBITDA loss in Q3 was CAD 5.7 million, which is 10% lower than our Q2 EBITDA loss and 25% lower than our Q1 loss. We are pleased to announce that our power plant is scheduled to be back online in the next few days and is expected to deliver power to the grid and earn revenue in the fourth quarter.
We remain committed to our goal of posting two-shift steady-state operations in our sawmill complex early in January 2027 and having all our employees and contractors back working for us on a full-time basis. We are grateful for the continued support of our existing lenders through this past year and for the additional funding we secured.
PenderFund continues to support our lumber business through bridge financings and credit facility amendments. Fiera has similarly supported our power generation business, and the Business Development Bank of Canada has recently provided us CAD 19 million of additional liquidity. We are all aware that the Government of Canada has programs in place to provide financing to Canadian enterprises that have been materially affected by tariffs and are unable to access financing from conventional sources. The loan programs are designed to preserve Canadian jobs and bridge otherwise viable businesses through periods when duty and tariff impositions on U.S. lumber exports produce cash operating losses that Canadian lumber producers are incapable of funding. Conifex's circumstances align closely with the intent of these government programs.
We are the largest employer in the Mackenzie region, and our operations have been directly and materially affected by cumulative softwood lumber duty and tariff payments of $49.4 million. The scale of these duty and tariff payments puts our financing needs in context. As I mentioned earlier, cumulative duties and tariffs of US 49.4 million on deposit is equivalent to approximately CAD 69 million. Coincidentally, on September 30th, net of cash, our lumber business borrowings from PenderFund, BDC, and drawdowns on our LETL loan totaled CAD 67 million. In other words, absent the requirement to fund cash deposits in the U.S., Conifex's lumber business would be debt-free. We believe this alignment between the challenges the government programs are designed to help overcome and our current liquidity and funding pressures position our requests for additional funding to receive favorable consideration.
Our highlight in Q3 was the CAD 30 million financing that we arranged with the Canada Enterprise Emergency Funding Corporation under its Large Enterprise Tariff Loan, or LETL, funding program. One important feature of the loan is that no scheduled principal repayments are required until September 2028, and thereafter, the LETL loan is repayable from a portion of our lumber business cash flow. A second important feature of the loan is that we also have the ability for payment in kind or PIK interest payments, whereby interest is added to the principal amount of the loan until Conifex achieves a certain level of trailing 12-month EBITDA. These two features provide us additional runway to maintain liquidity in the event lumber EBITDA does not recover at the pace we expect it to.
Competitiveness in the lumber business is importantly driven by delivered log costs, which typically represent two-thirds of the total cost of producing lumber. The Mackenzie timber supply area carries a structural sawlog surplus with an annual allowable harvest of 2.3 million cubic meters of sawlogs against our consumption requirement of approximately 800,000 cubic meters. Consequently, we have high fiber availability and delivered log costs that we believe are amongst the most affordable in the interior region of B.C. The next step in advancing our competitiveness is successfully completing several high-return, rapid payback capital projects. These projects are designed to reduce conversion costs, improve sawmill reliability, boost planer capacity, and lessen our dependence on the U.S. export market. In aggregate, the projects represent approximately CAD 15.3 million of investment with two to three year payback periods forecast for the individual projects.
Last month, we entered into an agreement with Pacific Economic Development Canada under the Regional Tariff Response Initiative, providing for CAD 10 million of interest-free, unsecured repayable funding, as well as a CAD 1 million non-repayable grant. It follows that the aforementioned capital projects are largely financed. Taken together, our competitive delivered log costs and targeted capital program, assuming successful completion as currently planned, will move our Mackenzie site down the SPF lumber industry cost curve. We believe our position on the cost curve will then provide a durable foundation for sustained cash flow generation through future lumber price cycles. Our immediate priorities are to secure additional capital to ensure we are in a position to build log inventories and lumber inventories to levels sufficient to sustain two-shift sawmill operations in 2027 and beyond.
Based on analysts' consensus estimates for SPF prices in 2027 and 2028, the lower unit costs associated with spreading our fixed harvesting and manufacturing costs over our entire production base, coupled with the expectation that duty deposit rates will decrease late in 2027, we currently expect our integrated lumber and power plant site at Mackenzie will incur negative EBITDA in the early part of our 2027 restart and ramp-up year before transitioning to an EBITDA-positive 2028, when we expect to capture the benefits of our completed capital projects. We continue to believe the mid- and long-term supply and demand fundamentals for SPF remain strong and will contribute to an improved pricing environment, reinforced by structural contractions in Canadian and European SPF exports to the U.S. that have occurred over the past three years. Permit me to conclude our discussion with a cautionary note.
Although we are encouraged by the progress we've made with and the collaborative feedback we've received from government funding organizations, there is no guarantee that Conifex will successfully obtain additional funding from any government program. For this reason, we plan to continue working collaboratively with our existing lenders to provide additional flexibility under our existing credit facilities. Thank you for your interest in Conifex. Andrew Spencer and I look forward to responding to any questions analysts and shareholders may have, and we'll turn the meeting back to the operator.
Thank you. We will now begin the question-and-answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. The first question today comes from Christian Reiter with Raymond James. Please go ahead.
Hey, Ken. It's Christian here. Just looking more broadly across B.C., where do you think the marginal producer sits on the cost curve today?
Well, the study and analysis that I have done, Christian, indicates that before duties, I get the impression that the B.C. industry is under $450 U.S. per 1,000 board feet on the cost curve. When you start factoring in duties, of course, you have the two nominated companies that are accruing duties to their 2026 income statement at a lower rate than the all other companies are accruing duties, which includes Interfor and Conifex. Our duty expense in our income statements at a materially higher rate than it is for the other two nominated companies. When you factor the duties back in, Christian, my guess is that on a duty-in basis, we would be closer to $500 U.S.
That is great color. Just from your commentary, you made some comments about lumber prices. They have come off from Q3 levels. What is your expectation for the balance of the year and as we are moving into 2027?
Okay, Andrew McLellan, I will answer that question.
Hi, Christian. Thanks for the question. Yes, consistent with what we have seen from other analysts, we are anticipating softening prices here in Q3 and holding level into 2027. What we are seeing and forecasting is a weaker demand in the U.S. and continued supply contractions in Canada. So, steady and flat pricing in 2027 with a bit of a bounce in 2028.
Perfect. Then maybe, Ken, for you, my last one. You have made some comments on the duties on deposits. Do you see any opportunities to monetize some of that value?
We do. We have got some ideas about that, but they are a bit premature to disclose. But we do consider it as a potential source of liquidity relief in the event we need to consider other avenues to enhancing our liquidity.
Perfect. That is all I had. Thank you.
Okay. Well, thank you.
Once again, if you have a question, please press star then one. This concludes the question and answer session. I would like to turn the conference back over to Ken Shields for any closing remarks.
Okay. Well, everyone that is on the call, thank you for your interest in our company, and we are starting to appreciate the ability that we have to recall our loyal employees and put them back to work, and we are getting a lot of comfort and joy from that outcome. Thanks, everyone. Enjoy the rest of your day and the week.
This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.