Good morning, ladies and gentlemen, and welcome to GreenFirst second quarter 2024 results conference call. Please note that all lines are muted to prevent any background noise. During this conference call, GreenFirst representatives will be making certain statements about future financial and operational performance, business outlook, and capital gains. These statements may contain forward-looking information or forward-looking statements within the meaning of Canadian securities law. Such statements involve certain risks, uncertainties, and assumptions which may cause GreenFirst actual or future results and performance to be materially different from those expressed or implied in these statements. Additionally, additional information about these risks, factors, and assumptions is included in GreenFirst MD&A, which can be accessed on the company's website or through SEDAR+. After the speaker's remarks, there will be a question-and-answer session, at which time you can submit web questions by typing them in the Q&A pod. Mr.
Rivett, you may begin your conference.
Thank you very much. Good morning, everyone, and welcome to our second quarter 2024 earnings call. I am Paul Rivett, the chair of GreenFirst. Today, I'm joined by Joel Fournier, our CEO, Terry Skiffington, our CEO of Kap Paper, Michel Lessard, our president, and Ankit Kapoor, our interim CFO. Since our last earnings call, we have made some significant strides in line with our strategy. We recently announced the planned spin-out of Kap Corporation, which would effectively deconsolidate the paper operations from GreenFirst. The spin-out of the paper operations is part of the natural progression of the decentralization efforts we have been working on since 2023. The spin-out will enable GreenFirst to focus on its core business of being a pure-play lumber producer.
At the same time, the transaction will offer shareholders a stake in any future upside from the development of Kap by Terry and, of course, its assets. As a separate company, Kap will consider independent financing alternatives and partnerships for the future. We want to thank the Province of Ontario for the support of Kap as we announce the CAD 24 million financing agreement the province provided for Kap Corporation. It gives Kap the ability to, and affords it the opportunity to, focus on its long-term strategy as a standalone operation. Kap Paper is the only pulp and paper mill operating in Northeastern Ontario, and its operations are imperative to mitigate challenges related to diminishing chip consumption, which is jeopardizing some sawmill operations in Northern Ontario. We are happy to have Kap in our ecosystem, which helps us find a guaranteed home for chips from our sawmills.
We continue to see the paper mill stabilize its operations and turning a corner from the challenges it faced at the end of last year in Q1 of this year. On the lumber side, we continue to fight through the prolonged bottom that we are now seeing in pricing. It has been a tough go for the industry, but we remain encouraged by long-term fundamentals for the lumber industry as a whole. Our goal in the short term is to manage our liquidity rigorously and to help sustain these lows in lumber pricing. The Bank of Canada has changed course on its interest rate policy, as we have seen 2 interest rate cuts this summer. We have yet to see that in the United States, but there are strong indications that a cut may be coming soon. This is much needed for the rebound in lumber pricing.
We recently also purchased a buyout group annuity that transfers approximately CAD 26.5 million of defined benefit pension obligations to a Canadian insurance company, and there'll be more for us on those pension plans in the future to discuss. Our management team will take us through the results of the quarter and the year, starting off with Ankit, giving us the financial highlights. Over to you, Ankit, please.
Thank you, Paul, and good morning, everyone. The company's net loss in Q2 was CAD 14.5 million. Adjusted EBITDA for Q2 was negative CAD 12.1 million. This compares to an adjusted EBITDA of negative CAD 3.5 million in Q1 2024. For Q2, we had negative contribution from both our lumber and paper segments. Net lumber sales recorded in the quarter were CAD 66 million, compared to CAD 69 million in Q1. This was due to lower volumes and lower pricing in Q2. Lumber demand continues to be impacted by housing affordability challenges, yet driven by high interest rates. In addition, there remains an oversupply of lumber inventory despite curtailments in North America. Cost of sales in the lumber segment were CAD 70 million, compared to CAD 62 million in Q1.
This was primarily due to a CAD 6 million swing in net realizable value adjustments, as Q1 had a decrease to NRV provisions, while Q2 had an expense. Compared to Q2 of last year, the company's net sales in the forest products segment declined by about 10%. This was driven by decreased field takeaways impacting volumes and due to an unexpectedly wet spring season in 2024. Cost of sales in the lumber segment improved by 6% compared to Q2 of last year, primarily due to significantly lower volume sold and gained efficiencies compared to the same period last year. This was partially offset by charges related to inventory net realizable value recorded in the current year, compared to a recovery in the second quarter of 2023.
Year-to-date sales were flat compared to the same period last year, as lower volumes were offset by higher realized prices in 2024. The paper segment saw net sales of CAD 28 million in Q2 versus CAD 24 million in Q1. This was driven by volume increases as the paper mill had fewer production-related challenges compared to a tough Q1. By the same token, cost of sales for paper segment remained flat, even with these higher volumes, as there was less maintenance costs in Q2. Compared to Q2 of last year, the company's net sales in the paper segment decreased by 26%. This was primarily driven by the lower volume due to production-related disruptions carried over from Q1 of this year, and continued pricing pressures seen during the course of 2023 and into 2024.
Cost of sales in the paper segment compared to Q2 of last year decreased by 7%. The decrease in cost of sales was primarily due to lower paper production and sales, offset by higher costs driven by external events from Q1 of this year. SG&A expenses of CAD 4.5 million in Q2 were higher compared to CAD 2.5 million in Q1. However, Q1 had a recovery of CAD 1.3 million related to the difference between accrued and actual incentive payout for 2023 and credits related to fringe benefits. Excluding the impact of these one-time items in Q1, SG&A expenses were relatively flat in the second quarter of 2024, as lower salaries and benefits were offset by costs related to corporate reorganization efforts, including the planned spin-off of Kap.
For Q2, finance costs were CAD 1.1 million, primarily reflecting interest charges on the company's outstanding debt under the credit facility. During Q2 2024, the company received proceeds of CAD 9 million from the Kap term loan. The company utilized CAD 6 million to repay the revolving portion of its credit facility. Additionally, the company received proceeds of CAD 10.3 million related to its equipment-based term loan, of which it effectively repaid approximately CAD 7.5 million to the revolving portion of the credit facility. As such, net proceeds from financing activities, including the Kap term loan, was about CAD 5 million. Subsequent to Q2, the company received the balance of the Kap term loan, of which CAD 4 million was utilized to repay the revolving portion of the credit facility, netting the company an additional CAD 11 million since Q2.
The repayments of the credit facility from the Kap term loan essentially offsets the loss in borrowing base due to removal of Kap's assets from the credit facility, as they are now pledged under the loan agreement with the Province of Ontario. The company also continues to monitor inventory levels and is accelerating certain initiatives to open up added liquidity. I will pass it over to Joel for his commentary on this and operations in general. Joel?
Okay, thank you very much, and good morning, all shareholders, analysts, and my colleague on this call. Q2 was a very challenging quarter with poor market conditions all across the industry. There were continued pressure on the lumber business, with price lagging in the quarter as demand failed to recover with high mortgage rates. As a result of this, we did take steps to accelerate scheduled downtime for maintenance to offset the market condition and ensure tight inventory management going forward. This was all focused on ensuring the company is laser-focused on its liquidity profile as the industry navigates through this difficult time. Beyond the operational level of liquidity, we have already made strides under our credit facility program, and the loan from the Province of Ontario provide us good support for Kap Paper operation.
In addition, we strongly believe we will have a positive update on Canada by the end of this year. And the most recent announcement related to the annuitization of a portion of our pension plan, give us a pathway to unlock the surplus relates into 2025. In Q1, we had reported on several production records, as we announced last time, that were achieved by our lumber mills. I'm happy to report that we did see some additional one in Q2, primarily related to our Chapleau and Kapuskasing sawmill operation. We are also starting to see a sustained reduction on our SG&A run rate since the reform made earlier this year. We are on track to achieve our targeted run rate, as previously announced in the last quarter, especially as spent on corporate restructuring projects are phasing out.
To continue to drive a culture of continuous improvement across the company, we have identified specific non-CapEx initiatives to drive saving of approximately CAD 14 million compared to the 2023 results. We have positioned mill incentives in line with this goal, and they remain a top priority for the team. These incentive program aim at continuous improvement, has been a key driver for the mills in achieving those production records that we had in Q2. We have seen significant improvement in manufacturing costs in Q2 as a result of those initiatives. On top of this, we are tightly monitoring CapEx spend with strategic project deferred until we see support from the lumber market going forward. We ensure that any maintenance CapEx necessary for the safe functioning of our mill is still executed on.
We are confident of our long-term CapEx plan once market enable us to execute on them. This will lead to additional throughput at our mill in a cost-efficient manner. We also remain confident on the long-term prospect of lumber markets and have recently seen an uptick since mid-July in futures. We think we have hit the bottom and hope that markets now continue to rebound from it. The Bank of Canada interest rate cuts puts the economic environment on the right path for recovery in lumber price. The under supply housing market and record level of immigration in North America remain key fundamental driver for the rebound in lumber price. Our sales saw a decrease from Q1 due to concern around persistent high mortgage rates and impacted affordability of home. Buyers already maintaining low field inventory level continue to do so in Q2.
We see this as an additional catalysis for lumber rebound as low inventory creates supply side pressure. During the second quarter of 2024, lumber products production saw an increase over the first quarter. The production momentum that the mill gained in the first quarter carried into the second quarter, as a result of which, production was higher. This results in lower cost of production as well, the benefit of which we expect to see in cost of sale in the following quarter. Going into Q3, however, we did accelerate some shutdown and maintenance schedule to offset the impact of slow-moving inventory, as a result of weak market condition. That's it for this section. I'll pass it over to Terry Skiffington for his comment on the paper operation. Thank you.
Thanks, Joel, and good morning, everyone. I'll give a brief synopsis of Kap Paper for Q2 and a bit of a look forward. To begin, we had no recordable injuries in the quarter and are tracking at a 1.0 incident rate, which puts us close to, if not at the top of the list, for safest mills in Canada. Our market conditions have improved slightly, particularly in the export world, with the Middle East and Asia continuing to see restrictions in transport and reduced shipments out of Europe. North America, for the first time in recent memory, showed an uptick in demand and shipments in June, and I'll speak about pricing impacts in just a few minutes. Mill operational and cost performance did improve from Q1. Mill efficiency increased by 5%, and the mill level cost of manufacturing decreased by 16% from Q1.
About a third of that reduction in cost came from active cost reductions in variable, daily, and fixed costs, and about two-thirds of that were as a result of the improved mill performance. As a result, Q2 EBITDA improved significantly, and although still in a negative position, we are on track both from an operational and a cost perspective to be EBITDA positive shortly. In terms of pricing, all North American newsprint producers, along with Japan, South America, and Europe, have announced a $50 increase, $50 US increase for standard newsprint, effective September 1. At the same time, we are seeing an increase in export demand and pricing in excess of our recent forecast. These moves in the market help to reinforce my positive EBITDA plan communicated on our last call and again today.
As Paul mentioned earlier, we are very pleased to have finalized the CAD 24 million term loan from the Province of Ontario for Kap Paper. This level of confidence and support from Ontario is very appreciated. This gives us the opportunity to continue to work to improve our core business and at the same time work on our biomass energy strategy, which includes a significant increase in electricity and steam generation from sawmill and forest residues, as well as other forms of bioenergy. Thank you, and I'll pass it back to Joel to complete the call.
Thank you, Terry. We're extremely proud of our forestry operation based solely in Ontario, where we focus on sustainable practice. We prioritize environmental stewardship by promoting biodiversity, maintaining forest health, and complete utilization of the tree we harvest. I will pass it to Paul Rivett for the final words for this call.
Thank you, Joel, and thanks everyone for joining the call. So we'll now go on mute while we wait to see if there are any questions that we can answer. Okay, well, for the first time since we started as a public company, there are... Well, I just see one question coming through. Oh, here, there's a few coming through now, actually. I was gonna say we don't have any questions, but we have a few. So the first one, are any updates on the land sale? So, Michel, if you could answer that one for us.
Yeah, for sure. So, yeah, so if we're looking for Kenora, so our interest remains to monetize that land. That is not sold yet, but we are in discussion with the different interested parties, and we hope that we're gonna be able to to get an agreement in the following months. Regarding also the other lands that we have around Timmins and Kap, we were able to monetize, I would say, the big majority of these lands also, so it's good news for us. So there are remaining a bit of land that we're also in discussion with interested parties.
Oh, and I would just add that, we have talked about the land, the pension, the duties, as all things that are monetizable, and we are, deep into, doing that on behalf of shareholders, and so hopefully there'll be more to report on that in the, in the next quarter. But, seeing that there's no further questions, before signing off, I'd like to say thanks very much to, on behalf of everybody at GreenFirst, to Ankit for all of his hard work and commitment. We wish him the very best in all of his future endeavors. With that, we, we do look forward to having Peter Ferrante join us, for the next quarterly call.
And then one last note, I've been assisting on these calls while Joel has been acclimatizing to leadership of the team and leadership of these calls, but in the future, I will be stepping back from the quarterly calls and taking a more traditional role of chairman and turning these calls over to Joel and the team, who have been doing a fantastic job. So thank you very much, everyone, and we look forward to talking to you next quarter.