Kingcome Timber Supply Area Economic Operability Assessment

Transcription

1 Kingcome Timber Supply Area Economic Operability Assessment Prepared for: Kingcome TSA Licensees Prepared by: Timberline Forest Inventory Consultants Vancouver, B.C. Contact: Jerry Miehm, Senior Resource Analyst 20 April 2005

2

3 Table of Contents Page 1.0 INTRODUCTION METHODOLOGY OVERVIEW PHYSICAL ACCESSIBILITY ECONOMIC OPERABILITY TIMBER VALUE LOGGING COSTS VALUE INDEX TIMBER PRICE SCENARIOS LOG PRICES VALUE INDEX THRESHOLD OUTPUT ECONOMIC OPERABILITY MAPS COMPARISON TO EXISTING OPERABILITY MAPS CONCLUSIONS 18 List of Tables Table 1. Operability Model Input Parameters Data Sources... 3 Table 2. TSA Average Grade Distribution Mature... 4 Table 3. TSA Grade Distributions Immature...4 Table 4. Hauling Costs by Five-Kilometre Haul Zone... 6 Table 5. Crew Transportation Costs by Five-Kilometre Haul Zone... 7 Table 6. Peak Log Prices by Species and Grade Table 7. Peak Log Price Date by Species and Grade Table 8. Immature Log Prices Scenario Comparison Table 9. Immature Log Prices Scenario Comparison Table 10. Operability Change 1995Q4 Log Prices - $0 Margin Table 11. Operability Change 1995Q4 Log Prices - $-10 Margin Table 12. Operability Change 1995Q4 Log Prices - $-20 Margin Table 13. Operability Change 2004Q4 Log Prices - $0 Margin Table 14. Operability Change 2004Q4 Log Prices - $-10 Margin Table 15. Operability Change 2004Q4 Log Prices - $-20 Margin Table 16. Operability Change Median Log Prices - $0 Margin Table 17. Operability Change Median Log Prices - $-10 Margin Table 18. Operability Change Median Log Prices - $-20 Margin... 17

4 List of Figures Figure 1. Hembal Price Trends, by Grade... 8 Figure 2. Cedar Price Trends, by Grade... 9 Appendices Appendix I Appendix II TOTAL CHANCE ROADING GUIDELINES Appendix III LIST OF REPRESENTATIVE CUTTING PERMITS MATURE GRADE DISTRIBUTION BY WATERSHED

5 Economic Operability Assessment of the Kingcome Timber Supply Area 1.0 INTRODUCTION Operability is a term used to describe the availability of a forested area for harvesting operations. Any or all of the following may be considered when making a determination regarding operability: physical accessibility; terrain stability; expected access development costs; expected logging costs; the quantity and quality of the timber on the site; and local logging practices and economics. The primary use for operability mapping is strategic planning. This includes timber supply analysis, twenty year plans, and landscape unit plans. Operability maps are also used by resource planners when locating reserves to protect wildlife habitat and biodiversity. The goal of this project has been to examine the factors that affect operability, and to evaluate existing operability maps in light of these factors. This was accomplished by building and calibrating an economic operability model and compiling a database that can be used to produce operability maps for different economic scenarios. Three scenarios were considered, and a base case operability map has been produced. 1

6 Economic Operability Assessment of the Kingcome Timber Supply Area 2.0 METHODOLOGY OVERVIEW The detailed description of the procedures used to determine the economic operability was provided in the report produced for a previous project 1. An overview of the methodology is provided here. The procedures describe in this section were refined based on the results of a pilot project, prior to being applied to the entire Kingcome TSA. The pilot area chosen was Gilford Island. The logging cost and timber value results for this area were reviewed with licensees; roading rules and yarding distances were amended as a result of this feedback. 2.1 Physical Accessibility The physically accessible portion of the land base is that which can be reached with current road building and yarding technologies. Professional judgement was used and input from licensees was solicited to produce a realistic view of the physically accessible land base. The accessible land base within the Kingcome TSA was determined using a two step process: A Total Chance Road Network was completed on 1:50,000 base maps with input from licensees. A maximum helicopter yarding distance (1250 meters) was determined and the road network was buffered by this amount. The Total Chance Road Network was completed on 1:50,000 scale base maps using professional judgement and input from licensees. The starting point for this exercise was the existing road network, FDP roads, and a complete road network that had been previously assembled for a timber supply assessment of Interfor s chart areas 2. Efforts were made to include all leading cedar stands with greater than 350 cubic meters per hectare and hemlock, balsam, spruce and fir-leading sites with greater than 500 cubic meters per hectare. The road network was designed to avoid areas with greater than 60 % side slopes. Mechanisms other than operability mapping are in place to ensure that other resources and interests are protected. The guidelines used by the engineers for the total chance road network are included in Appendix Economic Operability The economically operable land base is that portion of the physically accessible land base that can be profitably harvested. Timber and cost information must be developed for 1 Kingcome TSA Operability Assessment -Problem Analysis and Conceptual Design. Timberline Forest Inventory Consultants. March Kingcome Timber Supply Analysis Executive Report Forest License A Jedroc Engineering Services Ltd. September

7 Economic Operability Assessment of the Kingcome Timber Supply Area each stand in order to derive an economic operability map. Table 1 shows the information sources that were used in the assessment of these parameters. Table 1. Operability Model Input Parameters Data Sources Input Parameter Data Sources Timber Value Vegetation Resource Inventory Representative Cutting Permit Grades Vancouver Log Market Prices Access Development Cost Total Chance Road Network Representative Cutting Permit Road Costs Tree-to Truck Cost Total Chance Road Network Coast Appraisal Manual Costs Hauling Cost Total Chance Road Network Coast Appraisal Manual Equation Towing Costs Coast Appraisal Manual Costs Administrative Cost Coast Appraisal Manual Costs Camp Cost Coast Appraisal Manual Costs Silviculture Cost Coast Appraisal Manual Costs Timber Value Timber value for each stand was determined based on the forest inventory, cutting permit grade distributions and log selling price information from Ministry of Forests Revenue Branch. The volume and species distribution information was taken from the inventory files. Existing mature stands were projected to 2004 using the Variable Density Yield Prediction (VDYP) model. The stands younger than 100 years of age were projected to an age of 100 years using VDYP. The stands less than 30 years of age were projected using TIPSY. Log grade distributions were used to compile timber value for each stand. The only grade distribution information availability is from representative, historical cutting permit data. Licensees provided a list of representative cutting permits and the appraisal data summaries were provided by the Ministry of Forests, Revenue Branch. A total of 84 cutting permits were used; the complete list is provided in Appendix III. Cutting permit grade distributions were grouped by the woodsheds developed for the Central Coast Woodshed Analysis 3 and by pseudo third-order watersheds used for a subsequent study that examined the economics of potential operating areas 4. 3 Assessing Current Timber Harvesting Value in the Central Coast. Timberline Forest Inventory Consultants. August Defining Operating Area for First Nation Forest Tenure. Timberline Forest Inventory Consultants. March

8 Economic Operability Assessment of the Kingcome Timber Supply Area Timber value calculations require that a selling price for each species and grade be applied to the cutting permit grade distributions. Vancouver Log Market log selling prices by species and by grade are calculated by the Ministry of Forests, Revenue Branch on a quarterly basis. When these log selling prices are applied to the cutting permit derived grade distribution for a stand, the total value of its timber can be compiled. Three different timber price scenarios were used for value calculations for this project. Table 2. TSA Average Grade Distribution Mature Species B C D E F G H I J K L M U X Y CEDAR CYPRESS DECID FIR HEMBAL PINE SPRUCE Table 3. TSA Grade Distributions Immature Species B C D E F G H I J K L M U X Y CEDAR CYPRESS DECID FIR HEMBAL PINE SPRUCE Logging Costs Delivered wood cost is the estimate of average cost of harvesting and transporting timber from the woods to the wood delivery point. The specific computations for DWC are consistent with the methodology set out in the 2003 Ministry of Forests Coast Appraisal Manual. DWC = Development Cost + Tree-to-truck cost + Log Transport Cost + Admin/Other Cost Development Costs Development costs cover the construction of new roads (proposed roads) and bridges in undeveloped areas, and the reconstruction of abandoned or deactivated roads in previously developed areas. Per-kilometer road construction costs were determined from representative historical cutting permit data. Both tabular and engineered road costs were compiled. 4

9 Economic Operability Assessment of the Kingcome Timber Supply Area Tabular road costs were determined for each woodshed. These costs varied from $65,082 to $149,965 / kilometre. The average tabular road construction cost was $104,377 / kilometre. The Cutting Permit data available did not provide enough information to calculate an engineered road cost for each woodshed. Instead, a TSA-wide CP average of $281,047 was used. Tabular and engineered road cost averages were applied to separate portions of the landbase based on side-slope. For proposed roads in areas with more than sixty percent side-slope, engineered road costs were used; tabular costs per kilometer were applied to flatter ground. A factor of 16% was applied to the proposed road lengths to accommodate small branch roads and spurs needed for optimal yarding. This was based on a comparison of existing road densities to the density of proposed roads in undeveloped areas. The cost per kilometre for all proposed roads was increased by 16% to account for this suspected underestimate of the actual road requirement for these areas. An assumption needed to be made about the cost of second- (and subsequent-) pass access development costs in areas that were already developed. For this purpose, fifty percent of the tabular road cost was used for an estimate for reactivation of existing roads. This was calculated on a pseudo third-order watershed basis. For both existing and proposed roads, it was necessary to convert the per-kilometer access development costs to per-cubic-metre costs. This was done by determining the average volume of timber by woodshed that roads in that woodshed developed. This was done separately for Existing and Proposed roads. By dividing the total cost for these roads by the amount of timber that they can potentially access, the access cost per cubic metre was calculated. Access development is the logging phase was the most complex cost estimation procedure. Costs for the remaining phases are determined in a more straightforward fashion. Tree-to-Truck Costs Tree-to-truck costs have been assigned according to the Coast Appraisal Manual. Stands within 200 metres of an existing or proposed road were assigned the Conventional yarding rate of $21.94 per m3. Stands beyond 200 metres, but within 1250 metres were assigned a helicopter yarding cost of $70.13 per m3. Log Transportation Costs Hauling costs were assigned by creating five-kilometre haul zones using the total chance road network. Each stand within a given zone would be assigned a haul distance using the midpoint of the zone. For instance, stands in the ten to fifteen kilometre zone were assigned a haul distance of twelve and a half kilometres. The MoF 2003 Appraisal 5

10 Economic Operability Assessment of the Kingcome Timber Supply Area Manual equation was used to derive a cost per cubic metre based on this distance. Table 4 shows the hauling cost that results for each five kilometre haul zone. Table 4. Hauling Costs by Five-Kilometre Haul Zone Km $/m3 Km $/m3 Km $/m3 5 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Towing costs were taken from the Appraisal Manual based on Point of Origin. These are generally overhead costs, and can reasonably be applied at the pseudowatershed level. They include: Corporate and Forestry overhead; Crew transportation; Camp operations and overhead; Silviculture costs. Crew transportation costs are based on the equation provided in the 2003 Ministry of Forests Coastal Appraisal Manual and are compiled using the distance from the marshalling point to the block. The marshalling zones correspond to the haul zones and crew transportation costs were calculated accordingly. Table 5 shows the values that were used for each five-kilometre haul zone. 6

11 Economic Operability Assessment of the Kingcome Timber Supply Area Value Index Table 5. Crew Transportation Costs by Five-Kilometre Haul Zone Km $/m3 Km $/m3 Km $/m3 5 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 7.66 The Value Index (VI) for each stand is timber value (TV) less the delivered wood cost (DWC). For a defined log price scenario, any stand that exceeds a given VI threshold is considered to be economically operable. 7

12 Economic Operability Assessment of the Kingcome Timber Supply Area 3.0 TIMBER PRICE SCENARIOS The economic operability of any given stand, under this model, is determined by: its Value Index, as calculated above the Value Index threshold used to determine which stands will be considered economical to harvest Since logging costs are not considered to change over time, temporal changes in VI are primarily a function of log price fluctuations. 3.1 Log Prices Operability mapping, as an input to timber supply analysis, is a tool for strategic planning. These plans consider the forest estate over the long term. Consequently, when determining which log price inputs to use to drive the operability model, it makes sense to review trends over an entire business cycle. To this end, Vancouver Log Market price trends over the last ten years were examined. Charts, such as the sample shown in Figure 1 and Figure 2 were produced to more easily observe price ranges and key price levels. $180 $160 $140 $120 $100 $80 $60 H I J U X Y $40 $20 $0 1995q1 1995q2 1995q3 1995q4 1996q1 1996q2 1996q3 1996q4 1997q1 1997q2 1997q3 1997q4 1998q1 1998q2 1998q3 1998q4 1999q1 1999q2 1999q3 1999q4 2000q1 2000q2 2000q3 2000q4 2001q1 2001q2 2001q3 2001q4 2002q1 2002q2 2002q3 2002q4 2003q1 2003q2 2003q3 2003q4 2004q1 2004q2 2004q3 2004q4 Median Figure 1. Hembal Price Trends, by Grade 8

13 Economic Operability Assessment of the Kingcome Timber Supply Area $250 $200 $150 $100 H I J U X Y $50 $0 1995q1 1995q2 1995q3 1995q4 1996q1 1996q2 1996q3 1996q4 1997q1 1997q2 1997q3 1997q4 1998q1 1998q2 1998q3 1998q4 1999q1 1999q2 1999q3 1999q4 2000q1 2000q2 2000q3 2000q4 2001q1 2001q2 2001q3 2001q4 2002q1 2002q2 2002q3 2002q4 2003q1 2003q2 2003q3 2003q4 2004q1 2004q2 2004q3 2004q4 Median Figure 2. Cedar Price Trends, by Grade Based on the log price trend review, three log price scenarios were considered for this project: 1995 Fourth Quarter 2004 Fourth Quarter Median (for 1995 to 2004) 1995 Fourth Quarter Prices As Figure 1 indicates, 1995Q4 was a high point in the market for hemlock and balsam. In fact, it was the market peak for all pulp and utility grades, and for all grades in species other than cedar and cypress. (Tables 4 and 5 provide more detail about the timing and magnitude of log market peaks.) Basing economic operability on these prices would lead to a larger operable landbase than for either of the other two scenarios. While this might be considered aggressive, it can be argued that this is a legitimate point in the business cycle. Having occurred once, similar price levels could reasonably be expected again at some point in the future. Since the resulting operability maps will be used for long term planning, this price table warrants serious consideration Fourth Quarter Prices Basing economic operability maps on 2004Q4 prices would clearly be a conservative approach. While not an absolute low point in the market cycle, prices for most species, and especially Hembal, are depressed. Cedar prices are strong, though not at historic highs. This scenario provides a benchmark against which the others can be better judged. The timber values and profit figures that come out of this model can be compared to actual returns from current harvesting operations. 9

14 Economic Operability Assessment of the Kingcome Timber Supply Area Table 6. Peak Log Prices by Species and Grade Species Grade HEMBAL CEDAR CYPRESS FIR SPRUCE PINE ALDER B 462 C 231 D E 959 F G 645 H I J K L M U X Y Table 7. Peak Log Price Date by Species and Grade Species Grade HEMBAL CEDAR CYPRESS FIR SPRUCE PINE ALDER B 1996q4 C 1997q2 D 1995q4 2001q3 2003q2 1996q4 1996q4 1995q1 E 1996q4 F 1995q4 2001q2 1995q2 1996q4 1996q4 1995q1 G 1996q3 H 1995q4 2003q1 1995q1 1997q2 1995q4 1995q1 I 1995q4 2003q2 1995q1 1997q2 1995q4 1995q4 J 1995q4 1998q4 2001q2 1995q3 1995q4 1995q4 K 2003q1 1995q1 L 2003q1 1995q1 M 2003q1 1995q1 U 1995q4 2003q2 2003q2 1995q4 1995q4 1995q4 2003q1 X 1995q4 2003q3 1995q1 1995q4 1995q4 1995q4 Y 1995q4 1998q3 1995q1 1995q4 1995q4 1995q4 Median Prices The use of median log prices represents a compromise between these two extremes. Tables 6 and 7 show a comparison of the prices for these three scenarios for mature and immature timber respectively. The highest priced scenario for each species / grade combination is shown in red. 10

15 Economic Operability Assessment of the Kingcome Timber Supply Area Table 8. Immature Log Prices Scenario Comparison Species Grade Price Table ALDER CEDAR CYPRESS FIR HEMBAL PINE SPRUCE B 1995Q Median Q C 1995Q Median Q D 1995Q Median Q E 1995Q Median Q F 1995Q Median Q G 1995Q Median Q H 1995Q Median Q I 1995Q Median Q J 1995Q Median Q K 1995Q Median Q L 1995Q Median Q M 1995Q Median Q U 1995Q Median Q X 1995Q Median Q Y 1995Q Median Q

16 Economic Operability Assessment of the Kingcome Timber Supply Area Table 9. Immature Log Prices Scenario Comparison Species Grade Price Table ALDER CEDAR CYPRESS FIR HEMBAL PINE SPRUCE B 1995Q Median Q C 1995Q Median Q D 1995Q Median Q E 1995Q Median Q F 1995Q Median Q G 1995Q Median Q H 1995Q Median Q I 1995Q Median Q J 1995Q Median Q K 1995Q Median Q L 1995Q Median Q M 1995Q Median Q U 1995Q Median Q X 1995Q Median Q Y 1995Q Median Q

17 Economic Operability Assessment of the Kingcome Timber Supply Area 3.2 Value Index Threshold After log pricing, the second key decision that must be made in order to determine which stands should be considered economically operable is the Value Index threshold that will be used to determine profitability. Upon first consideration, it would seem logical to use the breakeven point (no profit or loss when the stand is harvested). This is one of the options presented in the tables in Section 3.4, but it is not the only one. Two issues can be raised in support of using a negative profit margin when determining which stands are economically operable: 1. Logging often occurs in blocks where the Value Index is negative; and 2. Stumpage must be paid after VI has been calculated. This additional charge is not included in the Delivered Wood Cost portion of this model. Of the 56 cutting permits reviewed for this project that were appraised under the CVP system, twenty had a negative value index. Twelve of those were below minus ten dollars, and six were below minus twenty dollars. In fact, the average volume-weighted VI for the helicopter CP s examined was $ These results support the general perception that licensees on the Coast have been able to harvest blocks that would appear to be unprofitable according to a strict application of the CVP system. For that reason, three profit margin cutoffs zero dollars, minus ten dollars and minus twenty dollars have been run for each of the three timber pricing scenarios described above. 3.3 Output Economic Operability Maps The results of these analyses have been presented on a set of 1:125,000 maps. Each set consists of two maps that overlap each other slightly and cover the entire Kingcome TSA. One set of logging cost maps was produced: logging costs are the same for all three scenarios. For each of the three log price scenarios, two sets of maps were plotted timber value and profit margin. The profit margin map was colour-coded to show the zero, minus ten and minus twenty Value Index thresholds discussed above. All of these maps have been delivered digitally as.pdf files. 3.4 Comparison to Existing Operability Maps The tables below summarize the areas presented on the profit margin maps. Each table represents one Value Index threshold for one timber price scenario nine tables in all. The area shown in these tables is restricted to: physically accessible stands (within 1250 metres of a road or a water drop) stands capable of producing 150 m 3 /ha the benchmark age used to determine timber value for second growth stands 13

18 Economic Operability Assessment of the Kingcome Timber Supply Area A total of 461,202 hectares met this criteria. The tables show less total area because uneconomic stands have been excluded. Note that these tables also exclude 9,297 hectares that was considered operable by the old operability mapping, but is not within 1250 metres of the total chance road network. Consequently, it is not physically accessible (so can t be economically operable) under the new operability mapping Fourth Quarter Prices Table 8 shows the first case that was considered. It is based on 1995Q4 log prices, and assumes that any stand for which logging is a breakeven proposition is operable. The original operability assignments are shown under Old Operability. This has been cross tabulated with development status and yarding method under the new system. For instance, 76,409 hectares of previously operable stands are operable under the new system for this scenario and margin cutoff; they have been classified as Developed Conventional. A further 35,948 hectares that was previously considered inoperable also falls into this category. The total operable landbase is 335,221 hectares. Table 10. Operability Change 1995Q4 Log Prices - $0 Margin Old Operability New Operability > $0/ha Operable Inoperable Total Developed - Conventional 76,409 35, ,357 Developed - Helicopter 21,690 70,593 92,284 Undeveloped - Conventional 40,951 65, ,793 Undeveloped - Helicopter 3,699 20,088 23,787 Total 142, , ,221 Table 9 shows how the operable landbase increases (to 383,576 hectares) if stands with a profit margin as low as minus ten dollars are considered to be economically operable. Table 11. Operability Change 1995Q4 Log Prices - $-10 Margin Old Operability New Operability > $-10/ha Operable Inoperable Total Developed - Conventional 77,482 36, ,977 Developed - Helicopter 32,947 98, ,792 Undeveloped - Conventional 41,747 66, ,891 Undeveloped - Helicopter 4,283 25,632 29,915 Total 156, , ,576 14

19 Economic Operability Assessment of the Kingcome Timber Supply Area Table 10 shows a further gain and the profit requirement is relaxed even further to minus twenty dollars. Table 12. Operability Change 1995Q4 Log Prices - $-20 Margin Old Operability New Operability > $-20/ha Operable Inoperable Total Developed - Conventional 78,638 36, ,525 Developed - Helicopter 46, , ,058 Undeveloped - Conventional 42,135 66, ,378 Undeveloped - Helicopter 5,000 28,610 33,610 Total 172, , , Fourth Quarter Prices If 2004Q4 log prices are used to determine economic operability, the landbase shrinks considerably. The following three tables are comparable to Tables 8, 9 and 10. Table 13. Operability Change 2004Q4 Log Prices - $0 Margin Old Operability New Operability > $0/ha Operable Inoperable Total Developed - Conventional 29,194 23,797 52,992 Developed - Helicopter 3,495 9,350 12,845 Undeveloped - Conventional 21,519 54,775 76,295 Undeveloped - Helicopter Total 54,242 88, ,730 Table 14. Operability Change 2004Q4 Log Prices - $-10 Margin Old Operability New Operability > $-10/ha Operable Inoperable Total Developed - Conventional 42,039 27,900 69,940 Developed - Helicopter 10,335 32,312 42,647 Undeveloped - Conventional 27,316 60,638 87,955 Undeveloped - Helicopter 357 3,483 3,840 Total 80, , ,382 15

20 Economic Operability Assessment of the Kingcome Timber Supply Area Table 15. Operability Change 2004Q4 Log Prices - $-20 Margin Old Operability New Operability > $-20/ha Operable Inoperable Total Developed - Conventional 61,241 34,301 95,542 Developed - Helicopter 18,390 60,486 78,875 Undeveloped - Conventional 34,270 63,638 97,908 Undeveloped - Helicopter 1,286 9,443 10,729 Total 115, , ,054 Median Prices As noted earlier, the Median Price scenario represents a compromise between the 1995 and 2004 scenario. Unsurprisingly, the amount of economically harvestable timber is also intermediate between these two scenarios. Table 16. Operability Change Median Log Prices - $0 Margin Old Operability New Operability > $0/ha Operable Inoperable Total Developed - Conventional 33,939 25,528 59,467 Developed - Helicopter 9,750 36,249 45,999 Undeveloped - Conventional 24,922 58,978 83,900 Undeveloped - Helicopter 546 5,763 6,309 Total 69, , ,675 Table 17. Operability Change Median Log Prices - $-10 Margin Old Operability New Operability > $-10/ha Operable Inoperable Total Developed - Conventional 49,946 31,777 81,724 Developed - Helicopter 17,443 60,373 77,817 Undeveloped - Conventional 30,262 62,356 92,618 Undeveloped - Helicopter 1,348 10,362 11,710 Total 99, , ,868 16

21 Economic Operability Assessment of the Kingcome Timber Supply Area Table 18. Operability Change Median Log Prices - $-20 Margin Old Operability New Operability > $-20/ha Operable Inoperable Total Developed - Conventional 70,105 35, ,026 Developed - Helicopter 24,321 81, ,733 Undeveloped - Conventional 38,093 65, ,096 Undeveloped - Helicopter 2,273 15,765 18,038 Total 134, , ,892 17

22 Economic Operability Assessment of the Kingcome Timber Supply Area 4.0 CONCLUSIONS The previous section demonstrates that the size of the economically operable landbase can vary widely, depending on the log price table used and on assumptions about profitability requirements. This flexibility will be useful, as it will permit operability mapping to be updated as log prices and (to a lesser extent) logging cost change over time. The model can also serve as a valuation tool to gauge the economic impact of alienations from the working forest landbase. The ArcInfo coverage generated for this project has been delivered to facilitate this. However, it will also be necessary to use this model to generate the official operability coverage which will be used as input to the upcoming Timber Supply Review (TSR) process. Although it would be possible to rerun the model with updated logging cost and timber value information, it is unlikely that outcome would fall outside of the range of scenario shown on the maps and summarized in the previous section. It would be preferable to select a base case option from among them. At the outset of the project, the intention was to use 1995Q4 log prices and a zero dollar margin to generate the base case map. After reviewing the initial maps with the licensees however, this was deemed to be too aggressive. Low quality stands at higher elevations were showing as operable under this scenario. Hembal prices, and particularly hembal pulp prices, were at a level that has not been approached over the intervening years. The operability lines were being forced well up the hill as a result. It was felt that many of stands that were added to the operable landbase could not realistically be included, even for long term planning purposes. A brief review of the operability maps based on 2004Q4 log prices showed that they were much too conservative to be used for long term planning. The Median log price scenario is also conservative, but less so. As such, it provides the best foundation for generating a defensible operability map for the TSR process. However, a decision regarding an acceptable level of profitability is needed in order to finalize the map. Strong justification exists for using a negative profit margin as the basis for determining economic operability. Two reasons were given in Section 3.2: 1. Logging often occurs in blocks where the Value Index is negative; and 2. Stumpage must be paid after VI has been calculated. This additional charge is not included in the Delivered Wood Cost portion of this model. A further case for accepting a negative profit margin can be made if Median log prices are used for timber valuation. By definition, log prices have been above the median for half of the last ten years. Any stand that is profitable to log throughout half the business cycle should certainly be considered economical. Even stands that are profitable for shorter periods of time could reasonably be included in the operable landbase. For this reason, a Value Index threshold of minus ten dollars per cubic metre is recommended as the basis for determining operability for the next Timber Supply Review. 18

23 Appendices

24

25 Appendix I Mature Grade Distribution by Watershed

26 Mature Grade Distribution by Watershed WS Species B C D E F G H I J K L M U X Y 1 CEDAR CYPRESS HEMBAL PINE CEDAR CYPRESS HEMBAL SPRUCE CEDAR CYPRESS HEMBAL SPRUCE CEDAR CYPRESS HEMBAL SPRUCE CEDAR CYPRESS HEMBAL PINE CEDAR CYPRESS HEMBAL SPRUCE CEDAR CYPRESS HEMBAL PINE CEDAR CYPRESS HEMBAL SPRUCE CEDAR CYPRESS HEMBAL SPRUCE CEDAR CYPRESS HEMBAL SPRUCE CEDAR CYPRESS HEMBAL SPRUCE CEDAR CYPRESS HEMBAL SPRUCE CEDAR

27 Mature Grade Distribution by Watershed WS Species B C D E F G H I J K L M U X Y 13 CYPRESS FIR HEMBAL SPRUCE CEDAR CYPRESS FIR HEMBAL SPRUCE CEDAR CYPRESS FIR HEMBAL SPRUCE CEDAR CYPRESS FIR HEMBAL SPRUCE CEDAR CYPRESS FIR HEMBAL PINE SPRUCE CEDAR CYPRESS FIR HEMBAL PINE SPRUCE CEDAR CYPRESS FIR HEMBAL PINE SPRUCE CEDAR CYPRESS FIR HEMBAL PINE SPRUCE CEDAR CYPRESS HEMBAL SPRUCE CEDAR CYPRESS

28 Mature Grade Distribution by Watershed WS Species B C D E F G H I J K L M U X Y 22 HEMBAL PINE CEDAR CYPRESS HEMBAL PINE CEDAR CYPRESS DECID HEMBAL SPRUCE CEDAR CYPRESS DECID HEMBAL SPRUCE CEDAR CYPRESS DECID HEMBAL SPRUCE CEDAR CYPRESS DECID HEMBAL SPRUCE CEDAR CYPRESS HEMBAL SPRUCE CEDAR CYPRESS HEMBAL SPRUCE CEDAR CYPRESS HEMBAL SPRUCE CEDAR CYPRESS HEMBAL SPRUCE CEDAR CYPRESS HEMBAL SPRUCE CEDAR CYPRESS HEMBAL

29 Mature Grade Distribution by Watershed WS Species B C D E F G H I J K L M U X Y 33 SPRUCE CEDAR CYPRESS HEMBAL CEDAR CYPRESS HEMBAL CEDAR HEMBAL CEDAR HEMBAL CEDAR HEMBAL CEDAR CYPRESS HEMBAL PINE SPRUCE CEDAR CYPRESS HEMBAL PINE SPRUCE CEDAR CYPRESS DECID HEMBAL PINE SPRUCE CEDAR CYPRESS DECID HEMBAL PINE SPRUCE CEDAR CYPRESS DECID HEMBAL PINE SPRUCE CEDAR CYPRESS DECID HEMBAL PINE SPRUCE CEDAR CYPRESS

30 Mature Grade Distribution by Watershed WS Species B C D E F G H I J K L M U X Y 45 DECID FIR HEMBAL PINE SPRUCE CEDAR CYPRESS DECID FIR HEMBAL PINE SPRUCE CEDAR CYPRESS DECID FIR HEMBAL PINE SPRUCE CEDAR CYPRESS DECID FIR HEMBAL PINE SPRUCE CEDAR CYPRESS DECID FIR HEMBAL PINE SPRUCE CEDAR CYPRESS DECID FIR HEMBAL PINE SPRUCE CEDAR CYPRESS DECID FIR HEMBAL PINE SPRUCE CEDAR CYPRESS

31 Mature Grade Distribution by Watershed WS Species B C D E F G H I J K L M U X Y 52 HEMBAL SPRUCE CEDAR CYPRESS HEMBAL SPRUCE CEDAR CYPRESS HEMBAL SPRUCE CEDAR CYPRESS HEMBAL SPRUCE CEDAR HEMBAL SPRUCE CEDAR HEMBAL SPRUCE CEDAR CYPRESS FIR HEMBAL PINE SPRUCE CEDAR CYPRESS FIR HEMBAL PINE SPRUCE CEDAR CYPRESS FIR HEMBAL PINE SPRUCE CEDAR CYPRESS FIR HEMBAL PINE SPRUCE CEDAR CYPRESS FIR HEMBAL PINE

32 Mature Grade Distribution by Watershed WS Species B C D E F G H I J K L M U X Y 63 SPRUCE CEDAR CYPRESS FIR HEMBAL PINE SPRUCE CEDAR CYPRESS HEMBAL SPRUCE CEDAR CYPRESS HEMBAL SPRUCE CEDAR CYPRESS DECID HEMBAL PINE SPRUCE CEDAR CYPRESS HEMBAL SPRUCE CEDAR CYPRESS FIR HEMBAL SPRUCE CEDAR CYPRESS FIR HEMBAL SPRUCE CEDAR CYPRESS FIR HEMBAL CEDAR CYPRESS FIR HEMBAL CEDAR CYPRESS DECID FIR HEMBAL PINE

33 Mature Grade Distribution by Watershed WS Species B C D E F G H I J K L M U X Y 75 SPRUCE CEDAR CYPRESS DECID FIR HEMBAL PINE SPRUCE CEDAR CYPRESS DECID FIR HEMBAL PINE SPRUCE CEDAR CYPRESS DECID FIR HEMBAL PINE SPRUCE CEDAR CYPRESS DECID FIR HEMBAL PINE SPRUCE CEDAR HEMBAL SPRUCE CEDAR HEMBAL SPRUCE CEDAR CYPRESS HEMBAL SPRUCE CEDAR CYPRESS HEMBAL PINE CEDAR CYPRESS HEMBAL PINE SPRUCE CEDAR