New owners of Port Townsend Paper Corp. expect to spend $40 million or more in the next two years to strengthen and improve the 86-year-old mill, Jefferson County’s largest private employer, and its finishing plants.

Locals can expect a $20 million investment this year and approximately the same amount the following year, Steve Klinger, CEO and board member of Crown Paper Group Inc., told the Leader last week in an exclusive interview. The improvements are to include substantial environmental upgrades, a reduction in petroleum burning, a new fiber-processing technology that reduces the total chemical input, and safety improvements, he said.

“We believe through capital investments and adopting best practices that we will make the mill more competitive in terms of its position on the cost curve of the entire industry,” he said. “That’s our overall objective, to make this mill more cost effective.”

“Two or three years, $40 million–plus is what I would say. That’s the current plan. That’s what we’re looking at.”

Klinger, dressed casually and looking relaxed in the mill’s executive office, covered a number of topics in the interview, stressing that the new owners are long-term investors looking to expand beyond this preliminary purchase with other acquisitions on the West Coast. The new ownership group, funded by the New York equity firm Lindsay Goldberg, will start by making substantial upgrades and investments here, he said. While the upgrades are focused on efficiency and meeting new federal environmental standards, the result is intended to be a lower carbon footprint for the mill, involvement in the community and keeping a good relationship with the union.

MANY IMPROVEMENTS

Most of the projects Klinger discussed already have permits and were planned by the previous ownership, GoldenTree Asset Management, when Crown purchased the mill (the sale was announced on Feb. 10) for an undisclosed sum. He noted that Jefferson County residents need to understand that while both the previous and current owners are New York investment houses, GoldenTree is focused on short-term turnarounds, while Lindsay Goldberg is focused on long-term growth.

“You did not just go from one private equity firm to another,” Klinger said. “You went from a distressed debt company to an investing company.”

Upcoming projects include a $10.5 million project to upgrade the mill’s boiler no. 10 to Boiler Maximum Achievable Control Technology (MACT) standards to improve pollution control. A key piece of this upgrade is installing a powerful electrostatic precipitator to remove much more particulate matter from air emissions. According to federal rules, the project is required to be up and running by January 2016.

Another $10 million project in the works, and permitted, involves adding two new refiners to make the mill’s paper machine no. 2 run faster and more efficiently. That upgrade should reduce the use of chemicals now used to adjust the mix of fibers toward different grades of kraft and containerboard output.

Klinger also indicated that an environmental team is looking at the aerated stabilization basin – better known as simply “the pond” – to see if more improvements can be made. The pond is considered a source of odor.

“We’re looking at and evaluating places we need to spend money on from a maintenance perspective or cost reduction or speed or quality,” Klinger said in his distinct Southern accent, adding that it’s not yet clear what projects might be in the works for 2016.

“Employees are still doing a lot of manual activities that can be stopped and made more efficient. We’re evaluating numerous project levels to understand how we would invest.”

In terms of the number of employees at the mill, Klinger said, “The value proposition was not eliminating employees. That is not the purpose of why we bought the mill.” The mill employs 300 here, and another 300 are employed at finishing plants in western Canada.

GROWING BIGGER

Growth is a central part of Crown’s future plans, Klinger said.

“We’ve got a lot of incoming calls from people who are interested in being part of a larger company, and so our group will be spending time evaluating other investments in the paper business,” he said.

“We’ll evaluate businesses anywhere in the U.S., but right now we have a lot of interest in people on the West Coast. We like the West Coast market.”

A mill like Port Townsend Paper specializes in making kraft paper and containerboard, which is further processed into cardboard boxes and other packaging material, and the West Coast has huge demand for such packaging, he said – for everything from apples and produce to fish and snacks.

“We expect we should be growing, but it will depend on opportunities, of course,” he said.

REDUCING OIL, CHEMICALS

Klinger touched on the mill’s carbon footprint, saying he expects the mill to evaluate different fuels.

“We’ll be evaluating different opportunities to look at different fuels. First, we’ll be looking at more efficient use of fuels and then, down the line, we want to reduce the amount of oil that we are burning as a mill, and that reduces our carbon footprint as we’re doing that,” he said. Other energy sources are under study, he said.

The refiner-improvement project should also reduce chemical additives. The project would increase the mill’s ability to customize the mix of incoming wood fibers at the front end of the process, replacing some of the work that is currently done by chemicals to adjust the fiber mix later in the process, he said.

Doing that should reduce the level and cost of chemicals and could also lead to savings in fiber. Together that would help mill economics, he said.

SAFETY ISSUES

Klinger volunteered that the mill’s safety track record is not where the new investors want it to be.

“We really, really want to bring a different safety focus to this mill. We think everybody who comes to work here should go home the same way they came to work,” he said. “We’re going to spend a lot of time, money, effort and enthusiasm in trying to bring up this mill to normal effectiveness on safety performance.”

Port Townsend Paper’s safety record has been below industry standards, he said.

“We’re concerned about the people who work here. We know that people who work in a safe workplace work in a more profitable workplace,” he said.

Klinger said he’s visited employees and their families in hospitals when those employees have been hurt. “We’re committed as an organization to doing much better than we’ve done.”

COMMUNITY

Port Townsend Paper’s relationship to the community is central, said Klinger.

“We know after running many paper mills in the country that our relationship with the community is really important,” Klinger said.

He talked about the mill’s community first, noting that the mill employs almost 300 people and that those people are related to as many as five people each. “So, there’s roughly 1,500 people who are related to those people, and those relationships are important,” he said.

And the community at large, he said, is important.

“It’s also true that the paper mill has to exist in a community and it has to do its part in the community. I know this mill has supported many events. I’ve seen the list of these. We’ve got to continue to do that,” he said.

“We’re also sensitive to the fact that the environmental local activists and community groups are interested in coexisting in a more harmonious way. We’re evaluating all the ways we have impacts on the community in terms of environmental impacts.

“We want to really understand what our options are and how we can put resources toward reducing our impact on the community, because the community depends on the jobs that are here, but it also depends on tourism and people coming into Port Townsend,” Klinger said.

“We want to have businesses continue to thrive, so we need to do our part to understand how we can invest time, money and resources to reduce our impact on the community.”

RUNNING THE SHOW

Noting that he does not comment on personnel issues, Klinger said that it’s too early to comment on whether a CEO would be brought in to replace Roger Hagan, who left the mill on Feb. 17.

“Henry Smedley is operating the mill as general manager, and that’s what I can tell you,” Klinger said. “Henry is doing a nice job. He’s committed to the mill. He knows a lot of the people we know and he’s leading the organization right now. When we have anything else to say, we’ll say it.”

Smedley has been operations manager at the mill since 2010.

Klinger also said that Port Townsend Paper hired maintenance workers who had been laid off at a mill in Cosmopolis, Washington.

“Finding good technical people in the paper business is always a challenge. It doesn’t matter where you are,” he said of new senior staff.

“We need permanent employees rather than contract employees. GoldenTree couldn’t fully hire, and we need people committed to the business, so we’ll work on that over time.”

Klinger also said he’s worked with unions all over the country. “We’ve always had really good contract relationships. We expect to have a good relationship with the mill employees. We have a contract we’re going to live up to. We expect the employees to live by the contract also.”

The mill’s current union contract with employees expires in 2017.

“I’ve never sustained a strike at any location that I’ve been a manager of,” said Klinger, who was a top manager at Unisource, Georgia-Pacific and Smurfit-Stone.