CARTER HOLT HARVEY Operating EBIT

Biorefining Opportunities for Chemical Pulp Mills

BANZ Conference 7th June, 2012

Dr Jon Ryder Chief Executive Carter Holt Harvey Pulp, Paper, and Packaging 1 Key messages

1. Biochemicals and bio-fuels will be future products from the pulp & paper industry

2. Large scale is needed if they are to be nationally significant

3. Such products must be co-manufactured alongside Kraft pulp in an integrated biorefinery

4. The co-product options and development pathway are not yet clear => Woodco Strategy has a key role

2 Enormous Worldwide Interest in Biofuels

Direct Combustion Steam Power Direct Pyrolysis Bio-oil Pre-Drying Thermal Direct Combustion Pelletizing Torrefaction Steam Power Pre-Drying Gas Gasification Steam Power Pelletizing Turbine Steam Biomass Thermochemical Catalysis Chemicals ChemicalsReforming Fermentation Ethanol Power Chemical Liquor Gasification Steam Chemical Pulping Recovery Pulp Gas Extraction Ethanol Turbine Steam Power Steam Power Ethanol Pretreatment Fermentation Distillation Hydrocarbons Deoxygenate 3

Algae Metabolism Source: Prof. R. Phillips, NCSU Outline of Presentation

1. Introduction and outline of our current pulp & paper business and operations

2. The opportunity for New Zealand

- Issues that must be addressed

3. What is the solution for New Zealand?

4. Some real industry examples

5. Conclusions

4 Carter Holt Harvey at a glance

Key Metrics - 2011  Total Revenue $NZ 3.1 billion  NZ-made export revenue Over $NZ 800 million  NZ Employees Over 3,400

Pulp, Paper & Packaging Building Supplies Group

 Market pulp New Zealand  Timber  Timber  Distributor of  Corrugated building  Kraft  LVL  LVL packaging boxes supplies papers  Paper bags  Plywood  Plywood  Frame and  Specialty board truss  Recycled Australia  Flooring  Flooring manufacturing packaging  Corrugated papers  Panels  Panels boxes 5  Paper cups Pulp, Paper & Packaging – Operations

Pulp & Paper

Kinleith pulp mill Tasman pulp mill Penrose Mill Lodestar Fullcircle (softwood and (softwood & containerboard) hardwood)  275,000 tonnes  290,000 tonnes of  85,000 tonnes  Shipping  14 recycled of Bleached Bleached, of recycled and fibre facilities market pulp Unbleached, Fibre containerboard transport cement and Low  300,000  335,000 tonnes coarseness tonnes of Kraft market pulp collected container board annually (#6 Paper machine)

Packagin g

Corrugated Corrugated Paper Bag Cups New Zealand Australia  Manufacturer of  Manufacturer of  Manufacturer of  Manufacturer of paper corrugated packaging in corrugated packaging in multiwall sacks (90 cups for the Australian New Zealand (35% Australia (5% market million sacks per and New Zealand market share) share) annum) markets  3 corrugated plants and  2 plants  1 Plant in Auckland  1 plant in Brisbane 1 specialty board plant 6 A sustainable business

7 Fibre Supply · Wood fibre - 3.7million tpa · ~ 34% of the wood processed in NZ · Sourced from managed plantations · 30% sourced as sawmill chip · Mainly FSC Controlled wood

· Recovered fibre · 300,000 tpa

8 Early mover in energy efficiency and CO2 emission reduction

Example - Kinleith mill 1990 to 2011

700,000 Production increased Emissions Intensity reduced by 70%

by 60% 600,000 0.9 500,000 0.8 400,000 CO2 emissions 0.7 reduced 1990 0.6 300,000 0.5 2011 0.4 200,000 0.3 0.2

Production/CO2 Tonnes Production/CO2 Tonnes 100,000 0.1 0 0 Emissions intensity ( CO2 Production T CO2/T product) emissions total tonnes

9 Kinleith Energy Sources and Generation

Co-generation Plant

Imported 450 kPa Steam Electricity 6.0% Black Gas 1250 kPa

12.8% Steam

4500kPa Steam 4500kPa Steam Liquor 4500kPa Steam 62.8%

Oil

1.6%

No.8 Primary No.8 Boiler Primary No.7 Boiler No.4 Recovery Boiler Recovery No.4 Wood Boiler Recovery No.5 Waste

16.9%

Condensate Condensate Condensate Condensate

· 80% of primary energy from biomass. · 50% of electricity is internally generated Kinleith Steam Users · 100% of purchased electricity is hedged 10 Future business model Production tonnes per FTE · Continuous 1050 improvement in productivity in the last

950 decade has maintained profitability

850 · New co-produced bio- products will add 750 significant new revenue and justify

650

future investments

2011

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

11 CHH PPP - Bio-energy and bio-chemicals · These mills are on a scale to efficiently utilise the available wood supply · process 34% of the wood processed in NZ

· They use almost all the “waste” wood within their catchments · Most is used to produce high value Kraft fibre · The rest is used as bio-energy

· The mills are biorefineries · Largely run on renewable bio-energy and cogenerate their own electricity · They already produce significant value from bio-chemicals from the wood – Turpentine and Tall Oil

12 2. The Opportunity for New Zealand

· NZ will need more renewable energy in the future · For bio-fuels to make a difference to New Zealand, it needs to be at scale. For example:

· NZ consumes 6.1 billion litres/a of transport fuel **

· To replace 20% of that with ethanol from trees would require 9Mt/a of trees or residues (~ 80% of NZ’s processed wood)

** Parliamentary Commissioner for the Environment, 2010 13 New Zealand’s fibre resource will continue to drive significant export revenue – opportunity to value add

Domestic Processing

Pulp, Paper & Board Mills

(~6 million)

Domestic Total New 11 consumption Zealand million of ~NZD 2.0 Combined roundwood tonnes per billion export cut from all annum revenue of forests Other domestic manufacture (~5 million) NZD 4.8 billion (almost 70% of wood 22 harvested Export Logs Main export market has traditionally been ultimately Korea (~2.5 million) million exported as tonnes per either logs or annum value added Strong demand recently from China, now products) 11 representing largest export market (~6.5 million million) tonnes per annum India is also growing steadily (~1.0 million) Other (~1.0 million) 14 Harvest volume forecast to increase significantly over the next 10 to 20 years providing additional export growth opportunities

NZ Forests National Harvest (constrained scenario) 38 40 35 32

25 21 20

15 Million Tonnes Million 10

0 2011 2021 2031 Year Ended 31 March

Source: “A Forestry Sector Study” – Ministry of Agriculture and Forestry 15 Key issues and questions we must face when evaluating bio-energy options · Bio-energy from wood residues may work at small scale but at large scale all the “waste material” already has an economic value.

· Stand-alone bio-energy from trees or wood residues on a large scale cannot pay enough for the fibre to be economic without large end-use subsidies

· What will work at a sufficiently large scale to be significant within the NZ economy (eg. 4 Mt/a wood)?

· Can the best bio-energy options compete with conventional products and bio-chemicals for capital and available raw material?

16 Other countries are asking the same questions!

40% Top ROCE Technologies – B.C. Central Interior

30%

20%

Cost of Capital 11% 10%

alone

Viscose

Medium

LVL largeLVL

OSB large OSB

LVL Small LVL

CHP DirectCHP

OSB medium OSB

SPF West large West SPF

CHP (17.8 MW) (17.8CHP

CHP via Pyrolysisvia CHP

Pellets West small West Pellets

LignolCommercial

SPF West medium West SPF

Pellets West medium West Pellets

Pyrolysis Stand Pyrolysis

Biocarbon West SmallBiocarbon West

Nexterra Syngas dryerSyngasNexterra

Torrefied Pellets West TorrefiedWest Pellets

Ethanol via Syngas (E) Syngasvia Ethanol (E) viaSyngas Acetate

DissolvingPulp

Value Added ParticleboardAddedValue

SPF West Large + + Large PyrolysisWest SPF

Nexterra CHP smallCHPNexterra(<10Mw)

LignolCommercial Brownfield

Power via gasificationviaPower med(E)

NBSK + H&PMedium + Lignin + NBSK

SPF West Large + + Largesmall PelletsWest SPF SPF West Large + + LargeLarge PelletsWest SPF

Cross LaminatedCross Timber 17

17 Source: FP Innovations, Canada Borregaard on ethanol production and biorefineries

Source: Borregaard, Norway 3. What are the bio-product solutions for New Zealand?

· Must be at large scale · Must be co-produced with higher value products, for raw material to be economic · But what solutions should we focus on? · Kraft mills have the potential to co-produce bio-energy, bio-fuels and bio-chemicals

19 Chemicals and fuels from wood

20 20 Source: Prof. R. Phillips, NCSU Chemrec Black Liquor Gasification Enhanced output of power through gas turbine Production of chemicals and fuels through F-T Catalysis

SourceSource:: Prof. R. www.chemrec.com Phillips, NCSU Lignin Removal

Recovery boiler Lignin removal

Evaporation White liquor preparation

Digester

Wood chips Pulp bleaching Pulp 22

Source: Prof.Source: R. Phillips, LignoBoost NCSU Recovered Lignin Applications

• Low Value - Burn to improve boiler efficiency - Pelletize to improve energy density

• Medium Value - Convert to phenolic resins - Gasify and convert to transportation fuels or other petroleum based chemicals

• High Value - Carbon fibers for lightweight composite materials

Source: Prof.Source: R. Phillips, LignoBoost NCSU Biofuels / Bio-products Real Developments

Technology Fit Status Gasify waste Not required in hog fuel boiler to be Multiple commercial wood to power neutral applications (Andritz eliminate Machinery and Lime Kiln Metso) Fuel Extract lignin 30% excess lignin to be power neutral 20,000 tpa semi- from black works plant liquor production in Sweden for more than 3 years (Lignoboost®) Convert tall Tall oil currently converted to gums and UPM (Finland) oil to rosins, may be of higher value as announced $150 biodiesel transportation fuel Million investment at the Kaukas Mill Chemrec® Gasifies black liquor and converts Under development biogas to synthesis gas which can be for >20 years with 24 catalytically converted to transportation successful pilot scale fuels Source: Prof.DME R. productionPhillips, NCSU in Sweden Biofuels / Bio-products Real Developments

Technology Fit Status Extract • Required for Dissolving Pulp • Hemicellulose Hemicellulose Production extraction practiced s from wood • Produces superior pulp for tissue at more than 20 chips prior to application dissolving pulp mills pulping • Produces superior pulp for in the world absorbent applications • Conversion to ethanol, butanol, poly lactic acid full scale mill evaluation in progress (Old Town Fuel & Fibre, Maine, USA)

Source: Prof. R. Phillips, NCSU Marketable Products Conventional pulping and papermaking processes Paper grade pulps Pre- Dissolving pulps treatment natural polymers Composite products and Papers and packaging separation processes Lignin from BL chemical Modified lignins

Sugars chem or biochem Biofuels/chemicals

Resin/fatty acids chemical Biochemicals Bark tannins sepn/chemical Resins and adhesives Process fuel (NG) purification, catalytic Gasification Synthesis gas Biofuels/chemicals CO + H2 synthesis

Heat (steam) Combustion HP steam generation Export power

26 Enormous Worldwide Interest in Biofuels

Algae Metabolism Source: Prof. R. Phillips, NCSU Conclusions

1. Co-manufactured biochemicals and bio-fuels will be an integral feature of the pulp & paper industry - Maximising value from the whole tree

2. The best co-product options and development pathway are not yet clear

3. Woodco Strategic Action Plan - Pan-industry collaboration essential - Scion-FP Innovations Techno-economic Study - Alignment and targeting of R&D - “One voice, one ask”

28 Questions?