UPDATE 1-Paper Excellence buys struggling Howe Sound mill

Thu Jul 15, 2010 6:35pm EDT

* Paper Excellence has purchased several mills recently

* Howe Sound long dogged by debt

VANCOUVER, July 15 (Reuters) - Paper Excellence BV agreed to buy Howe Sound Pulp and Paper on Thursday in the latest expansion in Western Canada by the Netherlands-based unit of Indonesia's Sinar Mas.

Howe Sound's joint owners, Canada's Canfor Corp (CFP.TO) and Oji Paper Co Ltd (3861.T) of Japan, agreed to sell the operation in Port Mellon, British Columbia for an undisclosed price. The plant, near Vancouver, has long struggled with debt issues.

Howe Sound employs about 500 workers and has production capacity of 400,000 tonnes of NBSK pulp and 230,000 tonnes of mechanical paper at the facility, which was first acquired by Canfor in 1951.

The deal comes just three months after Paper Excellence agreed to buy and restart a pulp mill in Mackenzie, British Columbia, that had been idled since the 2008 collapse of Pope and Talbot.

Canfor and Oji Paper created the Howe Sound partnership in 1988 in a deal that expanded the plant's pulp production and added its newsprint mill.

But debt and high capital costs dogged that expansion, with Canfor writing off its investment in 1998 and the partnership restructuring its finances in 2001 and 2008.

Howe Sound was not included in Canfor's spinoff of Canfor Pulp, in which it still owns a 50.2 percent stake.

Paper Excellence has also bought two pulp mills in France from Canada's Tembec Inc (TMB.TO).

($1=$1.04 Canadian) (Reporting Allan Dowd; editing by Rob Wilson)

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