UPDATE 1-Paper Excellence buys idled Domtar Canada pulp mill

Mon Mar 7, 2011 2:01pm EST

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VANCOUVER, March 7 (Reuters) - Domtar Corp (UFS.TO) will sell its Prince Albert, Saskatchewan, pulp mill to a unit of Indonesia's Sinar Mas (SMMA.JK), which plans to restart the long-idled facility to meet rising demand from the textile industry.

The Sinar Mas unit, Paper Excellence, said on Monday it plans to invest C$200 million ($206 million) to convert the former kraft pulp and paper facility to make dissolving pulp, which is used in the production of a variety of products, including rayon.

Other financial terms were not disclosed.

Paper Excellence has been expanding rapidly in Canada, having last year purchased an idled pulp mill in British Columbia as well as the long-struggling Howe Sound pulp and newsprint operation in British Columbia from Canfor (CFP.TO) and Japan's Oji Paper (3861.T).

The company has owned a pulp mill in Meadow Lake, Saskatchewan, since 2007.

The deal is the latest to highlight the increasing demand for dissolving pulp, which is a chemically refined, bleached pulp that is composed of pure cellulose fibers and made by only a small number of mills around the world.

Fortress Paper (FTP.TO) purchased a mill in Quebec last year to convert it to make dissolving pulp, and Chinese textile giant Fulida Group agreed last month to purchase an existing facility at Port Alice, British Columbia.

The Prince Albert deal is contingent on Paper Excellence reaching a labor agreement with mill's unionized workers, but the Communications, Energy and Paperworkers union issued a press release praising the purchase. The mill has been idled since 2006, but the union said the deal would "preserve" about 200 jobs.

The Saskatchewan government has agreed to allocate wood fiber to the mill and the province's SaskPower utility will purchase surplus electricity to be produced from a biomass generator at the mill.

The province also help fund employee training.

Weyerhaeuser Corp closed the mill in 2006 after it was unable to find a buyer. Domtar, which took control of the site in 2007, has removed the plant's papermaking equipment and was looking a demolishing the rest of it.

($1=$0.97 Canadian) (Reporting Allan Dowd, editing by Peter Galloway)

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