B.C. Lumber Producer Says US$49.4M Remains Tied Up in U.S. Duty Fight as Tariffs Squeeze Cash

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For Conifex Timber, the softwood-lumber dispute is no longer just a question of tariff percentages. It is a question of how much cash a relatively small British Columbia producer can afford to have sitting on the other side of the border. The Mackenzie-based company says US$49.4 million in cumulative duty deposits, net of previously sold deposit rights, remained held in the United States at June 30 while trade reviews and appeals continue. At the same time, Conifex ended the quarter with only C$1.3 million in unrestricted cash, reported another quarterly loss and warned of material uncertainty around its ability to continue as a going concern. With a 35.16% softwood-lumber cash-deposit rate layered beside a separate 10% U.S. tariff, the dispute is pressing directly on liquidity, production decisions and the company’s search for financing.

US$49.4 Million That Conifex Cannot Put to Work

The headline number matters because it represents money paid, not a hypothetical future exposure. Conifex says that since duties began in April 2017, US$49.4 million of its cumulative deposits, after previously sold deposit rights, remained held by the U.S. government at June 30. Those funds are tied to administrative reviews and legal appeals that determine final liabilities for past shipments. Until that process is resolved, the company cannot put the cash toward logs, maintenance, debt reduction or mill operations.

The contrast with Conifex’s balance sheet is sharp. The producer reported C$1.3 million of unrestricted cash at quarter-end, with available liquidity at the same level. Its working-capital position also deteriorated during the quarter. In practical terms, a pool of capital remains outside the company’s reach precisely when management says liquidity is under pressure. That mismatch helps explain why duty deposits have become a financing problem as much as a trade-policy problem.

A Weak Quarter Leaves Little Cushion

Conifex’s second-quarter results show why every dollar matters. The company reported C$23.0 million in sales, adjusted EBITDA of negative C$6.3 million and a net loss of C$9.5 million, or C$0.23 per share. The loss followed a C$9.4 million deficit in the first quarter and compared with a C$8.3 million loss in the same period of 2025. Lumber accounted for C$19.0 million of quarterly revenue, while by-products contributed C$1.2 million and bioenergy generated C$2.8 million.

Cash flow offered limited comfort. After working-capital adjustments, Conifex reported C$3.6 million of net cash generated from operations in the quarter. Its countervailing and anti-dumping duty deposit expense was C$3.7 million over the same period. The comparison is not a perfect one-for-one measure of cash strain, because inventory and receivable movements helped operating cash flow, but it illustrates the pressure clearly: quarterly duty deposits were roughly as large as operating cash generated after those working-capital movements.

The Tariff Stack Is the Immediate Squeeze

The burden comes from two U.S. measures. Global Affairs Canada lists sixth-review “all others” cash-deposit rates at 20.53% for anti-dumping duties and 14.63% for countervailing duties, a combined 35.16%. Conifex is subject to that rate. Separately, the United States imposed a 10% Section 232 tariff on softwood timber and lumber in October 2025. Because it applies in addition to other duties, the measures create a headline burden of roughly 45.16% on affected Conifex exports.

That does not mean 45.16% is the company’s ultimate liability on shipments. Trade-remedy deposits can be adjusted through reviews, while Section 232 is a separate tariff. But the near-term cash effect is real because the charges must be funded while lumber is sold into the U.S. market. Conifex recorded C$3.7 million of countervailing and anti-dumping duty deposit expense in the second quarter, up from C$3.0 million in the first quarter and C$2.0 million a year earlier.

A Lower Review Rate Could Still Produce a Bigger Bill

There is a twist in the administrative review. For the seventh review period, U.S. authorities issued post-preliminary “all others” rates of 10.66% for anti-dumping duties and 14.52% for countervailing duties, a combined 25.18%. That is below Conifex’s 35.16% cash-deposit rate. However, the post-preliminary figure does not change what companies pay today. Global Affairs Canada says those rates take effect only if reflected in final results, so Conifex remains subject to the existing deposit rate.

A lower rate could still produce an accounting hit on earlier shipments. Conifex says its 2024 shipments carried weighted-average deposit rates of 6.79% for anti-dumping duties and 3.60% for countervailing duties. If the final seventh-review rate equals 25.18%, the company estimates a non-cash export-duty expense of about US$6.7 million, plus US$0.9 million of accrued interest. The timing is counterintuitive: a review can point toward lower future deposits while increasing the estimated liability attached to shipments earlier.

Liquidity Has Become the Central Financial Risk

At June 30, Conifex reported C$101.8 million of debt, up from C$81.6 million earlier. The total included C$46.1 million tied to power, C$34.4 million owing to Pender, C$19.0 million from BDC and C$2.4 million of lease liabilities. Unrestricted cash stood at C$1.3 million. The financial statements also showed a C$13.5 million net current-asset deficiency and identified material uncertainty that may cast significant doubt on the company’s ability to continue as a going concern.

That language does not mean failure is inevitable, but it shows liquidity’s central role. Conifex says continuing as a going concern depends on positive operating cash flow, additional financing, changed repayment terms and possible covenant waivers. Conifex is working with lenders and the federal government on new available financing alternatives today. Tariffs matter because additional cash deposits leave less money available for expenses that keep an industrial site functioning: fibre purchases, payroll, maintenance, power and debt service.

Bridge Financing Shows How Tight the Timeline Is

Conifex added financing after quarter-end. It received C$400,000 on July 9 and C$6.0 million on July 17 under a bridge arrangement with Pender. The advances supported liquidity while pursuing government-backed financing. The filing says the bridge was scheduled to mature on the earlier of August 15, 2026, or the first advance under government financing. That date fell one day after Conifex released its second-quarter results, showing how closely the earnings update and financing deadline were aligned.

Conifex tapped federal support. In March, it received C$19.0 million through a BDC-backed loan under the Softwood Lumber Guarantee Program. BDC says the program provides a C$1.2-billion guarantee envelope to help eligible softwood businesses obtain term loans or letters of credit, including support for strain related to duty requirements. Such financing can temporarily buy time, but it does not return the US$49.4 million held in U.S. deposits or resolve the underlying trade dispute.

The Mackenzie Mill Is Running Far Below Normal Capacity

Production weakness compounds tariff pressure. Conifex’s Mackenzie sawmill has annual capacity of about 240 million board feet on two shifts, yet second-quarter production was only 14.1 million board feet. That represented 23% of annualized capacity and was 60% below a year earlier. A temporary curtailment began May 19 because of a seasonal sawlog shortage during breakup, and extended beyond the seven weeks originally planned as liquidity and operating conditions remained difficult.

Shipments tell another story. Conifex shipped 23.6 million board feet during the quarter, 10% more than in the prior quarter but 39% less than a year earlier. Shipments exceeded production because the company drew down finished lumber and rough inventory, while its planer continued operating after sawmill production stopped. That converted existing stock into sales and cash, but inventory can only be drawn down once. A durable recovery requires production to resume at margins strong enough to justify scarce working capital.

Bioenergy Could Not Fully Offset the Lumber Weakness

Conifex also operates a 36-megawatt biomass power plant in Mackenzie. The company says it can generate more than 230 gigawatt-hours annually, with BC Hydro purchasing 200 gigawatt-hours a year under an agreement through 2035. That business diversifies revenue beyond lumber. During the second quarter, however, the plant sold only 19.8 gigawatt-hours, about 36% of targeted operating rates. It was idled for the final two months of the quarter for annual maintenance.

That reduced the cushion as the sawmill was curtailed. Bioenergy revenue fell to C$2.8 million from C$5.2 million in the first quarter and C$3.6 million a year earlier. Conifex has indicated that restarting power generation is linked to the sawmill restart, reflecting the Mackenzie site. The connection matters because the biomass plant uses residual material from lumber production. When sawmilling slows, a revenue source that normally provides diversification can weaken at the same time as the core lumber business.

Better Lumber Prices Meet Mixed U.S. Housing Signals

Lumber pricing improved in the quarter, but not enough to repair the economics. Conifex said Western Spruce-Pine-Fir two-by-four lumber averaged US$488 per thousand board feet, or C$675, up 6% from the prior quarter and 4% from a year earlier. Lumber revenue rose 27% sequentially to C$19.0 million, and it recorded C$3.0 million of inventory valuation recoveries. Even so, adjusted EBITDA remained negative C$6.3 million as low production pushed unit log and conversion costs higher and tariffs continued absorbing cash.

U.S. housing data also show a mixed backdrop. Census Bureau figures put June housing starts at a 1.427-million seasonally adjusted annual rate, up from May’s revised 1.199 million. Yet single-family starts were 895,000, little changed from May’s 897,000. That distinction matters for lumber producers because detached-home construction is wood-intensive. A stronger headline housing number therefore does not translate into enough demand or pricing power to offset duties and weak mill utilization.

What Happens Next Comes Down to Cash, Rates and Restart Timing

The next months turn on three variables. First is financing: Conifex needs liquidity to meet obligations and restart. Second is the seventh U.S. administrative review, with final results expected by Conifex in Q4 2026. A rate near the 25.18% post-preliminary level could lower cash-deposit pressure from 35.16%, although it could also bring US$6.7 million non-cash duty expense and interest on reviewed 2024 shipments. Third is whether the Mackenzie mill and power plant can return to sustainable operation.

Those questions sit inside a wider dispute. Canada continues challenging U.S. softwood-lumber duties, while the 10% Section 232 lumber tariff remains. Conifex noted that softwood lumber was excluded from a separate 50% U.S. tariff measure announced in July 2026, avoiding more pressure. Still, US$49.4 million remains tied up. For Conifex, the issue is whether financing, review outcomes, pricing and production improve quickly enough to rebuild cash before trade costs consume more operating flexibility.

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