INITIATING COVERAGE

PAPER AND FOREST PRODUCTS IMPROVING WITH AGE Key Ideas: •

We expect an extended up-cycle in North American lumber. Housing starts have averaged 0.93mm over the past 15 months, well below the demographically sustainable, 1.4mm to 1.5mm.

•

Lumber prices in 2013 were above the levels in 2005 when housing starts were a record 2.1mm. The major changes since the 2002 to 2006 up-cycle have been constrictions in Quebec and Ontario supply, the Mountain Pine Beetle devastation in B.C. and the entry of China as a major buyer of North American logs and lumber.

•

A 10% drop in the Canadian dollar adds $130mm to Canfor ebitda, $100mm to Domtar, $150mm to Resolute and $180mm to West Fraser Timber ebitda.

•

Canadian lumber companies have all significantly expanded their business through acquisition over the past year. We expect this trend to continue.

•

We believe the recent sell-off of the Canadian Lumber Companies and the two US-incorporated paper companies under our coverage provides an opportunity to acquire well-run companies relatively inexpensively.

Investment Thesis: •

We are initiating coverage of Canfor, Canfor Pulp, International Forest Products, West Fraser Timber, Domtar and Resolute Forest Products with a BUY recommendation.

•

All companies trading at low ev/ebitda multiples, have strong balance sheets, and generating excellent free cash flow yield.

Target Price Valuation Methodology: Our 12-month target prices represent a range of 4x to 5.7x ev/ebitda.

Analyst • Stephen Atkinson, MBA • [email protected] • 514.396.0321 t Associate • Anthony Sutton • [email protected] • 514.396.0323 t

Please see Disclosures and Disclaimers at the end of this report. A division of Dundee Securities Ltd. Dundee Capital Markets is a registered trademark of Dundee Corporation, used under license.

Paper & Forest Products

April 23, 2014

Contents Executive Summary ................................................................................................................................................................. 3 Investment Recommendations ............................................................................................................................................... 4 Commodity Price Forecast ...................................................................................................................................................... 4 Quarterly Eps Analysis............................................................................................................................................................. 5 Annual Eps Analysis................................................................................................................................................................. 6 Company Capacity And Sensitivity Analysis ............................................................................................................................ 6 Lumber Stock Performance - Is the sell-off a buying opportunity? ........................................................................................ 7 Lumber Futures - Why are they down? .................................................................................................................................. 7 U.S. Housing Market - Demand/Supply .................................................................................................................................. 9 U.S. Housing Inventory Statistics ............................................................................................................................................ 9 U.S. Housing - Leading Indicators ......................................................................................................................................... 11 Canadian Log And Lumber Exports To Asia........................................................................................................................... 12 Canadian Annual Allowable Cut - MM m3 ............................................................................................................................ 14 The Efficient Frontier ............................................................................................................................................................ 15 Company Comparison Table ................................................................................................................................................. 16 Conference Call Schedule For Paper And Forest Products Companies ................................................................................ 17 Canfor Corp. .......................................................................................................................................................................... 20 Canfor Pulp............................................................................................................................................................................ 22 International Forest Products ............................................................................................................................................... 24 West Fraser Timber ............................................................................................................................................................... 26 Domtar Corp. ........................................................................................................................................................................ 29 Resolute Forest Products ...................................................................................................................................................... 31

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Paper & Forest Products

April 23, 2014

EXECUTIVE SUMMARY We believe we are in the early stages of a U.S. housing recovery

2013 lumber prices at near record levels in spite of depressed U.S. Housing Starts

Weather associated losses could be worse than expected

The weaker Canadian dollar raises the value of Canadian exporters

We are initiating coverage of lumber companies Canfor, West Fraser and International Forest Products with a buy recommendation. We also are initiating coverage of Canfor Pulp, Domtar and Resolute Forest Products. We believe we are in the early stages of an extended recovery in U.S. Housing. Housing starts averaged 930,000 over the past 15 months, well below the demographically sustainable 1.4mm to 1.5mm. A key point is that U.S. lumber prices in 2013 were slightly higher than in 2005. Considering that 2013 housing starts were 926,000 and 2005 housing starts were 2.1mm augurs well for lumber prices longer term, especially as U.S. housing recovers. In terms of earnings outlook, we are generally in line with expectations save for this quarter. We believe the losses associated with the bad weather could be more severe than expected. We are slightly above expectations for the balance of 2014 and 2015. Over the past 2 months, West Fraser stock is down 20%, Canfor, down 19% and Interfor, down 13%. Over this same time period, West Fraser has added 0.5Bn fbm lumber and Interfor, 0.4Bn fbm. In spite of extensive capital spending for cost reduction purposes and for expansion, we estimate these companies could all be debt-free in 2015. It should be noted that a 10% drop in the Canadian dollar adds $130mm to Canfor ebitda, $100mm to Domtar, $150mm to Resolute and $180mm to West Fraser Timber ebitda. In this report, we analyze the sell-off of the P&FP stocks concluding that they are influenced by the drop in lumber futures. We analyze the current situation in housing as well as leading indicators concluding that the outlook is positive. Our Head of REIT Research, Fredéric Blondeau, provides a graph of the efficient frontier demonstrating that Timber in the portfolio improves the risk/return profile of a portfolio. We conclude with a comparison table of the companies under coverage along with a calendar showing the reporting dates and conference call times of the different P&FP companies.

All the Companies have a sound strategy, sound balance sheets and excellent free cash flow

In terms of the companies we will be taking under coverage, they all have excellent free cash flow, strong balance sheets and a sound strategy. Domtar is using the cash from its low cost paper operations to fund and build a Personal Care business. The products are a necessity and demand is growing at 5% to 6% p.a. Canfor Pulp is focused on cost reduction and will be installing two turbines in order to sell power to B.C. Hydro. Resolute continues to slash its costs and generate money in businesses its competition is not. In terms of the lumber companies, West Fraser recently expanded in Arkansas, Interfor in Georgia, and Canfor is consolidating its position in B.C. in light of fiber shortages caused by the mountain pine beetle.

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Paper & Forest Products

April 23, 2014

Investment Recommendations Our preferred investments in Canada are Canfor, International Paper and West Fraser Timber. We also highly regard Canfor Pulp owing to its globally low cost structure in the manufacture of bleached softwood kraft pulp. We estimate 2015E average free cash flow yield at 14%. All these companies are generating excellent free cash flow, have very strong balance sheets, little to no pension deficit and we expect, will be buying assets, buying back stock and/or raising dividends over the next 12 months. In the U.S., we recommend major paper producers Domtar and Resolute Forest Products. Both stocks are inexpensive and, in spite of the shrinking North American paper markets, we are forecasting a growth in earnings. We estimate 2015 free cash flow yield before dividends and pension contributions for both companies at 16%. Domtar is the lowest cost and largest uncoated wood-free paper producer in North America and 3rd largest in the world. We expect the growth will start to come from its growing Personal Care business. Resolute is the largest and lowest cost of the major newsprint producers. The Company more than earns its cost of capital in businesses competition is losing money. Figure 1: Summary of Investment Recommendations Implied

2014E EV/EBITDA

2015E EV/EBITDA

Ticker

Price

To

Rating From

To

From

Return

Target Multiple

Target Multiple

% from High

Canfor Canfor Pulp International Forest Products West Fraser Timber

CFP-CA CFX-CA IFP.A-CA WFT-CA

$24.43 $10.90 $15.91 $47.87

Buy Buy Buy Buy

-

$32.00 $14.00 $21.50 $60.00

-

31% 30% 35% 26%

7.0x 4.7x 6.9x 5.6x

5.7x 4.3x 4.7x 5.6x

-19% -17% -13% -20%

8.0x 6.9x 9.7x 9.1x

Domtar Resolute Forest Products

UFS-US RFP-US

US$95.94 US$17.47

Buy Buy

-

US$132.00 US$22.00

-

40% 26%

5.8x 5.6x

5.0x 4.1x

-17% -19%

5.3x 5.2x

12-Month Target

5-YR EV/EBITDA

Source: DCM Estimates, Bloomberg

Commodity Price Forecast Figure 2: Commodity Price Forecasts PRICE FORECAST ($U.S.)

2013 Q4

Q1

2014E Q2 Q3

Q4

Lumber - West S-P-F M fbm - Southern Pine M fbm

370 415

360 423

340 390

390 445

OSB Waferboard 7/16" M sq ft West Plywood 5-Ply M sq ft

243 391

225 373

220 385

Linerboard

ton

690

700

Pulp - NBSK - Europe - NBSK - China - BEK - China

tonne tonne tonne

893 723 659

Newsprint UWF - Copy Paper

tonne ton

CFS - No. 3 Rolls LWC - No. 5 Rolls

ton ton

Exchange Rate $US/$Cdn

2012

2013

2014E

2015E

370 420

299 340

356 415

365 420

380 430

250 420

230 390

268 400

315 415

231 392

240 415

700

700

700

608

663

700

700

915 750 651

870 710 640

830 670 600

805 645 575

814 662 635

859 691 673

855 694 617

830 670 600

600 990

600 1030

600 1060

605 1060

610 1070

622 1044

603 1003

604 1055

620 1070

925 845

880 810

860 790

880 790

900 810

965 855

946 856

880 800

920 830

0.95

0.92

0.92

0.92

0.92

1.00

0.98

0.92

0.92

Source: RISI, FOEX, DCM Estimates

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Paper & Forest Products

April 23, 2014

Lumber We expect weak markets in April/early May owing to the backlog caused by the winter weather coming to market followed by tighter markets once the surplus is sopped up. Panels The industry has overestimated market demand and started up too much OSB capacity in the South-East. What has ensued over the past 14 months is a price war. The commodity has promise given that it is an oligopoly. Fundamental weaknesses are the relatively flat cost structure and high cost to export. We believe housing starts of 1.1mm are required in order to get any traction in pricing. Linerboard We expect flat pricing for the foreseeable future. We expect U.S. operating rates in the low 90s. Near-term, we also expect significant maintenance downtime in Q2 in order to balance markets. Pulp We expect a price war in pulp owing to the 4mm tonnes starting up primarily in Latin America. We expect operating rates to fall below 90% leading to lower pricing (as much as US$100/tonne. The impact on Canfor Pulp is mitigated by the 8% drop in the CAD$. Newsprint We expect a small price increase given that many producers cannot continue to run at such low prices. Resolute is the noted exception of the major producers. Uncoated Wood-free Papers (Copy Papers) In UWF papers, following the closing of 1mm tpy supply, we expect operating rates in the mid to high 90s over the 2014 to 2015 period leading to successful completion of the $60/ton price increase. Our primary concern is a collapse in bleached eucalyptus pulp leading to increased copy paper imports from China.

Quarterly EPS Analysis Figure 3: Quarterly EPS Estimate vs. Consensus

2013

The weather will adversely affect Q1 earnings

CFP CFX IFP WFT UFS* RFP*

$1.60 $0.66 $0.96 $3.81 $4.50 $1.18

Q1E $0.35 $0.32 $0.23 $0.78 $1.39 ($0.26)

2014E Q2E $0.56 $0.38 $0.40 $0.95 $2.28 $0.41

Q3E

Q4E

2014E

2015E

$0.63 $0.35 $0.55 $1.34 $2.66 $0.47

$0.67 $0.24 $0.46 $1.33 $3.04 $0.37

$2.21 $1.28 $1.65 $4.39 $9.37 $0.98

$2.89 $1.28 $2.37 $6.07 $11.34 $1.94

Q1/14E FactSet Mean $0.45 $0.32 $0.26 $0.88 $1.78 $0.04

* In US$ Source: FactSet, DCM Estimates

The major negative in Q1/14 has been the weather. We are well below Consensus for companies such as Canfor, Domtar and Resolute Forest products owing to our higher-thanaverage allowances for weather damage or interruptions to transport. We do not expect a significant sell-off if companies miss the consensus target due to the weather. DUNDEE CAPITAL MARKETS Page | 5

Paper & Forest Products

April 23, 2014

Annual EPS Analysis Figure 4: Annual EPS Estimates vs. Consensus 2013

Largely in line with Consensus for 2014 and above Consensus for 2015

CFP CFX IFP.A WFT UFS* RFP*

Actual

2014E FactSet DCM Mean

$1.61 $0.59 $0.73 $4.07 $2.72 ($6.75)

$2.13 $1.28 $1.65 $4.39 $9.37 $0.98

$2.25 $1.17 $1.61 $4.57 $9.43 $1.02

2015E FactSet DCM Mean $2.80 $1.28 $2.37 $6.07 $11.34 $1.94

$2.88 $1.18 $2.24 $5.60 $10.41 $1.63

* In US$ Source: FactSet, DCM Estimates

We are generally in line with Consensus for 2014 but above the Mean for 2015. For the Canadian companies, we attribute the disparity to our assumption of US$0.92/$CAD. In the case of Domtar, we attribute the disparity to slightly higher prices in UWF papers and growth in earnings in the Personal Care Division. In the case of Resolute Forest Products, we have assumed a small increase in newsprint and groundwood specialty pricing owing to the fragile condition of its competition. In North America, the majority of its competition is either under some sort of financial protection or struggling to avoid bankruptcy. We refer to the following two tables which demonstrate the capacity and the EPS leverage of the companies under our coverage.

Company Capacity and Sensitivity Analysis Figure 5: Company Capacity

Lumber

Panels

News

Mechanical Grades Unc Gwd LWC

Pulp

Canfor 5,300 Canfor Pulp International Forest 2,630 West Fraser 6,300 1,130 135 Domtar Resolute Forest 2,500 3,100 1,300 600 Units: Lumber - Mn fbm, Panels - Mn sq ft, Pulp, News- Mn tonnes/year, Paper, Pkg - Mn tons/year

Chemical Grades UFS

CFS

750 1,100 1,240 1,488 1,700

Pkg 80 155

3,355

Source: Company Reports

Figure 6: EPS Sensitivity to a Change in Commodity Price

Lumber Canfor Canfor Pulp International Forest West Fraser Domtar Resolute Forest Price Change:

Panels

News

$0.53 $0.59 $1.03

Mechanical Grades Unc Gwd LWC

Pulp

Chemical Grades UFS

$0.19 $0.55 $0.46

$0.39 Pulp & Paper - $50 US/tonne

$0.06 $1.22

$0.51 $1.51 $0.51 $0.24 $0.67 Wood & Board Products - $20 US/unit

$3.41

CFS

Pkg

Exchange

$0.02 $0.08

$0.09 $0.06 $0.03 $0.17 $0.10 $0.12

Source: Company Reports, DCM Estimates

DUNDEE CAPITAL MARKETS Page | 6

Paper & Forest Products

April 23, 2014

Lumber Stock Performance - Is the sell-off a buying opportunity? 2014 YTD Lumber Index vs CAD/USD 20% 15% 10% 5% 0% -5% -10% Jan-14

Feb-14

Mar-14

WFT, CFP & IFP

Apr-14 CAD/USD

Source: Bloomberg

2014 YTD Lumber Index vs S&P/TSX 20%

14.3%

15%

In order to investigate this hypothesis, we created an Index of lumber stock performance using the 3 lumber stocks - Canfor, Interfor and West Fraser Timber. Year-to-date, the Lumber Index is down 2.7% but from its peak on March 5th, 2014, down 21.1%. By comparison, the S & P/TSX is up 6%. (Please see Graph - Lumber Index vs S&P/TSX) The Canadian dollar weakness is extremely positive for the Canadian exporters such as the lumber companies. For example, a 10% drop in the Canadian dollar versus the U.S. dollar adds $180mm to West Fraser pre-tax cash flow, $150mm to Canfor pre-tax cash flow and $25mm to Interfor pre-tax cash flow. However, in spite of this potential bonanza, the lumber stocks ignored the drop in currency and continued their downward path. (Please see Graph - Lumber Index versus CAD/USD). In terms of individual companies, in March West Fraser added 500mm fbm through 3 acquisitions and in mid-March, Interfor closed on its acquisition of the low-cost Tolleson Lumber assets adding 400mm fbm. We expect both acquisitions will be accretive to earnings. These additions to potential earnings did not decelerate the sell-off. The Index did appear to follow the lumber futures on the down-cycle. (Please see Graph Lumber Index versus Lumber Futures). As shown below, May Futures at $324/000 fbm are down 12.5% from both 3 months ago and 6 months ago.

10% 5%

Lumber Futures - Why are they down?

0% -5%

-6.8%

-10% Jan-14

Feb-14

Mar-14

WFT, CFP & IFP

Apr-14 S&P/TSX

Source: Bloomberg

2014 YTD Lumber Index vs Futures 20% 15% 10% 5%

In 2013, lumber prices peaked at $440/M fbm in February before bottoming out at $280/M fbm June. The destabilizing factor was a surge in supply after the winter thaw. Buyers are naturally being more cautious in 2014. There remains the possibility that additional supply coming to market owing to bottlenecks in transportation during wintertime could drive prices lower. Also not helping the situation is the slowdown in Chinese buying in part relating to difficulties getting financing. To conclude, there is risk we may be premature in calling for a recovery in lumber markets; however, we believe that a return to housing starts in excess of 1mm combined with a pickup in repair and remodeling owing to increasing consumer wealth will tighten markets and lead to firmer markets by mid-year.

0% -5% -10% -15% Jan-14

Lumber futures are down because of the weather. In Q1/14, housing starts have averaged a seasonally-adjusted 939,000. This implies an operating rate under 70%. In 2013, RISI estimated the theoretical operating rate of 78%. We contend that operating rates need to be 78% or higher for a balanced lumber market.

Feb-14

WFT, CFP & IFP

Mar-14

Apr-14

Lumber Future

Source: Bloomberg

DUNDEE CAPITAL MARKETS Page | 7

Paper & Forest Products

April 23, 2014

Figure 7: Lumber Futures Prices - April 17/2014 400 390 $390

July futures down almost US$50/M bfm

US$/1000 board feet

380

$371

360

$363

350

$367

$379

$369

$368

370

$370

$370

$367

$371

$368

$374

$353 $346

340 $340

330

$333

320

$328

$324

$324

$320

310 Nov-13

Jan-14

Mar-14

May-14

Current

Jul-14

Sep-14

3 months ago

Nov-14

Jan-15

Mar-15

May-15

6 months ago

Source: Bloomberg (Random Length Futures)

Figure 8: Lumber Prices and Operating Rates 100%

$400

90%

$350

80% 70%

$300

US$/Mfbm

High prices at 78% operating rate in 2013

$450

60%

$250

50%

$200

40%

$150

30%

$100

20%

$50

10%

$-

0%

Western SPF Price

NA Operating Rate

Source: RISI, DCM Estimates

The above graph shows Western SPF lumber prices versus the U.S. operating rate. Lumber demand peaked in 2005 at U.S. housing starts of 2.1mm. According to Random Lengths, the average price was $350/m fbm. In 2013, U.S. housing starts were only 926,000 and the price was $356/000 fbm.

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April 23, 2014

U.S. Housing Market - Demand/Supply U.S. Housing Inventory Statistics The table below shows the housing start estimates with the Mean at 1.1mm. RISI, the highest estimate point to U.S. job growth leading to higher household formation and higher U.S. starts. As mentioned, from our perspective, if housing starts exceed 1.0mm in the summer months and assuming China returns to its historical 2013 buying pattern, we will have higher prices. In the case of panels, we believe 1.1mm starts is more appropriate. Figure 9: U.S. Annual Housing Starts and Building Permits (000's, SAAR) 2,500

2,000

U.S. Demographical Sustainable Housing Starts at 1.4mm to 1.5mm

1,500

1,000

DCM NAR Fannie Mae RISI Average:

500

0

2000

2001

2013 929 924 923 930 927

2002

2003

2014 1000 1143 1106 1200 1112 2004

2005

New Home Starts

2015 1125 1443 1356 1480 1351 2006

2007

2008

2009

Building Permits

2010

2011

2012

2013

2014

Sustainable Level

Source: Bloomberg, Fannie Mae, National Association of Realtors, RISI, DCM Estimates

8

1600

7

1400

6

1200

5

1000

4

800

3

600

2

400

1

200

0

Thousands

Millions

Figure 10: U.S. New and Existing Homes Sales

0 2004

2005

2006

2007

2008

2009

Existing Home Sales (millions)

2010

2011

2012

2013

2014

New Home Sales (thousands)

Source: Bloomberg

As expected, after the peak in 2005, existing and new home sales collapsed. Similar to new housing starts, sales have come off the bottom but are still at historically low levels. DUNDEE CAPITAL MARKETS Page | 9

Paper & Forest Products

April 23, 2014

Figure 11: U.S. New and Existing Homes- Month's Supply 14 12 10 At near record low levels

8 6 4 2 2004

2005

2006

2007 2008 2009 New home supply

2010 2011 2012 2013 Existing Home Supply

2014

Source: Thomson Reuters Datastream, U.S. Census Bureau

The above graph shows that months' supply of new and existing homes is at near record lows. The last time we were at these levels was in 2005 when housing starts were 2.1mm. We believe this augurs well for U.S. new and existing home sales. Figure 12: U.S. Shadow Inventory Estimates 6 5

U.S. Shadow Inventory still high but not disruptive Millions

4 3 2 1 0 2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Shadow Inventory Estimates

Source: Bloomberg

The Bloomberg Shadow Inventory estimate is the number of homes that may eventually come to market. This is calculated by adding [(Foreclosures as a % of total loans + U.S. % of loans with installments past due 90 days or more) multiplied by (U.S. number of loans serviced-all loans / .80) / 100].

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April 23, 2014

Bloomberg uses data from the Mortgage Bankers Association and historical observations. As illustrated above, the estimated shadow inventory has been decreasing steadily since Q4/09, when this number peaked at 5.4 million homes The current inventory is 2.7 million homes.

U.S. Housing - Leading Indicators Figure 13: S&P/Case-Shiller Index 2004-present and 2012-present 170 165 160 155

+22.4%

The Case-Shiller Index is a very important leading indicator

150 145 140 135 130 Jan-12

May-12

Sep-12

Jan-13

May-13

Sep-13

Jan-14

Source: Bloomberg

We consider the Case-Shiller Index a very important indicator. If housing values are increasing, the banks are more likely to lend (better collateral) and people are more likely to buy. Alternatively viewed, if housing prices fall, the banks are unlikely to lend. Figure 14: NAHB/Wells Fargo Housing Opportunity Index 90 80 70 60 50 40 30

2014

2013

2013

2012

2012

2011

2011

2010

2010

2009

2009

2008

2008

2007

2007

2006

2006

2005

2005

2004

20

2004

U.S. housing still relatively affordable in spite of higher prices

Source: Bloomberg, National Association of Home Builders

The Wells Fargo Housing Opportunity Index is defined for a given area as the share of homes sold in that area that would have been affordable to a family earning the local median income based on standard mortgage underwriting criteria.

DUNDEE CAPITAL MARKETS Page | 11

Paper & Forest Products

April 23, 2014

The index has turned down because the cost of housing has gone up (as shown previously in the Case-Shiller Index) and the increase in mortgage rates. Nevertheless, the index is still at historically high levels. Figure 15: Builder Confidence Index 80

Builder Confidence declined because of the harsh winter

70 60 50 40 30 20 10 0 2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Source: Bloomberg, National Association of Home Builders

The Builder Confidence Index demonstrates the slowdown in new housing activity with the weather being the main culprit. We expect the downward trend to reverse itself as we enter the spring buying season.

Canadian Log and Lumber Exports to Asia The table below shows the surge in log and lumber buying by China. It should be furthermore noted that China was an almost non-existent participant in North American markets before 2008.

Figure 16: Canadian Log and Lumber Exports to Asia

Source: Weyerhaeuser Presentation

DUNDEE CAPITAL MARKETS Page | 12

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April 23, 2014

Figure 17: Delivered Log Price - Douglas Fir #2

Source: Weyerhaeuser Presentation, Log Lines, FEA, RISI

According to Log Lines, Douglas Fir #2 pricing has continued to escalate averaging $760/MBF in February, up $160/MBF in the past 3 months and 21% from one year ago. Furthermore, prices are above 2005 levels. Housing starts in 2005 were 2.5mm compared to an average 930,000 starts over the past 15 months. We expect Weyerhaeuser will make record profits in their West Coast timber division; however, we expect the lumber producers will be forced to raise prices for certain products. International Forest Products, Hampton Lumber and Sierra Pacific are lumber producers in the region. Figure 18: U.S. South Positive Timber Inventory

Low log costs for lumber producers

Source: WFT Presentation, FEA DUNDEE CAPITAL MARKETS Page | 13

Paper & Forest Products

April 23, 2014

Figure 18 demonstrates the excess supply of inventory in the U.S. During the down-cycle 2007 to 2012 - the timberland owners dramatically reduced harvest because there was no demand. However, the trees kept growing. According to the study by FEA there is 28.5Bn fbm surplus sawtimber in the region. The second conclusion we come to is that the major lumber producers in the region - West Fraser Timber, Weyerhaeuser and to a lesser degree, Canfor and Interfor - will benefit from larger (delays in harvest) and lower cost (surplus) logs

Canadian Annual Allowable Cut - MM m3 Figure 19: Canadian Fiber Supply

Source: WFT Presentation, FEA

The above table demonstrates the reduction in harvest in B.C. owing to the pine beetle and in Ontario and Quebec owing to harvest reductions. Including the impact of Canadian sales to China, we expect Canadian lumber supply to the U.S. to drop by as much as 10Bn fbm.

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April 23, 2014

The Efficient Frontier Figure 20: The Efficient Frontier

Quarterly Return

6.0%

4.0% Timber

Stocks

2.0% Real Estate Bonds

0.0% 0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Standard Deviation/Risk Bonds & Stocks

Bonds, Stocks & Real Estate

Bonds, Stocks, Real Estate & Timber

Source: Bloomberg, DCM (Frederic Blondeau, Head of Real Estate Research)

Figure 20 was developed by Frederic Blondeau, Head of Real Estate Research, DCM. The table demonstrates the benefit of timber in a portfolio. More specifically, a portfolio with Timber, Bonds, Stocks & Real Estate will produce higher returns for the equivalent amount of risk as a portfolio of Bonds, Stocks and Real Estate.

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April 23, 2014

Company Comparison Table Figure 21: Comparison Table

Source: Company Reports, FactSet, DCM Estimates

DUNDEE CAPITAL MARKETS Page | 16

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April 23, 2014

Conference Call Schedule for Paper and Forest Products Companies Figure 21: Conference Call Schedule for Selected Companies within Paper & Forest Products Universe (Alphabetical)

Earnings Release Conference Call Schedule EARNINGS RELEASE

CALL DATE

TIME (EST)

PHONE

CODE

WEBCAST

REPLAY

CODE

BCC

Boise Cascade Company

23-Apr

23-Apr

11:00 AM 315-625-6883

28671783

www.boiseinc.com

404-537-3406

28671783

CAS

Cascades

8-May

8-May

9:00 AM 1-866-229-4144

9501952#

www.cascades.com

1-888-843-7419

9501950#

CFP

Canfor Corporation

1-May

1-May

8:00 AM 1-800-952-6845

www.canfor.com

1-800-408-3053

6959461#

CFX

Canfor Pulp Products Inc.

1-May

1-May

8:00 AM 1-800-952-6845

www.canfor.com

1-800-408-3053

6959461#

CTL

Catalyst Paper Corporation

6-May

7-May

11:00 AM 1-888-390-0546

www.catalystpaper.com/investors

DEL

Deltic Timber Corporation

21-Apr

22-Apr

11:00 AM 1-866-318-8617

1-888-286-8010

79989212

FBR

Fibria

24-Apr

24-Apr

11:00 AM 1 412-317-6776

GPK

Graphic Packaging

24-Apr

24-Apr

10:00 AM 1-800-392-9489

IFP

Interfor

6-May

7-May

11:00 AM 1-866-782-8903

IP

International Paper

30-Apr

30-Apr

9:00 AM 1-706-679-8242

KS

Kapstone Paper & Packaging

30-Apr

1-May

MERC

Mercer international

1-May

2-May

MWV

MeadWestvaco

30-Apr

30-Apr

10:00 AM 1-800-230-1092

MeadWestvaco

NBD

Norbord

2-May

2-May

2:00 PM 416-642-5212

9933750

83968209

www.deltic.com www.fibria.com.br www.graphicpkg.com

1-855-859-2056

www.interfor.com

1-866-245-6755

928739

23884723

www.internationalpaper.com

1-404-537-3406

23884723

11:00 AM 1-617-786-2963

64066362

www.kapstonepaper.com

10:00 AM 1-888-241-0326

27138697

www.mercerint.com

1-855-859-2056

27138697

www.mwv.com

1-800-475-6701

323581

www.norbord.com

1-64-436-0148

9933750

NSG

Norske Skog

24-Apr

24-Apr

2:30 PM +44-1296-480-100

PCL

Plum Creek

28-Apr

28-Apr

5:00 PM 1-800-572-9852

PKG

Packaging Corp

22-Apr

23-Apr

10:00 AM 1-855-730-0288

PCH

Potlatch Corp

22-Apr

22-Apr

RYN

Rayonier

29-Apr

29-Apr

RFP

Resolute Forest Products

1-May

RKT

RockTenn

SEO

Stora Enso

SJ

23105619

255410

www.norskeskog.com www.plumcreek.com

1-855-859-2056

27971978

35494224

www.packagingcorp.com

1-855-859-2056

35494224

12:00 PM 1-866-393-8403

15855277

www.potlatchcorp.com

1-800-585-8367

15855277

10:00 AM 1-888-989-7543

Rayonier

www.rayonier.com

1-888-568-0923

5631

1-May

9:00 AM 1-888-789-9572

7888901

www.resolutefp.com

28-Apr

29-Apr

9:00 AM 773-756-0961

ROCKTENN

www.rocktenn.com

203-369-0055

23-Apr

23-Apr

7:30 AM 1-646-254-3374

5372377

www.storaenso.com

1-347-366-9565

5372377#

Stella-Jones

1-May

1-May

1:30 PM 1-888-231-8191

www.stella-jones.com

1-855-859-2056

29419192

TMB

Tembec

28-Apr

28-Apr

11:00 AM 514-392-9193

www.tembec.com

UFS

Domtar

24-Apr

24-Apr

10:00 AM 1-866-321-8231

www.domtar.com

1-888-203-1112

5229999

WFT

West Fraser Timber

24-Apr

25-Apr

11:30 AM 1-800-769-8320

www.westfraser.com

WY

Weyerhaeuser

25-Apr

25-Apr

10:00 AM 1-877-296-9413

1-855-859-2056

23990070

23990070

www.weyerhaeuser.com

ROCKTENN

Source: DCM

DUNDEE CAPITAL MARKETS Page | 17

Paper & Forest Products

April 23, 2014

Figure 22: Conference Call Schedule for Selected Companies within Paper & Forest Products Universe (by Release Date)

Earnings Release Conference Call Schedule EARNINGS RELEASE

CALL DATE

TIME (EST)

PHONE

CODE

WEBCAST

REPLAY

CODE

DEL

Deltic Timber Corporation

21-Apr

22-Apr

11:00 AM 1-866-318-8617

83968209

www.deltic.com

1-888-286-8010

79989212

PKG

Packaging Corp

22-Apr

23-Apr

10:00 AM 1-855-730-0288

35494224

www.packagingcorp.com

1-855-859-2056

35494224

PCH

Potlatch Corp

22-Apr

22-Apr

12:00 PM 1-866-393-8403

15855277

www.potlatchcorp.com

1-800-585-8367

15855277

BCC

Boise Cascade Company

23-Apr

23-Apr

11:00 AM 315-625-6883

28671783

www.boiseinc.com

404-537-3406

28671783

SEO

Stora Enso

23-Apr

23-Apr

7:30 AM 1-646-254-3374

5372377

www.storaenso.com

1-347-366-9565

5372377#

23105619

www.graphicpkg.com

255410

www.norskeskog.com

FBR

Fibria

24-Apr

24-Apr

11:00 AM 1 412-317-6776

GPK

Graphic Packaging

24-Apr

24-Apr

10:00 AM 1-800-392-9489

NSG

Norske Skog

24-Apr

24-Apr

UFS

Domtar

24-Apr

24-Apr

10:00 AM 1-866-321-8231

www.domtar.com

WFT

West Fraser Timber

24-Apr

25-Apr

11:30 AM 1-800-769-8320

www.westfraser.com

WY

Weyerhaeuser

25-Apr

25-Apr

10:00 AM 1-877-296-9413

PCL

Plum Creek

28-Apr

28-Apr

5:00 PM 1-800-572-9852

RKT

RockTenn

28-Apr

29-Apr

9:00 AM 773-756-0961

2:30 PM +44-1296-480-100

www.fibria.com.br

23990070

ROCKTENN

1-855-859-2056

1-888-203-1112

5229999

23990070

www.weyerhaeuser.com

1-855-859-2056

www.plumcreek.com

1-855-859-2056

www.rocktenn.com

203-369-0055

27971978 ROCKTENN

TMB

Tembec

28-Apr

28-Apr

11:00 AM 514-392-9193

RYN

Rayonier

29-Apr

29-Apr

10:00 AM 1-888-989-7543

Rayonier

www.tembec.com www.rayonier.com

1-888-568-0923

5631

IP

International Paper

30-Apr

30-Apr

9:00 AM 1-706-679-8242

23884723

www.internationalpaper.com

1-404-537-3406

23884723

KS

Kapstone Paper & Packaging

30-Apr

1-May

11:00 AM 1-617-786-2963

64066362

MWV

MeadWestvaco

30-Apr

30-Apr

10:00 AM 1-800-230-1092

MeadWestvaco

CFP

Canfor Corporation

1-May

1-May

8:00 AM 1-800-952-6845

CFX

Canfor Pulp Products Inc.

1-May

1-May

8:00 AM 1-800-952-6845

MERC

Mercer international

1-May

2-May

10:00 AM 1-888-241-0326

27138697

RFP

Resolute Forest Products

1-May

1-May

9:00 AM 1-888-789-9572

7888901

www.resolutefp.com

SJ

Stella-Jones

1-May

1-May

1:30 PM 1-888-231-8191

NBD

Norbord

2-May

2-May

2:00 PM 416-642-5212

CTL

Catalyst Paper Corporation

6-May

7-May

11:00 AM 1-888-390-0546

IFP

Interfor

6-May

7-May

11:00 AM 1-866-782-8903

CAS

Cascades

8-May

8-May

9:00 AM 1-866-229-4144

9933750

www.kapstonepaper.com www.mwv.com

1-800-475-6701

323581

www.canfor.com

1-800-408-3053

6959461#

www.canfor.com

1-800-408-3053

6959461#

www.mercerint.com

1-855-859-2056

27138697

www.stella-jones.com

1-855-859-2056

29419192

www.norbord.com

1-64-436-0148

9933750

www.catalystpaper.com/investors

9501952#

www.interfor.com

1-866-245-6755

928739

www.cascades.com

1-888-843-7419

9501950#

Source: DCM

DUNDEE CAPITAL MARKETS Page | 18

Paper & Forest Products

April 23, 2014

Figure 23: Conference Call Schedule for Selected Companies within Paper & Forest Products Universe (by Conf. Call Date)

Earnings Release Conference Call Schedule EARNINGS RELEASE

CALL DATE

TIME (EST)

PHONE

CODE

WEBCAST

REPLAY

CODE

DEL

Deltic Timber Corporation

21-Apr

22-Apr

11:00 AM 1-866-318-8617

83968209

www.deltic.com

1-888-286-8010

PCH

Potlatch Corp

22-Apr

22-Apr

12:00 PM 1-866-393-8403

15855277

www.potlatchcorp.com

1-800-585-8367

79989212 15855277

PKG

Packaging Corp

22-Apr

23-Apr

10:00 AM 1-855-730-0288

35494224

www.packagingcorp.com

1-855-859-2056

35494224

BCC

Boise Cascade Company

23-Apr

23-Apr

11:00 AM 315-625-6883

28671783

www.boiseinc.com

404-537-3406

28671783

SEO

Stora Enso

23-Apr

23-Apr

7:30 AM 1-646-254-3374

5372377

www.storaenso.com

1-347-366-9565

5372377#

23105619

www.graphicpkg.com

255410

www.norskeskog.com

FBR

Fibria

24-Apr

24-Apr

11:00 AM 1 412-317-6776

GPK

Graphic Packaging

24-Apr

24-Apr

10:00 AM 1-800-392-9489

NSG

Norske Skog

24-Apr

24-Apr

UFS

Domtar

24-Apr

24-Apr

10:00 AM 1-866-321-8231

www.domtar.com

WFT

West Fraser Timber

24-Apr

25-Apr

11:30 AM 1-800-769-8320

www.westfraser.com

WY

Weyerhaeuser

25-Apr

25-Apr

10:00 AM 1-877-296-9413

PCL

Plum Creek

28-Apr

28-Apr

5:00 PM 1-800-572-9852

TMB

Tembec

28-Apr

28-Apr

11:00 AM 514-392-9193

www.tembec.com

RKT

RockTenn

28-Apr

29-Apr

9:00 AM 773-756-0961

ROCKTENN

www.rocktenn.com

203-369-0055

RYN

Rayonier

29-Apr

29-Apr

10:00 AM 1-888-989-7543

Rayonier

www.rayonier.com

1-888-568-0923

5631

IP

International Paper

30-Apr

30-Apr

9:00 AM 1-706-679-8242

23884723

www.internationalpaper.com

1-404-537-3406

23884723

www.mwv.com

1-800-475-6701

323581

2:30 PM +44-1296-480-100

www.fibria.com.br

23990070

1-855-859-2056

1-888-203-1112

5229999

www.weyerhaeuser.com

1-855-859-2056

23990070

www.plumcreek.com

1-855-859-2056

27971978

ROCKTENN

MWV

MeadWestvaco

30-Apr

30-Apr

10:00 AM 1-800-230-1092

MeadWestvaco

KS

Kapstone Paper & Packaging

30-Apr

1-May

11:00 AM 1-617-786-2963

64066362

CFP

Canfor Corporation

1-May

1-May

8:00 AM 1-800-952-6845

www.canfor.com

1-800-408-3053

6959461#

CFX

Canfor Pulp Products Inc.

1-May

1-May

8:00 AM 1-800-952-6845

www.canfor.com

1-800-408-3053

6959461#

RFP

Resolute Forest Products

1-May

1-May

9:00 AM 1-888-789-9572

SJ

Stella-Jones

1-May

1-May

1:30 PM 1-888-231-8191

www.stella-jones.com

1-855-859-2056

29419192

MERC

Mercer international

1-May

2-May

10:00 AM 1-888-241-0326

27138697

www.mercerint.com

1-855-859-2056

27138697

NBD

Norbord

2-May

2-May

2:00 PM 416-642-5212

9933750

www.norbord.com

1-64-436-0148

9933750

CTL

Catalyst Paper Corporation

6-May

7-May

11:00 AM 1-888-390-0546

IFP

Interfor

6-May

7-May

11:00 AM 1-866-782-8903

CAS

Cascades

8-May

8-May

9:00 AM 1-866-229-4144

7888901

www.kapstonepaper.com

www.resolutefp.com

www.catalystpaper.com/investors

9501952#

www.interfor.com

1-866-245-6755

928739

www.cascades.com

1-888-843-7419

9501950#

Source: DCM

DUNDEE CAPITAL MARKETS Page | 19

Canfor Corp.

April 23, 2014

(CFP-T: C$24.43)

Stephen Atkinson, MBA / (514) 396-0321 [email protected]

BUY, High Risk Dundee target: C$32.00

Anthony Sutton / (514) 396-0323 [email protected]

Canfor Corp. - Capitalizing on a U.S. Housing Market Recovery CFP-CA New Last Recom m endation BUY Target Price $32.00 Risk High Projected return 31% Target- ev/ebitda m ultiple 5.5x Bloom berg Historical m ultiple 8.0x Share Data Current price $24.43 52-w eek high/low H-$30.02 L-$17.28 Market Cap (mm) $3,418 Shares Outstanding - FD 142.0 MM Available Float - Shares 30.6 MM Avg Weekly Trading Vol. - Shares 1.7 MM Operations Locations Quebec, U.S. South, Europe Capacity - Western SPF 4.6 Bn fbm Capacity - SYP 0.6Bn fbm Ow ned Capacity - NBSK Pulp, BCTMP 0.8mm tpy Forecast 2014E Year 2013 2015E SPF (US$/Mbfm) $356 $365 $380 SYP (US$/Mbfm) $413 $420 $430 NBSK (US$/tonne) $859 $855 $830 Revenue ($mm) $3,195 $3,309 $3,466 EPS $1.60 $2.21 $2.89 P/E 15.3x 11.1x 8.5x Gross Margin - % 17% 19% 21% ROE - % 16% 19% 24% EBITDA ($mm) $539 $640 $741 EV/EBITDA 6.7x 5.2x 4.1x CF ($mm) $474 $506 $569 Capex ($mm) $237 $220 $140 FCF bef Divs ($mm) $244 $274 $417 FCF Yield bef Divs - % 7% 8% 13% Debt $138 ($7) ($258) D/D+E 0.08 0.00 -0.17 FACTSET Mean - EPS $1.64 $2.25 $2.88 FTSET Mean - EBITDA $542 $696 $821 All figures in C$ unless otherwise stated Source: Factset, FOEX, Random Lengths, DCM Forecasts, Company Docs

Investment Thesis: •

•

Canfor (CFP) with a capacity of 5.3Bn fbm (includes sale of Daaquam and closure of Quesnel sawmills) is the 2nd largest lumber producer in the World and one of our preferred investments to capitalize on the recovery of the U.S. housing market. The Company and its 50.4% owned Canfor Pulp are low cost and, we expect, will be in a net cash position in 2014. The Company has done a masterful job in repositioning itself in light of the mountain pine beetle destruction in B.C.

Risks •

The primary risk is weaker than anticipated U.S. Housing Starts leading to lower lumber prices. Other risks/concerns are fibre cost and availability such as changes in forest tenure and B.C. stumpage policies, the softwood lumber agreement with the U.S. expiring in October 2015 (it may need to be renegotiated), environmental remediation costs and asset impairment.

Balance Sheet + Pension Fund Status • •

Canfor has a strong balance sheet with long-term debt at $153mm and net debt at $138mm. The remaining commitment for Scotch Gulf is $60mm. Canfor defined pensions plan liability is $4mm. Canfor Other Benefits Plan Deficit is $154.3mm. Canfor 2014 contribution to its defined plans in 2014 is estimated at $38.8mm.

Quarterly Outlook •

CFP: Price/Volume Chart

•

Our Q1/14 forecast is $0.35/share compared to Consensus of $0.45/share. We attribute this disparity to a higher allowance for weather damage and interruptions to transportation of finished goods. On the positive side, Canadian assets benefited from the 4% drop in the $CAD and higher NBSK pulp prices. Our forecast for Q2/2014 is $0.55/share compared to Consensus of $0.65/share. We expect less weather-related problems but lower lumber prices early in the quarter.

Annual Outlook • Source: Factset

Company Description

Based in Vancouver, Canfor is the largest lumber company in Canada with production facilities primarily in B.C. and Alberta. Canfor owns 50.4% of Canfor Pulp, a globally top quartile pulp producer.

We expect higher profits in 2015 owing to the upgrades of the Elko and Canal Flats lumber mills, better operations and higher biofuel energy generation at Canfor Pulp along with higher ownership of Scotch Gulf. Ebitda sensitivity to a 10% change in the $US versus the $CAD is about $130mm. We have also assumed a continuation of the share buyback program.

DUNDEE CAPITAL MARKETS Page | 20

Paper & Forest Products

April 23, 2014

COMPANY STRATEGY

CFP 2013 Revenues by Product

Over the past 3 years, Canfor has invested over $430 million in its Lumber operations and $307 million at its pulp and paper operations including $122mm as part of the Green Transformation Program. With the completion of turbine installations at the Northwood and Intercontinental mills, the major pulp mill projects are coming to an end.

$999M, 31%

MOUNTAIN PINE BEETLE STRATEGY $2192M, 69% Lumber

Pulp & Paper

Source: Company Documents

CFP Lumber Sales Vol. by Market 5% 21%

2% 2%

On October 24, 2013, Canfor entered into an agreement with West Fraser for an exchange in forest tenure rights. Canfor exchanged 382,194 cubic meters of replaceable forest license allowable annual cut in the Quesnel Timber Supply Area and 53,627 cubic meters of replaceable forest license allowable annual cut in the Lakes Timber Supply Area with West Fraser for 324,500 cubic meters of replaceable forest license allowable annual cut in the Morice Timber Supply Area as well as a non-replaceable license and undercut volumes. In addition, Canfor will close its 250mm fbm lumber mill in Quesnel, BC and West Fraser will close its lumber mill in Houston, BC. The value of the timber tenures is about $20mm.

2007 70%

U.S. China

Canada Other

The epicenter of the beetle infestation, if we can call it that, is Central BC referred to as the Prince George region. To minimize the impact from the loss of pine timber, Canfor has 1) closed most affected mills e.g. Clear Lake and Rustad lumber mills 2) restarted and upgraded closed lumber mills in less beetle-infested regions e.g. Radium and Vavenby; 3) acquired Elko and Canal Flats (420mm fbm) along with 1.1mm m3 cutting rights in the B.C. Kootenay region for $65.6mm and 4) Exchanged forest tenure with West Fraser.

Japan

PURCHASE OF SCOTCH GULF

Source: Company Documents

On August 9, 2013, Canfor began a 3-year phased purchase of Scotch Gulf of Mobile, AL. The Scotch Gulf purchase includes three sawmills, a treating plant and a remanufacturing facility. Following investments, capacity is rated at 440mm fbm. The cost of the upgrade is $80mm.

CFP Lumber Sales Vol. by Market 1% 22%

SALE OF PEACE VALLEY, BC JOINT VENTURE 6%

2013

On May 31, 2013, Canfor completed the sale of its 50% share in Peace Valley OSB mill, to Louisiana Pacific for cash proceeds of $78mm. Net gain on the sale was $38.3mm.

53%

18%

NORMAL COURSE ISSUER BID

U.S.

Canada

China

Other

Japan

In 2013, Canfor purchased 2,847,838 common shares for $60 mm at an average $21.08/share. Given that the Company is virtually debt-free, we assume the Canfor will buy 12mm shares over the next two years for a total $365mm.

Source: Company Documents

VALUATION Top 10 Shareholders Holder Name PATTISON JAMES ALLEN Mackenzie Financial Corp. Dimensional Fund Advisors LP 1832 Asset Management LP Invesco Canada Ltd. TD Asset Management, Inc. ProShare Advisors LLC Pictet Asset Management SA BlackRock Fund Advisors Fidelity Management & Research Co. Total Total Insider Ownership Source: Factset

% O/S 41.96 9.87 1.85 1.65 1.60 1.24 1.00 0.93 0.86 0.66 61.62 42.36

The stock is down 19% in the past 2 months (the same as West Fraser Timber). Trading at a 2015E ev/ebitda of 4.1x, we consider Canfor stock inexpensive. We expect a slow but long recovery in the U.S. Housing market. Our 12-month target of $32/share is based on an ev/ebitda multiple of 5.5x. SUMMARY & RECOMMENDATION In Canfor, we have the world's second largest and one of the lowest cost producers of lumber. Aside from astutely lowering costs and acquiring assets inexpensively, Canfor has taken a proactive role in growing its China lumber business. We are initiating coverage with a BUY recommendation.

DUNDEE CAPITAL MARKETS Page | 21

Canfor Pulp

April 23, 2014

(CFX-T: C$10.90)

Stephen Atkinson, MBA / (514) 396-0321 [email protected]

BUY, High Risk Dundee target: C$14.00

Anthony Sutton / (514) 396-0323 [email protected]

A Global Top Quartile Pulp Producer CFX-CA New Last Recom m endation BUY Target Price $14.00 Risk High Dividend/Share $0.15 Dividend Yield- % 1.5% Projected return 30% Target- ev/ebitda m ultiple 4.5x Bloom berg Historical m ultiple 6.9x Share Data Current price $10.90 52-w eek high/low H-$13.10 L-$8.02 Market Cap (mm) $774 Shares Outstanding - FD 71.1 MM Available Float - Shares 30.6 MM Avg Weekly Trading Vol. - Shares 0.2 MM Operations Location Prince George, B.C. Capacity - Pulp (000 tonnes) 1065 Capacity - Kraft Paper (000 tonnes) 140 Forecast 2014E Year 2013 2015E NBSK - US$/tonne $859 $855 $830 Linerboard - US$/ton $663 $700 $700 Revenue ($mm) $887 $933 $910 EPS $0.66 $1.28 $1.28 P/E 16.6x 8.5x 8.5x Gross Margin - % 16% 21% 21% ROE - % 11% 20% 17% EBITDA ($mm) $145 $200 $194 EV/EBITDA 5.3x 3.4x 3.0x CF ($mm) $142 $160 $159 Capex ($mm) $62 $55 $30 FCF ($mm) $96 $105 $119 FCF Yield bef Divs - % 13% 14% 16% Debt $37 ($53) ($157) D/D+E 0.08 nm nm FACTSET Mean - EPS $0.71 $1.17 $1.18 FTSET Mean - EBITDA $144 $191 $192 All figures in C$ unless otherwise stated

Investment Thesis:

CFX: Price/Volume Chart

•

•

•

Canfor Pulp (CFX) is 50.4%-owned by Canfor Corporation (CFP-Outperform). Its strengths are its balance sheet and the abundant chip supply in the Prince George region. CFX is completing an energy cost reduction program. The turbine upgrade at the Northwood mill is scheduled for Q1, 2014 and the turbine upgrade at the Intercontinental mill, for the end of the year. The Company is well-positioned to accelerate its share buyback program.

Risks •

The primary risk is a price war in pulp owing to oversupply. According to FOEX, the European NBSK pulp price is US$923/tonne. We are forecasting a drop to US$800/tonne by year-end; however, pricing could easily fall 10% further if Europe devalues its currency. EPS sensitivity of a $50/tonne pulp price change is $0.55/share and to a 10% drop versus the $US, $0.60/share. Other issues are government and other regulations, financial risk management, asset impairments and environmental remediation costs.

Balance Sheet + Pension Plan Status •

The CFX balance sheet is exceptionally strong. Net debt at year-end 2013 was $47.1mm. We expect Canfor Pulp to be net debt free in 2014. The only long term debt is $50mm due 2018. This includes net working capital of $101mm. Notional pension deficit is $67.6mm. Contributions in 2014 are estimated to be $6.9mm.

Quarterly Outlook

•

Our Q1/14 forecast is $0.32/share in line with the Factset Mean of $0.31/share. The wild card in this quarter has been the inclement weather resulting in transportation difficulties. The situation was compounded by the short strike at the Vancouver ports. On the positive side, Canfor Pulp benefits from the 4% drop in the $CAD. NBSK pulp prices in Europe are up US$13/tonne and in China, US$8/tonne. Our forecast for Q2/2014 is $0.36/share compared to the Factset Mean of $0.32/share. We attribute the improvement to an absence of weatherrelated problems, including higher shipments.

Source: Factset

Annual Outlook

Company Description

•

Canfor Pulp (CFX) owns and operates 3 lowcost (top-quartile) kraft pulp mills in Prince George, BC. It is the largest softwood pulp producer in North America and 4th largest in the world.

We expect 2014 and 2015 EPS to be in the $1.20/share range. The benefit of improved operations and lower Canadian dollar should largely offset the negative impact of lower prices. In 2013, CFX bought back 262,449 shares for $2.4mm. The Company has authority to acquire 5% CFX shares outstanding or 3.56mm shares in 2014. DUNDEE CAPITAL MARKETS Page | 22

Paper & Forest Products

April 23, 2014

Figure 24: Quarterly Pulp Pricing - NBHK China vs. NBSK Europe (US$/tonne)

CFX 2013 Revenues by Region $41M $36M

$1,200

$107M

$1,000 $465M

$800

$238M

$600 Asia

USA

Canada

Other

Europe

$400

Source: Company Documents

$200 CFX Average Pulp Cost

$0

$650

2009

$600

2010

2011

NBHK China ($US)

2012

2013

2014

NBSK ($US) Europe

$550 $500

Source: FOEX, DCM Forecasts

$450

RECENT EVENTS

$400 2011

2012

2013

2014E 2015E

Source: Company Documents, DCM Estimates

World Pulp Consumption (000 tonnes) 80,000 60,000 40,000 20,000 0 2010 2011 2012 2013 2014E 2015E

North America Latin America Other Asia

Western Europe China Other

Top 10 Shareholders

Total Insider Ownership Source: Factset

MARKET OUTLOOK Given its location in Central BC, Canfor Pulp's natural market is North America followed by China. China has overtaken Europe as the largest buyer of pulp in the world. We estimate global growth in demand at about 1.5% or 1mm tpy. There is double this amount starting up in Latin America during the 2014 to 2015 period. The implication is operating rates falling under 90% and falling prices to go along with it. The saving graces for Canfor Pulp are lower costs through better operations, installation of turbines and the drop in the Canadian dollar. A 10% drop versus the $US adds $0.60/share to CFX EPS. VALUATION

Source: RISI

Holder Name Canfor Corp. Letko, Brosseau & Associates, Inc. RBC Global Asset Management, Inc. 1832 Asset Management LP Henderson Global Investors Ltd. I. G. Investment Management Ltd. BENTLEY PETER JOHN GERALD Foyston, Gordon & Payne, Inc. Chou Associates Management, Inc. Dimensional Fund Advisors LP Total

In November 2013, CFX announced an agreement with UPM-Kymmene to co-market their bleached pulp products. UPM would market CFX pulp in Europe and China and CFX would market UPM pulp including bleached eucalyptus pulp from its Uruguayan mill in North America and Japan. UPM sells 3.3mm tpy pulp. We view this agreement positively.

% O/S 50.38 9.92 1.76 1.68 1.45 1.33 1.25 0.73 0.70 0.54 69.74 51.79

We project the free cash flow yield above 13% and ROE at an average 17%. Trading at a projected 2015E ev/ebitda of 3.2x, Canfor Pulp is one of the more undervalued stocks in our coverage universe. At an exchange rate of $US 0.92/$CAD, our DCF analysis suggests a value of over $18/share, in line with our projected 2015E ev/ebitda of 6x. Considering the oversupply in pulp, our 12-month target is $14/share. This target is based on 2015E ev/ebitda of 4.5x. SUMMARY & RECOMMENDATIONS We estimate 2015E net cash position at $146mm. In the face of 4mm tpy new supply of pulp from Latin America, Canfor have taken a conservative view to the share buyback; however, as the cash balance increases, we would expect Canfor to accelerate the share buyback program. We recognize that now is not the right time to be buying a pulp company but considering the exceptionally low cost structure, we recommend the stock to value investors. We are initiating coverage with a BUY rating.

DUNDEE CAPITAL MARKETS Page | 23

International Forest Products (IFP.A-T: C$15.91)

April 23, 2014 Stephen Atkinson, MBA / (514) 396-0321 [email protected]

BUY, High Risk Dundee target: C$21.50

Anthony Sutton / (514) 396-0323 [email protected]

An Entrepreneurial Management Team IFP.A-CA New Last Recom m endation BUY Target Price $21.50 Risk High Projected return 35% Target- ev/ebitda m ultiple 5.0x Bloom berg Historical m ultiple 9.7x Share Data Current price $15.91 52-w eek high/low H-$18.25 L-$9.30 Market Cap (mm) $1,062 Shares Outstanding - FD 66.7 MM Available Float - Shares 63.4 MM Avg Weekly Trading Vol. - Shares 1.2 MM Operations Locations B.C., US Northw est & Southeast Capacity - Western SPF 1710 MMbf Capacity - SYP 920 MMbf Forecast 2014E Year 2013 2015E West SPF (US$/Mbf) $356 $365 $380 SYP (US$/Mbf) $413 $420 $430 Revenue ($mm) $1,104 $1,503 $1,637 EPS $0.96 $1.65 $2.37 P/E 16.1x 9.3x 6.5x Gross Margin - % 13% 14% 17% ROE - % 13% 20% 24% EBITDA ($mm) $147 $217 $278 EV/EBITDA 7.2x 5.5x 3.7x CF ($mm) $139 $191 $253 Capex ($mm) $68 $62 $55 FCF ($mm) $45 $129 $188 FCF Yield bef Divs - % 5% 12% 18% Debt $141 $144 ($44) D/D+E 0.22 0.20 -0.06 FACTSET Mean - EPS $1.07 $1.61 $2.24 FTSET Mean - EBITDA $134 $222 $283 All figures in C$ unless otherwise stated Source: Factset, FOEX, Random Lengths, DCM Forecasts, Company Docs

Investment Thesis: •

•

Interfor is one of our preferred investments to capitalize on the recovery of the U.S. housing market. The Company is low cost, has a very strong balance sheet and has a track record of acquiring assets inexpensively and improving their profitability. The Company is in the process of optimizing the 5 lumber mills it acquired in Georgia over the past year. Interfor leverage to lumber price movements is 50% higher than for Canfor and West Fraser. We expect the Company to be debt-free in 2015.

Risks •

The primary risk is weaker than anticipated U.S. Housing Starts leading to lower lumber prices. Other risks/concerns are fibre cost and availability such as changes in forest tenure and B.C. stumpage policies, the softwood lumber agreement with the U.S. expiring in October 2015 (it may need to be renegotiated), environmental remediation costs and asset impairment.

Balance Sheet + Pension Fund Status • •

Following the recent acquisition of Tolleson lumber mills for US$129.9mm, based on our forecast, we expect Interfor will be debt-free in 2015. The pension fund is in a surplus position with Obligations at $53.2mm and Plan Assets at $56.9mm. Other Retirement Benefit Deficits are at $1.545mm.

Quarterly Outlook •

IFP.A: Price/Volume Chart

•

Our Q1/14 forecast is $0.23/share compared to Consensus of $0.26/share. The wild cards this quarter have been the weather and short strike at Vancouver ports. Interfor, because it owns Seaboard Shipping, was able to ship through Kitimat and where appropriate, ship through the port of Seattle. Canadian assets also benefited from the 4% drop in the $CAD. Our forecast for Q2/2014 is $0.40/share compared to the Factset Mean of $0.49/share. We attribute the improvement to an absence of weatherrelated problems and contributions from recently acquired mills. The main negative is our expectation of lower lumber prices.

Annual Outlook Source: Factset

Company Description

With a capacity of 2.6Bn fbm, Vancouver-based Interfor is the fastest growing lumber company in North America. The Company is recognized for its well-run assets and its entrepreneurial management.

•

We expect higher profits in 2014 and 2015 primarily owing to the expansion in Georgia. Pro-forma the mill upgrades, Interfor Georgia constitutes 35% Interfor overall capacity up from 0% in February 2013. We expect this region to contribute over 50% Interfor profits and over 60% of cash flow. It should be noted that Interfor has $276mm in deferred taxes expiring between 2023 and 2032, the bulk of which we would surmise, are in the U.S. DUNDEE CAPITAL MARKETS Page | 24

Paper & Forest Products

April 23, 2014

VERY LOW INTEREST EXPENSE

IFP 2013 Shipments by End Market

Japan 10%

Pacific Rim 2%

Europe < 1% US from US Mills 41%

Canada 15%

The growth was achieved as follows:

Source: Company Documents

• • • •

IFP 2011 Capacity

39% 42%

1.6 Bsf

• •

19% B.C. Southern Int.

B.C. Coast

U.S. Pacific NW

•

Source: Company Documents

35%

28%

VALUATION

2.6 Bsf

Reflecting the drop in lumber futures, the stock is down 13% in the past 2 months. Trading at a 2015E ev/ebitda of 3.7x, we consider Interfor stock inexpensive. We believe U.S. housing starts are on their way to the demographically sustainable 1.5mm starts; hence, a multiple of 5.5x would be more appropriate. Given that we expect the Company to continue to grow (DCM forecast Interfor could have no debt in late 2015), our DCF analysis suggests values in the mid-20s. To be conservative, especially considering the weak U.S. housing demand and recent drop in lumber pricing, our 12-month target is $21.50. The target price is based on 2015E ev/ebitda multiple of 5.0x.

12% B.C. Southern Int.

B.C. Coast

U.S. Pacific NW

U.S. Southeast

Source: Company Documents

Top 10 Shareholders Holder Name Vertex One Asset Management, Inc. Dimensional Fund Advisors LP 1832 Asset Management LP Sentry Investments, Inc. Chou Associates Management, Inc. Mackenzie Financial Corp. I. G. Investment Management Ltd. Connor, Clark & Lunn Investment Mgmt Ltd. Hesperian Capital Management Ltd. BC Investment Management Corp. Total Total Insider Ownership Source: Factset

In 2001, IFP acquired 2 Primex Coastal BC sawmills for $115mm. In 2004, IFP acquired 3 U.S. Crown Pacific sawmills (capacity 1.3Bn fbm) for $99mm. In 2005, IFP acquired the Molalla, Oregon sawmill (capacity -220mm fbm) for $70mm. In 2008, Interfor acquired the two Pope & Talbot interior BC sawmills (Grand Forks and Castlegar) for $43mm. Current capacity is 385mm. In 2010, Interfor paid $16mm for 175,000 m3 cutting rights from Weyerhaeuser in order to expand production at the Castlegar sawmill. In 2008, Interfor acquired the Beaver lumber mill (185mm fbm) for $34mm. In March 2013, IFP acquired the 3 Rayonier sawmills in Georgia (360mm fbm) for $80mm. The Company also acquired the Keadle Tomaston GA sawmill (160mm fbm) for $40mm. On March 17, 2014, Interfor acquired the Tolleson lumber mills (total capacity after upgrade - 400mm fbm) for US$180mm.

As can be seen, these assets were acquired relatively inexpensively. The most expensive was the Tolleson mills at Perry GA at 450/M fbm; however, this mill is very low cost. We estimate ev/ebitda once these mills are optimized at about 4.5x.

IFP 2014 Pro-Forma Capacity

25%

STRATEGIC ACQUISITIONS - THE TRANSFORMATION OF INTERFOR In 2002, Interfor consisted of 772mm fbm of high cost lumber with 79% of assets on the B.C. Coast. In 2014, the capacity is 2.63Bn fbm for an annualized growth rate of 11%. In addition, the assets have been modernized and are low cost in their regional markets.

US from Cdn Mills 16%

China 16%

Interfor has an average interest expense of 3.1%. Canadian bank lines of $265mm due Feb. '17 carry a coupon of 2.5% and Prudential Senior Secured notes maturing June '23 carry a coupon of 4.3%.

% O/S 2.64 2.54 1.84 1.62 1.39 1.32 1.31 1.24 1.15 1.13 16.17

SUMMARY & RECOMMENDATIONS Interfor, in acquiring 5 Georgia-based lumber producers, has dramatically improved its profile and outlook. Its major commodity, lumber, is in the early stages of what we believe is an extended up-cycle. Interfor is well-positioned to accelerate its growth through acquisition. We expect the Company to be debt-free in 2015. Interfor has a proven track record of acquiring assets inexpensively. We are initiating coverage with a BUY rating.

1.00

DUNDEE CAPITAL MARKETS Page | 25

West Fraser Timber

April 23, 2014

(WFT-T: C$47.87)

Stephen Atkinson, MBA / (514) 396-0321 [email protected]

BUY, High Risk Dundee target: C$60.00

Anthony Sutton / (514) 396-0323 [email protected]

The World's Largest Lumber Company…and Growing WFT-CA New Last Recom m endation BUY Target Price $60.00 Risk High Dividend/Share $0.28 Dividend Yield- % 0.5% Projected return 26% Target- ev/ebitda m ultiple 5.5x Bloom berg Historical m ultiple 9.1x Share Data Current price $47.87 52-w eek high/low H-$59.50 L-$37.53 Market Cap (mm) $4,121 Shares Outstanding - FD 87.3 MM Available Float - Shares 48.2 MM Avg Weekly Trading Vol. - Shares 1.3 MM Operations Locations Western Canada, U.S. South Capacity - Lumber 6.3 Bn fbm Capacity - Panels 830 MMsf 3/8" Capacity - Pulp (NBSK) 590 M tonnes Forecast 2014E Year 2013 2015E Western SPF (US$/Mfb $356 $365 $380 SYP (US$/Mbfm) $415 $420 $430 NBSK (US$/tonne) $859 $855 $830 Revenue ($mm) $3,494 $3,783 $4,065 EPS $3.81 $4.39 $6.07 P/E 12.6x 10.9x 7.9x Gross Margin - % 17% 19% 22% ROE - % 20% 19% 22% EBITDA ($mm) $611 $721 $908 EV/EBITDA 7.1x 6.6x 2.9x CF ($mm) $405 $535 $678 Capex ($mm) $326 $300 $240 FCF ($mm) $43 $206 $404 FCF Yield bef Divs - % 2% 6% 10% Debt $187 $231 ($173) D/D+E 0.09 NA NA FACTSET Mean - EPS $3.82 $4.57 $5.60 FTSET Mean - EBITDA $583 $756 $897 All figures in C$ unless otherwise stated

Investment Thesis: •

•

West Fraser Timber (WFT), the largest lumber producer in the world, is one of our preferred investments to capitalize on the recovery of the U.S. housing market. The Company is low cost, has a very strong balance sheet and has a track record of acquiring assets inexpensively and improving their profitability. The Company is in the process of lowering the energy costs by about $50mm p.a. and improving recovery and efficiency at its lumber mills. Very low senior management turnover has kept the talent in-house.

Risks •

The primary risk is weaker than anticipated U.S. Housing Starts leading to lower lumber prices. Other risks/concerns are fibre cost and availability such as changes in forest tenure and B.C. stumpage policies, the softwood lumber agreement with the U.S. expiring in October 2015 (it may need to be renegotiated), environmental remediation costs and asset impairment.

Balance Sheet + Pension Plan Status • •

Pro forma the recent acquisition of 3 lumber mills for an estimated $250mm, we still expect West Fraser will be debt-free by year-end. The WFT pension fund is in a surplus position with Obligations at $1.164Bn and Plan Assets at $1.207Bn. Other Retirement Benefits are at $48mm. Pension expense is 2014 is estimated at $11mm and contributions, $40mm.

Quarterly Outlook •

Source: Factset, FOEX, Random Lengths, DCM Forecasts, Company Docs

WFT: Price/Volume Chart •

Our Q1/14 forecast is $0.78/share compared to the Factset Mean of $0.80/share. The wild card has been the insalubrious weather resulting in transportation difficulties (train, truck shortages etc.) leading to inventory backlogs at the pulp and lumber mills. The situation was compounded by a short strike at the Vancouver ports. On the positive side, Canadian assets benefited from the 4% drop in the $CAD and higher NBSK pulp prices. Our forecast for Q2/2014 is $0.95/share compared to the Factset Mean of $1.29/share. We attribute the quarterly improvement to an absence of weather-related problems and to a lesser degree, contributions from recently acquired mills. However, we expect lower pulp and lumber prices.

Annual Outlook Source: Factset

Company Description

West Fraser is the largest lumber producer in the world with assets in Western Canada and the U.S. South. The Company is recognized for its low cost structure.

•

We expect higher profits in 2014 and 2015 owing to the on-going modernization program of the U.S. South lumber mills, major energy projects adding ebitda of $40mm to $50mm, 3 recent lumber mill acquisitions and gradually increasing prices for lumber. The major negative is falling pulp prices. Sensitivity to a 10% change in the U.S. dollar is $180mm. DUNDEE CAPITAL MARKETS Page | 26

Paper & Forest Products

April 23, 2014

GROWTH PROFILE

WFT 2013 Revenues by Product

The secret behind West Fraser's growth has been to acquire assets inexpensively with the proviso that they must be low-cost or can be made low cost. Invariably this strategy implies an abundant quality fiber base; hence the expansion into regions of fiber surplus, the U.S. South and Alberta. Following this disciplined strategy West Fraser grew to be the largest lumber producer in the world all the while maintaining a strong balance sheet and avoiding large stock issuances.

23%

13% 64%

Lumber

Panels

Pulp & Paper

Figure 25: West Fraser Timber Historical and Forecasted Revenues and EBITDA

Source: Company Documents

4,500 4,000

WFT 2013 EBITDA by Product

3,500 C$ millions

18% 7%

3,000 2,500 2,000 1,500 1,000

75%

500 Lumber

Panels

Pulp & Paper

0

Source: Company Documents

WFT 2014 Pro-Forma Lumber Prod. 2.3 Bfbm

Revenues

EBITDA

Source: Company Documents, DCM Estimates

2.6 Bfbm

STRATEGIC ACQUISITIONS - GROWTH THROUGH FREE CASH FLOW 1.4 Bfbm B.C. Int.

• Alberta

U.S. South

Source: Company Documents

•

Top 10 Shareholders Holder Name Mackenzie Financial Corp. Jarislowsky Fraser Ltd. Ketcham Investments, Inc. Tysa Investments, Inc. Dimensional Fund Advisors LP Fidelity Management & Research Co. BlackRock Fund Advisors KETCHAM SAMUEL WRIGHT 1832 Asset Management LP Fiera Capital Corp. Total Total Insider Ownership Source: Factset

•

% O/S 9.38 9.20 8.35 5.62 2.00 1.94 1.84 1.80 1.33 1.26 42.73

• •

•

16.30

•

In 2000, WFT acquired 2 U.S. South Lumber mills (capacity 420mm fbm) for $60mm plus working capital. In 2001, WFT acquired the Ainsworth Chasm sawmill plus 695,000 m3 cutting rights for $22mm plus working capital. In 2001, WFT sold its Revelstoke Distribution Centres to Rona for $190mm after having sold the underlying real estate for $200mm. In 2002, WFT acquired the remaining 50% of the Quesnel BCTMP pulp mill for $6.5mm. In 2004, WFT acquired Weldwood from IP for $1.26Bn. Weldwood assets included 1.3Bn fbm lumber and 0.4mm tpy pulp. IP reported $780mm loss on the transaction of which $500mm was non-cash. In the case of IP, these were non-core businesses. In the case of West Fraser, this represented a consolidation of their Western Canadian operations. In 2007, WFT acquired 13 lumber mills from IP (capacity 1.8Bn fbm) for US$337mm. These mills were in need of investment and were unprofitable during the recent downcycle. Over the past 3 years, WFT has been modernizing these mills to ensure they are low cost and will be profitable during the next down-cycle. The overall capacity is relatively unchanged. During the down-cycle WFT focused on minimizing spending and shutting down high cost assets e.g. two lumber mills in the U.S. South. The high cost Kitimat, BC linerboard mill was permanently closed in 2010 and the port facilities sold the following year. The DUNDEE CAPITAL MARKETS Page | 27

Paper & Forest Products

April 23, 2014

• •

cash containment strategy enabled West Fraser to emerge from the housing recession with relatively low debt. On October 31, 2012, West Fraser acquired the Edson, AB sawmill for $30mm. In March 2013, WFT acquired 0.5Bn fbm of lumber – 2 mills in Arkansas (Russelville and Mansfield) and 1 in High Prairie, AB plus 430,000 m3 coniferous cutting rights. The High Prairie mill capacity at 110mm fbm will be expanded to 175mm fbm. There will be synergies with their Slave Lake Alberta BCTMP and panel mill in terms of fiber supply. We have ball-parked the total cost at $250mm.

COST REDUCTION PROJECTS In Q4, WFT started up planers at Williams Lake,BC and Edson,AB and ramped up the rebuilt Chetwynd,BC sawmill. The Edson sawmill was closed for rebuild and was restarted in March 2014. The company re-started the modernized McDavid, FL sawmill which had been closed for a number of years for profitability reasons. West Fraser is spending about $200mm on energy projects. The year-end ebitda run-rate is estimated at $200mm p.a. These projects include biomass plants at the Chetwynd, BC and Fraser Lake BC sawmills (90 GW or enough power for 8000 homes), 63 mgW co-generation at the Alberta Newsprint mill, Slave Lake, AB bio-methanation project and energy reduction at the Quesnel River pulp. The co-generation plant at the Cariboo pulp mill has been completed making the mill energy self-sufficient and selling the surplus to B.C. Hydro. THE MOUNTAIN PINE BEETLE PLAN Given the 30% reduction in timber supply in certain regions of Interior BC, West Fraser and Canfor jointly announced a timber harvest tenure exchange and related lumber mill closures. West Fraser will close its Houston BC lumber mill and transfer the associated cutting rights to Canfor. Canfor will close its Quesnel lumber mill and transfer associated cutting rights to West Fraser as well as a small (53,627 m3) cutting rights in the Lakes region. This will enable West Fraser to run its Quesnel lumber mill without fiber constraints and improves the fibre balance at its Smithers and Fraser Lake mills. West Fraser will upgrade the latter two mills in 2014. VALUATION Mirroring the drop in lumber futures, the stock is down 19% in the past 2 months. Trading at a 2015E ev/ebitda of 4.4x, we consider West Fraser Timber stock inexpensive. We believe housing starts are on their way to the demographically sustainable 1.5mm starts. Our 12month target of $60/share represents an ev/ebitda multiple of 5.5x. At current exchange rates, DCF analysis would suggest a value $20/share above this level. SUMMARY & RECOMMENDATIONS In West Fraser, we have the world's largest and one of the lowest cost producers of lumber. Its major commodity, lumber, is in the early stages of what we believe is an extended upcycle. We expect WFT to be debt-free by year-end. The pension fund, for all intents and purposes, is fully-funded. West Fraser has an enviable track record in the inexpensive acquisition and synthesis of assets. We expect these acquisitions to continue as well as share buybacks. We are initiating coverage with a BUY recommendation.

DUNDEE CAPITAL MARKETS Page | 28

Domtar Corp.

April 23, 2014

(UFS-US: US$95.94)

Stephen Atkinson, MBA / (514) 396-0321 [email protected]

BUY, High Risk Dundee target: US$132.00

Anthony Sutton / (514) 396-0323 [email protected]

Shrinking Funding Growth UFS New Last Recom m endation BUY Target Price $132.00 Risk High Dividend/Share $2.10 Dividend Yield- % 2.2% Projected return 40% Target- ev/ebitda m ultiple 5.0x Bloom berg Historical m ultiple 5.3x Share Data Current price $95.94 52-w eek high/low H-$115.75 L-$65.01 Market Cap (mm) $3,066 Shares Outstanding - FD 33.4 MM Available Float - Shares 30.6 MM Avg Weekly Trading Vol. - Shares 2.02 MM Operations Location Canada, US Capacity - Pulp 3.4M short tons Capacity - Paper 1.6M metric tons Forecast 2014E Year 2013 2015E NBSK (US$/tonne) 859 855 830 UWF - Copy Paper 1003 1055 1070 Revenue ($mm) $5,384 $6,130 $6,261 EPS $4.54 $9.37 $11.34 P/E 21.1x 10.2x 8.5x Gross Margin - % 12% 15% 16% ROE - % 5% 11% 12% EBITDA ($mm) $651 $929 $1,001 EV/EBITDA 6.2x 4.5x 3.8x CF ($mm) $479 $664 $752 Capex ($mm) $242 $260 $240 FCF bef Divs ($mm) $165 $434 $507 FCF Yield bef Divs - % 5% 14% 16% Debt $855 $1,097 $725 D/D+E 1.31 1.18 0.72 FACTSET Mean - EPS $4.73 $9.43 $10.41 FTSET Mean - EBITDA $658 $924 $956 All figures in US$ unless otherwise stated Source: Factset, FOEX, Random Lengths, DCM Forecasts, Company Docs

UFS: Price/Volume Chart

Investment Thesis: •

•

Risks •

•

•

Domtar is the largest and lowest cost producer of UWF papers in North America. The Company is expanding into the growing (5% to 6% p.a.) European and North American Personal Care market.

The balance sheet has been well-managed during the transition to Personal Care. Net debt pro-forma the $546mm acquisition of Indas Industries is $1.4Bn bringing the D/D+E to 0.27. Debt to Cash flow is 1.7x and EBITDA to Interest Expense is 9.2x. The next debt payment is $166mm due in 2015. Notional pension deficit is $109mm, an improvement of $162mm from 2012.

Quarterly Outlook

•

Company Description

The primary risks are a price war in pulp owing to oversupply and lower pricing in UWF papers owing to imports from Europe and China. EPS sensitivity to a $50/ton UWF paper price change is $3.41/share and to a $50/tonne pulp price change is $1.51/share. We see less risk in Personal Care given that it is a necessity with favorable (aging population) demographics. Sensitivity to a 10% change in the U.S. dollar is $100mm. Other risks are environmental remediation costs and asset impairment.

Balance Sheet

•

Source: Factset

Domtar is one of the lowest cost producers of uncoated wood-free (UWF) papers in the world. The cash flow from this business is being used to finance diversification into the growing (5% to 6% p.a.) Personal Care Business. Trading at an ev/ebitda under 4x, Domtar is one of the more inexpensive U.S. stocks we follow. We value the Personal Care business at over $50/share. We consider the recent 25% drop in Domtar stock price a buying opportunity.

Our Q1/14 forecast is $1.39/share, well below the Factset Mean of $1.78/share. We attribute the shortfall to a higher allowance for costs caused by bad weather (the polar vortex). Our forecast for Q2/2014 is $2.25/share, above the Factset Mean of $2.07/share. We attribute the improvement to an absence of weatherrelated costs (transportation and energy), increased sales including the prior quarter backlog and implementation of the $60/ton UWF price increase.

Annual Outlook •

Our EPS forecasts for the balance of 2014 and 2015 are slightly above Consensus. In UWF papers, following the closing of 1mm tpy supply, we expect operating rates in the mid' to high 90's over the 2014 to 2015 period leading to successful completion of the $60/ton price increase. We also expect a jump in profits in Personal Care owing to recent acquisitions and the synthesis of these businesses.

DUNDEE CAPITAL MARKETS Page | 29

Paper & Forest Products

April 23, 2014

PERSONAL CARE BUSINESS - BUILDING THE PLATFORM

UFS 2013 Revenues by Product

The Personal Care Business consists of Adult Incontinence Products, Baby Diapers and other absorbents such as Feminine Hygiene Protection Products. Domtar intends to participate in the design, manufacturing, marketing and distribution of these products.

$566M

$4843M

Pulp & Paper

Personal Care

Feminine Hygiene/Product Development: On May 12, 2012, Domtar acquired Engineered Absorbent Materials (EAM) Corporation, Jesup, GA for $61mm. EAM specializes in high quality (patented) airlaid and ultrathin laminated cores used in feminine hygiene, adult incontinence and infant diapers. This acquisition is important in that it enables Domtar to compete with its major competition e.g. Kimberly-Clark, from a quality and product development perspective.

Source: Company Documents

UFS 2013 EBITDA by Product $80M

Baby Diapers: On July 1, 2013 Domtar acquired Associated Hygienic Products (AHP), one of the largest manufactures of store-brand infant diapers in the U.S. for $272mm. Manufacturing facilities are in Delaware, OH and Waco, TX and a distribution center in Duluth, GA. AHP Branded products are Fitti and SleepWell.

$582M Pulp & Paper

Europe Incontinence Products: On January 2, 2014, Domtar acquired Spain's largest incontinence manufacturer Laboratorios Indas. The purchase price is estimated at $546mm. Indas employs 440 people in two manufacturing plants in Spain. These plants can serve as Domtar's platform for growth in the Mediterranean countries.

Personal Care

Source: Company Documents

UFS 2013 Sales by Region 7%

The entry into this business has been expensive in the sense that the industry participants trade in this growing non-cyclical business trade at 8x to 9x ev/ebitda. SCA, for example, is trading at a 2014E ev/ebitda multiple of 10x.

5% 2%

12%

Providing the opportunities arise, Domtar intends to grow this business to over $300mm ebitda over the next 3 years. If Domtar achieves this goal, the value of the personal care business alone would be $80/share. We estimate the current value at over $50/share.

74% U.S. Asia

Canada Other

VALUATION

Europe

Over the 2014 to 2015 time period, we expect Domtar to average 14.5% free cash flow before dividend yield and 11.5% R.O.E. Trading at a projected 2015E ev/ebitda of 3.8x, Domtar is one of the more inexpensive stocks in our U.S. coverage. We value the Personal Care business at over $50/share. Our 12-month target of $132/share is based on a 2015E ev/ebitda of 5x.

Source: Company Documents

Top 10 Shareholders Holder Name BlackRock Fund Advisors The Vanguard Group, Inc. Dodge & Cox, Inc. Acadian Asset Management LLC APG Asset Management NV Franklin Mutual Advisers LLC SSgA Funds Management, Inc. LSV Asset Management Dimensional Fund Advisors LP BlackRock Advisors LLC Total Total Insider Ownership Source: Factset

Adult Incontinence: On September 1, 2011, Domtar began its journey into this business with the acquisition of former Proctor & Gamble product, Attends, Greenville, NC. This was followed up on May 10, 2012 with the acquisition of Attends, Europe servicing Northern European markets from its factory in Aneby, Sweden.

% O/S 7.10 5.49 4.75 4.05 3.64 3.61 3.01 2.57 2.46 2.12 38.80

SUMMARY AND RECOMMENDATIONS Early on, Domtar top management recognized that UWF paper demand was shrinking and acted accordingly. High cost assets were jettisoned. The Plymouth, NC mill was converted to fluff pulp. The Bennetsville mill was converted to specialty (release) papers. In their stead, Domtar has put together the makings of a very profitable Personal Care Business, able to compete with major competition on both a cost and product quality perspective. We are initiating coverage with a BUY recommendation.

0.16

DUNDEE CAPITAL MARKETS Page | 30

Resolute Forest Products

April 23, 2014

(RFP-US: US$17.47)

Stephen Atkinson, MBA / (514) 396-0321 [email protected]

BUY, High Risk Dundee target: US$22.00

Anthony Sutton / (514) 396-0323 [email protected]

"The best price increase is a cost reduction" - R. Garneau, CEO, RFP RFP-US New Last Recom m endation BUY Target Price $22.00 Risk High Projected return 26% Target- ev/ebitda m ultiple 4.0x Bloom berg Historical m ultiple 5.2x Share Data Current price $17.47 52-w eek high/low H-$21.70 L-$12.36 Market Cap (mm) $1,652 Shares Outstanding - FD 94.7 MM Available Float - Shares 30.6 MM Avg Weekly Trading Vol. - Shares 1.86 MM Operations Location Canada, Southern US, S.Korea Capacity - New sprint 2.9mm mt Capacity - Specialty papers 2.0mm mt Capacity - Market pulp 1.7mm mt Capacity - Wood products 2.7 bnbf Forecast 2014E Year 2013 2015E Revenue ($mm) $4,473 $4,486 $4,571 EPS $1.18 $0.98 $1.94 P/E 14.8x 17.8x 9.0x Gross Margin - % 8% 9% 11% ROE - % 4% 3% 7% EBITDA ($mm) $378 $411 $523 EV/EBITDA 6.2x 5.6x 4.1x CF ($mm) $321 $419 $539 Capex ($mm) $161 $185 $190 FCF ($mm) $163 $229 $334 FCF inc Pension ($mm) $8 $74 $185 FCF Yield - % 8% 11% 16% FCF inc Pens Yield- % 0% 4% 10% Debt $277 $213 $44 D/D+E 0.10 0.07 0.02 FACTSET Mean - EPS $1.13 $1.02 $1.63 FTSET Mean - EBITDA $377 $378 $476 All figure in US$ unless otherwise stated Source: Factset, DCM Forecasts, Company Documents

RFP: Price/Volume Chart

Investment Thesis: •

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Risks •

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RFP has $883mm in liquidity. On May 8, 2013, Resolute issued $600mm unsecured notes at 5.875% due 2023 to replace 10.25% senior secured notes. Net debt is $277mm and D/D+E, 0.10. Debt to cash flow is 0.9x. Notional pension deficit is $1.3Bn down $672mm from 2012. Pension contributions in 2014 and 2015 are $165mm. RFP sensitivity to a 1% change in the discount rate (the 3-month T-bill rate) is $450mm. Resolute has over $2Bn in Canadian Tax deferrals

Quarterly Outlook

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Company Description

The primary risk is lower pricing in Resolute's major commodities. Demand for newsprint and magazine papers continues to shrink; however, prices are already depressed to the point that the majority of producers are running at a loss. Currency movements are also a risk. Sensitivity to a 10% change in the U.S. dollar is $150mm. Other risks/concerns are fibre cost and availability such as changes in forest tenure and Quebec stumpage policies, the softwood lumber agreement with the U.S. expiring in October 2015, environmental remediation costs and asset impairment.

Balance Sheet

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Source: Factset

Resolute is the world's largest and lowest cost producer of newsprint. The Company continues to generate free cash whereas the bulk of its North American competition is bankrupt or in financial difficulty. Trading at 2015E ev/ebitda of 3.2x, the stock is one of the more inexpensive we follow. We consider the recent 19% drop in stock price a buying opportunity. The major negative is the notional pension deficit at $1.3Bn.

Our Q1/14 forecast is -$0.26/share, well below the Consensus of $0.04/share. The weather was particularly severe in Ontario with power costs spiking, forcing machine shutdowns. Quebec and the U.S. South mills were also hit with damage from the extreme cold and shipping difficulties. Our forecast for Q2/2014 is $0.41/share, above the Consensus of $0.29/share, with the improvement due to an absence of weather-related costs and the carryover of shipments from Q1/2014.

Annual Outlook

Resolute is a major producer of newsprint (the • largest in the world), groundwood specialty paper, pulp and lumber. The Company focus is ensuring its assets are low cost in order to generate free cash flow.

Our EPS forecasts for the balance of 2014 and 2015 are above Consensus. European newsprint and coated paper producers are suffering from low prices. We expect higher off-shore prices beginning in H2/2014. Resolute will benefit from lower $CAD exchange rates and $20mm lower energy costs. DUNDEE CAPITAL MARKETS Page | 31

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PRODUCT MIX

RFP 2013 Revenues by Product

Resolute started out in December 9, 2010 as the restructured assets of Abitibi and Bowater. During the bankruptcy protection period, approximately half of the assets were closed leaving primarily low cost assets. The Fort Frances, ON and Jonquiere, QC mills are notable exceptions. The ebitda breakdown is 29% newsprint, 28% specialty papers, 24% pulp and 19% lumber and by-product chips, sold to the pulp and paper mills.

13% 33% 23%

COST REDUCTION PROGRAM Newsprint Pulp

31%

Specialty Wood Products

Source: Company Documents

In Q4/2013, the average cost at its newsprint mills were $549/tonne, down from $601/tonne in 2011. In specialty papers, the average cost in H2/2013 was about $650/tonne compared to $701/tonne in Q1/2011. The Company annually generates 566mgW power from 7 hydro-electric dams and 8 cogeneration plants. Over the past 18 months, cogeneration plants have been started up in Thunder Bay, ON as well Dolbeau, Gatineau and St-Felicien in Quebec. Power savings from these installations in 2013 was $45mm with another $15mm to come in 2014. In addition, RFP have closed 0.5mm tpy of newsprint and specialty production in the past year.

RFP 2013 EBITDA by Product 19% 29%

24%

The major project for 2014 is a $105mm upgrade of the chip processing and digester facility at Calhoun, TN. This project lowers energy costs, reduces fiber losses and permits an increase in pulp production. Project completion is scheduled for mid-2016.

28% Newsprint Pulp

Resolute is respected as a very good mill operator. One of the reasons it runs at near full capacity in its newsprint business is because publishers seek a viable supplier, one that will be assured to operate in the current pricing environment.

Specialty Wood Products

Source: Company Documents

LUMBER MILL BUSINESS

RFP Average Cost per tonne

One of the major challenges for Resolute has been the value destructive policies of the last Parti Quebecois Government especially in the timber allocation and forest tenure system. In 2013, Resolute produced 1.48Bn fbm, well below its 2.3Bn capacity. There is an expectation that the newly-elected Liberal Government will be more rational; however, we have not factored this into our estimates.

$750 $700 $650 $600

RFP is building one lumber mill in Atikokan, ON and rebuilding another in Ignace, ON adding a total 300mm fbm. Startup is scheduled for early to mid-2015.

$550 $500 2011 Newsprint

2012

2013

Groundwood

Source: Company Documents

Top 10 Shareholders Holder Name Hamblin Watsa Investment Counsel Steelhead Partners LLC Donald Smith & Co., Inc. BlackRock Fund Advisors Chou Associates Management, Inc. The Vanguard Group, Inc. GWL Investment Management Ltd. Restructuring Capital Associates LP Contrarian Capital Management LLC SSgA Funds Management, Inc. Total Total Insider Ownership Source: Factset

% O/S 30.72 13.31 9.61 4.52 4.47 4.27 2.46 2.45 1.80 1.79 75.39 0.10

VALUATION Trading at a projected 2015E ev/ebitda of 3.2x, Resolute is one of the more inexpensive stocks in our coverage. The low valuation relates to the shrinkage in demand for its major products, newsprint and groundwood specialty papers, the destructive behaviour of the prior Quebec Government regarding timber supply and the $1.3Bn notional pension deficit. We estimate 2015E free cash flow yield at 16% and including the pension contributions, 8%. Our 12-month target of $22/share represents a 2015E ev/ebitda of 4x. SUMMARY AND RECOMMENDATIONS Resolute is the largest newsprint producer in the world. The strength of RFP is its ability to generate free cash flow when the majority of its North American competition is losing money and in many cases, facing financial difficulty. In spite of harvest reductions in Quebec, over the past two years, the management team has lowered unit manufacturing costs at their newsprint and specialty papers mills by about $50/tonne. We believe the cost advantage is sustainable. We are initiating coverage with a BUY recommendation.

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