Nip Impressions logo
Sun, Jan 23, 2022 04:35
Visitor
Home
Click here for Pulp & Paper Radio International
Subscription Central
Must reads for pulp and paper industry professionals
Search
My Profile
Login
Logout
Management Side
Week of 17 January 2022: What is acceptable risk in a capital project?

Email Jim at jim.thompson@ipulpmedia.com

A phone call I got out of the blue last week got me to thinking about this. It was from a book publisher that wants to buy hemp paper to publish books. I tried to explain to her the financial risks of heading down this path. A few issues--finding enough land with the correct climatic conditions and soils to grow the crop as efficiently as trees. Some way to cut the crop and haul it to a mill as efficiently as we do trees. A pulping process as efficient as tree chip processing with no deviations in energy usage or effluent that is different than pulping tree chips. This also means the yield is the same. Once you get it through the machine, someone has to want to buy it in the quantities that make sense.

I have written assessments on lots of projects. Every one of them follows the same pattern in the same order. Three questions: 1. What are the markets? 2. What are the raw materials? 3. What are the assets (including tangible assets and human assets) that you place between (1) and (2) to have a successful project? If you don't start here, your chances of success are very low.

And, of course, this all has to be done with properly assessed logistics, regulatory and environmental impact studies, accurately predicting the trend of these issues for the life of the project.

On the other hand, I have told the stories many times of the machine I assessed in British Columbia over thirty years ago. Over its life, which started in the mid-1950's, this machine had been rebuilt three times. Every rebuild was done so cautiously that the timing of the rebuild was the last version of what was put in at that time. This machine was obsolete throughout its lifespan. It was removed in 1989, long before you could blame the internet or the Chinese for its demise.

Capital projects are risky at best. Those that are too cautious get left behind. Those that make wrong decisions or lack vision end up shutting down before their time.

In most cases, there are enough eyes looking on a project that really bad decisions are avoided. However, when a personality rises up in a corporation that is listened to unquestionably, things can and usually do go wrong.

The best hope in these situations is that the decisions made shave a few points off the return on the investment but are not so bad that the asset becomes a meadow before its time. Study, study, study the situation, but don't fall into the trap of paralysis by analysis.

So maybe I have not been very helpful this week. I have certainly seen many situations, after the fact, that were mistakes.

Proceed cautiously with due haste.

Be safe and we will talk next week.

________

Other interesting stories:


Printer-friendly format

 


Members Opinions:
January 13, 2022 at 4:36pm
Hi Jim,

Great column as usual; however, I do have a comment. As I read it, the book publisher wanted to buy hemp paper but you walked her through making it from the field to finished product (and I agree with your comments). Perhaps the better approach for her would have been buying hemp market pulp (it is available) and using it for a custom paper order at a small paper mill. A colleague arranged this scenario over 20 years ago for a lady i.e. bought the hemp pulp from a mill in Europe and had the paper made in the USA. While this was successful technically, the cost was significant. Just a thought.

Best,

Bob Hurter



Powered by Bondware
News Publishing Software

The browser you are using is outdated!

You may not be getting all you can out of your browsing experience
and may be open to security risks!

Consider upgrading to the latest version of your browser or choose on below: