In 2005, we monetized part of our chemicals business through an initial public offering of the Canexus Income Fund. We currently holda a 63.5% interest in our chemicals business, and continue to fully consolidate chemicals in our Consolidated Financial Statements .

Visit Canexus website for more information.

Description of Chemicals Business
Our chemicals business manufactures sodium chlorate and chlor-alkali products (chlorine, caustic soda and muriatic acid) in Canada and Brazil. This production is sold in North and South America, with some sodium chlorate distributed in Asia. Our manufacturing system is reliable, low-cost and strategically located to capitalize on competitive electricity costs and transportation infrastructure to minimize production and delivery costs.

Electricity is the most significant operating cost in producing sodium chlorate and chlor-alkali products, making up over half our cash costs. Therefore, our current facilities are strategically located to take advantage of economic power sources. Our second highest cost is transportation. The proximity of our manufacturing plants to major customers and competitive freight rates minimize our transportation costs. Labour is also a significant manufacturing cost. Approximately 50% of our workforce is unionized with collective agreements in place at all of our unionized plants.

To grow value in our chemicals business, we focus on reducing our costs while maintaining market share, building a sustainable North American customer base and capturing new offshore opportunities. In 2009, we will fund our current capital projects from undistributed cash, dividend reinvestment and existing credit facilities (which were renewed in 2008).

North America
The North American pulp and paper industry consumes approximately 93% of the continent’s sodium chlorate production. We market our sodium chlorate production to numerous pulp and paper mills under multi-year contracts that contain price and volume adjustment provisions. Approximately 27% of this production is sold in Canada, 66% in the US, and the rest is marketed offshore.

We are the third-largest manufacturer of sodium chlorate in North America with four Canadian facilities: Nanaimo, British Columbia; Bruderheim, Alberta; Brandon, Manitoba; and Beauharnois, Quebec. 


In 2008, we completed an expansion of our Brandon plant, increasing capacity to over 290,000 tonnes per year. Brandon is the world’s largest sodium chlorate facility and has one of the lowest cost structures in the industry, significantly enhancing our competitive position in North America.

Our chlor-alkali facility at North Vancouver, British Columbia, manufactures caustic soda, chlorine and muriatic acid. Almost all of our caustic soda is consumed by local pulp and paper mills, while our chlorine is sold to various customers in the poly-vinyl, chloride, water purification and petrochemicals industries, primarily in the United States. A technology conversion project currently under way will replace existing diaphragm technology and assets with newer, proven membrane technology that is expected to be more cost effective and will expand productive capacity by 35%. This project is progressing on time and on budget with committed financing in place through to August 2011. The project is expected to start up in the first quarter of 2010 and should lower our cost structure and solidify our low-cost position in this regional market.

Average Annual Production Capacity

(short tons)	2008	2007	2006
Sodium Chlorate    North America	484,800	450,055	446,208
Brazil	68,563	68,563	68,563
Total	553,363	518,618	514,771
Chlor-alkali    North America	364,500	364,500	356,002
Brazil	109,430	109,430	109,430
Total	473,930	473,930	465,432

Brazil
We entered Brazil in 1999 by acquiring a sodium chlorate plant and a chlor-alkali plant from Aracruz Cellulose S.A. (Aracruz), the leading manufacturer of pulp in Brazil. The majority of the sodium chlorate production is sold to Aracruz under a long-term sales agreement that expires in 2024. Most of the chlorine and about 8% of the sodium chlorate production is sold in the merchant market under short-term contracts. In 2002, we completed an expansion at both facilities to meet Aracruz’s growing needs. A 2,000 tonne incremental sodium chlorate expansion project is currently in progress at our Brazil plant and is scheduled for start up in early 2009. A further 4,400 tonne expansion was recently approved, which is estimated to start up in early 2010. The majority of our electricity needs in Brazil are supplied by a long-term supply contract, which expires in february 2013.