CANFOR CORPORATION University of Victoria Student Research CFA Institute Research Challenge 2012

Presentation Highlights Overview Financial Analysis Valuation Risks Increasing Lumber Demand $14.41 $11.70

Company Overview  Headquartered in Vancouver, British Columbia  Lumber mill operations in British Columbia, Alberta, Quebec, Washington State, South Carolina, North Carolina  Largest Annual Production Capacity in North America (5.2 billion board feet)  50.2% ownership stake in Canfor Pulp & Paper Overview Financial Analysis Valuation Risks Source: Canfor North American Operations

Overview Financial Analysis Valuation Risks Company Overview: Major Markets Source: FAOSTAT

Industry Overview: US Housing Starts and Lumber Prices  United States: Expected recovery in the housing market will drive up lumber prices Source: Random Lengths, ForecastChart US Housing Starts Lumber Prices Overview Financial Analysis Valuation Risks  High growth potential in US paired with  Continued new growth in China  Potential for Supernormal Sales Growth in medium term

Industry Overview: Harvesting Restrictions in China Overview Financial Analysis Valuation Risks Restricted

Industry Overview: Growing Supply Gap in China Overview Financial Analysis Valuation Risks Sawnwood Lumber Exports to China (MM Board Feet)

Overview Financial Analysis Valuation Risks Competitive Positioning: China Competitive Positioning: North America

FINANCIAL ANALYSIS

Financial Analysis: Return On Equity Overview Financial Analysis Valuation Risks

Financial Analysis: Lumber Sales US Housing Rebound Increasing Chinese Supply Gap Rising Lumber Price Overview Financial Analysis Valuation Risks Canada China United States Japan Other E

Financial Analysis: Pulp Sales Weakening Demand Excess Supply Dropping NBSK price Overview Financial Analysis Valuation Risks  Canfor Pulp and Paper is not a sustainable contributor to Canfor’s Value

Financial Analysis: Projected Ratios Overview Financial Analysis Valuation Risks Stability Level

VALUATION

Valuation Discounted Cash Flow Multiple Analysis EBITDA Regression Final Value, December 2012 Overview Financial Analysis Valuation Risks Corrects for potential inaccurate cyclical foresight of DCF Captures the effect of short- term cash flows on Canfor’s value

Discounted Cash Flow: Asset Proportions Overview Financial Analysis Valuation Risks

Discounted Cash Flow: Post-Analytical FCFE Projection (2016 Onwards) Overview Financial Analysis Valuation Risks FCFE Growth Cycle Illustration 5 Year Positive Growth Min: 0%, Max: 2.5% 3 Year Negative Growth Min: 0%, Max: 2.5%

Discounted Cash Flow: Analytical Phase ( ) Change In Non- Cash Working Capital Net Borrowing Non-Cash Charges Net Income Capital Expenditures FCFE, NET:$102.94$104.03$120.23$ Inflows Outflows Overview Financial Analysis Valuation Risks  Continued deleveraging  Notable fixed capital investments December 2012 DCF Value: $15.40

Multiple Analysis: Similarity Assessment Overview Financial Analysis Valuation Risks

Multiple Analysis: Weighted Average Multiple Enterprise Value: $2,051,192, EBITDA: $233.09M Weighted Average EV/EBITDA: 8.80x # Shares Outstanding: 142,710,000 FY End 2012 Share Price: $14.37 Overview Financial Analysis Valuation Risks  West Fraser Timber and Weyerhaeuser are the most comparable to Canfor

EBITDA Regression: Variables Overview Financial Analysis Valuation Risks  Method: Regress regional EBITDA over the following macroeconomic variables in each region. EBITDA Mean: $171 Million

Final Value Statistical Approach 10% Weighting Discounted Cash Flow 40% Weighting Multiple Analysis 50% Weighting Final Value, December 2012 $14.37 $15.40 $10.58 $14.41 Overview Financial Analysis Valuation Risks

RISKS

Investment Risks Overview Financial Analysis Valuation Risks Investment Risks Highest Impact Disappointing US housing start growth Lower than expected Chinese lumber demand growth Sustained lull in lumber prices Exchange rate risk Dangers to natural environment Government regulation changes Failure to successfully renegotiate labour union terms Lowest Impact Termination of Softwood Lumber Agreement (SLA)

Rising Lumber Demand Growing Lumber Prices Strong Competitive Positioning

Appendix A: Financials

Appendix B: Financials

Appendix C: Financials

Appendix D: Financials

Appendix E : FCFE Sensitivity Analysis

Appendix F : DCF Inputs

Appendix G : Comparables

Appendix H: Company Similarity

Appendix I : Comparable Fundamentals

Appendix J: Applied Ratios

Appendix K: Regression Variables

Appendix L: Exchange Rates

Appendix M: Management Change

Appendix N: Mountain Pine Beetle Entire Province Timber Harvesting Land Base Pine Volume Killed (millions of cubic meters