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

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

3. 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

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

5. 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

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

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

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

9. FINANCIAL ANALYSIS

10. Financial Analysis: Return On Equity Overview Financial Analysis Valuation Risks

11. 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 2010 2015E

12. 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

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

14. VALUATION

15. 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

16. Discounted Cash Flow: Asset Proportions Overview Financial Analysis Valuation Risks

17. 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%

18. Discounted Cash Flow: Analytical Phase (2012-2015) Change In Non- Cash Working Capital Net Borrowing Non-Cash Charges Net Income Capital Expenditures FCFE, NET:$102.94$104.03$120.23$108.40 2012201320142015 Inflows Outflows Overview Financial Analysis Valuation Risks  Continued deleveraging  Notable fixed capital investments December 2012 DCF Value: $15.40

19. Multiple Analysis: Similarity Assessment Overview Financial Analysis Valuation Risks

20. Multiple Analysis: Weighted Average Multiple Enterprise Value: $2,051,192,000 2012 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

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

22. 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

23. RISKS

24. 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)

25. Rising Lumber Demand Growing Lumber Prices Strong Competitive Positioning

26. Appendix A: Financials

27. Appendix B: Financials

28. Appendix C: Financials

29. Appendix D: Financials

30. Appendix E : FCFE Sensitivity Analysis

31. Appendix F : DCF Inputs

32. Appendix G : Comparables

33. Appendix H: Company Similarity

34. Appendix I : Comparable Fundamentals

35. Appendix J: Applied Ratios

36. Appendix K: Regression Variables

37. Appendix L: Exchange Rates

38. Appendix M: Management Change

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