Brian Luoma

Louisiana-Pacific photo

A large package of incentives to develop a private engineered wood siding plant in Hoyt Lakes was approved Tuesday by the Iron Range Resources and Rehabilitation Board (IRRRB).

Louisiana-Pacific Corp., which manufactures siding in Two Harbors, Hayward,  Tomahawk and four other locations, is the potential developer, although it is considering several sites. The company won’t make a final site decision until next year.

The IRRRB incentives will be added to a state package previously approved by the Minnesota Legislature.

Costs and incentives are among the factors that the forest products company will analyze. Minnesota has sufficient wood to supply the plant, L-P Executive Vice President/Siding Brian Luoma told board members, and the state has enough individuals available to work at such a facility.

The IRRRB package includes:

• $10 million from the Douglas J. Johnson fund.

• $20 million from the 21st Century Fund.

• A $10 million investment from project partners. ALLETE Inc. and St. Louis County are among them, although there could be others. The plant would be located at Laskin Energy Park in Hoyt Lakes, which is owned by ALLETE.

• IRRRB will also provide a sales tax rebate for building materials and supplies during a three-year period of construction. It could total up to $6 million.

Minnesota taxpayers might also provide incentives, according to a bill passed in the most recent legislative session. It calls for an annual appropriation of up to $3 million per fiscal year from the general fund until June 30, 2025, at the rate of $7.50 per 1,000 square feet of siding. The maximum payout would be $30 million.

Although some may view the public incentive package as large, it pales in comparison to the private investment of $400 million, said board member Carly Melin.

“This will be a huge opportunity,” said IRRRB board member Jason Metsa, who noted the state agency has conducted considerable due diligence on the proposal.

 “It’s an exciting time for us. We have a reliable workforce that will show up every day,” added board member David Tomassoni.

Although L-P has expressed interest, the state legislation does not identify a specific recipient. The incentives could be given to any firm that obtains 80 percent of its raw forest materials in Minnesota and manufactures at least 200,000 square feet of siding per year.

IRRRB says multiple benefits could be derived from the project including the creation of 250 or more permanent jobs; 500 to 600 indirect jobs in logging, trucking and other businesses; the infusion of $60 million each year into logging and trucking; the annual sale of 700,000 to 800,000 cords of wood, and daily transportation by 200 logging trucks.

“This project perfectly aligns with our strategy of diversifying and expanding the economy,” IRRRB said in its proposal.

Louisiana-Pacific’s most recent yearly sales were $1.9 billion. The firm employs 3,900 people throughout the corporation.

It’s annual sales of wood-based siding have remained relatively constant in recent years near 1.1 million square feet, but in its 2015 annual report, L-P predicted an increase in new home construction, where much of the siding is used.

The forest products company has lost money during the past three out of five years. During 2011, it lost $181.2 million; during 2014, it lost $74.5 million, and in 2015, it lost $88.1 million. It had net income of $28.8 million in 2012 and $177.1 million in 2013.

Like the mining industry, the siding business tends to suffer from high and low demand, Louisiana-Pacific said in its 2015 annual report.

“Demand for our products correlates to a significant degree to the level of new home construction activity in North America, which historically has been characterized by significant cyclicality,” the company said in its management’s discussion. But the publicly traded corporation believes there is pent-up demand.

“While near-term residential construction is constrained in the U.S., positive long-term fundamentals exist. Increased immigration, the changing age distribution of the population, the high number of adults living with their parents and historically low interest rates are expected to lead to more household formations,” L-P said.

Gov. Mark Dayton supports the plan and is willing to work with the IRRRB to lure Louisiana-Pacific, said board member Tom Bakk. He acknowledged the labor market might not currently have enough loggers to serve a plant of the size L-P is considering and suggested IRRRB may have to establish a loan program to bring more of them into the market.

“We are very, very pleased with the progress so far,” Louma said. “We’re in the midst of designing a mill right now” even though a site has not been selected.