International Paper active in Brazil

In a unique move, International Paper has agreed with Brazilian papermaker Votorantim Celulose e Papel SA (VCP) to exchange IP’s pulp mill project being  developed in Três Lagoas, state of Mato Grosso do Sul, Brazil and about 100,000 ha of surrounding forestlands for VCP’s Luiz Antonio pulp and uncoated paper mill and about 60,000 ha of forestlands in the state of São Paulo, Brazil. The announcement was made in mid- September

IP will fund the Três Lagoas pulp mill project in the amount of $US1.15 billion.

The Luiz Antonio mill is 150 miles north of IP Brazil’s Mogi Guaçu mill in São Paulo state. The two paper machines together produce 350,000 tonnes/year of uncoated papers. It also produces 385,000 tonnes/year of pulp, of which 100,000 tonnes will be sold to VCP for use at VCP’s Piracicaba paper mill under a long-term supply agreement on competitive terms, with the balance used for the Luiz Antonio paper machines.

After the exchange, VCP will own and operate a 1.1-million-tonne pulp mill at Três Lagoas. In addition, IP will build a
200,000-tonne paper machine adjacent to the pulp mill with an option to build a second similar machine in the future. IP’s new paper machines would be supported by a long-term supply agreement for VCP to provide pulp, utilities and other services to IP.

The transaction, which is expected to close by February 1, 2007, is part of IP’s plan to focus on uncoated papers and industrial and consumer packaging globally. With the sale of IP’s Brazilian coated papers and sawmill business to Stora Enso (see below), this agreement and the possible sale of IP Brazil’s chip mill business in Amapa will substantially complete the transformation of IP Brazil to focus on uncoated papers.

Earlier in September, IP completed the sale of its Brazilian coated papers business to Stora Enso Oyj for about $420 million, subject to certain post-closing adjustments. The business includes a 205,000-tonne/year coated paper mill and associated TMP mill and a 150,000-m3/y lumber mill in Arapoti, Paraná State, as well as 50,000 ha (about 124,000 acres) of forestland in Paraná. The forestlands include 25,000 ha of pine plantation and 5,000 ha of eucalyptus plantation.

The assets were formerly owned by subsidiaries of IP’s Inpacel — Industria de Papel Arapoti Ltda. and Inpacel Agroflorestal Ltda. Stora Enso is now Latin America’s sole producer of coated mechanical papers.

The business had 2005 sales of about $230 million. There are 711 employees. www.internationalpaper.com.

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