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The jobs of 31 workers at the Milburn wood processing plant are likely to go, with City Forests announcing plans to mothball the facility later this year.
City Forests chief executive Grant Dodson confirmed that employees, key suppliers and customers had been told yesterday of the move, which would see the plant progressively downsized and closed by September.
The move was a proposal at this stage, with staff still to be formally consulted, but "it's fair to say if we had a better option we wouldn't be making this proposal", he said.
The announcement came after recent attempts at the plant to downsize - including making six staff redundant - and improve productivity proved insufficient to arrest a 20% drop in the plant's export earnings, amounting to "a couple of million" dollars a year in lost revenue, he said.
It also came amid two days of bad news, with confirmation on Wednesday redundancies could be coming at Summit Wool Spinners in Oamaru, and KiwiRail's announcement yesterday it was seeking expressions of interest for the sale of Dunedin's Hillside Engineering.
Mr Dodson blamed the Milburn plant's decline on the dramatic collapse of the United States housing market, as well as declines in those in Australia and New Zealand, rising processing costs and the continued high value of the New Zealand dollar.
"The combination of those factors means that we're just not operating profitably at Milburn and it's time to call it quits," he said.
The proposal would not affect City Forests' forestry asset or business, but would mean a "significant" reduction in the 135-140 workers employed or contracted by City Forests, he said.
Staff had mixed reactions when told about the company's decision during a "pretty tough day" yesterday, Mr Dodson said.
"It would be fair to say there was a range of reactions, but none of them were particularly positive. Some staff were quite upset and some were accepting. That's just a normal human reaction.
"At the end of the day the news is not good, whatever way you put it."
The company planned to consult plant employees about its plan, which would see manufacturing phased out by June and a skeleton staff kept on while remaining stock was sold.
The plant would be mothballed by the end of September, but any decision about whether to sell it was "a subject for future discussion", Mr Dodson said.
City Forests - a Dunedin City Council-owned company - established the plant in 2006, at an estimated cost of $15 million, primarily to supply the US housing market, but construction activity in that market had since dropped from 2 million homes a year to about 600,000, he said.
Encouraging signs of life in the New Zealand housing market, as well as within Dunedin, were not enough to forestall the company's decision, he said.
"When you lose 20% of your revenue you just can't recover from that. That's just the reality."
City Forests had canvassed other options, including discussing a partnering deal for the plant with outside parties, but those talks had proved fruitless.
Opportunities to move employees into other City Forests roles were "very limited", but some could look for work as contractors in forestry operation.
"That's something we would welcome."
Clutha Mayor Bryan Cadogan could not be contacted last night.