Daishowa-Marubeni International Ltd. Peace River Pulp Division Woodlands & Embedded Conifer Quotas October, 2017

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1 Daishowa-Marubeni International Ltd. Peace River Pulp Division Woodlands & Embedded Conifer Quotas October, 2017 In October 2017, an audit team from KPMG Performance Registrar Inc. (KPMG PRI) carried out an SFI surveillance audit of Daishowa-Marubeni International Ltd. s (DMI s) Peace River Pulp Division Woodlands operations and the harvest and silviculture operations of embedded conifer quota holders on DMI Forest Management Areas (FMA) and the DMI fibre procurement operations against the requirements of the edition of the Sustainable Forestry Initiative (SFI) forest management and fiber sourcing standards. This Certification Summary Report provides an overview of the process and KPMG s findings. Description of DMI - Peace River Pulp Division Woodlands and Embedded Conifer Quota Holder Operations DMI Peace River Pulp Division (PRPD) Crown tenures encompass an area of over two million hectares of boreal forest located in north western Alberta all of which are covered under SFI Forest Management and Fiber Sourcing certificates issued by KPMG PRI that are valid until October 25, DMI PRPD manages three Crown tenures: Forest Management Agreements (FMA) and and deciduous quota in Deciduous Timber Allocation (DTA) P In addition, the following companies also have embedded conifer quotas within the DMI FMAs: Boucher Bros. Lumber - Coniferous Timber Quota (CTQ) P in FMA ; Kee Tas Kee Now Sawmill Ltd. - CTQ P & CTQ P in FMA ; Canfor Grande Prairie - CTQ P in FMA ; and Zavisha Sawmills Ltd. - CTQ P in FMA DMI PRPD s woodlands have a total periodic (5 years) allowable cut (PAC) of approximately 15.4 million m 3. The 2017 audit found that the Company s forest harvesting continues to conform to the PAC applicable to these operations. The woodlands operations that are included within the scope of the Company s SFI certification are covered by a sustainable forest management (SFM) plan that addresses the Objectives of the SFI forest management standard and includes a variety of targets in relation to them. In addition, government-approved Detailed Forest Management Plans (which include mid and long term harvest and silviculture planning, inventory and growth and yield modeling) and Operating Ground Rules that address both timber and non-timber values are also in place. The areas covered by DMI PRPD woodlands s SFI certification fall within the following WWF ecoregions: (1) Alberta-British Columbia foothills forests, (2) Mid- Continental Canadian forests, (3) Muskwa-Slave Lake forests, and (4) Canadian Aspen forests and parklands. #0746 The forest types are deciduous and mixed deciduous and conifer with the main commercial species harvested by DMI PRPD being aspen and black poplar. Because of the stand compositions and uniform ages, the forest management approach employed by the Company is based on even-aged silvicultural systems using ground-based harvesting systems and clearcut harvesting with the retention of reserves of standing trees either within or adjacent to harvest areas. Deciduous logs are chipped on-site and the chips transported to the pulpmill in Peace River The stands are planned for natural regeneration to deciduous species.

2 Findings: DMI Peace River Pulp Division 2017 SFI Surveillance Audit Page 2 Description of Daishowa-Marubeni International Ltd. Peace River Pulp Division Manufacturing Facilities and Fibre Sourcing Program The scope of the Company s SFI fibre sourcing certification includes a pulp mill near Peace River, Alberta. This pulp mill produces softwood and hardwood northern bleached kraft pulp for the domestic, U.S and international markets. The pulp mill sources fibre through the operation s long term tenures (FMAs and quotas) with the Provincial government, and through the purchase of fibre from other sources in northwestern Alberta. The pulpmill consumes approximately 990,000 m 3 of deciduous chips and 995,000 m 3 of coniferous chips and produces approximately 440,000 ADMT of bleached softwood and hardwood pulps annually. While the majority of the deciduous chips are sourced directly from the Company s own woodlands, approximately 30% is purchased from third parties primarily as logs which are chipped in the bush. The hardwood fibre is purchased as stumpage from private land owners and DMI develops the plans and harvests these stands using its own logging contractors and applying the Company s environmental management system to these operations. 99% of the coniferous chips are purchased through chip supply agreements with local sawmills. DMI participates in the Western Canada Sustainable Forestry Initiative Implementation Committee (WCSIC) Purchase Wood Monitoring Program by completing risk assessments for all wood purchases and purchase wood inspections as necessary. The results are then collated by WCSIC (of which DMI is a member) in order to identify trends in performance and opportunities for improvement. Audit Scope The audit was conducted against the requirements of the edition of the SFI forest management and fibre sourcing standards, and incorporated an assessment against the SFI program forest management objectives for: Forest management planning; Protection and maintenance of water resources; Protection of special sites; Recognize and respect Indigenous Peoples rights; Legal and regulatory compliance; Public land management responsibilities, and; Management review and continual improvement. And against the SFI program fibre sourcing objectives for: Adherence to Best Management Practices; Use of Qualified Resource and Logging Professionals; Legal and Regulatory Compliance; Public land management responsibilities, and; Management review and continual improvement. The scope of the 2017 SFI surveillance audit of DMI s Peace River Pulp Division woodlands operations included all of the woodlands operations noted above including activities of quota holders on the DMI FMAs, as well as fibre procurement activities for the Peace River pulp mill. Daishowa-Marubeni International Ltd. Peace River Pulp Division SFI Surveillance Audit Findings Open non-conformities from previous audits New major nonconformities New minor nonconformities New opportunities for improvement Types of audit findings Major non-conformities: Are pervasive or critical to the achievement of the SFM Objectives. Minor non-conformities: Are isolated incidents that are noncritical to the achievement of SFM Objectives. All non-conformities require the development of a corrective action plan within 30 days of the audit. Corrective action plans to address major nonconformities must be fully implemented by the operation within 3 months or certification cannot be achieved / maintained. Corrective action plans to address minor non-conformities must be fully implemented within 12 months. Opportunities for Improvement: Are not non-conformities but are comments on specific areas of the SFM System where improvements can be made

3 Findings: DMI Peace River Pulp Division 2017 SFI Surveillance Audit Page 3 The Audit Audit Team The audit was conducted by The audit was conducted by Michael Alexander, RPF (BC), EP(EMSLA) and Bodo von Schilling, RPF. Michael Alexander and Bodo von Schilling are independent auditors with experience in conducting forest management audits against the ISO and SFI standards SFI Surveillance Audit The audit involved an on-site assessment of selected elements of the Company s environmental management system (EMS) and SFI program, and included visits to several field sites (40 roads, 36 cutblocks, 19 silviculture sites, 4 wood procurement sites and 3 camps) to evaluate conformance with the requirements of the current SFI forest management and fibre sourcing standards. The 2017 DMI PRPD audit took a total of ten auditor days to complete, seven days of which were spent on-site at the operations included in the audit sample. The balance of audit time was spent preparing the audit plan, completing an off-site review of selected Company documents and records and completing various audit checklists and preparing the main and public summary audit reports. DMI PRPD Woodlands Operations SFI Program Representative Lee Rueb, RPFT served as DMI PRPD s SFI program representative during the audit. Use of Substitute Indicators The audit involved an assessment of conformance against the applicable objectives, performance measures and indicators included in the version of the SFI forest management and fiber sourcing standards. None of the indicators included in the SFI standards were modified or substituted for the purpose of this audit. Audit Objectives The objective (s) of the audit were to evaluate the sustainable forest management system at DMI PRPD to: Determine its conformance with the requirements of the SFI forest management and fibre sourcing standards; Evaluate the ability of the system to ensure that DMI PRPD woodlands operations meet applicable regulatory requirements; Evaluate the effectiveness of the system in ensuring that DMI PRPD meets its specified SFM objectives; and Where applicable, identify opportunities for improvement. DMI PRPD Woodlands Field Audit Sample Size Roads 40 Harvesting 36 Silviculture 19 Wood procurement 4 Camps 3 DMI s operations are focused on deciduous trees which are used as raw materials for the pulp mill in Peace River.

4 Findings: DMI Peace River Pulp Division 2017 SFI Surveillance Audit Page 4 Evidence of Conformity with the SFI Forest Management and Fibre Sourcing Standards Primary sources of evidence assessed to determine conformity with the SFI forest management and fibre sourcing standards are presented in the following tables. 1. Forest Management Planning Detailed Forest Management Plans (DFMPs), Annual Operating Plans (AOPs), Ground Rules, Environmental Management System (EMS) (e.g., monitoring and inspections), Final Harvest Plans, ArcGIS. 2. Forest Health and Productivity 3. Protection and Maintenance of Water Resources DFMPs, Ground Rules, EMS, Review of harvest information maps and completed prework and inspection forms for blocks, roads and silviculture units field reviewed, Interviews with key personnel and (during field audit of active operations) sample of contractors, Field inspections of riparian areas and watercourse crossings. The area from which DMI harvests and procures fibre has been classified into two zones: the green zone for industrial forestry and the white zone for agriculture. DMI s FMAs are located in the green zone. Within the white zone, land may be used for agricultural purposes or may continue to grow trees. Most of DMI s fibre sourcing activities occur in the white zone. 4. Conservation of Biological Diversity 5. Management of Visual Quality and Recreational Benefits 6. Protection of Special Sites EMEND research project, HCVF Analysis, DFMPs and Amendments, Ground Rules and Amendments, EMS (SOPs pertaining to heritage resources and planning pre-work), SFM Plan, ArcGIS, Interviews with key personnel and field inspections. 7. Efficient Use of Fibre Resources 8. Recognize and Respect Indigenous Peoples Rights DMI Corporate Aboriginal Policy, records of consultation with local First Nations, preaudit questionnaire responses, interviews with DMI staff. 9. Legal and Regulatory Compliance 10. Forestry Research, Science and Technology EMS (SOPs pertaining to legal and other requirements, completed incident reports), DATS database, internal systems audit report, internal compliance audit report. Not in scope for Training and Education Not in scope for 2017 The field audit was carried out by helicopter and on the ground by truck which allowed access to a large sample of sites. 12. Community Involvement and Landowner Outreach Not in scope for 2017

5 Findings: DMI Peace River Pulp Division 2017 SFI Surveillance Audit Page 5 Evidence of Conformity with the SFI Forest Management Standard (cont d) SFI Forest Management Objective 13. Public Land Management Responsibilities 14. Communications and Public Reporting 15. Management Review and Continual Improvement Key Evidence of Conformity Public stakeholder and First Nations communication and correspondence records, PAC meeting minutes, DMI Peace River public website, Interviews with key personnel. Management review meeting minutes and agenda, internal audit records. Evidence of Conformity with the SFI Fibre Sourcing Standard SFI Fibre Sourcing Objective # Key Evidence of Conformity 1. Biodiversity in Fibre Sourcing Not in scope for Adherence to Best Management Practices Purchase Wood Agreements, contractor training records, SFM Plan, EMS (SOPs pertaining to soil conservation and stop work policy), Interviews with key staff and (during field audit of active operations) sample of contractors, and field inspection of a sample of purchase sites. Following completion of harvesting activities, on-block roads that are no longer required for access are reclaimed by rolling back organic material and debris onto the surface. 3. Use of Qualified Resource and Qualified Logging Professionals 4. Legal and Regulatory Compliance 5. Forestry Research, Science and Technology List of Qualified Resource and Logging Professionals, interviews with procurement staff, contractor training records and field inspection of a sample of purchase sites. EMS (SOPs pertaining to legal and other requirements, completed incident reports), DATS database, internal systems audit report, internal compliance audit report. 6. Training and Education 7. Community Involvement and Landowner Outreach 8. Public Land Management Responsibilities 9. Communications and Public Reporting Public stakeholder and First Nations communication and correspondence records, PAC meeting minutes, DMI Peace River public website, Interviews with key personnel. On blocks containing both deciduous and coniferous species, DMI contractors will sort the conifers into separate piles during harvesting. Once DMI has completed harvesting the deciduous, the coniferous quota holders send in their contractors to haul the conifers to their sawmills ensuring that all of the volume harvested is utilized..

6 Findings: DMI Peace River Pulp Division 2017 SFI Surveillance Audit Page 6 Evidence of Conformity with the SFI Fibre Sourcing Standard (cont d) SFI Fibre Sourcing Objective # 10. Management Review and Continual Improvement 11. Promote Conservation of Biological Diversity, Biodiversity Hotspots and High- Biodiversity Wilderness Areas 12. Avoidance of Controversial Sources Including Illegal Logging 13. Avoidance of Controversial Sources Including Fibre Sourced from Areas without Effective Social Laws Key Evidence of Conformity Management review meeting minutes and agenda, internal audit records. NA. No fibre is sourced from outside North America. NA. No fibre is sourced from outside North America. NA. No fibre is sourced from outside North America. Good Practices A number of good practices were identified during the course of the audit. Examples included: SFI Forest Management/Fibre Sourcing Objectives 12/7 (Community involvement) DMI staff conduct road show presentations with local municipalities to communicate GDP activities, achievements and challenges and promote dialogue on forest and environmental management. SFI Forest Management/Fibre Sourcing Objectives 9/2 (compliance/best management practices) A logging contractor has posted a poster-sized diagram with supporting text to effectively communicate compliance requirements for hog pile sizes and distances to the block edge. SFI Forest Management/Fibre Sourcing Objective 9/2 (best management practices) Prompt and appropriate road roll-back was observed on all harvest sites and some sites were observed to have immediate roll-back off on-block roads, that were not needed to remaining harvest areas on the block. SFI Forest Management Objective 4 (biodiversity) Stand level retention planning and practices were notable on a number of blocks. The additional attention to retention has an added benefit of breaking up sight lines for hunters. Follow-up on Findings from Previous Audits At the time of this assessment there was one open non-conformity from previous DMI PRPD woodlands external SFI audits. The audit team reviewed the status of the action plans that were developed by the Company to address these previous audit findings and concluded that they: (1) had been implemented as required, and (2) were effective in addressing the root cause(s) of these non-conformities. As a result, the previously identified non-conformity has now been closed. Areas of Nonconformance No non-conformities were identified during the SFI surveillance audit of DMI PRPD woodlands and fibre sourcing operations. Coniferous quota holders on DMI s FMAs harvest from stands that consist primarily of coniferous species and are required to reforest the stands following harvesting. The field audit included a sample of these sites to confirm that reforestation obligations were being met.

7 Findings: DMI Peace River Pulp Division 2017 SFI Surveillance Audit Page 7 Opportunities for Improvement Two new opportunities for improvement were identified during the audit as follows: SFI Forest Management Objective 3 (protection of water resources ) The field inspection of on-block roads identified an opportunity to improve drainage construction practices to ensure that appropriately sized culverts are installed in the undisturbed channel beneath the log fills. In the case of three blocks, the culverts appeared to be too short and it was not clear that they would function as required during runoff events in these watercourses. SFI Forest Management Objective 9 (legal and regulatory compliance) Inspection of one camp identified an opportunity to improve the record keeping for leak testing of fuel tanks. No record of leak testing could be found for one tank which provides fuel for the light plant and this tank was not included in the most recent camp fuel management inspection record. Audit Conclusions The audit found that the DMI Peace River Pulp Division s sustainable forest management system and fibre sourcing program: Were in full conformance with the requirements of the SFI forest management and fibre sourcing standards included within the scope of the audit, except where noted otherwise in this report; Have been effectively implemented, and; Are sufficient to systematically meet the commitments included within the organization s environmental and SFM policies, provided that the systems continues to be implemented and maintained as required. DMI s road construction guidelines require culverts to be laid in the undisturbed channel beneath the log fills used for road crossings of watercourses. As a result, a decision has been reached by the lead auditor to recommend that DMI PRPD woodlands continue to be certified to the SFI forest management and fibre sourcing standards. Corrective Action Plans No corrective action plans were required. Focus Areas for the Next Audit Visit The following issues/potential concerns have been identified as focus areas for the next audit visit: Operations (harvesting, roads and silviculture) of the new quota holder (KSL). Silviculture Performance Survey program to begin in Compliance management. Where watercourses are identified adjacent to block boundaries, buffers are retained to protect the watercourses. This also helps to meet other stand and landscape level biodiversity objectives. Contacts: Chris Ridley-Thomas, RPBio, EP(EMSLA) (604) David Bebb, RPF, EP(EMSLA) (604) This report may only be reproduced by the intended client, Daishowa-Marubeni International Peace River Pulp Division, with the express consent of KPMG. Information in this issue is of a general nature with respect to audit findings and is not intended to be acted upon without appropriate professional advice Through KPMG PRI, KPMG s Vancouver based forestry group is accredited to register forest companies to ISO 14001, CSA-SFM, SFI and PEFC certification standards.