SPEARFISH - Financial problems have become dire for Pope & Talbot, the Portland, Ore.,-based wood-products firm that operates a Spearfish sawmill.

This week, the company announced that it has reached an agreement with its major lenders to keep its $67 million lines of credit open until Sept. 17. The move could stave off bankruptcy for the 158-year-old company, at least for now.

However, a sale of the company's assets - such as the Spearfish sawmill, or the entire company - will likely be necessary, officials say.

On Thursday, Pope & Talbot reported a second-quarter net loss of $42.9 million, or $2.62 per share, up from $21.8 million in losses during the same quarter of last year. The loss comes despite higher revenues, $236.5 million for the second quarter compared with $213.6 million for the second quarter of 2006.

Meanwhile, Pope & Talbot's stock price plunged on the New York Stock Exchange. Shares started the week above $2, but by Friday morning, the stock was trading at less than 60 cents per share. As recently as February, shares were trading above the $8 mark.

In a news release, company officials warned that the deal with creditors might not give Pope & Talbot enough time to solve its cash-flow problems. It might need more time, and there's no guarantee lenders will grant it.

"Even if the company is successful in obtaining additional covenant relief, it will continue to be challenged in its ability to maintain adequate levels of liquidity relative to the size of its operations," Pope & Talbot wrote. "Accordingly, the company is continuing to explore alternatives to strengthen its balance sheet and generate cash, including one or more possible asset sales or other capital infusions, and is analyzing its ability to restructure its debt and other liabilities."

Pope & Talbot's Spearfish sawmill employs 282 workers. Manager Jim Rarick said the plant remains in full production while awaiting word about whether the mill will be sold to another operator.

"We have no plans to do anything different," he said. "We'll just sit back and see how that develops."

He said sawmill managers have met with the workers and kept them informed about what is going on. The company has no plans to cut back production. The supply of logs is good, and the mill is running two full production shifts daily.

Rarick was manager of the sawmill in 1981, when Pope & Talbot bought the fire-damaged plant from a division of Homestake Mining Co. Pope & Talbot rebuilt the mill and modernized it. The company mills Black Hills pine trees harvested from throughout the region.

There were rumors of a possible employee buyout of the Spearfish sawmill, but Rarick knows of no such plans.

Pope & Talbot's financial troubles came to a head last week when its earnings per share fell below levels set by its major creditor, putting the company in default of its credit agreement.

"The unfavorable movement of the Canadian dollar and a scarcity of affordable fiber resources have combined to tighten our liquidity and severely impact earnings," Harold Stanton, president and chief executive officer, said in the quarterly report. "While these factors are largely out of our control, we cannot maintain the status quo and expect to withstand this current market environment. We are actively taking steps to improve our liquidity."

The company has cut production at a paper pulp mill on Vancouver Island. In addition, the company is reducing inventories and has launched a hiring and salary freeze. It has also parked the company airplane.

"As we investigate longer-term capital and financing alternatives, I am hopeful that our current lenders will be supportive of our efforts and will grant us a prudent timeframe to execute an appropriate strategy," Stanton said.

Contact Dan Daly at 394-8421 or dan.daly@rapidcityjournal.com