Background

During the period of March 24-2Nicola Woodlands, Merritt underCAN/CSA Z809 Standard. The rsurveillance audits conducted anaudit process and results of the

Scope of Certificatio

The sustainable forest managemDFA (Forest Licenses A18696, AA86065, A85450) including the iforest products to processing fac

SustainabThompso

Overview of Tolko Merrit

Tolko Merritt’s SFM Defined Forest AreDistrict within the Southern Interior Fore

The DFA includes the mountainous terrrelatively dry, flat Thompson Plateau inSimilkameen and the Nicola.

Lodgepole pine stands, which occupy aDFA. Douglas-fir, spruce, ponderosa p

The total productive land base of the DFinoperable areas, heritage trails, privateproductive forest land base within the o

Tolko Industries Ltd.

le Forest Management Systemn-Nicola Woodlands (Merritt SFM)

6, 2010, Tolko Industries Ltd, Thompsonwent a surveillance audit to theegistration cycle is over 3 years withnually. This report summarizes the

QMI-SAI Global re- audit.

n

ent system as it applies to the woodland operations on the18697, A74911, SNRFL - A75427, A82565 and NRFL -

ntegration of forest planning, harvesting, loading, delivery ofilities, as well as silviculture activities.

t Forest Operations

a (DFA) is located in south central British Columbia in the Cascades Forestst Region, centred around the city of Merritt.

ain and steep river valleys of the Cascade Mountains in the west and thethe east. The DFA encompasses portions of two major river systems: the

bout two-thirds of the timber harvesting landbase, dominate the forests in theine, trembling aspen and subalpine fir are also common.

A is 407,300 ha. The net productive land base after reductions for parks,land, non-productive, and Indian Reservation is 235,100 ha, or 58% of the

perating area. The annual harvest allocation is 438,000 M3.

#R149.08.12 Rev.01 2

Executive Summary

The CAN/CSA Z809:2002 third-party surveillance audit was undertakenby QMI-SAI Global. QMI-SAI Global is an independent third partyregistrar that is accredited by the Standards Council of Canada (SCC) forregistrations to the CAN/CSA Z809:2002 standard. This ensures theintegrity and credibility of the audit process.

The audit assessed completed harvest operations through interviews withTolko staff and contractors. The audit also assessed the SFM andsupporting EMS documentation and records at the Tolko Merritt office.

For this surveillance audit, the on-going effectiveness of the SFM systemto deliver the intended outputs was assessed against selected elementsof the CAN/Z809 2002 Standard. Based on the results of the audit, it wasidentified that Tolko Industries Ltd, Merritt SFM, has continued to committhe time, resources, and effort necessary to establish, implement,maintain and continually improve an effective SFM system. Tolko Merrittdid well against the SFM indicators for 2009, being in conformance withall of them.

The commitment to involving First Nations in the preparation andimplementation of the SFMP was noted as being very good, with steadyparticipation in the PAG noted.

No non-conformances were identified during the audit; however 2 areasof concern and 4 opportunities for improvement were noted as detailed inthis report.

CAN/CSA Z809:2002Re-Registration Audit

Non-conformance (NCR).… 0Areas of Concern (AOC)…...2Recommendations(OFI).…...4Positive Aspects….…….……3

Non-conformances

Non-conformance (NCR):A systemic failure of the programParticipant’s EMS/SFM systemto meet an EMS/SFM objective,performance measure orindicator.

All non-conformances require anaction plan within 30 days.Non-conformance must beaddressed by the operation orregistration cannot be achieved /

maintained.

Area of Concern (AOC):An isolated lapse in EMS/SFMsystem implementation whichdoes not indicate a systemicfailure to consistently meet anEMS/SFM objective,performance measure orindicator.

Opportunity for Improvement(OFI):Are isolated observations thatare non-critical to theachievement / maintenance ofEMS/SFM objectives.

Positive Aspects

Are features of the EMS/SFMsystem that are considered asenhancements to the expectedlevel of EMS/SFM performance.The photo above illustrates the utilization of wood on the DFA; also note

the logs placed on the low side so as to support and protect the timber

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The auditors

The QMI audit team who performed the auditconsisted of Will Sloan, RFT, EMS(LA),SFM(LA). The auditor is a Forest Professionaland certified lead auditor.

Key Areas of Non-conformance

No areas of non-conformance were identifiedduring the audit.

Key Areas of ConcernThe following Areas of Concern were identifiedduring the audit:

7.1 General: The Standard requires that theorganization shall establish and maintain anSFM System as described in Clause 7 of theStandard. The audit found that the SFM Systemis not being maintained in relation to correctiveand preventative actions from past audits. Forexample, the identified audit findings from thelast QMI audit have not yet been fully resolvedand there are several action items that are pastdue. However, it was noted that the internalchecking process, including the internal audit,also identified this concern and steps have beenimplemented to rectify them by the use of anexternal third party. Ensure that the SFM Systemis maintained, including demonstrating progresson implementing corrective and preventativeactions arising from audits in a timely manner.

7.3.1 Defined Forest Area: The audit found that the DFA as described in the SFMP does not reflect the actualDFA as implemented. For example the description only refers to three licenses rather than the seven noted inthe scope. Ensure the DFA description in the SFMP accurately describes the DFA and respective ownership.

Key Opportunities for Improvement

5.2 Interested Parties: consider including in correspondence to First Nations an invitation to participate in theSFM process. The audit found that there is a good, well documented FN referral process in place and this typeof regular process could also be used to inform FN of the SFM process.

5.2 Interested Parties: consider reviewing and revising the PAG member list to ensure its accuracy prior to theupcoming SFMP revision to the new CSA Standard. The audit found several members listed who may nolonger be involved in the PAG process.

7.5.1.1 Monitoring and Measurement: section 5.1.1 of the Tolko EMS Manual requires that operationalinspections be carried out based on need and/or risk. The audit found based on interviews with supervisors

Completed harvest site demonstrating minimal waste andrecent deactivation of skid trail (in foreground)

#R149.08.12 Rev.01 4

that risk was being suitably considered but was not being documented and that the documented inspectionfrequency did not correlate to the perceived risk as determined by the supervisors based on the risk assignedto each contractor. Consider documenting the risk assessment for determining frequency of operationalinspections.

7.3.6.1 Indicator Specific:

o Ind. 4, First Nation Commitments Addressed: consider clarifying this indicator to better define the intent andthe reporting expectations. The audit found that different licensees have interpreted this indicator forreporting purposes in different ways and the wording of the indicator is unclear to the PAG’s expectations.

o Ind. 9, Harvest Priorities Related to Catastrophic Forest Health Events: consider reviewing and revising theindicator so it reflects the current forest health issues and conditions in the DFA. The audit found that in lightof the changes in forest health conditions the indicator as written may no longer be relevant.

o Ind. 20, Operating Level of Timber Processing Facilities: consider including in the Tolko CSA ResponsibilityMatrix indicator interpretation what will be reported for the reporting requirement of number of mill employeeson payroll. It is unclear if this is to include all people associated with the mill who are on the payroll or justthose who reside in the DFA.

Positive Aspects

Well documented spill responsedrill, with good follow up andrecommendations forimprovement to procedures;

Good understanding of impactsby harvesting contractor foremaninterviewed;

Engagement of external party todeal with identified gaps in SFMand associated procedures

Active harvest site showing retentionof immature and establishment of

wildlife tree patches

QM-SAI Global forestry specialist group registers/certifies forest companies to ISO 14001, OHSAS 18001, CSA Z809 SFM, FSC FM & CoC,SFIS, SFI CoC and PEFC. The group, led by Guillaume Gignac, Product Manager, Forestry, consists of a highly qualified team ofprofessional foresters, technical and industry experts. Contact marketingservices@qmi.com for more information.

Company Contact:Michael Bragg, RPF, Regional Forester Planning/DevelopmentTolko Industries Ltd.Thompson- Nicola Region1750 Lindley Creek RoadMerritt, British Columbia Phone 250-578-2181 or e-mail Michael.Bragg@tolko.com

This report may only be reproduced by the intended client, with theexpress consent of QMI-SAI Global. Information in this issue is of ageneral nature with respect to audit findings and is not intended tobe acted upon without appropriate professional advice.