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AbitibiBowater said Thursday it will close its Grand Falls-Windsor mill in the first quarter of 2009. ((CBC))

AbitibiBowater said Thursday it will close a financially troubled mill in central Newfoundland, as part of a broader plan to right itself amid slumping consumer demand for newspapers.

The Montreal-based newsprint giant said it will close the Grand Falls-Windsor mill in the first quarter of 2009. The company is also closing a U.S. mill.

The decision comes a month after unionized workers at the Grand Falls-Windsor mill overwhelmingly rejected what the company called its final offer to keep the operation viable.

"We, of course, had to take good note of the rejection of the plan back in November. But at the end of the day, the reality is that when you have to cut so much volume in production capacity, you have to look at your operations that are the most expensive to run, and Grand Falls is one of them," said company spokesperson Jean-Philippe Cote.

About 450 people worked inside the mill, with another 300 direct employees working in other areas, including as loggers and stevedores.

Union leaders walked out of a meeting Thursday with company officials, and said they would call on Premier Danny Williams to fight for the province's resources.

"This was set for failure," said George Macdonald, who heads the Communications, Energy and Paperworkers union local inside the mill.

About 88 per cent of CEP members at the mill and related forest operations voted in November to reject the company's offer, which would have involved layoffs. Some union members said they felt a better offer could be negotiated with the company.

Union members rejected a similar offer in September.

Macdonald said the union felt the company presented restructuring offers it knew that its workers would never accept, leaving the union to be blamed for the closure.

Union officials told CBC News that the company said the closing date for the mill is March 28.

Mill may halt within weeks: union

However, union official Art Stagg said company officials said Thursday that it was "not necessary" to keep newsprint production running the whole time.

"So that to me, within two or three weeks time, probably by the end of the year, they'll close the mill [permanently] and they'll still pay us for the 16 weeks that they owe to us," Stagg said.

One of the issues that could become contentious is the future of the Star Lake hydroelectric generating station, which AbitibiBowater owns and which produces excess energy that the company sells to the Newfoundland and Labrador grid.

Macdonald said a fight is imminent for control of the hydroelectric power resource.

"They want to make power, with no people … If they want to leave this province, they should leave with nothing," he said.

"They took billions, these paper companies, out of this province for years and years, and now they want to keep our resources."

AbitibiBowater had said that its Grand Falls-Windsor mill, which was built almost a century ago, had the highest labour costs of any of its operations.

The mill is the largest private employer in the region, and the reason the town was built more than a century ago. Production started in 1909, four years after the Harmsworth family from Britain picked the site.

Mayor Rex Barnes said the news is a big blow to the community, but he is urging residents to stay calm.

"We got to go about it in a very positive way. We know that the day is a sad day, but at the same time the era of making paper is going to be behind us," he said.

"We have to look at the new economy of Grand Falls-Windsor and central Newfoundland. So you know, we're working with the government. Government has basically told us that they'll do whatever they can in the event the mill closed."

Closing other mills

In a statement, AbitibiBowater said it will cut capacity through several different ways. In addition to shutting down the Grand Falls-Windsor mill, it will close a mill in Covington, Tenn.

It is also idling an additional mill in Tennessee, as well as one in Alabama.

The Grand Falls-Windsor mill produced about 205,000 metric tonnes of newsprint per year. In all, AbitibiBowater is cutting production by more than 800,000 tonnes.

The move comes as the company tries to maintain a higher price for its product in a marketplace that has been in upheaval because of declining demand from publishers and turbulence because of currency exchange.

The decision is a blow to Newfoundland and Labrador's forestry sector.

In 2005, Abitibi Consolidated — which would later merge with archrival Bowater — closed a mill in Stephenville, on Newfoundland's west coast. About 300 full-time and part-time employees worked within that mill.

Last month, AbitibiBowater told the Newfoundland and Labrador government that it would make a decision on the future of the mill by the end of this month.