Pending auction in Usk foretells end of papermill’s return
The owners of the defunct Ponderay Newsprint Mill plan to sell its equipment at auction next month after years of empty promises to reopen what had been one of the largest employers in northeast Washington.
The sprawling 927-acre property in Usk has 29 buildings and storage facilities. It is situated adjacent to the Pend Oreille River and the Pend Oreille Valley Railroad.
Instead of making paper or reconfiguring the mill to make cardboard, as the new owners promised multiple times in public hearings, the site has produced nothing for the past several years. Instead the owners used vast amounts of electricity to run computers mining for cryptocurrency.
The paper mill previously was owned by Lake Superior Forest Products, a subsidiary of Quebec-based Resolute Forest Products, and five major U.S. publishers. They declared bankruptcy in 2020, ending the jobs of about 140 workers.
Now that equipment is being listed by Capital Recovery Group to be viewed on July 21 with online auctions to commence on July 22 and July 23.
“I’m deeply disappointed that the promises that have been made haven’t been kept,” said Pend Oreille County Commissioner Robert Rosencrantz. “And I’m broken hearted for the previous employees of the paper mill who had their hopes’ raised by those promises of well-paying jobs close to home.
“Now they definitely will not be getting those jobs,” he continued. “That’s the worst part. Those people had their hearts set.”
After the bankruptcy filing five years ago, Allrise Capital Inc., of Irvine, California, outbid the Kalispel Tribe of Indians’ $17.5 offer for the property and bought it for $18.1 million with the stated goal of converting it into a cardboard producing facility.
Bankruptcy trustee John Munding had Chris Bell, managing broker for NAI Black, help market the property. That’s when they first met officials from Allrise Capital, which was founded in 2016 by Vladimir Evseev.
“The jobs. That’s the most important thing,” Bell said in 2021. “John (Munding) was committed to finding a bidder to satisfy both the creditors and the community. So, I applaud him for that.”
Bell said the company officials relayed plans to both he and Munding that they planned to retool the plant for cardboard. And, something else.
“There’s a tremendous amount of power,” Bell said at the time. “With any excess power, they are looking to convert it to a blockchain-infrastructure data center, or crypto mining.”
However, the next day, Seattle attorney Deborah Crabbe, who represented Public Utility District No. 1 of Pend Oreille County, said Bell’s comments were the first time that the power company officials had heard anything about Allrise wanting to use the plant’s available power to for cryptocurrency mining.
“We are not objecting to the sale,” Crabbe said in 2021. “We look forward to the opportunity to work with Allrise. I don’t want to say we are alarmed, but we are concerned that there hasn’t been any conversation with the PUD.”
Asked this week if he had any reservations for how Allrise failed to come through its promises to restore the plant to operation, Bell said he had no comment.
Power struggle
It was clear from the beginning that the Russian-born CEO of Allrise, Ruslan Zinurov, who was working with China-based Bitmain, had little interest in making paper. They were hunting cheap power for the blockchain process of mining crypto currency.
They employed the plant’s former manager, Todd Behrend, to speak for the company. He repeatedly said the power-thirsty venture would restore jobs as Allrise worked to restart the papermill.
“This is an American company called Allrise that has partnered with a Chinese company, the biggest name in bitcoin mining, and they are trying to invest in America,” Behrend said in 2022. “This is a great story about bringing Chinese jobs to the United States.”
The former paper mill operated on about 85 megawatts of power each year that it obtained through the Pend Oreille County PUD. That’s enough juice to electrify about 70,000 homes.
However, Allrise immediately began asking to bump that up to 300 or even 600 megawatts. For scale, 600 megawatts would be enough electricity to power two former Kaiser Aluminum Mead smelters at full capacity, said Steve Wright, the former administrator of the Bonneville Power Administration and then general manager of Chelan County PUD.
“It would be the largest industrial loads in the Northwest,” Wright said in 2022, “and the largest industrial loads since the aluminum industry left the Northwest.”
Allrise formed several companies, each with different names, including Merkle Standard for the crypto operation, and Ponderay Industries to manage the sprawling property.
According to published accounts, Zinurov in 2020 purchased the soccer stadium and home of the Chernomorets soccer team in Odessa, Ukraine. He reportedly paid more than $5 million for a facility that previously had been valued for about $40 million.
Evseev, Allrise’s founder, also had other business interests. He apparently owned the acrobatic circus called Celestia Circus Las Vegas. Assets from that show will be put up for auction from the same auction house in Usk on July 24. However, the auction is online bidding only.
Evseev could not be reached last week as to why he would sell the circus assets, from a show in Las Vegas, in an auction in Usk.
Zinurov, who no longer works for Allrise and could not be reached last week for comment, told the cryptocurrency publication Cointelegraph in 2022 that the partnership with Bitmain will “catapult our growth plan of building one of North America’s largest sustainable digital asset mining platforms.”
But to deliver that much power to the former paper mill would have required upgrades to the electrical transmission grid that would cost tens of millions of dollars.
Pressuring PUD
The Bonneville Power Administration informed the company early in the process that the existing infrastructure could provide power for either the crypto operations or the paper mill – which require different power loads – but not both.
Just to boost the power load from 85 megawatts to 145 megawatts, BPA said it would cost about $40 million in facility upgrades. A different study seeking 300 megawatts estimated that upgrades would cost about $107 million.
While refusing to agree to pay for the upgrades, Ponderay Industries officials showed up at a PUD meeting and demanded it make power available to open the paper mill.
Behrend later that same day issued a news release on behalf of the company.
“If we can quickly obtain the needed additional power, the goal would be a full restart of employment and operations in the fourth quarter of 2022,” Behrend wrote.
Colin Willenbrock, the former general manager of the PUD, said in 2022 that the news release was “disingenuous” and “misleading.”
“Now, in the 11th hour, they say, ‘Oh by the way, we are restarting the mill,’ when they’ve already been told they can’t do that by the BPA without a facility upgrade, is a disappointment,” he said. “That is misleading for the people waiting with bated breath to restart the mill.”
Ben Richards, a retired U.S. Army major who opposed the effort three years ago for Ponderay Industries to get a retroactive conditional use permit, has been monitoring the situation and said he’s not surprised that the company is trying to salvage something out of the plant by selling its equipment.
“First of all, the electricity to run both the paper mill and the crypto operation was never viable,” Richards said. “They hadn’t maintained their machinery.”
About nine months ago company officials wanted to arrange a special event where they were going to turn on the paper mill machines for the first time in about six years, he said.
“That’s where it really feels dirty,” Richards said. “They were using the paper mill as a point of leverage with the PUD and the BPA to secure public financing for their power supply, where the public would help pay the cost for the electricity for their Chinese bitcoin company.
“There wasn’t anybody who was aware of the situation who is surprised by this outcome in any way.”
Other indications show that bitcoin mining hasn’t become the revenue generator that company officials had hoped.
In November 2023, a woman named Olga Kochmar, representing Ethereal Tech, one of several subcompanies sited at the former mill, asked Pend Oreille County to lower its property tax assessment from $14.3 million to $7.6 million for the 2023 tax year even though Allrise purchased the paper mill in 2021 for $18.1 million.
In her explanation for why the mining operation was seeking lower taxes, Kochmar said the servers using the electricity to mine for crypto currency were operating at a loss.
“In a nutshell, this model is not generating any positive cash flow any longer,” Kochmar told county officials.
She noted that the servers used to search for bitcoin were purchased for about $3,600 per unit and each has a usable life of two, and sometimes three, years.
That means that most of the equipment in Usk could cease working at a time when Bitcoin has reached record prices. It was trading at $109,170 at the end of trading on Monday.
“We can’t stop running machines because we still have to pay for the hosting services and electricity,” Kochmar said at the hearing. “We’re completely negative. We’re actually not generating good revenue.
“As you know in 2022, there were quite a few public miners who went bankrupt,” Kochmar said at the 2023 hearing. “We are in a similar situation. We’re not bankrupt, yet, and hopefully won’t be, but the risk of services fluctuates.”
The county denied the request to lower property taxes for 2024.
Calls to Merkle Standard and Ponderay Industries made last week have not been returned.
Jessica Garza, economic development director for the Port of Pend Oreille, said her organization continues to monitor the former Ponderay Newsprint site.
“While we are aware that some newsprint equipment has been listed for sale, we recognize that the site remains an important asset with significant industrial infrastructure,” Garza said in a written statement.
Rosencrantz, the county commissioner, said local leaders now have to find a way to move forward without the hope of the papermill jobs returning.
“As public servants and elected officials, our responsibility is to make sure we are looking forward that ensures the public benefits from whatever happens on the site,” he said.
“While I don’t know what is going to happen at the site, I do know that it is a significant asset in Pend Oreille County and we need to make sure that economic development that serves the people of the county takes place at that site.”