Fraser Papers Announces Second Quarter Financial Results

Market Wire, July, 2008

(All financial references are in U.S. dollars unless otherwise noted)

Fraser Papers Inc. (TSX: FPS) ("Fraser Papers" or the "Company") today reported financial results for the second quarter and six months ended June 28, 2008. The Company generated a net loss of $15.6 million or $0.31 per share in the second quarter. This marks an improvement from the net loss of $19.1 million or $0.44 per share in the first quarter. The improved results were generated despite a significant increase in energy and chemical costs compared to the first quarter. Improved selling prices for paper products, improved productivity and lower oil consumption more than offset higher oil and chemical prices.

For the six months ended June 28, 2008, net loss improved $12.8 million from the $47.5 million loss generated in 2007. 2007 results included restructuring charges related to the permanent closure of two paper machines at the Company's East Papers operations.

HIGHLIGHTS

- Realized higher net selling prices from sales of specialty papers. Mill net realizations improved by 6% compared to Q2 2007.

- Improved overall specialty paper shipments to 80% of total shipments compared to 76% in 2007, including a 52% increase in shipments of high-bright groundwood papers.

- Lowered average cash operating costs at the Company's pulp and paper operations despite sharply higher input costs, reflecting improved productivity and significant energy reduction efforts.

- Reduced annualized oil consumption by 29% as a result of previously announced energy initiatives across all operations.

- Expanded existing credit facility to $115 million and extended the maturity for three years until 2011, and arranged a CAD$40 million term loan facility to support the Company's future investment plans in the province of New Brunswick.

- Subsequent to the end of the quarter, approved a $17.5 million upgrade to the Plaster Rock lumbermill. The project will include the installation of a biomass boiler, new kilns and a modernization of the existing sawline.

                               FINANCIAL SUMMARY

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                               Three Months Ended          Six Months Ended
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US$ MILLIONS, EXCEPT PER      June 28,    June 30,    June 28,      June 30,
 SHARE AMOUNTS                   2008        2007        2008          2007
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EBITDA                      $    (6.2)  $   (17.5)  $   (18.1)    $   (19.5)

Earnings/(loss)             $   (15.6)  $   (37.6)  $   (34.7)    $   (47.5)
 Per share                  $   (0.31)  $   (1.28)  $   (0.74)    $   (1.62)
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"Our results reflect continuing input cost pressures that have more than offset the improvements we have been able to achieve in realized selling prices for our products," said Peter Gordon, President and CEO of Fraser Papers. "We have continued to focus on improving our operations, which has resulted in improved operating efficiency, reduced consumption of high cost fuel sources, higher throughput in our pulp and paper operations and reduced fixed costs. Our significant accomplishments in these areas and continued investment in our manufacturing base will position our operations to benefit when economic conditions stabilize."

RESULTS OF OPERATIONS

EBITDA in the second quarter of 2008 was a loss of $6.2 million, compared to an EBITDA loss of $11.9 million in the first quarter of 2008 as increased selling prices, improved productivity at the Company's paper operations and lower oil consumption were partly offset by increased costs for fibre, energy, chemicals and transportation.

EBITDA improved by $11.3 million compared to the second quarter of 2007, when the Company took downtime at its paper operations negatively impacting 2007 results by $10.0 million. Excluding the impact of downtime, EBITDA improved by $1.3 million. This improvement is significant in that the Company has implemented initiatives to increase selling prices, improve production and lower manufacturing costs which have more than offset $13 million in cost inflation resulting from higher fibre, energy and chemical costs and the negative impact of the stronger Canadian dollar. For the six months ended June 28, 2008, this cost inflation was $32 million compared to 2007.

MARKET UPDATE

During the second quarter of 2008, net sales realizations for the Company's paper products improved an average of $10 per ton over the first quarter of 2008 and $56 per ton over the second quarter of 2007. On a year-to-date basis, net price realizations are $40 per ton higher than 2007. During the second quarter, net pricing for specialty packaging, specialty printing and high-bright groundwood grades held steady. Since the fourth quarter of 2007, the Company has implemented price increases across most of its specialty product lines in response to unprecedented increases in input costs over the past number of years. Additional price increases have been communicated to customers for implementation in the last half of 2008. In addition to these announced price increases, the Company has implemented a freight policy to manage escalating transportation costs, including fuel surcharges.