Mark Rossolo, a spokesman for the Portland, Ore. company, said Tuesday the company began the winddown of the two Canadian mills Monday afternoon after a Canadian bankruptcy court extended the company's bankruptcy protection for only 48 hours to Wednesday. The court provided the short term extension when creditors refused to provide financing to keep the mills alive, while the company seeks a new buyer.

The two British Columbia mills in Nanaimo and Mackenzie employ around 780 people while the Oregon mill at Halsey, south of Portland, had a workforce of 180 in February.

The future of all three mills is uncertain after the collapse of a deal last week that would have seen the pulp businesses sold to an Indonesian company. The U.S. company's lumber operations were sold in separate transactions nearly a week ago.

"We're starting to go through what is called a soft idle," Rossolo said in an interview with The Canadian Press from Portland. "That basically means we run through all the woodchips that are already in the machine and don't add anything new."

The spokesman for Pope & Talbot said the bankruptcy court will hold a hearing Wednesday morning in Vancouver to determine what happens next to the three mills. The company is expected to be asked for a forecast of the financial assets it will need to maintain the idle mills while it seeks their sale.

"We have to kind of wait and see what the court decides tomorrow and we may know more moving forward," said Rossolo. "It's kind of an uncertain situation right now."

An agreement to sell the Nanaimo, Mackenzie and Halsey mills to PT Pindo Deli for $105.3 million collapsed Friday. PT Pindo Deli is a subsidiary of Asia Pulp and Paper, which is owned by Indonesia's Sinar Mas Group, Asia's largest paper producer.

No reason for the transaction's failure was given.

Rossolo said Pope & Talbot is still working to reach an agreement with Sinar Mas, but it's also considering other options such as selling off the assets individually.

"We have had some interest," Rossolo said, declining to be specific.

PT Pindo Deli, in a separate deal, had agreed to buy Pope & Talbot's Fort St. James sawmill in B.C. for $6 million. Rossolo said that sale has also not closed, but the companies continue to talk.

Pope & Talbot, a 160-year-old Portland-based wood products company, filed for bankruptcy in November after fighting a losing battle with the slumping U.S. housing market, a strengthening Canadian dollar which hurt its exports from B.C. into the United States, and high debt.

The same difficult market conditions have led to the closure of sawmills across Canada by companies squeezed by rising inventory in the wake of slumping demand from the battered American new homebuilding market.

The pulp sector has also been hurt by technological changes and a move to Internet publication that have reduced demand for newsprint and other papers.

To secure an emergency $89-million loan, Pope & Talbot subsequently agreed to sell all its assets by mid-February.

At the time of its bankruptcy, the company had eight mills, including several sawmills and the three pulp mills.

Last week, the company completed the sale of its sawmills in Grand Forks and Castlegar, B.C. to International Forest Products Ltd. (IFP.A.T), a Vancouver company known as Interfor.

Pope & Talbot also sold its Spearfish, S.D. sawmill and timber assets to Neiman Enterprises Inc. as part of the transaction with Interfor.

(END) Dow Jones Newswires