Nov. 29 (Bloomberg) -- AbitibiBowater Inc., created last month from the merger of North America's two largest newsprint makers, said it will close mills in the U.S. and Canada amid a slump in demand for paper.

The moves will decrease the company's production capacity by about 1 million metric tons, Montreal-based AbitibiBowater said today in a statement. The company, formed in the Oct. 29 combination of Abitibi-Consolidated Inc. and Bowater Inc., also suspended its dividend.

Slumping North American demand for newsprint and a rallying Canadian dollar had led Abitibi to 21 straight quarterly losses, excluding one-time items. Bowater, based in Greenville, South Carolina, hadn't had a profit since 2001.

The cost to close mills and compensate workers will be about $100 million, AbitibiBowater said. The company, which plans to ask its unionized workers for help trimming costs, today raised its target for cost savings from the merger to $375 million from $250 million, Executive Chairman John Weaver said in the statement.

``We are confident that we can achieve the original $250-million run rate by the end of the first quarter of 2009, and realize an additional $125 million within our originally announced two-year timeframe,'' Weaver said.

Timber Sales

AbitibiBowater said it expects to generate as much as $500 million from the sale of U.S. timberlands and other assets and intends to use the money to reduce debt.

Among the permanent closings are mills in Shawinigan, Quebec, and Dalhousie, New Brunswick, the company said. It will indefinitely idle mills at Donnacona, Quebec, and Mackenzie, British Columbia, as well as two sawmills at Mackenzie.

``These facilities are not generating positive cash flows and are not expected to do so in the foreseeable future,'' the company said.

AbitibiBowater will permanently close the previously idled Fort William mill at Thunder Bay, Ontario, as well as paper mills in Lufkin, Texas, and the No. 3 paper machine at its facility in Gatineau, Quebec.

The statement was released at the close of the New York Stock Exchange, where AbitibiBowater rose $1.49, or 8.6 percent, to $18.77 at 4:15 p.m. in composite trading. The shares have advanced 25 percent in the past five trading sessions.

To contact the reporter on this story: Christopher Donville in Vancouver at cjdonville@bloomberg.net.

Last Updated: November 29, 2007 18:27 EST