FGE.to - Fortress Paper (formerly FTP.to)

[OptsyEagle]

I suppose this stuff going on in Cyprus doesn't make it easy for the Swiss Central Bank to keep their franc from rising.

 

http://news.nationalpost.com/2013/03/16/this-is-theft-pure-and-simple-cyprus-bail-out-slicing-average-depositors-savings-up-to-10/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+NP_Top_Stories+%28National+Post+-+Top+Stories%29&utm_content=My+Yahoo

 

By the way.  How does a central bank stabilize a currency when people are flocking to it in droves.

 

Looks like the Swiss Central Bank is doing a pretty good job at holding back the tide.  This country must be getting swamped with savers running from the Euro, these days.  I hope they can hold out.  When questioned on the conference call, it basically seemed to me that Chad's longer term plan, to turn Landqart around, is a rising Euro.  Tough plan to implement.  I think my plan is better ... a padlock on the front door. lol. 

 

I do hope his works out.

 

http://finance.yahoo.com/q/bc?s=CHFEUR=X&t=5d&l=on&z=m&q=l&c=

[Steady77]

Here is an article written by Chad explaining the future demand for dissolving pulp.

 

http://moneytalks.net/topics/timing/8414-the-contrarian-food-shelter-and-clothing.html

[alertmeipp]

Amazing, back under 8.

[triedtestedand]

Down 7 days in a row ... each day about similar (non insignificant) % amounts, and on similar volume ... today seemed to be one day where it bounced back a bit at the end of the day, but who knows?  And that 3 days after announcing sale of Dresden. WTF

 

Let's see if Tembec can repeat the same magic.  They just announced today that they've sold their Skookumchuck (I added this note just to write that word down!) mill for $89M.

 

http://www.newswire.ca/en/story/1135953/tembec-to-sell-its-nbsk-pulp-mill-in-skookumchuck-british-columbia

 

 

 

 

[Steady77]

Maybe at least part of the recent share price pull back has to do with the expectation that the new owners of the recently sold Tembec mill (Paper Excellence) will convert it to dissolving pulp.

 

TD analysts expect that Paper Excellence will operate the mill as NBSK (not convert it to dissolving pulp) at least in the mid-term.  Of course, Tembec are in the dissolving pulp business.  So, if the mill was a great conversion target wouldn't they have done it themselves???

 

RBC analysts expect the dissolving pulp price to reach $1,150 before the swing mills start to look at converting.  At $1,150 Fortress will be very profitable when they get their cost in the $750 area (they still have work to do to get there but things are progressing). 

 

They will have 450,000 tonnes of dissolving pulp capacity when LSQ comes online.  This mill is much newer and more modern which should result in a better ramp up than Thurso.  The experience Yvon Pelletier (formerly with Tembec) brings to the table is definitely another asset.

 

Comment's from the hiring news release:

 

Chadwick Wasilenkoff, Chief Executive Officer of Fortress Paper, commented: "We are very pleased to have someone of Yvon Pelletier's extensive experience joining our team. Yvon has an intimate knowledge of the dissolving pulp industry, having lead complex mill operations and implementing many capital expenditure and upgrade projects, and has a proven record of success in improving business performance. We believe that Yvon's appointment will provide enhanced strategic leadership to our dissolving pulp business, and that he possesses the technical skills and practical local expertise which will be a significant benefit in advancing our dissolving pulp projects and business objectives."

 

http://ca.finance.yahoo.com/news/fortress-paper-announces-appointment-yvon-080000009.html

 

 

[PPINV]

I think the recent pull back is related to production problems...again.  For those that can read in french, see below.

 

20-03-2013 - Arrêt d'achat d'érable chez Fortress

 

Nous venons malheureusement d'apprendre que pour une période indéterminée, l'usine Fortress Cellulose Spécialisée de Thurso cessera ses achats d'érable dès le lundi 25 mars 2013 en raison d'une baisse de production qui crée un inventaire trop élevé.

 

Don't have any info about cogen but I suspect some issues.

[alertmeipp]

I think the recent pull back is related to production problems...again.  For those that can read in french, see below.

 

20-03-2013 - Arrêt d'achat d'érable chez Fortress

 

Nous venons malheureusement d'apprendre que pour une période indéterminée, l'usine Fortress Cellulose Spécialisée de Thurso cessera ses achats d'érable dès le lundi 25 mars 2013 en raison d'une baisse de production qui crée un inventaire trop élevé.

 

Don't have any info about cogen but I suspect some issues.

 

They run into issue Jan / Feb, probably extended to March... Glad that they have some cash to burn.

[Liberty]

I think the recent pull back is related to production problems...again.  For those that can read in french, see below.

 

20-03-2013 - Arrêt d'achat d'érable chez Fortress

 

Nous venons malheureusement d'apprendre que pour une période indéterminée, l'usine Fortress Cellulose Spécialisée de Thurso cessera ses achats d'érable dès le lundi 25 mars 2013 en raison d'une baisse de production qui crée un inventaire trop élevé.

 

Don't have any info about cogen but I suspect some issues.

 

They run into issue Jan / Feb, probably extended to March... Glad that they have some cash to burn.

 

Yeah, this could be a delayed reaction to the earlier problem. If they had to shut down for a bit, inventory probably piled up and now they're reducing how much they buy until they've had a chance to burn through it. Just a guess, though.

[nestorius]

Tembec doing some portfolio rationalization.

 

 

 

Tembec to sell its NBSK pulp mill in Skookumchuck, British Columbia

 

********************************************************************************

BN 03/26 10:00 *TEMBEC TO SELL MILL TO PAPER EXCELLENCE CANADA        :TMB CN

BN 03/26 10:00 *TEMBEC TO SELL MILL FOR C$89M                          :TMB CN

BN 03/26 10:00 *TEMBEC TO SELL NBSK PULP MILL IN SKOOKUMCHUCK, BRITISH COLUMBIA

********************************************************************************

 

 

Tembec to sell its NBSK pulp mill in Skookumchuck, British Columbia

 

MONTREAL, March 26, 2013 /CNW Telbec/ - Tembec Inc. ("Tembec") announced today

that it has reached an agreement to sell its NBSK pulp mill and related assets

and liabilities located in Skookumchuck, British Columbia to Paper Excellence

Canada Holdings Corporation ("Paper Excellence") for a purchase price of $89

million, which includes working capital. Closing of the transaction is

expected to occur in the second calendar quarter of 2013 and remains subject

to certain conditions and regulatory approvals.

 

"This transaction supports the continuing transformation of the Company and

the reshaping of its business portfolio," stated Tembec President and CEO

James Lopez.

 

Tembec acquired the Skookumchuck pulp mill in 1999 as part of the acquisition

of Crestbrook Forest Industries Ltd. This mill, where 290 employees currently

work, started up in 1968. Its pulp is shipped to North American and Asian

customers primarily for tissue applications.

 

BofA Merrill Lynch served as the exclusive financial advisor to Tembec.

 

Tembec is a manufacturer of forest products - lumber, pulp, paper and

specialty cellulose - and a global leader in sustainable forest management

practices. Principal operations are in Canada and France. Tembec has some

3,700 employees and annual sales of approximately $2 billion. Tembec is

listed on the TSX (TMB).

 

This press release includes "forward-looking statements" within the meaning of

securities laws. Such statements relate, without limitation, to the Company's

or management's objectives, projections, estimates, expectations or

predictions of the future and can be identified by words such as "may",

"will", "could", "anticipate", "estimate", "expect" and "project", the

negative or variations thereof, and expressions of similar nature.

Forward-looking statements are based on certain assumptions and analyses made

by the Company in light of its experience, information available to it and its

perception of future developments. Such statements are subject to a number of

risks and uncertainties, including, but not limited to, changes in foreign

exchange rates, product selling prices, raw material and operating costs and

other factors identified in the Company's periodic filings with securities

regulatory authorities. Many of these risks are beyond the control of the

Company and, therefore, may cause actual actions or results to materially

differ from those expressed or implied herein. The forward-looking statements

contained herein reflect the Company's expectations as of the date hereof and

are subject to change after such date. The Company disclaims any intention to

update or revise any forward-looking statements, whether as a result of new

information, future events or otherwise, unless required by applicable

securities legislation.

 

Linda Coates Vice President, Human Resources and Corporate Affairs Tel.: 416

775-2819 linda.coates@tembec.com

 

SOURCE: TEMBEC

[alertmeipp]

The EV is saying Thurso is worth $700/tonne. Cost for LSQ is like close to $1200/tonne. A high cost one costs about ~1000$/tonne.

 

Lanquart worth zero, whatever FTP puts into LSQ worth zero.

 

Market is saying Thurso is worth less than a higher cost DP plant.

 

 

[Steady77]

The EV is saying Thurso is worth $700/tonne. Cost for LSQ is like close to $1200/tonne. A high cost one costs about ~1000$/tonne.

 

Lanquart worth zero, whatever FTP puts into LSQ worth zero.

 

Market is saying Thurso is worth less than a higher cost DP plant.

 

 

 

Where did you get the LSQ cost of $1,200/tonne?  Management target is the same as Thurso (mid $700s).  What would make LSQ a higher cost mill?  The production capacity is 250,000 tonnes vs 200,000 tonnes for Thurso.  More tonnes to spread the fixed costs over and the mill is more modern.

[alertmeipp]

$1200/tonne is regarding to the cost to build the plant.

 

 

 

 

[Steady77]

Thanks for the reply.  Why is Thurso only $700 per tonne?  At 200,000 tonnes that's only $140 million.  The conversion was more expensive than that.  I'd figure the LSQ conversion would be cheaper per tonne since the mill is more modern and the capacity is larger.  Why would it be more?  Thanks.

[Steady77]

An update on the timing and conversion cost for LSQ is expected soon.  I expect the conversion cost to be much lower than $1,200 per tonne based on 250,000 tonnes of capacity.

[alertmeipp]

Thanks for the reply.  Why is Thurso only $700 per tonne?  At 200,000 tonnes that's only $140 million.  The conversion was more expensive than that.  I'd figure the LSQ conversion would be cheaper per tonne since the mill is more modern and the capacity is larger.  Why would it be more?  Thanks.

 

Net debt is 30 million pro forma + $15 millions share outstanding x $8 = $150 million Enterprise Value ..

200k tonne Thurso = $750 / tonne

 

The point I was trying to make is if one assumes Thurso worth as much as LSQ (using $1200/tonne).. Thurso alone worth 15$.

[OptsyEagle]

I am surprised that Fortress's wood suppliers would publicize this info.  It could mean anything but different people will read into it different things. 

 

Whatever it says, it is definitely not saying that Q1 was a blowout.  All the same it should be kept confidential.

[Steady77]

Paper Excellence provided an update today for its Prince Albert mill which they are converting to dissolving pulp.  According to this article once the mill is fully operational it will produce market-grade pulp in addition to dissolving pulp and the refurbishing is expected to take another 18 months. 

 

Wasn't this mill supposed to be all dissolving pulp and come online later this year??? 

 

http://www.saskatoonhomepage.ca/paper-excellence-gives-update-on-pa-pulp-mill/itemid_21

[Steady77]

Another article regarding the Prince Albert mill delay including another reference to market-grade paper.

 

http://www.panow.com/node/321246

 

 

[Guest Quebec]

Another article regarding the Prince Albert mill delay including another reference to market-grade paper.

 

http://www.panow.com/node/321246

 

They bought this idled mill 2 years ago from Domtar and seems still in the early refurb, except for power gen. They are looking at 12-18 months to convert for dissolving pulp (good luck) but seems to prefer to produce market pulp. Domtar agreement must restrict them from producing much market pulp, same as for LSQ, and they are trying here to change that.

 

Any success stories of conversion to dissolving pulp ?

[Steady77]

Another article regarding the Prince Albert mill delay including another reference to market-grade paper.

 

http://www.panow.com/node/321246

 

They bought this idled mill 2 years ago from Domtar and seems still in the early refurb, except for power gen. They are looking at 12-18 months to convert for dissolving pulp (good luck) but seems to prefer to produce market pulp. Domtar agreement must restrict them from producing much market pulp, same as for LSQ, and they are trying here to change that.

 

Any success stories of conversion to dissolving pulp ?

 

More delays for conversions to dissolving pulp &/or companies choosing to produce market pulp instead of dissolving pulp will definitely help the DP price.  Some of the expected DP capacity additions will either never happen or have significant delays.  Also, if the DP price moves higher the higher cost Chinese DP producers may become profitable.  Then the potential tariffs are even more unlikely to happen.  Now, if Fortress can iron out Thurso's issues and use that experience to have a smoother ramp up at LSQ the earnings will have significant upside.  That is what management is looking for with dissolving pulp.

[OptsyEagle]

Paper Excellence provided an update today for its Prince Albert mill which they are converting to dissolving pulp.  According to this article once the mill is fully operational it will produce market-grade pulp in addition to dissolving pulp and the refurbishing is expected to take another 18 months. 

 

Wasn't this mill supposed to be all dissolving pulp and come online later this year??? 

 

http://www.saskatoonhomepage.ca/paper-excellence-gives-update-on-pa-pulp-mill/itemid_21

 

Yes.  That mill was scheduled to be producing 250,000 tonnes of DP by Q1 of 2013 and that was about 20% of all the capacity additions for 2013.  Looks like they are not going to make it.  This data was taken from a TD research report issued in February of 2012.  From Steady's other article it looks like it may not happen until 2014.  I bet they are not alone.

[Guest Quebec]

Paper Excellence provided an update today for its Prince Albert mill which they are converting to dissolving pulp.  According to this article once the mill is fully operational it will produce market-grade pulp in addition to dissolving pulp and the refurbishing is expected to take another 18 months. 

 

Wasn't this mill supposed to be all dissolving pulp and come online later this year??? 

 

http://www.saskatoonhomepage.ca/paper-excellence-gives-update-on-pa-pulp-mill/itemid_21

 

Yes.  That mill was scheduled to be producing 250,000 tonnes of DP by Q1 of 2013 and that was about 20% of all the capacity additions for 2013.  Looks like they are not going to make it.  This data was taken from a TD research report issued in February of 2012.  From Steady's other article it looks like it may not happen until 2014.  I bet they are not alone.

 

Some precisions on St.Albert here:

http://foresttalk.com/index.php/2013/03/29/reopening-of-prince-albert-pulp-mill-delayed-for-another-1-5-years/

 

This could be a template for LSQ.

[OptsyEagle]

I am just trying to do some financial profiling for Fortress and have a couple of questions you guys might have some thoughts on.  Nothing overly important.

 

First is, will they pay down any debt on their balance sheet with the Dresden sale?

 

There was about $29 million of debt on the books for Dresden at Q4 end and after Q4 they borrowed another $20 million, which I do not know if it was used or not.  In any event, we can safely say that any Dresden debt will get eliminated in this sale and subtracted from the sale price.  So they will either get $184Million net of debt or $164M if the other $20M was spent.  We have to assume at least $20M to $30M in capital gains taxes so I would imagine the TD bank estimate of $150M net proceeds is probably about right.

 

When reviewing their remaining debts the only debt that I can see that is payable is the IQ loan for $102Million.  The CV debentures are not redeemable until a minimum of 2014.  The other thought to keep in mind is their capital requirements for LSQ.  It is an estimated total cost of $222M and they have secured a loan from IQ of $132M and a $25M CV debenture.  So they will need a minimum of $65 Million for it.  That leaves them $85 Million left.  We know they are blowing through cash in Q1 2013, for a couple of reasons.  They told us January and February had problems at Thurso and they said they needed about another $20Million for the Co-gen additional costs.  Since they have seen cost over-runs before on projects like LSQ, I wonder if they would want to use up the remaining cash to pay down debt.  What do you guys think?

 

A 2nd question is:  Anyone know what rate they are going to receive from Hydro Quebec for the power they sell from Thurso?

 

In their latest presentation they tell us that their LSQ contract indicates a $34 MW supply at $106 per megawatt hour. They nicely tell us that this contract will produce $27 million annually.  For Thurso they just tell us that they will try to produce 20MW.  They don't really tell us how much they will get for it.  We have heard that it should reduce their production costs by $100 per tonne.  However, if I do some simple math, assuming a similar selling rate as LSQ, if $34MW = $27M then 20MW should equal $15.9Million.  With 200,000 annual tonne capacity, it indicates only about $80 per tonne of DP production.  So I wonder which one is correct?  Anyone have any thoughts here?  Did I miss something?

 

These questions are not totally material, but material enough considering where DP prices are currently.  Not a lot of profit margin for error if you start profiling their costs against current selling prices.

[Steady77]

I believe they will not pay down debt with the excess cash from the Dresden sale.  The current debt terms are attractive.  I'd say they will keep most of the cash on the balance sheet to get both DP mills to where they want them to be, set some cash aside for future growth acquisitions and maybe buy some shares back at these prices. 

 

I doubt they will use a large chunk of money on a buyback but they may buy some shares & possibly convertible debentures if that option has more value.  I wouldn't be surprised to see a share (& possibly a convertible debenture) buyback announced after management gets approval at the next board meeting after the closing of the transaction.  But I believe most of the excess cash will be kept for the DP division and other growth opportunities.  In my opinion, it is better to keep the attractive debt they have now instead of paying it down and having to go looking for more financing later possibly at less attractive terms.

[Liberty]

That was my feeling too on the debt, Steady. They got very good terms for most of it, so no hurry there.

 

If the stock stays depressed, I'd be in favor of a buyback once thurso and the cogen are operating well, as long as they keep more than enough for LSQ's needs and a rainy day fund.