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

[Liberty]

From a purely probabilistic point of view, LSQ closing increases the chances of the 3rd mill also happening, if only because it's one more data point showing us that when management says publicly that they are "very confident" something will happen, it usually does happen.

 

I also wonder where that 3rd mill is located. Maybe we'll have a surprise and it won't be in Canada or Europe but somewhere in the US or South America? We'll have to wait and see.

[ECCO]

I have find that:

 

http://www.pwc.com/en_GX/gx/forest-paper-packaging/pdf/lee_j_presentation.pdf

 

On page 6 we can see that there is only one canadian mill that produce something around 140000 tons of NBSK per year.  If the next one is canadian (might be US, but I think we will stay in canada) then it should be that mill than will produce 100000tons/years after conversion.

 

I guess that this mill is at a place where there is a lot of softwood as it make better quality dp.

 

Still searching, but have not find yet where is this mill.

[Liberty]

I have find that:

 

http://www.pwc.com/en_GX/gx/forest-paper-packaging/pdf/lee_j_presentation.pdf

 

On page 6 we can see that there is only one canadian mill that produce something around 140000 tons of NBSK per year.  If the next one is canadian (might be US, but I think we will stay in canada) then it should be that mill than will produce 100000tons/years after conversion.

 

I guess that this mill is at a place where there is a lot of softwood as it make better quality dp.

 

Still searching, but have not find yet where is this mill.

 

Nice find. Too bad those bars in the graph aren't labelled. I wonder if Mercer's investor relations would tell us what that mill is if asked...

 

http://www.mercerint.com/s/ContactUs.asp

[Liberty]

Could be good for FTP:

 

http://www.winnipegfreepress.com/business/breakingnews/ottawa-may-extend-programs-to-help-transformation-of-forestry-industry-minister-138505529.html

[ECCO]

I find that... interresting:

 

http://www.tappi.org/Hide/The-Dissolving-Pulp-Gold-Rush.aspx

[Liberty]

I find that... interresting:

 

http://www.tappi.org/Hide/The-Dissolving-Pulp-Gold-Rush.aspx

 

Thanks. I like the part about the Chinese 5-year plan including a shift of 2 million tons per year of fiber from cotton to rayon.

[OptsyEagle]

You guys might find this presentation interesting.  I noticed a link at the bottom of page 9 on Fortress Paper's presentation for the LSQ acquisition.  I clicked it and came to this business consultant's website.  I think this is where Fortress Paper has got some of their macro information on the textile industry and where it is going.  Anyway, this guy gives a pretty good arguement wlhy the demand for man made cellulose fibres (rayon) will have no choice but to rise over the next 5, 10, and 20 years and why petroleum based textiles will also not be able to fill the gap.

 

http://www.fmhaemmerle.com/documents/Presentation_Sept_2011.pdf

 

A little long but might make some good reading over the weekend.  Have a good one.

[ECCO]

I can't tell you where the next acquisition is and I kind of hope it doesn't happen for at least 6 months.  Peter Vinall and Chad have enough on their plate for at least that long with LSQ.

 

As for the low cost producers, I think the big ones are in Brazil.  There is a plant there that I think pumps out over 700,000 tonnes of DP.  They also have a good fibre supply and their plants are fairly new.  They are the ones to watch, not the Chinese.

 

I find it, the biggets dissolving pulp plan is not in Brazil, its in South Africa.

 

Sappi Chemical Cellulose's Saiccor Mill has the capacity to produce approximately 800,000 tons of Elemental Chlorine Free (ECF) chemical cellulose (dissolving pulp) per annum - the world's largest manufacturer.

 

Interresting presentation here:

http://www.sappi.com/Investors/Documents/2011_03_01VisittoSaiccor.pdf

 

The question you should ask is: can Brazil or South Africa bring another of these low cost mill of 800000 tons. If so, that can push FTP out of first quartile.

 

[Liberty]

Nice find. I've only skimmed part of it (no time tonight), but the thing I'll be looking for is if they mention the DP's purity anywhere.

[OptsyEagle]

Thanks for that.  I knew it was some big mill that had good access to eucalyptus trees.

 

As for them building another one.  The only barrier to that, I would imagine, would be the cost.  Probably in the $1.5 B to $2 Billion dollar range.  Now with today's DP prices, the return on that investment would be quite satisfactory, but if you try to get into the minds of the people that would make that investment, I suspect you would be very concerned about where the price of DP would be in 2 years, when that plant starts producing and I would imagine a little caution might prevail.  Swing plants from DP to NBSK are even more costly to build.

 

In Fortress Paper's case, they seem to be able to take a mill where most of the investment has already been made by others and they simply add a little more to make it operational and cost competitive.  Certainly a lot less risk in doing it that way.

[Liberty]

In Fortress Paper's case, they seem to be able to take a mill where most of the investment has already been made by others and they simply add a little more to make it operational and cost competitive.  Certainly a lot less risk in doing it that way.

 

Indeed, this is something that Chad said at the CIBC conference. I'm paraphrasing:

 

"This is a capital intensive business, and we like that. Well, we like it when it's someone else's capital."

 

Meaning that the high capital costs are a barrier to entry for the industry. But since FTP tends to let others make the big capital investments and then buy the fruits of their labor for peanuts, it isn't as problematic for them.

[OptsyEagle]

I posted my earnings estimates for Fortress Paper on another site, that you guys may find interesting or useful.  I have to give Fortress Paper credit for how open they are, giving an investor the ability to do this.  1st some background details and assumptions:

 

1) Outstanding shares.  Currently 15.275 M, fully diluted (Q3),  add 1.073 M from recent CV debenture offering.  0.45M for new $25M loan from Quebec FI adding 0.45 M shares and 0.715M warrants.  That adds up to:

 

15.275 + 1.073 + 0.45 + 0.715 = 17.5 Million shares fully diluted.

 

2) Debt: Quebec Gov't Thurso  Loan + $102.4M @ 5% = $5.12M interest payments, QG LSQ loan $132.4M @ 5% = $6.62M interest, $40.25 recent CV deb. offering @ 6.25% = $2.5M interest and $25M loan for LSQ @ 7% = $1.75M interest.

 

So final annual interest payments = $5.12+$6.62+$2.5M+$1.75M = $16Million in annual interest payments.

 

Depreciation in Q3-11 was indicating an annual rate of $14M, so since some would have depreciated in 2 years and then we add the LSQ investments, I used $30 million for depreciation expense.  Please not that this is a non-cash charge.  More of an accounting entry then an expense.

 

I used $30 million EBITDA for Dresden, which is Chad's estimate before the capacity upgrade in 2012 and probably another in 2013.  Note the Euro has dropped about 5% since Chad gave that estimate but the reduction would also effect taxes and depreciation and would amount to less then $1M of loss, so I ignored it.  Since I am estimating $0 EBITDA for Landqart, the decrease in the Swiss Franc was also ignored but it should be noted that this will significantly help their EBITDA move higher then $0.

 

I assumed about $10 million  from Thurso's Co-gen that kicks in in the 3rd quarter of this year.

 

 

Two Scenerios all taken from the two respective presentation for Dissolving pulp prices.

 

1) Dissolving Pulp  Price $1,200 per MT

 

EBITDA:

 

Thurso = $122.2M

 

LSQ = $125.0M

 

Dresden = $30M

 

Landqart = $ 0M

 

Thurso Co-Gen = $10M

 

EBITDA = $287.2 M

 

Minus $16M interest, $30M in depreciation, $10M in corp. expenses = $231.2M pre-tax profit

 

minus 30% tax =

 

$161.8M after tax profit.  Divide by 17.5million shares = EPS of $9.25 per share.

 

 

 

2) Dissolving Pulp Price $1,600 per MT

 

EBITDA:

 

Thurso = $205.2M

 

LSQ = $217.0M

 

Dresden = $30M

 

Landqart = $ 0M

 

Thurso Co-Gen = $10M

 

EBITDA = $462.2 M

 

Minus $16M interest, $30M in depreciation, $10M in corp. expenses = $406.2M pre-tax profit

 

minus 30% tax =

 

$284.3M after tax profit. Divide by 17.5million shares = EPS of $16.25 per share.

 

 

 

Note Above:  No value or benefit was given for the exercise of 715,000 warrants that would provide FTP with about $40 million of new capital, when exercised.  The warrants were used, however, in the calculation of fully diluted shares.

 

[Liberty]

http://www.fibre2fashion.com/news/textile-news/newsdetails.aspx?news_id=107820

 

Price of dissolving pulp increased at a constant rate in the week and shot up sharply in the range of RMB 9250/ton to RMB 9500/ton in Chinese domestic market. Price of imported dissolving wood pulp was in the range of US$ 1250/ton to US$ 1280/ton.

 

Don't forget that Thurso should be getting above spot because of it's very high alpha.

[lessthaniv]

http://www.fibre2fashion.com/news/textile-news/newsdetails.aspx?news_id=107820

 

Price of dissolving pulp increased at a constant rate in the week and shot up sharply in the range of RMB 9250/ton to RMB 9500/ton in Chinese domestic market. Price of imported dissolving wood pulp was in the range of US$ 1250/ton to US$ 1280/ton.

 

Don't forget that Thurso should be getting above spot because of it's very high alpha.

 

Liberty, correct me if I'm wrong but I think that FTP must first get certified. I seem to recall reading or hearing this but can't find the information at the moment. I'll dig around my file later.

[Liberty]

Liberty, correct me if I'm wrong but I think that FTP must first get certified. I seem to recall reading or hearing this but can't find the information at the moment. I'll dig around my file later.

 

They must be certified as a specialty DP provider to sell to certain companies, but they don't have to be certified to still get some premium for high-alpha DP since rayon producers still prefer it to low alpha DP.

 

But if they want to sell to a pharmaceutical company or whatever, they'll definitely need to be certified.

 

That's how I understand it. I could be wrong.

[shoeless]

 

Interresting presentation here:

http://www.sappi.com/Investors/Documents/2011_03_01VisittoSaiccor.pdf

 

The question you should ask is: can Brazil or South Africa bring another of these low cost mill of 800000 tons. If so, that can push FTP out of first quartile.

 

Thanks ECCO for pointing out Sappi. Seems that they are bringing on another 500000 tons online in 2013. The wording isn't clear but seems to indicate the converted mills will be "lowest quartile cost structure". From Sappi's 2011 "Integrated Report":

 

  "We have announced two investments that will increase our chemical cellulose capacity by

  540,000 tons to over 1.3 million tons a year. These investments will cost approximately

  US$500 million and comprise the conversion of the Ngodwana Mill's pulp mill in South

  Africa to produce 210,000 tons of chemical cellulose and the Cloquet Mill's pulp mill in

  Minnesota, USA to produce 330,000 tons of chemical cellulose a year. These projects are

  progressing well and are set to start up in early 2013. The projects take advantage of our

  leading market position and lowest quartile cost structure. We have customer

  commitments for a significant part of the increased capacity."

 

The cost of the conversions are to be $170m for the US mill and $340mill for the other one.

 

press releases about the conversions:

http://www.sappi.com/regions/eu/service/News/Pages/Ngodwana-Mill-increases-chemical-cellulose-capacity.aspx

http://www.sappi.com/regions/eu/service/News/Pages/Sappi-Limited-announces-major-investment-in-North-American-operations.aspx

 

btw, regarding the Saicor mill:

"Sappi Chemical Cellulose can supply a range from 91% alpha to 96% alpha, depending on customer requirements."

  http://www.sappi.com/regions/is/Products/Chemicalcellulose/Pages/Saiccor-Mill.aspx

 

This is my first post here after lurking for a couple of years  - thanks everybody for making this board what it is, I've learned a ton

 

 

[Liberty]

http://lechoabitibien.canoe.ca/webapp/sitepages/content.asp?contentid=226228&id=296&classif=En+manchettes

 

About the heavy metal decontamination at LSQ. FTP's only on the hook for the 7.5m in the deal, which seems like a very good thing because who knows how much it'll actually end up costing (they say 13m, but we'll see).

[Liberty]

FTP was mentioned on BNN today, which could explain the volume this afternoon:

 

http://watch.bnn.ca/#clip618929

[Liberty]

Fortress Paper Ltd. (“Fortress Paper” or the “Corporation”) (TSX:FTP) announced today that it intends to release its fourth quarter financial results for the period ended December 31st, 2011 after the close of the market on Monday, March 5th, 2012. In connection with the release of its results, Fortress Paper Ltd. will host a conference call Tuesday, March 6th, 2012 at 9:30 a.m. (PST) to discuss the financial results and the Corporation’s operations. Mr. Chadwick Wasilenkoff, Chief Executive Officer, Alfonso Ciotola, President, Kurt Loewen, Chief Financial Officer and Peter Vinall, President and Chief Executive Officer of Fortress Specialty Cellulose Inc. will host the call.

 

To participate in the conference call, please dial one of the following numbers:

 

Dial In Numbers: 604-681-8564 Vancouver

403-532-5601 Calgary or International

780-429-5820 Edmonton

416-623-0333 Toronto

613-212-0171 Ottawa

514-687-4017 Montreal

Toll Free Dial In Number: 1-855-353-9183 from Canada and USA

Participant Pass Code: 15086#

Conference Reference Number: 765945

A replay of the conference call will be available for 7 days. To access the replay, listeners may dial 1-855-201-2300 from Canada & the USA. The conference reference number is 765945 # and the participant pass code to access the replay is 15086 #.

[colinwalt]

 

Interesting presentation here:

http://www.sappi.com/Investors/Documents/2011_03_01VisittoSaiccor.pdf

 

The question you should ask is: can Brazil or South Africa bring another of these low cost mill of 800000 tons. If so, that can push FTP out of first quartile.

 

Thanks ECCO for pointing out Sappi. Seems that they are bringing on another 500000 tons online in 2013. The wording isn't clear but seems to indicate the converted mills will be "lowest quartile cost structure". From Sappi's 2011 "Integrated Report":

 

  "We have announced two investments that will increase our chemical cellulose capacity by

  540,000 tons to over 1.3 million tons a year. These investments will cost approximately

  US$500 million and comprise the conversion of the Ngodwana Mill's pulp mill in South

  Africa to produce 210,000 tons of chemical cellulose and the Cloquet Mill's pulp mill in

  Minnesota, USA to produce 330,000 tons of chemical cellulose a year. These projects are

  progressing well and are set to start up in early 2013. The projects take advantage of our

  leading market position and lowest quartile cost structure. We have customer

  commitments for a significant part of the increased capacity."

 

 

I tried to figure out SPP’s cost per ton from their F-20 – they provide variable costs per ton, but not fixed costs – I think I got the conversion of overall fixed costs to "per ton" costs correct – apologies if I screwed up.  This is what I’ve calculated:

 

South Africa total variable costs: 798 (from the F-20)

South Africa variable cost per ton: 305 (from the F-20)

 

South Africa total fixed costs: 645 (from the F-20), so fixed cost per ton is as follows:

• 645 (fixed costs) is 80% of 798 (variable costs)

• So fixed per ton are: 305*.8 = 244

• So Total costs per ton are: 305 (variable) + 244 (fixed) = 550

 

++++++++++++++++++++++++++++++++++++++++++++

 

North America Total variable costs: 757 (from the F-20)

North America variable cost per to:  527 (from the F-20)

 

North America Total fixed costs: 482 (from the F-20)

• 482 (fixed costs) is 63.5% of 757 (variable costs)

• So fixed per ton are: 527*.635 = 335

• So total costs per ton are: 527 (variable) + 335 (fixed) = 862

 

With capacity for 330,000 tons in North America and a little over 1 million in South Africa, average costs are:

• 330K * 862 = 284.460

• 1,000K * 550 = 550.000

• Total cost for about 1.4M tons is about 834.460

 

So overall average cost (834.460 / 1.4) = about 596 dollars per ton

 

FTP say their costs are about 650 per ton, so about 8.3% more than SPP’s overall average but about 18% more than SPP’s South African costs – I don’t have enough information to figure out why SPP’s costs in South Africa are so much lower although I did read somewhere that part of it is due to the fast growth (due to the climate) of the trees used as raw material.

 

In addition, I don’t have details of everything that SSP and FTP use to calculate cost per ton, so this is probably not comparing apples-to-apples, but none-the-less useful I hope.

[Liberty]

That's assuming that their new capacity comes on time and on budget. We know that FTP can execute, but do we have evidence that they can?

 

Of course, it's more conservative to assume that they can, but knowing how frequent cost overruns are, I still have to wonder.

[colinwalt]

Yeah, there's a bunch of unknowns here - in fact I've extrapolated their current cost-per-ton without trying to adjust for the new capacity - I've no idea if the new capacity will come on-line at the existing cost-per ton or not - in theory, fixed costs per ton should fall.... but who knows.

 

FWIW, it does seem strange that they are also increasing American capacity with its far higher cost per ton structure - I can only guess at the logic here, for example, subsidize other operations in America so that they can continue to run marginal parts of the business? Maybe they need the EBITDA to avoid violating debt covenants - again, who knows....

[Liberty]

Q4 is out:

 

http://www.fortresspaper.com/files/FTP_NR_Q4_2011_FINAL.pdf

 

http://www.fortresspaper.com/files/Combined_Q4_Consilidated_Financials__MDA.pdf

 

 

[Liberty]

Conf call is beginning in 5 minutes

 

A conference call to discuss the financial results for the fourth quarter  2011 will be held on

March 6, 2012 at 9:30 a.m. (PST). To attend the conference call, please dial one of the following

numbers:

North America: 1-855-353-9183

International: 1-403-532-5601

Participant pass code: 15086#

Conference Reference Number: 765945

A replay of the conference call will be available for 7 days. To access the replay, listeners may

dial  1-855-201-2300  from North America or 403-255-0697 International.  The conference

reference number is 765945 # and the participant pass code to access the replay is 15086 #.

[shoeless]

I was surprised to hear Chad say that in the 3-5 years they would like to have 50% of capacity (including LSQ) be speciality cellulose. Was that really the number he said (my line was bad)?

I was expecting something more inline with Sappi and Sateri where around 20% of capacity is SC.

 

Anyway incase its of interests here is a Rayonier investor presentation with some slides about the speciality

cellulose market and how it differs from the DP market (slide 29 onwards)

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDU0NzM2fENoaWxkSUQ9NDgwOTA0fFR5cGU9MQ==&t=1