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

[alertmeipp]

Alertmeipp:

 

 

a) Thurso ... NB: extra DP production revenue does not go straight to EBITDA (targeted cost w shipping is ~$725/ton) ... Modelling earlier in the year, I estimated they would get $80M/yr EBITDA at Thurso with an average $1125/ton sell price (including shipping ... $1025 without) and at full production, and including $20M/yr COGEN. 

 

So for every $100/ton less, take out $20M/yr EBITDA.    If they can actually ramp to 100%, then at ~$900/ton I would estimate $30M/yr next year if prices stay low, and $50M/yr or more if they bounce back over $1000/ton

 

b) Dresden ... Q3 is always their low quarter, owing to maintenance downtime.  Q2 is probably more representative ... EBITDA there was $11.5M, so unless EURO/CDN ratio works against them further, I might use that (and leave some upside) ... so $46M/yr

 

c) Landqart ... just get rid of it ... otherwise -$24M/yr

 

d) corporate ... -$6M/yr

 

e) LSQ ... presume anything there is capitalized?

 

That gives them $50M to $70M ... but I'll be pressing for a catalyst ... they need to focus on fewer moving parts.

 

Thanks, re: Landqart - would the order reinstatement help going forward? just a 0 ebitda will be a big win.

[triedtestedand]

Alertmeipp:

 

r.e. Landqart ... they said they started shipping paper in Q3 (4 shipments) ... but doesn't seem like a lot so far ... volume of paper delivery for the quarter was 1.2 tons ... sequentially I think the previous quarter was about .8 tons ... I think the order was for 5tons (with an option for 25% more) so yeah, cranking the stuff out will help, but it's low margin stuff. 

 

IMHO for them to really turn it around themselves (and not just sell or shutter it), they need to get more national banks from being "strongly interested" in Durasafe, to actually buying it ... and for Landqart to correspondingly be able to efficiently produce it in volume.  It's their highest margin product, and with the Swiss franc being what it is of late ... they are uncompetitive w low margin offerings.

 

I'm sure there will be ample questions about it on the conf call

 

[alertmeipp]

Thanks. Agree, there will be lots of questions regarding the outlook.

 

Re: Fortress Global Cellulose

 

Did the company release the conversion schedule on it? and the projected production cost?

 

It will be a home run with the right DP price but also seems a risky move.

 

 

 

[shoeless]

Re: Fortress Global Cellulose and an equity raise

Perhaps its not too late to consider equity involvement from a customer on Landqart rather than long term contracts.. I recall some other Canadian DP mills went that route. Also, a deal with a non-Chinese firm would be advantageous.

 

[alertmeipp]

Re: Fortress Global Cellulose and an equity raise

Perhaps its not too late to consider equity involvement from a customer on Landqart rather than long term contracts.. I recall some other Canadian DP mills went that route. Also, a deal with a non-Chinese firm would be advantageous.

 

how would equity involvement help?

[triedtestedand]

In Sept. CIBC report initiating coverage, they said they did a sensitivity analysis which concluded that even if FTP yielded a DP price of $950 from Thurso for remainder of 2012 all the way thru to 2014, they would not need to secure any further capital.

 

CIBC's operating assumption model of increasing operating ratios was fairly conservative as well ... something along the lines of average 91% in 2013, and  97% in 2014.  So not really worried about capital (for LSQ), specifically any need for equity, especially with other assets that are marketable.  To me, in terms of what FTP can control, this whole thing continues to boil down to a) ramping up Thurso, and b) fixing/divesting of Landqart. 

[alertmeipp]

In Sept. CIBC report initiating coverage, they said they did a sensitivity analysis which concluded that even if FTP yielded a DP price of $950 from Thurso for remainder of 2012 all the way thru to 2014, they would not need to secure any further capital.

 

CIBC's operating assumption model of increasing operating ratios was fairly conservative as well ... something along the lines of average 91% in 2013, and  97% in 2014.  So not really worried about capital (for LSQ), specifically any need for equity, especially with other assets that are marketable.  To me, in terms of what FTP can control, this whole thing continues to boil down to a) ramping up Thurso, and b) fixing/divesting of Landqart.

 

Thanks - any idea when Fortress Global Cellulose conversion will be done?

[jeffmori7]

-30%..under 9$...

 

Are you buying?  Personnally, it's watch and see for me, my position was already built..

[rjstc]

-30%..under 9$...

 

Are you buying?  Personnally, it's watch and see for me, my position was already built..

[/quote

 

 

 

Curious. If position was already built you must have had some idea of a value for the stock. If Mr. Market has over reacted at this point in time why don't you average down? If you think this might be a value trap and you made a mistake, would it might be better to take your lumps and find something better?

[OptsyEagle]

The CC is complete.

 

Dresden is doing great.  Currently they have a 50% market share.  Hope to move production to 70,000 tonnes by 2015.  Market is moving from regular wallpaper to the type that Dresden produces, quicker then even they expected.

 

Landqart still struggling.  Due to an error the EBITDA loss was actually only $5.6 Million instead of $8.0 million, as stated in the news release. Management still believes that the best value proposition is to continue running the mill and expect continued improvements.  Q4 should be better but still negative.  They won 6 new customers and are participating in tenders for 10 new markets in 2012.  Durasafe product has been successfully printed by their first customer and interest is high in this product.

 

Thurso had two maintenance shut downs in Q3. One planned, one not.  This significantly curtailed production.  EBITDA loss in Q3 was actually $8.0 million as opposed to the $5.3 million erroneous indicated in the news release.  The plant has been producing at 95% of capacity for the last 2 weeks.  Management is still confident that the mill will produce to the capacity outlined in their models and that their costs are also obtainable.  Progress on this is continuing everyday.  The production of off-grade production is minimal and decreasing everyday.  The extra 4500 tonnes that was produced but not sold in Q3 was from running various tests.  Since they need to test its quality and then get their customers to sign off on it, it was not shipped in Q3.  They are confident that it will be sold in Q4 and some of it, already has been.

 

Co-gen should start up in January 2013.  High voltage tie-in to plant has been completed.  $29 million more in cap. ex to complete the start up.

 

Not much on LSQ except that the engineering study is not showing any increase in capital requirements and if anything it is showing a decrease.  Management indicated that they have a considerable amount of discretion on the timing of capital expenses for this conversion.  They may run it for 8 to 9 months producing NBSK and its co-gen plant should switch on immediately upon the start up of NBSK production.

 

Dissolving pulp prices are currently at $935 per tonne.  Their weakness has come about due to the volitility and weakness in the viscose market.  Due to the attempt to reduce the pain and suffering of their customers they have agreed to some temporary reduction in prices for their DP.  They indicated that having their customers go bankrupt is certainly not in Fortress Paper's best interest.  One contract is being offered a 6 month temporary price reduction and discussions with the other customers are still ongoing.  Management could not say how long the high cost Chinese producers will continue to produce at a loss.  They feel that these producers will produce for a while, until they feel confortable that the debottlenecking is done and then quickly swing over to NBSK until prices of DP improve significantly.  This should take some of the pressure off of DP prices.

 

Kurt indicated that Fortess Paper can defer principle payments to IQ through 2013 if it chooses.  He indicated that they are compliant on all covenants of their debt agreements and would expect to stay so, at least through 2013.

 

Chad acknowledged that they have not met expectations.  He is confident that the worst is behind them and that they will achieve their stated goals.  All their models are still intact.  He reiterated his longer term investment thesis about the demand for food reducing the available arable land, causing cotton production to reduce and being replaced by dissolving pulp (rayon) by the textile industry.

 

Chad also reaffirmed that all divisions are for sale, at any time,  at the right price.

 

 

 

That's about it.

 

[gokou3]

The debentures traded below $80 today.  Is the market seeing a bankruptcy scenario?  As much as Q3 was bad, I don't see it yet.

[newbee]

Anyone has a link to check the dissolving pulp spot/future price. Thanks

[OptsyEagle]

Not sure how many of you listened to this call, but it was my impression that Kurt indicated that in the original news release the EBITDA losses for Thurso and Landqart were reversed.  A typo, and that the EBITDA loss for Thurso was actually $8.0million and the loss for Landqart was only $5.6 million.

 

Did anyone else hear this?  They still haven't made any corrections on their website.

 

This is frustrating because when I read the earnings report Friday night, I came away with 2 very negative surprises and one slightly negative surprise.  All else was pretty much as I expected.  The first negative was that we were led to believe that there would be some improvement at Landqart, although in Q3 it would not be much.  When I read that this division lost $8.0 million compared to a $6.2 million loss in Q2, more then a few nasty words left my mouth.  Now I find out that they actually did improve things a little, to the tune of reducing the loss to $5.6 million.  When you add back a $1.2 million dispute resolution amount paid from that division it drops even more.  Sure wish they would get that out, although I suspect it is a little late by now.

 

The other big negative was the renegotiation of the long term contracts, but since I had been watching the DP price falling all quarter, I never really expected the price to hold for too long, but was hoping. You really cannot expect your customer to buy product from you at a 33% higher price then their competitors are buying it for.  The other slightly negative piece of info was a less then hoped for improvement in Thurso's production, but from the maintenance issues previously reported, it probably came in within the range I was expecting, but of course lower then I was hoping for.

[triedtestedand]

1. debentures

 

I think that is fear/dead-money selling, especially since maturities are so far out, $104M of existing debt is at Thurso sub-level, and $132M for LSQ will be similarly at sub level.

 

 

2. r.e. typo for Thurso/Landqart EBITDA loss

 

I heard the same.  It makes sense if you look at following:

 

Landqart  EBITDA @ -$5.6 ... then subtract -$1.3M for resolution of customer complaint ... then subtract another ~$1M+  for amortization/interest ... and you get to their $8.8M operating loss ... if they started with EBITDA at -$8m, the math wouldn't work.

 

It does make Thurso look really bad though ... EBITDA @ $-8.0M ... except that includes $3.5M mtnce, along with a $1M rebate ... so EBITDA without that would have been $-3.5M on sales of 60% of capacity, which on lower prices than Q2 is in the ballpark.

 

 

One place to get VSF prices daily (or at least changes to daily price ... unless you have a membership) is ccfgroup.com

 

[OptsyEagle]

It does make Thurso look really bad though ... EBITDA @ $-8.0M ... except that includes $3.5M mtnce, along with a $1M rebate ... so EBITDA without that would have been $-3.5M on sales of 60% of capacity, which on lower prices than Q2 is in the ballpark.

 

Yeah, I am not as dissappointed in Thurso as I was about Landqart, when I read the release and it really was too bad that the investment community walked away with such a dismal picture then what was really the case.  Thurso had two shut downs in the quarter.  Most of the employees would be getting paid during this time, there would be some lower production during shut down and start up to consider as well.  You can see this in Dresdens results where their planned shutdown cost us over $2 million in EBITDA.  When you add to that the 3.5 million in expenses, Thurso's result really were not that bad.  The negative surprise was really just the lack of a positive surprise, in my opinion.

[BargainValueHunter]

http://www.edmontonjournal.com/business/Fortress+Paper+slides+weak+demand+Thurso+pulp/7500127/story.html

 

http://www.edmontonjournal.com/business/7500128.bin

 

Even with a scheduled maintenance shutdown during the quarter, Fortress said the Thurso mill produced 4,500 tonnes more than it could sell. It expects to sell the pulp this quarter.

 

Fortress hinted that it could be forced to reduce the price in deals with customers, who bought much of the Thurso production two years ago, to keep them happy.

 

At the worst, the sudden change in market conditions, if prolonged, could potentially have an impact on another Fortress project to convert a second mothballed pulp mill in northern Quebec to produce the specialized pulp.

[jose]

Even with a scheduled maintenance shutdown during the quarter, Fortress said the Thurso mill produced 4,500 tonnes more than it could sell. It expects to sell the pulp this quarter.

 

I found that part of the article to be inaccurate. As far as I know, Fortress has said they kept that extra amount for testing purposes, not because they couldn't sell it. 

[OptsyEagle]

Even with a scheduled maintenance shutdown during the quarter, Fortress said the Thurso mill produced 4,500 tonnes more than it could sell. It expects to sell the pulp this quarter.

 

I found that part of the article to be inaccurate. As far as I know, Fortress has said they kept that extra amount for testing purposes, not because they couldn't sell it.

 

Since it was pulp manufactured under different experiments, so to speak, "they couldn't sell it" to their existing customers until it was fully tested and signed off on by their customers.  They are confident that the quality is good and the sign offs will be forthcoming, some of which has already been sold.

[alertmeipp]

ok, tanked more than expected but probably right so.

 

1) the long term contract model is broken. (we can argue that it's a unique case, but if I were the other customer of FTP, I will ask for the same discount). At the end, the long term contract idea works on capping the upside but end up cannot protect the downside.

 

 

2) with 1), FTP is now directly leveraged toward the current spot pricing of DP (where quote is not easily accessible, for retails, it's greater uncertainty).

 

3) to make the matter worse, the company is going to invest ~200millions into a new DP plan to make FTP even more rely on DP pricing. (not the best thing to see when the DP price is at the low.)

 

4) the management is not forthcoming on the production cost, I can understand they don't want to disclose it as they are not in full capacity, but again with 1) they got to be more transparent on production cost (now and at various capacity).

 

 

But...the valuation is damn attractive if DP does not do another dip.

[lessthaniv]

The renegotiating of the floor price caught me off guard. But, it does make some sense. I'm hoping that giving  their customers a break on price leads to the take up of more capacity. Remember, FTP has 22% more output at Thurso and LSQ up for grabs.

[roundball100]

A painful averaging down - but we learn more when there is pain, and it helps the memory too.  Here the relatively thin volume also amplifies swings.  Among other companies which have enjoyed very detailed discussion on this board, I find FTP to offer an interesting case study in margin of safety.  I guess we will find out what happens over the next 6-12 months.   

[FrankArabia]

can you elaborate on how you derive a margin of safety for this security?

 

 

[finetrader]

I have a question.

How many shares does Chad Wasilencoff owns?

 

Thanks in advance

[FrankArabia]

http://www.bloomberg.com/news/2012-10-17/africa-asia-may-face-food-shortages-by-2050-group-says-1-.html

 

 

FrankArabia, this has always been a growth story, read the topic! One doesn't exclude the other. What 'hidden assets' are you talking about? Nevermind, no need to reply.  ;)

 

always been a growth story ha?

[triedtestedand]

Chad has ~2.5M shares  I think ...