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

[obtuse_investor]

Hopefully, we get a relief rally tomorrow if Chad do a good job at the CC.

 

It looks like you might have been right, at least so far.

 

I can't make it to the CC--- what was said that made Mr Market perk up?

[Liberty]

I can't make it to the CC--- what was said that made Mr Market perk up?

 

The CC is at 12 EST, so it hasn't started yet.

[alertmeipp]

i hope they can send a clear message to the market that they are a really long dated option on DP pricing. Chad, please tell the world Ftp can be cash flow positive starting 14.

[triedtestedand]

Strip away all of the issues, and the following provided some level of reassurance from the results:

 

- Landqart being more than on the mend ... it's not a zero anymore

- Cogen is truly done and operational ... cash coming in vs going out

- NBHK was actually produced ... so strategy is more than theoretical

 

Will see what the conf call yields.

[Liberty]

Mentioned on CC about buybacks:

 

They were blacked out for most of the time since the NCIB was approved and couldn't buy. They tried to buy large blocks during the short non-blacked out window, but weren't able, and didn't want to buy just small amounts that could've raised prices for larger blocks.

 

So it seems like the intention is to buy relatively large amounts.

[alertmeipp]

appreciate the update. are they talking about debt or common?

any other worthwhile comments?

 

Thanks

[OptsyEagle]

Some CC tidbits:

 

Continuous improvement in productivity at Thurso.  Estimate the production level of 185K to 190K tonnes by end of 2014.

 

Estimate that about 1/2million tonnes of DP supply will not come into the marketplace due to MOFCOM ruling. 

 

They feel that the Viscose customers were holding back on DP orders to see how the MOFCOM unfolded.  Fortress believes these customers will now need to replenish their stock, putting upward pressure on DP prices.

 

They have run some NBHK runs, but in small quantities to specific customers.  They feel they can make a profit selling NBHK in small quantities to specific customers, but do not feel the profits would be higher then DP production,  if there was no MOFCOM and prices all stayed the same.  The problem it sounded like with NBHK is that to sell 250,000 tonnes, the cost would increase as the remainder (above small quantities) goes to customers, further and further away.

 

LSQ has a non-compete agreement for producing NBSK for 10 years.

 

Co-gen operational but still ramping up.  Full ramp should be done by December of 2013.  Should remove about $80 to $90 per tonne, of DP costs.

[triedtestedand]

Similar notes (good thing!)

 

Thurso

  - had 4 days of unplanned shutdown in Q2, had 7 days of planned shutdown in October for mtnc; budget 7+3 in 2014

  - hope to be EBITDA neutral in December, once cogen hits peak use, combined with incremental cost savings initiatives in the interim

- cogen ramping up well, will optimize by December

- cogen will bring costs down by $80/$90 per tonne

  - targeting 185K to 195K DP production level by Q4/2014, based on ongoing targeted cost savings initiatives

  - base looking at $6M in CAPEX for 2014 (have more in mind, but subject to MOFCOM, DP prices, etc.)

  - NBHK

    - have agreement to produce limited amounts, to limited # of customers who are close by, in near term ... will evaluate as they go

    - (presumably don't want to overcommit and/or can't get same profit for larger quantities/further away/etc.)

  - MOFCOM

    - high default duties on non-named entities, if upheld, could keep 500K+ tonnes (was that existing?) off the market from supply side

    - if demand continues to grow, then back half of 2014 could see ramp in DP prices

    - DP prices still tempered though by oversupply of VSF/competition of VSF with other

  - failed pump

    - in discussions w pump provider about getting cost relief

    - no mention of issues since new supplier

Landqart

  - target $3M in CAPEX in 2014

LSQ

  - spending $100K/mo at present rate

  - evaluating all options

  - non-compete on NBSK (other than the 100K ramp-up production allowed) is for 10 years

  - implied that thinking is it would be covered under highest tariff

NCIB

  - had focused on large blocks w their brokerage buyers before being blacked out

  - no bids accepted by TSX in short window (within constraints of TSX NCIB rules, e.g. uptick/size), but did apparently have some interest

  - may re-evaluate strategy (i.e. buy-in small bids), but also mindful of allocating capital whilst MOFCOM uncertainty

  - interest differential ... current cash is generating 1.8%, debs are at 6.5% to 7%

  - NCIB came in place when equity/debs were both higher, and company thought was good deal then ... prices even lower now (albeit w MOFCOM issue)

Bonuses

  - paid to Dresden mgmt and exec mgmt as part of sale of Dresden (reason for high quarterly SG&A?)

MOFCOM

  - auditors onsite in latter half of the month

  - FTP will present data to validate questionnaire inputs; will also show latest cost structure w cogen/etc.

  - expect final decision in February ... likely not much until then

  - working amicably w customers in China ... one idea (hypothetical) is for FTP and customers to share posting of interim bond?

  - Chinese DP producers have raised asking price to 7000RMB (from ~6600 earlier) ... but likely still underwater even if price went up $100/ton

  - relatively speaking, FTP have been less hit (i.e. vs US producers)

      - may see conversion of others to fluff/other pulp

      - high alpha producers may see crimp on margins as others target non-tariffed sector

 

I liked the next-to-last questioner ... more like the inquisition.

 

I never asked this question before ... but could (and at what cost) LSQ convert to fluff and get around the NBSK limit?

[OptsyEagle]

I liked the next-to-last questioner ... more like the inquisition.

 

Yes.  Did you get the feeling that he has lost a little money and wanted someone to suffer for it?

[Liberty]

I liked the next-to-last questioner ... more like the inquisition.

 

Yes.  Did you get the feeling that he has lost a little money and wanted someone to suffer for it?

 

That guy was intense. The questions were fine, but the tone was total condescending d-bag squared.

[lessthaniv]

anyone figured out why SG&A jumped up 22% qoq?  perhaps a combination of MOFCOM stuff and selling Dresden?

 

Edit:

 

From MD&A

 

SG&A was elevated compared to the prior year comparative period, primarily as a result of increased corporate

activity, compensation expenses related to the successful sale of Dresden and increased commissions in the Security Paper

Products Segment as a result of higher sales in the segment.

 

It would be nice to see a break out.

[Liberty]

anyone figured out why SG&A jumped up 22% qoq?  perhaps a combination of MOFCOM stuff and selling Dresden?

 

These two were my guess (legal and travel expenses for MOFCOM, and legal and bonus expenses for selling Dresden).

[alertmeipp]

RBC just lower the target to 3.5. I think they were expecting much higher duties before (25%-40%).. and now they downgrade the stock again mainly because of actual 13%. Crap work.

[Liberty]

RBC just lower the target to 3.5. I think they were expecting much higher duties before (25%-40%).. and now they downgrade the stock again mainly because of actual 13%. Crap work.

 

Most analysts tell you where you've been and pretend it's a forecast. When the stock was shooting up, the targets were higher. Now that it's been going down, targets are lower. It's almost momentum investing...

 

Hopefully it goes to 3.5 just long enough for them to max out the buybacks... If they're going to do some, might as well make it count.

[alertmeipp]

I think RBC is pissed about the management so they don't trust the management can reach their goals anymore and rightfully so.

 

Looks like RBC forecasts -11M ebitda for 2014. Obviously, they don't give much faith to "Thurso potentially becoming EBITDA neutral December"

[obtuse_investor]

Maybe their prop desk is short this stock!

 

Let's be honest here-- there never is an adequate internal firewall.

[Liberty]

I think RBC is pissed about the management so they don't trust the management can reach their goals anymore and rightfully so.

 

Looks like RBC forecasts -11M ebitda for 2014. Obviously, they don't give much faith to "Thurso potentially becoming EBITDA neutral December"

 

Maybe they'll turn out to be right, who knows?

 

But I'm starting to think that the market has forgotten entirely what good news looks likes for FTP, so any positive surprise could have a big impact. Even random macro stuff could take everybody by surprise (Swiss Franc falls significantly vs euro giving landquart back some margin, there's a terrible cotton crop, tariffs made permanent lead to wave of cancelled supply projects, landquart sold to strategic buyer who pays top dollar, etc).

[alertmeipp]

I liked the next-to-last questioner ... more like the inquisition.

 

Yes.  Did you get the feeling that he has lost a little money and wanted someone to suffer for it?

 

That guy was intense. The questions were fine, but the tone was total condescending d-bag squared.

 

 

He asked the best questions, I don't blame him, did Chad really say he won't get any bonus until the co is profitable?

[Liberty]

He asked the best questions, I don't blame him, did Chad really say he won't get any bonus until the co is profitable?

 

As I said, the questions were fine. I'm sure in a text transcript everything would look good. But he still sounded like a kind of a dick. Maybe he's normally very nice, I don't know...

[no_free_lunch]

“Following the announcement, we believe many will now need to restock, likely causing a short-term boost to both demand and prices,” he said Wednesday during a conference call about third-quarter results.

 

Wasilenkoff added that all producers supplying China who are liable to pay these duties will be “anxious” to increase pricing.

 

Chinese dissolving pulp producers are also announcing price bumps in an attempt to pass on their increased costs to customers. But the CEO said that despite the increases the mills in China will still operate at a “cash-negative position.”

 

...

 

Paul Quinn of RBC Dominion Securities Inc. said the results were below expectation due to operational and maintenance issues at Thurso and higher than expected pulp costs.

 

The analyst expects European and South African producers not impacted by duties will chase the higher Chinese prices, leaving the North American and Brazilians to take share in other markets.

 

“It could resemble musical chairs for commodity dissolving pulp producers in 2014,” he wrote in report.

 

http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/fortress-paper-says-china-duties-will-cause-long-term-harm-to-canadian-pulp-sector/article15426909/

[alertmeipp]

Paul Quinn - he seems to be the only one in the analysts space ppl quote on like FTP news.

[no_free_lunch]

I don't know anything about him.  How is his track record?

[triedtestedand]

Analysts can all be right ... until they are wrong. 

 

http://www.businessinsider.com/rbc-analyst-paul-quinn-bullish-on-sino-forest-2011-6

 

In this case, RBC and TD are among those who have 18mo streak of being right as FTP has overpromised and underdelivered at company level for 2 of 3 business lines, and macro events have conspired to add insult to injury.  But remember that at this time last year, they were howling for Landqart to be shuttered and scrapped.  And for perspective, I have been trying to re-find an article I found a few months ago, dated 2009/2010 timeframe, which highlighted how well - at the time - that Landqart was doing, and how Dresden was a dog, suffering the after effects of the 2008 crash on EU economy. Now that is irony given the intervening period.

 

This too shall pass for Thurso ... and dare I say it, this may be FTP's TSN turning point.  Presuming Thurso truly does get to EBITDA neutral in December (which is only 3 weeks away) despite the tariff,  and Landqart continues trend of operational improvement despite Swiss Franc/overcapacity/etc ... with the balance sheet as it is, what's the downside now really?  Chad's been creative to date ... I expect similar going forward ... and he now has the operations stabilized, and operators in place to work the incremental details.

 

 

[Liberty]

Some speculation by a SH post about a Tembec merger:

 

y390: this tembec combination was first suggested by Paul Quinn (forestry analyst) and then later on it was evoked by Chad himself during an interview. Interestingly, when Chad talked about it tembec was around a yearly low of 1.75 and thereafter started a march toward a high of 3.50... He nailed the bottom! Anyway, tembec settled around 2.50 with a market cap of 250m. Tembec has been focusing on specialty pulp which has fairly high and stable price with good margin, and power cogen. They have major capex going on to expand, some of it awaiting funding. Dissolving pulp such as Ftp produces is the first step toward specialty. Tembec needs cash to complete their expansions and cogen projects. Ftp happens to have good size cash on hand. Ftp needs cash flow to service debt and wait for the market turn. Tembec has cashflows. Ftp is right in tembec backyard. Ftp has a few former tembeckers aboard. Tembec could eventually turn LSQ into a specialty pulp mill. By adding ftp the become more of a pulp powerhouse and get two lucrative cogen sites and have a both ftp mills to eventually convert into "higher and better use" as demand grows. Combining both co would bring savings too in SG&A. Chad could retire and let experienced operators realize the value surfacing of what he has assembled thus far with all that wind in the face. Tembec has no monies to buy ftp but I guess that's what merger of equals are made for. The newco would have all the potential to benefit from the various pulps growth, the abundant resource in qc, the favorable hydro rates, with the financial strength to go thru adjustment period such as now.

 

This tax-loss selling brings out once again an incredible opportunity.

 

Incidently, m. Wasilenkoff will be around this week end in thurso, maybe a good time to meet m. Lopez ;-)

 

http://www.lapresse.ca/le-droit/economie/201311/08/01-4708861-le-grand-patron-de-fortress-a-thurso.php

[alertmeipp]

Analysts can all be right ... until they are wrong. 

 

http://www.businessinsider.com/rbc-analyst-paul-quinn-bullish-on-sino-forest-2011-6

 

In this case, RBC and TD are among those who have 18mo streak of being right as FTP has overpromised and underdelivered at company level for 2 of 3 business lines, and macro events have conspired to add insult to injury.  But remember that at this time last year, they were howling for Landqart to be shuttered and scrapped.  And for perspective, I have been trying to re-find an article I found a few months ago, dated 2009/2010 timeframe, which highlighted how well - at the time - that Landqart was doing, and how Dresden was a dog, suffering the after effects of the 2008 crash on EU economy. Now that is irony given the intervening period.

 

This too shall pass for Thurso ... and dare I say it, this may be FTP's TSN turning point.  Presuming Thurso truly does get to EBITDA neutral in December (which is only 3 weeks away) despite the tariff,  and Landqart continues trend of operational improvement despite Swiss Franc/overcapacity/etc ... with the balance sheet as it is, what's the downside now really?  Chad's been creative to date ... I expect similar going forward ... and he now has the operations stabilized, and operators in place to work the incremental details.

 

Yes, nice to see that they can be EBITDA break-even at current DP price. They only need $1100 to get ~35 millions EBITDA.