OptsyEagle Posted November 7, 2014 Share Posted November 7, 2014 So I heard on the news that Stephen Harper is currently in China to discuss trade. Do you think the dissolving pulp duty issue will even come up? Maybe he should have taken Kevin Vickers with him for a little intimidation value. https://www.youtube.com/watch?v=eDOitJa4fpM Link to comment Share on other sites More sharing options...
alertmeipp Posted November 7, 2014 Share Posted November 7, 2014 http://fortresspaper.com/images/pdfs/releases/NR.Corporate%20Update%20Oct%2029%202014.pdf Real quantifiable production #'s ... first time ever ... for an entire quarter ... C$757/ADMT (or USD$681/ADMT based on a 90 cent dollar) ... presume this is before shipping+sales commission costs. And deferral/agreement-in-principle r.e. IQ OK ... there's crack in a gear-box associated with the cogen turbine ... These #s are not bad. Anyone care to speculate what will the IQ loan long term solution looks like? Link to comment Share on other sites More sharing options...
alertmeipp Posted November 7, 2014 Share Posted November 7, 2014 I have said quite a few times before, unless DP prices rise above $1,250 per tonne within the next 18 months, everyone is going to lose their money. The Quebec government will lose the most, followed by a 100% loss by the common shareholders and pretty close to that by the convertible debenture holders. Well the CV holders may get all the common shares and maybe end up with Landqart, but it is highly unlikely that there will be any cash left. Most of it will go to maintain operations and I would imagine Chad is hard at work trying to figure out a way to justify a big bonus. He has until the end of this year, in my opinion, to grab as much cash as he can. He knows his shares are worthless, so it will be interesting to see what he does. Anyway, the Chinese stole this business and our government could care less. I assume u mean $1250cdn, that's ~$300 above cost? Why do u think we need that pricing to survive? Link to comment Share on other sites More sharing options...
OptsyEagle Posted November 8, 2014 Share Posted November 8, 2014 The cost numbers that were sited were operational production costs. The EBITDA positive threshold, not the NET PROFIT threshold. They do not include shipping costs, regular ongoing maintenance costs and interest charges on their debt, nor even the eventual repayment of that debt. Also, at some point, albeit quite a few years in the future, the company would be expected to start paying income taxes, that have to be accounted for as well and of course we certainly cannot forget about that 13% duty. I am sure that if we even see DP pricing move in an upward direction, in any amount, the stock market will respond favourably, but for longer term viability, it is my opinion, that $1,250 is the price that will provide the required comfort to investors. Link to comment Share on other sites More sharing options...
lessthaniv Posted November 8, 2014 Share Posted November 8, 2014 There is significant leverage in the model. The strategy is simple. Survive the trough and make hay on the upswing. The uncertainty around the duration of the trough vs. the companies ability to absorb it creates risk but also opportunity. They have a great partner in IQ who sees this longer term earnings potential and leverage and is willing to work with company to get them through the bottom of this cycle. The net worth of the CEO is heavily influenced by the outcome. I think he'll make good decisions in this regard. Link to comment Share on other sites More sharing options...
alertmeipp Posted November 8, 2014 Share Posted November 8, 2014 The cost numbers that were sited were operational production costs. The EBITDA positive threshold, not the NET PROFIT threshold. They do not include regular ongoing maintenance costs and interest charges on their debt, nor even the eventual repayment of that debt. Also, at some point, albeit quite a few years in the future, the company would be expected to start paying income taxes, that have to be accounted for as well. I am sure that if we even see DP pricing move in an upward direction, in any amount, the stock market will respond favourably, but for longer term viability, it is my opinion, that $1,250 is the price that will provide the required comfort to investors. I know those are not all in cost. Was wondering why 1250 within the next 18 months or burst. My thought is they can raise new money to pay off the old as long as they start making some real money with acceptable ROI. 50 ebitda is a nice # for 250m EV company, not a survival threshold. Link to comment Share on other sites More sharing options...
alertmeipp Posted November 8, 2014 Share Posted November 8, 2014 There is significant leverage in the model. The strategy is simple. Survive the trough and make hay on the upswing. The uncertainty around the duration of the trough vs. the companies ability to absorb it creates risk but also opportunity. They have a great partner in IQ who sees this longer term earnings potential and leverage and is willing to work with company to get them through the bottom of this cycle. The net worth of the CEO is heavily influenced by the outcome. I think he'll make good decisions in this regard. 13% kills lots of upside. I was thinking the other day.... loonies went down like 20%+ in last year or so. If loonies didn't drop, can u imagine how bad this will be? Link to comment Share on other sites More sharing options...
triedtestedand Posted November 8, 2014 Share Posted November 8, 2014 13% kills lots of upside. Bingo. How to solve (if possible)? -> long-term -> get MOFCOM to reduce/kill it -> encouraging sign that action initiated w WTO, Harper in China, Couillard in China recently ... but can't rely on in short term -> short/medium term -> find other markets/products -> DP outside China? -> NBHK -> keep reducing costs/efficiencies I know we're the last of the Mohicans here, but the fact they've guided that they are targeting 100% DP in 2015 has to mean that such would be more profitable than a mix of DP and NBHK, no? Taking that thought further ... NBHK/BEK prices have been holding recently (despite big S. American production increases), and I would have presumed that if this remained, they would be planning to produce at least some % of NBHK given that economics (at least for nearby customers) should generate positive EBITDA. So why would they plan to produce all DP, when with current #'s, sales into China should be currently negative EBITDA? Maybe they are finding (as possibly alluded to in recent update) non-Chinese DP customers? Of course we never talk about Landqart anymore ... Link to comment Share on other sites More sharing options...
alertmeipp Posted November 8, 2014 Share Posted November 8, 2014 tnt, I actually have the same thought, with their low cost, they should be able to get non-Chinese customers. The other possibility is they need to focus on DP to drive down the cost and they forsee 2H of 2015 will bring nice recovery. "Last of Mohicans" -- LOL. :'( Link to comment Share on other sites More sharing options...
OptsyEagle Posted November 8, 2014 Share Posted November 8, 2014 I have mentioned before that non-Chinese customers are not going to help unless you find some that do not like making lots of money. It's not like they haven't heard of the Chinese duty so you can be sure when Fortress Paper comes knocking that they are going to extract quite a bit of that 13% duty for themselves. In the best case scenario, they may split it, but I suspect in the entire world the guys being charged duties higher then 13% will outbid Fortress by a large margin. As for refinancing debt. The CV currently trade at a 30% to 40% yield. Does that look like the debt markets are being favourable to Fortress Paper to you. No, there will be no refinancing. I believe that most of the existing cash will be used in operations between now and 2016 and any remaining money will be handed over to the Convertible debenture holders, if there is any left. If there is not, the entire company will be handed over to the convertible debenture holders by way of dilution from newly issued shares to pay the convertible debt that is due. The only way complete disaster does not come to the common shareholder is if dissolving pulp prices rise to around $1,250 per tonne within the next 18 months, with the start of the assent hopefully beginning on Monday. That is how I see it, but maybe I will be wrong. I agree Chad will do everything he can to prevent it, but I am not hopeful he has the ability to be successful. A less ethical Chad would probably try to grab as much of the cash in the bank as he can, before then, via some type of bonus payment, but I must say that so far his ethics have been beyond question. Link to comment Share on other sites More sharing options...
alertmeipp Posted November 8, 2014 Share Posted November 8, 2014 FTP's cost is pretty low compare to most. The few big ones that has lower costs than FTP are not mostly impacted by the duties. So, they might as well continue to sell in China. Those CV debt was trading near or over par before, those prices didn't predict the future, why do u think the current price will tell you where this company is going. Not like I am bullish on FTP. I need to see DP price to turn to add to my positions here. i am bidding on CV tho. Link to comment Share on other sites More sharing options...
OptsyEagle Posted November 8, 2014 Share Posted November 8, 2014 There are not that many non-Chinese customers so I don't think they would have a problem obtaining all their capacity from producers who were levied a duty higher then Fortress Papers. In any event, they are not going to just give away 13% because Fortress Paper wants it. They are going to spar them against others and in my best scenario require Fortress to sell the DP at a 6.5% discount, but even that I know is dreaming. It just isn't the way the world works. I cannot say how the debt markets will look at Fortress Paper in 2016, but I can see how they look at them right now. As we speak, a lender currently demands a 30% interest rate to lend money to Fortress Paper. No one is going to lend them money any cheaper when they can just go buy the CVs on Monday at a better rate. What investors demand in 2016 will depend on where DP is trading at and the profitability that Fortress Paper exudes. All I can do is go on what is happening now and extrapolate it out. I can sit back and hope and pray that things are better, but as you know, that will not make it so. If I have to go with my best guess, I would guess that DP prices will be higher, but I doubt they will be above the $1,250 range where a lender is going to be interested in lending money to Fortress Paper, to pay back unsecured CV lenders, at an interest rate that doesn't cripple this company upon the 1st interest payment. Of course lady luck could shine and all their problems could go away, but if I was to invest like that I might as well go down to the casino. At least there, they let me pull on the slot machine arms. Link to comment Share on other sites More sharing options...
alertmeipp Posted November 8, 2014 Share Posted November 8, 2014 Investing is about forecasting and risk management. I just don't think cv current pricing is an important data point. Shld just went up 100 percent in two months? The same company. Where usd is going, DP market forecast, shipping cost, vsf operation run rate trend, etc.. are more relevant. I agree ftpwill need much higher DP price to survive. Any chance they will sell part of Thurso to a non customer to secure a deal? Link to comment Share on other sites More sharing options...
triedtestedand Posted November 9, 2014 Share Posted November 9, 2014 I was thinking the other day.... loonies went down like 20%+ in last year or so. If loonies didn't drop, can u imagine how bad this will be? Eerily ... All of the major DP export producing countries' currencies have each depreciated ~10% in the past 12 months against USD (S. African Rand, Brazilian Real, Swedish Kroner, Cdn Dollar, Euro, Indonesiah Rupiah), and so remain constantly valued against each other ... So with the USD strengthening a couple of % against the Yuan, from a currency perspective US and Chinese producers are impacted the most. On the flipside, Russia's currency has been taken to the woodshed of late, so if sanctions persist, that might be a wildcard ... but their capital markets have dried up as well ... and don't think right now they have much DP production. Link to comment Share on other sites More sharing options...
triedtestedand Posted November 14, 2014 Share Posted November 14, 2014 Results are out: http://fortresspaper.com/images/pdfs/financials/Q3%202014%20MDA%20%20Financials%20website.pdf Considering the circumstances, I'm having a hard time rustling up Chicken Little, at least in terms of most quarter-over-quarter trend lines continuing to be positive, despite difficult market conditions. Operationally, I think they are getting most of their operational ducks in a row. So if I use summary from last quarter as guide: http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/ftp-fortress-paper/msg182640/#msg182640 Of the "Cons" listed in that summary, the following haven't been dealt with fully: -> Still need to secure (material) sales outside of China/higher margin mixes to make money from Thurso at current low prices. -> BUT progress evident by virtue of EBITDA loss being 3M LOWER than Q2, DESPITE lower DP prices (albeit offset by lower CDN$). -> Still need long-term solution w IQ. -> BUT agreement in principle (which very interested to see) -> Still need to a plan to monetize LSQ assets. -> BUT WTO discussions initiated (recognizing there's no quick fix here) -> Still need to see Durasafe add to Landqart's run-rate EBITDA. -> BUT ... well actually, a better contribution from Landqart would be nice (considering higher EBITDA earlier in the year) -> Still need a line-of-credit for Landqart (to free up restricted cash) -> BUT ... I'm sure they're working on this Unrestricted cash is up, restricted cash is up, working capital is actually up, AR/AP are steady. Only critique would be to maybe drill into corporate SG&A ... as taking away Fortress Optical's negative EBITDA contribution, corporate expenses would be the tipping point to quarterly EBITDA being positive. Link to comment Share on other sites More sharing options...
alertmeipp Posted November 14, 2014 Share Posted November 14, 2014 Nice quarter (or at least not a bad one), expected more from Landqart though. Link to comment Share on other sites More sharing options...
sculpin Posted November 14, 2014 Share Posted November 14, 2014 Good to see the sequential improvements in operating costs and capacity utilization at Thurso. Major players in the pulp industry will take note of this. If they can close in on BE at these low DP prices & with Mofcom duty, then the upside EBITDA contribution at higher DP pricing would make this mill a very attractive addition to a portfolio of mills within a larger industry player. Continued consistency in utilization & further cost improvements would, I think, make this asset worth enough to retire much of the Company's debt if it were to be sold to a strategic investor. Return of DP to above $1K &/or drop of Mofcom 13% could result is substantial returns to shareholders as well. Link to comment Share on other sites More sharing options...
lessthaniv Posted November 14, 2014 Share Posted November 14, 2014 goods comments Sculpin. Link to comment Share on other sites More sharing options...
OptsyEagle Posted November 14, 2014 Share Posted November 14, 2014 Not bad. They have done a very good job at Thurso on the cost side. I am still pegging them at around 80% capacity but I suspect they are focusing on their costs and quality at this time, as I would do. It's too bad they don't post a 3rd quarter cash flow statement (only a 9 month statement) so we can easily get a handle on how much cash they burned through. It looks like they have reduced their maintenance capital spending to a much lower level then I had expected, so cash burn looks a little better. They also have about 20,000 tonnes of pulp in inventory that they could turn into around $14 million dollars of cash tomorrow. So that is in the bank as well. The crying shame in this story is that, at this time, pretty much all their issues and challenges are external from them. The market pricing of dissolving pulp, the MOFCOM duty and the exchange level of the Swiss Franc. If any one of those turned your $2 stock would probably be the best one in your portfolio. I am just not sure they have the time. Anyway, the management and employees of Thurso should be commended on their efforts, and Stephen Harper should be chastised for not announcing this week, the take back of the Canadian Dissolving Pulp industry from the Chinese who stole it. What do we pay him for? Link to comment Share on other sites More sharing options...
sculpin Posted November 14, 2014 Share Posted November 14, 2014 First analyst upgrade recommendation I have seen in years on this one... Fortress Paper | FTP-TSX | price C$2.20 | Market Perform Upgrade from Underperform to Market Perform. Target price changes from UR to C$2.50. EPS: 2014E C$(4.47) to C$(4.11) 2015E C$(1.78) to C$(1.77) 2016E C$(1.61) to C$(0.04) Mkt Cap (mln): C$32 Net Debt (mln): C$183 Yield: 0.0% FTP: 3Q14 Beat; Upgrading to Market Perform on Improved Ops Daryl Swetlishoff, CFA | RJL | 604.659.8246 | daryl.swetlishoff@raymondjames.ca David Quezada, CFA (Associate Analyst) | RJL | 604.659.8257 | david.quezada@raymondjames.ca Summary: ♦ We are upgrading Fortress Paper to Market Perform from Underperform based on progress with the cost structure and reliability of the Thurso dissolving pulp mill, as well as our expectation of improved dissolving pulp prices by 2016. ♦ Fortress reported 3Q14 results after market yesterday revealing EBITDA of ($1.5) mln as compared to RJL estimates of ($4.2) mln and consensus of ($2.8) mln. ♦ Still no improvement in DP pricing, but mill shuts are starting. ♦ Taking up 2016 estimates and rolling valuation basis forward.Fortress_RJ.pdf Link to comment Share on other sites More sharing options...
triedtestedand Posted November 14, 2014 Share Posted November 14, 2014 For Q3 ... You don't get to -$1.2M EBITDA selling all viscose-grade/all-DP-into-China ... with the anti-dumping duty, the numbers just don't work. They likely sold fair bit (at a loss) there, sold NBHK inventory for a gain, and perhaps started selling non-viscose-grade and/or to non-Chinese customers. At current prices and exchange rates, NBHK can be sold profitably (at least to proximal customers where shipping isn't a big cost), so by default they'd be doing it (at least for portion of production). Focusing on 100% DP going forward infers IMHO that they are generating traction with non-viscose-grade/non-Chinese customers. Optsy -> If you are really keen, you can infer the Q3 3 mo cash flows by comparing the Q2 6mo cash flows and the Q3 9mo cash flows. Link to comment Share on other sites More sharing options...
OptsyEagle Posted November 14, 2014 Share Posted November 14, 2014 "Optsy -> If you are really keen, you can infer the Q3 3 mo cash flows by comparing the Q2 6mo cash flows and the Q3 9mo cash flows." ------------- Yeah I know, but I was feeling a little lazy. I could tell the Q3 report was showing enough positive information from what they did disclose, I figured I would save myself the accounting migraine. Maybe next quarter I will go through it like Sherlock Holmes with a magnifying glass. Link to comment Share on other sites More sharing options...
sculpin Posted November 17, 2014 Share Posted November 17, 2014 Hadn't seen that Sateri is selling its VSF business to become a pure play in dissolving pulp - press release was at end of October... http://file.irasia.com/listco/hk/sateri/press/p141029.pdf Sateri to Focus on Dissolving Wood Pulp Business Following the Transaction, the Group will be a leading global pure-play dissolving wood pulp producer. Its remaining business in Brazil, including Bahia Specialty Cellulose (“BSC”), is the world’s third largest dissolving wood pulp producer with an annual production capacity of 485,000 tons. Link to comment Share on other sites More sharing options...
BRK7 Posted November 17, 2014 Share Posted November 17, 2014 Haven't seen this mentioned either: http://www.risiinfo.com/pulp-paper/news/Chinau2019s-Sun-Paper-to-build-350000-tonneyr-dissolving-pulp-line.html Link to comment Share on other sites More sharing options...
triedtestedand Posted November 17, 2014 Share Posted November 17, 2014 And on the flip side, just to lump together known closures (are there others?): -> Neucel closes for at least 2 months http://www.cheknews.ca/port-alice-mill-shut-two-months/ -> Sappi swings to NBHK http://www.risiinfo.com/pulp-paper/ppippw/A-year-after-170-million-dissolving-pulp-conversion-Sappi-to-swing-Cloquet-mill-back-to-NBHK-from-DP.html -> BILT permanently shuts Indian mill http://greattelangaana.com/news/bilt-moots-closure-of-kamalapuram-unit/1526 Link to comment Share on other sites More sharing options...
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