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

[sculpin]

CIBC on Landquart - values it currently at $64 million but believes it has realizable value up to $90MM - much dependent on take up of Durasafe I would think...

For 2014 overall we expect Landqart to have positive EBITDA of $6.1 million. We

see the general trend of this business as gradually improving and forecast 2015

EBITDA to be $10.9 million.

 

Market Is Gradually Developing For Durasafe

 

The key for Landqart going forward is to be able to build up a reasonable level of

orders for its new Durasafe banknote paper which has the combined benefits of

a polymer core along with optical thread enhancements.

 

In May the company reported that its Durasafe brand was confirmed as the

substrate of the ninth series of the Swiss Franc by the Swiss national Bank.

Durasafe is a new innovative composite paper-polymer-paper banknote

substrate developed by the Landqart mill. Initial shipments under this order

have already taken place and should carry into 2015 and 2016. During Q3/2014

the mill received four new orders and is actively promoting and receiving

interest in Durasafe.

 

While tonnage numbers for this order were not released by the company we

estimate that this contract could represent tonnage in the range of 200 to 300

tonnes of Durasafe. More importantly however, this validation by the Swiss

National Bank, will pave the way for other countries to look at the benefits and

features of the Durasafe substrate.

 

The company continues to market the strong durability and security features of

their Durasafe notes, which include their optical thread technology, and we

believe more significant orders for Durasafe are in Landqart’s future.

If Landqart could build 15%-20% of its overall orderbook on Durasafe orders

(1,500 to 2,000 tonnes per annum), we believe the Landqart mill would have a

substantial swing in profitability to the range of $10MM to $15MM of EBITDA per

annum.

 

We expect that FTP is still a seller of Landqart, but would rather do so from a

position of greater strength in two to three years’ time, where sale proceeds of

$70 to $90 million might be obtained. We currently value Landqart at $64

million in our NAV calculation.

[sculpin]

FTP CIBC report

FTP_Nov_CIBC.pdf

[lessthaniv]

Thx for that, Sculpin.

 

http://www.bdlive.co.za/business/industrials/2014/11/11/sappi-expects-rebound-in-price-of-lucrative-wood-pulp

 

SAPPI expects prices of dissolving wood pulp to remain depressed for about 18 months, as excess supply and low cotton prices put pressure on the price of the cotton substitute.

 

Sappi has about a 20% share of the world market for dissolving wood pulp, which it ships mainly to clothing and textiles makers in the Far East at far higher margins than its paper products.

 

We estimate that it will be a further 18 months or so that it will continue to be under pressure, but the long-term fundamentals of that business are still very strong," CEO Steve Binnie said on Monday

[obtuse_investor]

Ran across this short blurb from the Economist this morning...

 

Printing banknotes: no more easy money

De La Rue, a British company that prints banknotes for dozens of countries, reported gloomy half-year results today: revenues fell by 8%, year-on-year, and profits by 36%. Its new boss, Martin Sutherland, who joined last month, will have to work hard for his cash. A profit warning in September, the second within a year, caused De La Rue’s shares to plunge by 34%, shortly after the firm won the contract to print plastic banknotes for the Bank of England from 2016. Overcapacity in the industry and growing competition have squeezed margins; De La Rue is thought to have won the Bank of England contract only by offering a huge discount. Fortunately, its other area of expertise—printing passports—offers brighter prospects, as governments everywhere add new security features. For Mr Sutherland, more emphasis on travel documents may be just the ticket, now that producing banknotes is no longer a licence to print money.

 

http://espresso.economist.com/5a6649390ebf4c8f058a59f534eb09c1

[alertmeipp]

Thx for that, Sculpin.

 

http://www.bdlive.co.za/business/industrials/2014/11/11/sappi-expects-rebound-in-price-of-lucrative-wood-pulp

 

SAPPI expects prices of dissolving wood pulp to remain depressed for about 18 months, as excess supply and low cotton prices put pressure on the price of the cotton substitute.

 

Sappi has about a 20% share of the world market for dissolving wood pulp, which it ships mainly to clothing and textiles makers in the Far East at far higher margins than its paper products.

 

We estimate that it will be a further 18 months or so that it will continue to be under pressure, but the long-term fundamentals of that business are still very strong," CEO Steve Binnie said on Monday

 

We have 24 months before the convert is due. Hope they get some favorable term from the IQ loan. Wonder how it takes so long to issue debt against Lanqart, are they offering it to IQ as collateral?

[triedtestedand]

Add Tembec to the list (at least temporarily) curtailing DP production:

 

http://www.nugget.ca/2014/11/26/tembec-on-strike

 

[OptsyEagle]

They have quite a brilliant person there, as their union rep.  Is he nuts?  Tembec will hold out for years.  They will probably save more money with the plant closed then they would with it running.

 

This stuff really boggles my mind.  Some people can age long past the age of adulthood and still have absolutely no idea how the world works.

[doc75]

They have quite a brilliant person there, as their union rep.  Is he nuts?  Tembec will hold out for years.  They will probably save more money with the plant closed then they would with it running.

 

This stuff really boggles my mind.  Some people can age long past the age of adulthood and still have absolutely no idea how the world works.

 

This factoid is surprising:  "The company also highlighted the base average hourly wage at the Temiscaming site, which is $27.58 today under the old collective agreement, will increase to $30.05 over the four years."

 

Sounds like a pretty good average wage.  But of course that's the average, so we don't know the mix of skilled vs unskilled labour.  In any case a 2% hike per year seems very reasonable in this climate.  I wonder what the union was expecting?

 

[OptsyEagle]

Whatever it is, one week out of work takes the annual benefit of a 2% raise, and flushes it down the toilet.  I suspect they will be out of work a lot longer then a week unless they come to their senses.

[triedtestedand]

From what I've read ... it doesn't appear to be about wages ... more union claiming Tembec is a bully employer ... lots of consequent friction

[lessthaniv]

anyone have an idea on FTP's cost sensitivity to oil?

[alertmeipp]

No.  But last cc,  1m saving if oil stays.

 

But as oil tanks, loonies may follow, that would be the real deal.

 

 

 

 

[triedtestedand]

-> r.e. oil ... yep ... heard the same ... 1M/yr savings with oil price as of early November compared to summer.

-> r.e. loonie ... $1.5M/yr I think is what they said was currency effect for every drop/rise in the loonie.

 

Bigger savings still available if they convert kiln to natural gas ... but need discretionary capex to fund ... so guessing can's commit unless/until get  deal w IQ confirmed.

 

[rsmehta]

If fortress:

 

  - Is able to sell landquart for $75-90m, and use the proceeds to return all the CV debt

  - Come to a renewed resolution with IQ

  - Improve cost at Thurso mill, and become one of the low costs producers in the world of DP

------------------------------

 

    Do you think you can get a 10x-20x return from the current share price??

 

  For god sakes, it's the market cap is currently $27mm. They can earn that much in 2016 if they are able to get through their current issues(with a little bit of luck on DP prices).

 

  I wouldn't sell management short just yet.

[sculpin]

Loan extended to 2026. No interest (including no accrued interest) or principal payments until March 2017. Rate of 5% interest thereafter. Give IQ 1 million warrants at $5. This should definitely give them the breathing room they require.

 

 

Fortress Paper gains Thurso mill loan extension

 

 

2014-12-03 07:21 ET - News Release

 

 

Mr. Chadwick Wasilenkoff reports

 

FORTRESS PAPER ANNOUNCES DEFINITIVE IQ LOAN AMENDMENT

 

Fortress Paper Ltd.'s wholly owned subsidiary, Fortress Specialty Cellulose Inc., has entered into a definitive amendment agreement with Investissement Quebec in respect of its $102.4-million project financing loan with IQ relating to its mill located in Thurso, Que., which amendment has received final provincial government approval. This agreement reflects the strong relationship between Fortress Paper and IQ in respect of the FSC Mill and our mutual interest in ensuring the mill's success.

 

Pursuant to the amendment agreement, the maturity date of the IQ Loan has been extended from April 30, 2020 to December 31, 2026. Additional key terms of the amendment include:

 

Interest Deferral

 

From May 1, 2014 to December 31, 2016, inclusively, no interest shall accrue or be paid on the balance of the IQ Loan. Upon the expiry of such period, the IQ Loan shall bear interest at an annual rate of five percent, commencing January 1, 2017.

 

Principal Deferral

 

From May 1, 2014 to December 31, 2016, inclusively, there will be a repayment moratorium on principal repayments on the IQ Loan. Upon the expiry of the moratorium period, the FSC Mill shall repay the balance of the principal of the IQ Loan in quarterly installments, commencing March 31, 2017.

 

Contingent Payment

 

In consideration of the interest and principal payment deferral, IQ shall be entitled to contingent payments of up to a maximum aggregate amount of $14.25 million, payable by the FSC Mill in three installments if the FSC Mill produces excess cash flow, as defined in the amendment agreement. The contingent installment payments, if any, are payable on April 30 of 2021, 2024 and 2027.

 

Warrants

 

The previously issued 715,000 share purchase warrants in Fortress Paper issued to IQ shall be cancelled and Fortress Paper shall issue 1,000,000 share purchase warrants (each, a "Warrant"). Each Warrant shall entitle IQ to purchase a common share of Fortress Paper from treasury at the purchase price of $5 per share, payable in cash. The issuance of the Warrants shall be subject to Toronto Stock Exchange ("TSX") approval. The Warrants shall expire five years following the entering into of the amendment agreement and shall be non-transferable. If the closing price of Fortress Paper's common shares, as listed on the TSX, remains at $6.00 or higher for at least ten consecutive trading days, then Fortress Paper may accelerate the expiry date of the Warrants to be not earlier than thirty days following the date of notice to IQ of such acceleration.

 

Capital Expenditure

 

As evidence of the Company's commitment to improving the performance of the FSC Mill, pursuant to the amendment agreement, the FSC Mill has agreed to incur aggregate capital expenditures of at least $25 million during the fiscal years ending on December 31, 2014, 2015 and 2016, which is less than what management had anticipated spending during this period. For the fiscal year ended December 31, 2014, the FSC Mill is projected to have incurred capital expenditures of approximately $11.8 million.

 

Permitted Inter-Company Transfers

 

Pursuant to the amendment agreement, FSC shall be subject to certain restrictions on distributions to the Company during the moratorium period and the remaining term of the IQ Loan. However, the Company believes that such restrictions will not materially impede its financial capability to operate in the normal course of business.

 

Operational Commitments

 

During the moratorium period, the FSC Mill has also agreed to consult with and seek the approval of IQ in connection with shutdowns outside of the normal course of business or other than as a result of labour disruptions or force majeure.

 

The summary of the terms of the amendment agreement in this news release is qualified in its entirety by, and should be read in conjunction with, the full text of the amendment agreement which will be available shortly on SEDAR at www.sedar.com.

 

Chadwick Wasilenkoff, Chief Executive Officer of Fortress Paper, commented that: "Today's amendment agreement with IQ is reflective of a cooperative commercial relationship and is an important step for the FSC Mill in enhancing its working capital. The increased certainty provided by this long-term agreement will allow the FSC Mill to better manage its cash flow while we continue to seek further opportunities to enhance the Company's overall financial flexibility."

 

 

[triedtestedand]

Looks good to me.

 

-> The $14.25M contingent payment approximates the interest savings they get during the non-interest-accrual period (May1/14 to Dec31/16)

-> After 2016, the interest is actually lower than the current 5.5% rate.

-> 10 year principal payment period (Mar/17 to Dec/26) in quarterly instalments equates to $2.5M/qrtr

      -> so roughly $30M of IQ loan principal will need to be paid before the 2019 debs are due.

 

I'm presuming the certainty should allow FTP to make decisions now on incremental production-cost-saving capex (e.g. natural gas for kiln).

 

Will be interested to read what restrictions in inter-company transfers will be, what's currently NOT at the sub level, etc. ... 600K of 2019 debs traded yesterday at ~30 cents on the dollar.

[obtuse_investor]

Mr. Market is certainly very slow to respond to this pre-market news today. It took hours for stock and debentures jump 14% and 20%, respectively.

 

...just an observation.

[rsmehta]

what is the difference between FTPLF on the OTC exchange and FTP.to???

 

  Is there any additional risk purchasing FTPLF over FTP.to???

[lessthaniv]

ftplf is US exchange.

ftp is Can exchange.

 

so currency + potential liquidity risk on the smaller exchange.

 

 

[alertmeipp]

Good news.  At least it prolong the run way.

 

Surprised that the converts did not jump more on the news. 

 

 

 

[triedtestedand]

Christmas wish whittles down now to:

  a) LOC for Landqart (to free up all/portion of $20M in restricted cash)

  b) get inventory down to negligible amount (to free upwards of $15M)

  c) approve capex to further production-cost-savings projects (e.g. natural gas convert)

  d) keep securing new non-China/non-viscose-grade customers

  e) sell some Durasafe contracts

  f) buy-back debs below par

  g) monetize LSQ

 

Interestingly, NBHK/BEK pricing is hardening, so that provides backstop alternatives for "d".

 

http://www.risiinfo.com/pulp-paper/news/Fibria-slates-BEK-pulp-20tonne-price-hike.html

[misterkrusty]

Triedtestedand-  I like your wishlist.  just a couple comments:

 

on b) it seems to me the $$ to be freed up from inventory are more like $4.2M  they had 19,235 tonnes of DP and 1,387 tonnes of NBHK at end of 3Q14.  Per comments on the 3q14 call, they're targeting 15,000 tonnes of inventory at YE14.  So, assuming all NBHK is sold at ~$590/tonne (last price I've seen) and 4,235 tonnes of DP sold at $810 (recent price seen in 4q14 as mentioned on call), that gets you about $4.2M.  Let me know if I'm missing something

 

on c) I spoke with fortress a couple weeks ago and they're still debating whether or not to switch to natgas.  but frankly I think this is one of many potential improvements and either way I would imagine there's still some decent cost reduction to be had

 

let the NCIB begin!

[triedtestedand]

Hey Krusty ... err ... Mr Krusty:

 

r.e. "b" ... I'm assuming they get inventory down to close to zero (vs 15K ADMT) ... they were there before ... they can get there again ... especially as other DP producers take market market downtime, are on strike, switch to fluff/NBHK, etc. ... and also think that they are starting to learn to underpromise, and hopefully overdeliver.

 

r.e. "c" ... they've been talking about this one for long time ... so not sure how much ROI it is ... It's no doubt a bigger spend item, with longer payback, and with payback economics fluctuating with recent oil price drop, etc. ... so hard for them to consider if capital really tight ... maybe they put the capital into debt NCIB and defer for a bit ... the project isn't likely to go away

 

Haven't heard Nanotech make any announcements r.e. new orders ... maybe that it wishlist item "h" ...

[alertmeipp]

Tnt,  I think the high inventory is some what caused by tightening of credit in Chinese. They need to actually delivered their products to China before they can sell it.

 

 

[sculpin]

Is there still a NCIB in effect for the common shares and converts? Looked over the last year and can't find any mention of it - I think once one is announced it is only good for 52 weeks.