MERC - Earnings call transcript Q3 2017 | Mercer International Inc.

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Operator

Good morning and welcome to Mercer International's Third Quarter 2017 Earnings Conference Call.

On the call today is David Gandossi, President and Chief Executive Officer of Mercer International; and David Ure, Senior Vice President Finance, Chief Financial Officer and Secretary. I will now hand the call over to David Ure. Sir, please go ahead.

David Ure

Thank you. everyone. morning, Good markets, by the begin I few to QX. discuss minutes pass and strategic I outlook our highlights taking of about into the to David financial call then operational the speak performance, the activities will to a our quarter will and Please Litigation the will Provisions Safe make note of morning's Reform statements forward-looking the we in call, this Securities Act Harbor XXXX. of and that Private conference be according to related Company's to your fully Exchange call attention the risks are press to to Securities statements, like more these the described release I'd which and filings and our in in Commission. the with

QX. lumber business. Our $XX.X are operational results faster In and to performance, achieved compared QX $XX.X consolidated reflect products higher million level which up and maintenance a reflect million U.S. that prices, our pulp financial record by strong expected compared were major markets Products by of in QX, EBITDA our results to offset we weaker costs of QX, for QX and ramp When lower dollar. Wood partially our

operations The competitors. direct XX these QX. costs reporting be also Celgar EBITDA. maintenance of XX costs our $X.X major million in could compared of solid QX, in between IFRS we Our sawmill have earnings impact was The of In shut days of majority Stendal mill by Rosenthal at compared days scheduled contributed our combined million to $X.X totaling million QX QX. to $XX.X of capitalized our and

$XX.X $X.X offices million. and reporting the EBITDA $X.X our In two Products our mill last Friesau are excluding of noted Pulp million now incurred million saw of new EBITDA, QX, with depreciation contributed quarter Wood the segments. corporate of of segment I our costs As segment contributed acquisition business we

in could say prices David a and disclosures markets by to more about be will have to higher impacted XX-Q. Compared positively our million. found lumber QX the segment in moment. EBITDA Additional pulp $X.X

Our impacted during that impact a negatively to of dollar results the by U.S. to million EBITDA continued compared also and weaken quarter $XX.X reflected the QX.

tons pulp compared electricity totaled Our record relative XX due XXX,XXX QX to almost sales pulp to gigawatt about is QX, sales production. to hours essentially were and which up flat

the sold up equivalent this sold of of addition, of our feet quarter mill XX% being board market. Friesau about In XX.X lumber the saw million wrap in in with the U.S. we about of with volume the

During for income the basic in in U.S. lumber quarter growing or loss basic the also the $X.X million to million our inventory QX. sales we purpose a $X.XX of for or of market $XX.X quarter $X.XX up of net share net reported We the of completed compared per build for QX. share

million reflects credit saw the QX, the was Income expense our cash revolving shield which tax expense in interest approximately million to Our tax current. interest mill was reflect interest $X.X as taxes Friesau million continued of senior taxes. on use assets was well quarter our $X.X Current as $XX.X which note facility. of

the during $XX an primarily the QX so by spread flow, through a expenditures quarter increase our $XX The offset inventory with by $XX spending between Capital and working in increase was net was approximately and the high on compared and focused our reliability reduction in capital cash of in to quarter improving QX U.S. this a cash for program. mills partially due during a cash to results Turning to sales in operating needed cash increased about of million. in in strong our increase projects. this balance return result lumber million was million

$X.X million included quarter payment. dividend also the Our cash outflows quarterly in our

have trailing ends was completed to increase about on turn January XX-month balance dividend, schedule a to have at swap the And end. $XXX Board to And you due just up discuss on December stronger million $XXX now overview million XX our which of and EBITDA QX which to basis, our on to which for as the and decreased quarter undrawn EBITDA. payment is consolidated million increasing financial relative rate end improved results cash operational after David and of record times settlement call our net payment liquidity revolvers. interest conditions the of or On is primarily release shareholders strategic Our flow, a made our will approximately QX as strong has X.X QX on $X.XXX from approved quarterly our to for Gandossi our yesterday market That our of mill the activities. $XXX press performance final cash is floating about a debt it our of closing comment all X% my seen X, that made I'll be XXXX. the results, over in of

David Gandossi

Thanks morning, Dave. Good everyone.

All operating operational well performance of in a production number process. our QX mills reflect strong and ran the quarter. Our results had in the records our

of of range We up end These the the XXXX forecasted. includes ramp Part a we has also seeing Friesau synergies investments $XX team record mill. able to we ramp originally were to been upper the are We up near synergies million of reliability expecting. of energy now the sold already the quickly recent the in QX. achieving show our our benefit we Celgar's the expect be in volume results and how

of end of have $X.X worth synergies. September, of As the we million captured

and without annual downtime operating days I QX started safely strong that included results shut report mill. XX hitch. happy to our maintenance up of completed a am of Rosenthal was the at Our ahead schedule

strong about pricing Late In significant averaged and relative flat being ton per steady were terms prices $XXX QX in demand to In in is throughout of have we China. QX. China pressure October. seen pulp in and QX the markets, upward

and price was list increase a China announced Our $XXX increased November. ton in further in October per we've

stems which highlighted in a our of China $XXX QX circumstances of strength $XXX in and call. factors business today combination view, conference China New from transacting our during In we and ton. the is between per some

lower local the dollar during half market RMB the were at pulp prices reselling, of XXXX. that for prices taking year, price on traders profits of period. most contract first U.S. than The in they was purchased lower First,

Second, China remained in demand for has fact most markets strong. and pulp in

Third, highly in waste China ban import volume low and consumers pulp paper price of the polluting has agricultural-based paper a traders the induced significant demand years with capacity, pulp a many close inventories has of increases. being and preceding fed the sitting on and finally, introduction empty combined

remained prices averaging pricing upward We've NBSK in list Europe, to demand to also in in Europe has October. $XXX seen with Moving QX. steady also compared per ton QX $XXX pressure

sales by experienced in upward pricing the a reflection strength we margin is in China. of in a NBSK traditionally underlying pressure is quarter the period, Europe third slower opportunities supported higher of so further market QX The the

these to seem of markets. the All mitigated predicted have negative factors the entering of impacts capacity new

we market significant with paper price average new prices pressure been very average to per over in well in for might SPF are while consumer nine may supported benchmark days. up markets pulp producers QX. XXXX, including Lumber there and regard. expected supporting the of and global by are This downward and the September $XXX No. demand coming level also be levels U.S. relatively at and flat, from through many at is X pulp it bring up inventories gap Further record historical as is China, discussions don't have pricing capacity success Western current softwood strong X.X%. higher some maybe We XXXX, that thousand be in balanced. strong and and believe months Random levels. better this inventories XX ending considering in at to as predicting. analysts which this feet the at The addition, near were In are and seems QX, NBSK from producer X.X% Lengths its $XX U.S. above up China shipments demand, were board picture, shipments first the demand were

seeing demand lumber grow for the enter we XX% our volumes European We steady sold successfully QX, In the also quarter about in with that lumber of lumber this and sales in market to we U.S. expect We’re products. QX. our U.S. in markets.

Turning major year. in plan a at three-day we week do and shut short we successfully to maintenance QX, this not this further Stendal any operations, completed maintenance have

compared which XXXX, Rosenthal a Celgar the and pulp third is second we about in include both Stendal XX-day an quarter to of the be normal every XXX,XXX XXX,XXX and outage this our tons turbines. will of expect approximately major required tons in in of happens to maintenance seven for tons shuts maintenance will and the of in have one XXXX on ahead approximate maintenance total, turbines quarter, Looking its to record also In QX. XXXX. years. we XXX,XXX Stendal QX quarter shut produced This

totaled while QX XXX,XXX mill quarter, produced lumber sales XXX.X board approximately a compared Pulp running of in XXX,XXX volumes to and in million the basis. two XXX,XXX also in tons in feet QX XXXX. tons QX on We shift tons the

We of sold board $XX.X QX. also million in lumber feet

Our pulp and We wood quarter, our Relative Overall balanced. in XXXX. quarter. to compared XXX slightly energy XXX hours to XXX in approximately sold QX production to are markets record in the lumber strong fiber QX this currently our sales. led of down electricity gigawatt QX, costs and were

increase forward, Looking build prices remain we pulpwood to marginally continue we QX in rather to stocks. our expect costs, winter as to

increased industrial competition some in fiber. from the industry seeing are board We for this

what we cost in build fiber begin dollar season as inventories marginally interim after slow BC. to Canadian Celgar's has in been expect dry conditions a also extremely We will harvesting summer increase due there, to QX,

them of to but prices. watch not expect currently the our Canadian agreement to we are lumber softwood development material impact do continuing negotiations, fiber the We U.S.

be continue sawmill’s inventories very logistics, supply. comfortable to our mills to and fiber sawmill also flat to fiber rationalize expect we QX fiber we’re the We with costs as to

our roughly are how our focus plans, reducing million of our costs. program CapEx take. respect has to while our continues in claim, teams balance this now long With and to arbitrate maintaining well is executing our improving the at mills, taken The of a of it claims historically Regarding reliability time be to XXXX. the outside our program these CapEx NAFTA on $XX

expect near continue we So future. to in a the decision

Canada, ongoing Mexico impact NAFTA and U.S., our claim. our the In addition will in the view not negotiations between

As a increase. increase cash sheet leverage pleased Dave opportunities generation our quarterly and our support to our mentioned, balance competencies, X% evaluate we announcing acquisition we're core to also a be while dividend measured strength to continue to dividend,

with pleased sawmill are earlier, As up. quickly we ramped how I our has noted new

We have potential about team strong area. for in sales I'm and developed growth for this management further in business solid a wood excited the leadership

such Derivatives Wood Base Wood in can course our expect ahead and and you Electricity Products, to where and competencies, we our further Specialty maintain Paper world and in Wood and Products. Wood in leverage Chemicals assets to and Green can areas of core as Logistics, seize and Procurement our continue and class Pulp XXXX, in to execute growth Looking opportunities us to to plan improve strategic

So questions. conclusion the our that's can I'll back prepared And so call to a of call for open the remarks. operator, we the turn

Operator

[Operator And of question from the with line [indiscernible] first RBC your Capital comes Markets. Instructions]

Unidentified Analyst

Hi, good morning, guys.

David Gandossi

Good morning.

Unidentified Analyst

but think with new year-over-year on I of they're savings results, railcars? the you in benefits the one and and on just not added up in or X% Good of color or seeing your that thing Germany, just some guys fiber any reach quarter kind cost maybe added

David Gandossi

railcars course of new the ways for the bunch gives provide benefits of Well, unit per in reach. reduced a us costs for

bond which a And the really maybe well. a FX We was shutdown part Hurricane early with. pretty Xavier, is about in is so an there is a do component in called it that a think had seeing It there base Europe to storm in XX which actually we're as I a October. week really – of your for increase more

in it a storm might are fiber A of because mean also costs the winter up like much little inventory a otherwise local build as summer. some conditions not of weather earlier increasing the I of of behind So imply. because on and as the

not it's not appears to some this that price primarily year increases. time - at significant modest have us maybe because But unusual we'll FX. it So have of

Unidentified Analyst

That’s me Got Thank you. it for guys. Got it. right. it. Okay. All

Operator

comes of Hamir Patel the question CIBC from Markets. Your next with line Capital

Hamir Patel

think level know production you better What of David expected. you good that Friesau in XXXX? originally lumber I targeting looks morning. than there like running may Hi, you have is

David Gandossi

that you Well, about - use you number for good the recent so capacity modeling totally normalize purposes. if million you quarter get talked $XXX to that's the can its we've see a

Hamir Patel

do you sort to there products of unfolds? shift the you're producing Okay. Fair XX and is in mix enough expect

David Gandossi

start right to six are We've that mean going mill, first I a markets to are a Japan Yes, now with conditions offering very products really on strong. flexible our to introduce U.S. prime so to containers it's healthy the way markets. to into obviously we're European our variety sent the focus market. grades for J-grade

in we margins approach business the optimizing it but high balanced we're suite where a so of new think out our in full can building we're offerings. I So be will

that So diversified. that be markets well will if there's changes in

Hamir Patel

And helpful. recent much to acquisitions and since might pipeline That’s how months? multiples shifted other right Thanks. be speak for David sawmills potential I one of in the you at than valuation can in now think Friesau - acquired transaction robust Europe you least and

David Gandossi

Yes, a busy for you are We've - on bought had we've number that's still targets but we're a good we've got other challenging. things question. we been before valuations as working Friesau of point out and

we're not anything. for going we're disciplined not we're overpay So to

we're some are Friesau scenarios and opportunities We that also capital have build sense might buying valuations saw more given return have on the high make - today. even we might mill have we and

So options. we're those all different analyzing of

Hamir Patel

a will – with down to be want other the of proximity one sorry – go in maybe to Greenfield mean were you be I if pulp mills? sawmills that that to And

David Gandossi

be Yes, to in Stendal. closer I'd regions the northern

Hamir Patel

the go year. And down [indiscernible] side, next the that might on side hardwood we're as were you what sort on annual Fair perhaps contract Curious those the actually enough. contracts for of their the softwood this then just negotiations on week, seeing XXXX? discounts speculating know earlier finalize question pulp you they

David Gandossi

at topic be mean I think a going a discussed renewals. contract there's in it's from lot certainly where you the on pulp length week know now I traditional to Well, that's discussions London the it's of and London week that's

why going also discounts. there producers haven't With be started. is happening very reduce effect pushing be a in like know up don't may prices to those market tension and this Why for the being need would I discount. any discussions there the ourselves really quickly all here But

Hamir Patel

Thanks That’s for I the color David. all had.

Operator

comes of Your Steuart question Sean TD line Newcrest. with next from

Sean Steuart

you this I to your or specifically factors want that’s Thanks. any be restriction David, recycled last we added is of looking you've variable the imports. indicated much momentum? year, and have pulp of this coming relaxed, of you sort at sort import various fiber positive that the end incremental of a focus it those And the to guys Couple Chinese to of China questions. the that on Good market the recent of on morning, guys. have positive view licenses attention the through is towards recycled of do wanted think How leg most leg to added more back fiber might on I might momentum be when and ground guess over again?

David Gandossi

regulatory structural XXXX through stuff. outdated all just China. to plan promoting a me, this if saying, for Yes. all pollution is in improving it's Well conditions. review about their XXXX maybe that done I to and The kind was mean reducing green side reducing five-year reducing environmental energy poverty supply mean of pretty overcapacity, was development, enhancing the and efficiency, improving like reform, that clear is focus XXth on I you shift real

very going are I it’s about China. they is Environmental regulatory X.X%. from think the Control This about standard into came tough all on think waste. really products waste paper. solid I initial isn't sorts is that just serious this contamination mean like a draft feeling of I it’s our Standard maximum paper. They rate something out, So The put this. And Protection

in. mixed it that's it of big is seems this talking America that's be else. prevent. is I North that to whether not Japan, it's with garbage the out to So trying is want going to discussion coming fiber don't me to close. to out Is standard what But of office mean coming or way meet along percentages stuff something X.X% coming import even about, there's They China were we to of going continue no the waste or

like in XX%, permits going So mean have the it to a other stuff, get are slowdown mixed permits million pipeline on license the office think SOP they guys sure is a China as we the cheat have I much million isn't. so people and of in the the making missing the there's is that's something system. don’t think now some to really you're waste the grades calling OCC because be. to aren't million auditing it getting – going, and companies and X.X that X.X kind fiber compared Plus of it and but what the well and guys those real X fiber to tons, don't of in putting is maybe tougher how that wrong to import yield China feeling I something feel room like I talking little guys system, that right used on over tons so for will My

evolve, think So really I this is may don't Sean, I don't away. things know. going

I to this up. and I it's they is And think it think the real tighten kind like to pulp domestic get of get their their continue as here is sort recycling I going. arms try think stuff agricultural-based of around to now paper the and stuff focus going to they're

will over I and be to think November an number addressed and is in be that evolving announced This sometime we'll see has story what So X.X% time. that a happens.

Sean Steuart

that for Thanks context.

question remind about per your that objective? a about again, as your or dividend policy, relative whether target sustainability share? I to you payout it's you on respect you dividend. ratio to think How long-term with can What for had payout of Second guys is is do cash flow the the EPS us think

David Gandossi

return that. part strategy. driving a balanced cycle percentage projects. modestly have want our level We return to EPS always investors leverage not a comfort and want the free shareholders. to dividend cash to increasing allocation that value. of metric an it shareholder as we anything comfortable a are We're or safety, is or high as to to capital flow and We se It's our want our so just invest and like equity appropriate to of a We we off of Yes. of cash per in reflection want grow just maintain throughout enhancing and approach the company really

Sean Steuart

But variable a like forecast this, it's the…? just David, when dividend it to with your view it about a level think over shouldn't to horizon on that clarify policy, as you increase based sustainable we is a that this

David Gandossi

Yes.

Sean Steuart

think we that's So why about it.

David Gandossi

mean have times We ever That’s would We said hoping. hope many increase I never I dividend. continually it. we're to to the reduce not right.

of but over performance thing. this time steadily scope at modestly one of is that – scale It's not no. the direction. times, improves, isn't increase maybe a Although and the our and but company signal as improves a This just time a

Sean Steuart

Got it.

that’s had. I much Thanks Okay, very guys. all

Operator

Your comes Company. the from Dan Sidoti next question line Jacome from with &

Daniel Jacome

morning. are How you? Can hear me? Good you

David Gandossi

fine you Dan. hear we Yes,

Daniel Jacome

Terrific, job. nice

Just quarter. first on you lumber But you by the to XX the quarters was XX questions this two I or so two on – improve think about the I levels, know impressed like utilization have quick here, side, only books. from I

something your have when it You time just would think with north the long? me. Is kind possibly a expect you kind so reasonable much but is us even seems target do utilization of resolution. been is question, but I on the NAFTA. taking so of rate quarter? a that, second fourth there a you we to XX gave be get on it from else about assume that on it, for this progress, safe what's on waiting near-term then the production, just you'd know I course the That’s kind What mean their same? of to beyond you quarter, desk you've that to the from to or of a And current for it long have initial is think expectations be

David Gandossi

Yes.

one lumber. two Okay, the well on questions, first so

a year. fixing third I some quarter the bogey always it normalize is and high capital volumes is and in and that best year. run next look for that's good optimizing next to things to This we're guidance return for expecting and mill the Mercer, think rollout at

ideas so about talk yet, that some we've We we'll mill for and those plans high all haven't future return finalized those great got calls. on but

Judges the previous it's really said them I've guys, lead three calls late. here. that we of is time really on had big backlog it's an But file that learn basically tribunals another that the the after, – Judge and three and think – understanding one had I the our did that For prolong

in getting it So company the – it view our what must is… pretty close that see be is

Daniel Jacome

Okay. have Maybe I follow-up here. a

feel of don't a you I have this the details China, you ban think for it's what press putting need that are for for we to and Just how that just medium guys. Is I lot and that details, provide you be maybe sounds know import release, in of much restrictions out there to see? place provided longer-term? anything on the to in are guys like could did in you confident looking in can and just would the see but I'm there be are a you you you internally said you term going lot fact wait or a benefit visibility curious you

David Gandossi

determination think the different jurisdictions. papers I'd finalized going how and Yes. of be officials watching in I us the of lot new be coming price there'll the about they're on is stuff lots this of regulation the Well, this regulatory approach out about going sort tell on and to to that's that in Chinese impact of waste [indiscernible] draft a be November

clear pretty on So read I a got very quickly. it we've think

Daniel Jacome

a for it lot. Thanks that's me. Okay,

Operator

next line question with Credit Kuske Your comes Suisse. Andrew from of the

Andrew Kuske

detail a just the I follow-up a impact Mercer going fiber? from the question A aspects Thank getting wood release you've from got pricing and you. on out of of Good And local the obviously suppliers and you little the then the are about you quantify Could ways this. in to you've question appreciate interplay the is, got on Rosenthal bit all really of for of the on ships better bit those of morning. helps relates the this your going economic also impact operations? then on aspects maybe it's particular, overall other back. fiber Friesau and Friesau that

David Gandossi

And that’s were pull out going fuel Friesau that bark from fines Friesau to up to and mill as on saw cheaper the pulp take mill Yes, the to so instead We on and of from we're in mill. wood the burning of the chips and than white past. the then white Friesau Friesau it's well to to that stream synergies used as burn able a it. a pulp ways by-product able – it's sell

rate of EBITDA the X. September be the So to is to we've end are $X.X will the synergy about expectations for year of guided announced high-end and run our on that million which X the originally

the Friesau procurement a down through mill terms per fiber impact have region In push saw modestly region both the really know signal and of as because very ramped did prices hasn’t that basket in of around is prices on really now. market into debarked the storage We muscled of of out in we're again us, sawmill well the and of our another but you as which our moved strength just inventory we've full got the level up. wood our been front think up way the elbows got pushed we've pulp in build I we the coming up at in market quickly normalizing we've say activities. of today And hump wood the mill and as log - and initially terms the of

our fiber are we've mill. very I my and mentioned remarks comfortable inventory got that levels in think for with supply our as I

Andrew Kuske

tangent. helpful very bit then That's little other Okay. question and one different just a

explicit just moves. the $XX.X year-ago FX quarter results the you’re compared in million because of and FX same the in impact, on to the on Just

you're So do obviously FX” of there's you volatility, “normal into in when your how think about lot looking for a modeling assumptions FX but XXXX?

David Gandossi

led our CFO I answer question. that

David Ure

test that we're our and FX and our on and sure I by used maybe. our is take not with the we comfortable volatile capital I don't we so but talked could ask we'd that of FX you make planning long-term that planning, model distressed lot views thoughts guess obviously there. and we the sure and past really I'm to about haven't just Well, our in a gain

because to the to Canadian or of in tend the or other element Eurozone U.S. you volatile that thing dollar over immediate dollar is zone see quarter very is time an produced is very, NBSK then experienced it's weakening not remember Just like majority a the in we've time but and relationship two. in it's there of periods over last there the

You tend to upward the on commodity see prices of support a little bit well.

time say not So effect the it's - price. tend of to immediate from not an but you they over time offsetting FX see over kind there's instantaneous on

Andrew Kuske

helpful. Okay. That's very Thank you.

Operator

next comes question line Capital Your the Shapiro with from Andrew of Management. Lawndale

Andrew Shapiro

hi, questions if a I few just Yes, follow-up could.

to other then thing You have of again, its you out do certain obviously the ramping saw things were on getting integration the and of synergies that Friesau be main you all or to to left to certain is up expecting business what the on do to needs pace. But integration with how be what is respect seems going and expected done is it which done.

David Gandossi

of or lot of synergies. you speak integration work Andy guess I the Well, a when

bought the regulatory pine available. we get at power was since something as Okay by well. mill for we improved for additional the rate a There's we've regulatory an

you the haven't we thing if another sure are So the one at because applied that. things that you in called top want it's do that way that a done right of There's of bonus guys on bonus, that's [indiscernible] higher rates the can to just to we've do. achieve for certain make this where on that yet working we a just

and on logs down. backhauls train the north saw logistics a Rosenthal picks in vessel sense continue tuning bring cuts lumber go we on We and the to then chips the and ship the synergies from where them them back in other. same comes and There's we've across, to in to get the cars and loaded the transportation optimize that around the turn and rail stick rail logs one U.S. onto also mark up of will they to Berlin up and more with direction

we produce goes value more and our we just as time optimize logistics do. So as on, to continue

the On so and systems what been earlier I were, to shop product the side, our it we're is of it's optimize to optimizing integration think upgrading they integrating that the give and offerings type but services, in we've it support better and SAP, thing. like us was SAP version, used capabilities they getting

steady high So capital improvement mentioned even it's falling hard investments. to be get there really type if can would on know off paybacks very the do; return it's earlier, on. well. we're as can long capital, working projects And goes we three we then as know We two year the risks execute something of time stuff mill. I we I mean or good a and for on

that about I'm we'll more So talk on call. sure the February

Andrew Shapiro

increase of power stand Celgar, to your of cost kind mean the CapEx still cutting and room lot in a calls, always profitability lot at still was done Okay. I in by but there's progress improvement Where spoke said but On improvement, enhancement and and after Is there. latest that lot the do product still of for the you of a room you've improvement, for revenue prior maintenance do? you for there's can of description there you is room there a that? upside you on

David Gandossi

an Yes. you fixed incremental making in amount like Celgar XXX,XXX of and because coverage cost and gives produce because the ton tons you XXX,XXX tons There's difference mill electricity between a generation. pulp a big of of every

the is program XXX,XXX the XXX,XXX expectation it moved was think about high XXX,XXX the tons then to XXX,XXX, mill we've and into are capital of ends shut, tons with of months following XXXX So for from next should in year year, the year this that it's will year my run that ton range. this move – range target six Celgar for last XXX,XXX at maintenance the I first that for

its really XXX,XXX. of years. to return the on next et be about rate high level to that's that ton, for There But go cost of described. that us road up its That's a for to XXXX in so capital got the optimize per ton I've will few the a mill; tons That for opportunities generation optimal the next the just And level talking energy cetera. year, level perhaps. is been I line good we’ve for clear opportunity sight down really last run

Andrew Shapiro

end, there's a you end there's assess to and you with And it. cetera. claim the the claim, Got respect NAFTA low damages high made when et a and

expectation for involve, Some decision so That that the potentially that decision? of the timing it's just the would mandating of decision long was the of all based change of calculation modification which damage built and in light in because claims guess of behavior. on I the or taken would an

David Gandossi

province damage what it no over Yes. but regime impact or doesn't of thinking, damages the the an way. mill, is provincial and of that mills The to that the Canada power to just pulp the understand caused. other opportunity I anything, award government British will to our to to remember change be the the be that work There owned that damages it you're claim of on of the sell will for influence took of not us. by they get appropriate did the it's has caused Canada where Canadian amount pay And that Columbia simply in to Columbia all British the damages the we relative companies. are actions

Andrew Shapiro

that not policy getting changed As you still opportunity? or are that

David Gandossi

got We treated we'd contract. what the we got long-term more. lot been would it's we got and No, a a same have if

Andrew Shapiro

Okay, so number. is why of is a damage the fixed kind that

David Gandossi

That's right.

Andrew Shapiro

– are investment road plans next what the your or et six know non-dealer lastly and so for don’t shows I of cetera? months right All presentations,

David Ure

by show early coming a up even non-dealer so Dave? road Yes, December November,

David Gandossi

Last week November. in

David Ure

week Coast look as November, forward January conference, that of Investor guess always which we to well and will one the on so attended. CIBC I East then be Last the is

David Gandossi

bank non-dealer nothing with on usual so we on. other along road but the And doing conferences specific than in that, XXXX will activity show agenda be and more all

Andrew Shapiro

thank you. Great,

Operator

Instructions] [Operator Zirkin Adam from line Knighthead. of the Your question next comes with

Adam Zirkin

are how you? gentleman, Hey,

David Gandossi

Good. Adam. Thanks,

Adam Zirkin

quarter. solid really run but someone asked usually call? I think by don't on and happen to mill, well. like the you a the this sales Would we on production did Looks now, very have by assets Congratulations

David Gandossi

off. I can those Yes, read

Adam Zirkin

David. Thanks,

David Gandossi

we So about pulp talk mill are the production thousands first, these Rosenthal of through. run tons all so and

Celgar Celgar again Stendal XXX.X, XX.X, XX.X, sales Rosenthal thousands, So Stendal XXX.X, XXX.X. Rosenthal in and and XXX.X

Adam Zirkin

that? The Great, capital like Dave a seemed to flow driving statement bit – thank What's Thank relative cash spending rate. quarter you much. you. it elevated in the press release. very at looks the in just also the run looking

David Ure

anything in where it's we bad, a signal I Adam… just of of things, projects particular, the mean and timing Nothing various are good the not or just in

Adam Zirkin

split What or component any tonnages, happening everything pricing. year? of between quarter the markets small. the can I remind the And just given in Got then versus what remind know given I American lastly, and goes you us right, to you to us, it, Can okay. guess China North that's Europe, major

David Gandossi

that’s right. Yes,

XXX-ish thinkfor I Celgar, For into the market. Asian

For the into Stendal, to margins sometimes it seems times The or China. to there XX% to be push We as we’re China. do rather We good committing about think better. more cycle a over to push it’s into thing right Europe. than

return. those at central when the primarily to a XX,XXX and another bit The we around Middle into get of Stendal that’s of good chimneys, little rest So East China. a tons Europe, XX,XXX is kinds markets

Adam Zirkin

Asia math just the I So this tons the [indiscernible] be quarter over up to a quarter, $XXX the much or at fourth example a to around or the is of a understand over production and on is math ton that right, $XX sequentially and XXX,XXX, look thinking Chinese Celgar’s right? of sort Stendal’s year, as fourth pretty would straight tons $XX a Are give about tailwind you we right, XX% to take. XXX,XXX in be to Pricings ought well quarter. going for somewhere XXX,XXX alone, multiplication So market XX% little of right million of price that right? the mean the million is –

David Gandossi

up. to starting to mentioned, going the middle in at Yes, be China XXX the then go Fraser as somewhere? [indiscernible] X, at XXX ranges, is business it’s October I range those in will XX XXX two November ranges of Canfor and probably West

Adam Zirkin

we XXX,XXX that the and Right, in concluded quarter, just right high right? to compares

David Gandossi

that’s Yes, right.

Adam Zirkin

That you Perfect. on And maybe very increasing expect on in going one David a it the feel. German some a costs. pressure is okay. guess stable into let quarter? feel fiber you you Do there. of to another bit fourth it mentioned Does helpful. perhaps sequential was Do that’s to as that expect I basis? an some – decline sorry the that it, the the issues Got hurricane lastly

David Gandossi

a little be transport Hurricane, spring terms because I’m into just now a the to so got in of we quantify. the currency and not fourth the of Well, of by bit missed bit quarter bit normal will of winter hard in the – we to of the that Europe for that’s fiber cost base I tighter it’s good right I euro this kind here. – little in because solid It’s down seasonal mean going little it inflation mean come activity up and XX going start local to

Adam Zirkin

Great. Congratulations much. sense. very you make thank you. again. Thank it Well, Got

David Gandossi

Adam. Thanks

Operator

the line next [indiscernible]. Your comes from of question

Unidentified Analyst

talk not shut this is XXXX about the for Did maintenance at yet? schedule you time been disclosed or

David Gandossi

I but was it comments, I put in my a through before. going opening pretty quick

quarter really every and Rosenthal into third to XX-month are liability create second to Celgar possible the then it’s XXXX. back happens some - quarter to So to in but on on way it going maintenance start to you and It's the of maintenance to for Schedule up both in the that it's what drives because quarter mill hold mills. one have some with against is month of unfortunate that, can't that right and be Stendal is in impact and do a and mean it it to we back going us. impact quarter. modern is great I it's it a the the it's the be bump were XX Stendal’s mills risk it's that we it it can get third do other which Celgar wouldn't because year but away other can't two hold

we to make So had choice. a

it'll quarter be - two much ahead in later obviously Rosenthal's of the second third than be the the mills quarter big it. it'll second with obviously. in So the

Unidentified Analyst

interesting tons disclose the think long net time. the Celgar is of quarter on Most very, the I comments great. I was XXX,XXX Okay third performance done EMC think mean you of number I October you And really quarterly mean the get tons just quarter in very and another that million of where XXX is in that to XXX we're to sort need of about that running kind talked sort we rate? I October strong

David Gandossi

bit neck a we've got for I don't there produce all we're won't got labor in the I shape. XXX,XXX It's out mill everybody's our put equipments same see direction. situation very little a XXXX. my great good pleased going the with here, that’s team running any reason well, in and We've why but

So borrowing disasters is going. with unforeseen very any very, direction comfortable that a the mill

Unidentified Analyst

incremental terms of and improvement? on Okay interesting? Can very color us XXX the a in little also in done give to is the second bump being what you is that the XXXX up of commentary more half bit get

David Gandossi

sure. Yes,

so you've years that a if if it's and a number the be age some debt don't the break that that getting may for the getting phase equipment been of you dealing you talking to has at work with to certain reliability to by like couple that's sudden all mix. we've a downtime get life things could high cause XXXX kind proactively mill and and - the of of that close of don't of it's mill sort first been know standards the it up of with if last you got the So about of the end deal

of sort we So that all finished reliability. risk through the program business of of of is areas maintenance virtually the we've that high just impact

to steadily is mill have now reliably set projects risks next we our running And increase the now of analyzed and and and rate. contained. the we all So of have the

first into really and a it’s up a the not chip we like] you to and call digester digester is a we chip it's is mechanism feeding reliability it's meter is and standard in pressure a goes at [ball feeder the that it high then. that a digester low the and de-bottlenecking then the So prove work see rate. have and rate the now And our

and that it's And enhance opportunity us the we a de-bottleneck of the mill that so capital aspect production. can for

that running work next to and the be we it'll take shut that April run if in at during We're tons. going at bottleneck rate run do out So rate of tie-ins a a – it'll XXX,XXX the year. of run

and why I half. for of half that's the So XXX mentioned first your second the the for XXX

Unidentified Analyst

put we the did project? a And price on

David Gandossi

like a it's disclosed that it's a return but home real high Haven't it's run. yet,

So in we'll talk about we our more February engineering. finished when that of

Unidentified Analyst

put And Celgar. we the did for that data on shut

David Gandossi

in It’s April.

Unidentified Analyst

Number days. of

David Gandossi

but one the you up beginning engineering could it I'll two it two go to or yet for all the or we down finished be the mean typically is not and of year. so. our scope of I finished you just one or on haven't update go are on XX depending We to on work, so for getting if

Unidentified Analyst

Okay. sounds It good. you. Thank

David Gandossi

Yes, welcome. you are

Operator

the Pratt with Joe line And from Stifel. final comes of the question

Joseph Pratt

not good might questions a tonnage morning. what's I’m X.X guy. total paper your but basic, Hi, too These is around it million? of,

David Ure

on plan. It's that this X.X million we it finish if million, than X.X more year

Joseph Pratt

X.X? total, the what's So

David Ure

X.XXX target. is million our

Joseph Pratt

Okay, X.XXX million.

prices in average let's And quarter? the report China say Okay. on quarter, he would wrote what was first say a first in in the you an analyst assuming

David Ure

was know forward, I predicting carrying he Chine low January. We'll been were – what XXX, XXX we in like but at have don't would

Joseph Pratt

about this XXX. wondering math I'm here. Okay,

to up by Let's EBITDA $XXX which the be it XXX sort X.X also. of let's is and XXX it is in European it’s is million Europe in drop just applies in XXX EBITDA? what first times if now first it tons up incremental XXX deliveries in say that incremental mean mean that going goes of much $XXX drop goes where How I instead estimate was to million and from China the in would the of it's I say quarter? quarter, to comparably the and XXX $XXX going China. whatever in

David Ure

In was XXX things like XXXs, was that in Canada January XXX XXX, is probably parity that. in the there, couple we've XXX the something XXX Couple to the concepts. close saw foreign or in today pretty at I we’re in today range. even we're One of Joe, something a don't maybe like forget in Okay. shift we think year to exchange, of the so point and and had or XXX that some year big

engineer but the we it. we big do don't So into in we whole then on guidance what right, thing is the ourselves you're prices, a an to backward because can't lift And impact had giving part that has that. second

So better the… at to look

Joseph Pratt

your the could and to – prices investment you up, or at the is – average what to than going upgraded you're you point ago. cash your balance say time Moody's lot refinance months rating were the At turn, these going expected point could Okay. nine generally you grade digging of be My next does rates current six, question rate – rate can flow you what's strengthen what what can where debt as sheet they were in went be refinance? to that what assuming if to more the went and free a you if generating if you're

David Gandossi

the of rate bonds X% but can in So little probably tranches – the average rate the both you at trading the and markets are where range look is our a bit, average moving are and a for so are the this XXX, and year X’s earlier did sort of which we XXX rate implies that a with trading at is got X to of the low kind X.X. consistent refi

Joseph Pratt

only save So $XXX save in $X points would debt basis a million XXX on you year. million

David Gandossi

Yes.

David Ure

these don't NPV forget call notes premium on to, close but… to are the a But – might have a the an breakeven XXXX Joe note, be long-term basis, – that's so

Joseph Pratt

once got what is question on did acquired Last you an you EBITDA two year when really could expectation give be? cranked you it the up Okay. or a sawmill, after sawmill,

David Ure

No we didn't.

top like your I high – and of what my quality mean think EBITDA that's something said at really what punch think going. gain out really told of could kind margin on I you sawmill if or I you're direction was in better. I what know I XX% that the mind should we're

Joseph Pratt

on prices, Do out? be the a And from would run revenues? rate these revenue Okay. year – sawmill the what break that you

David Ure

to million run were and XX we're we we XX% the roughly XXX, not X.X XX, we've over well right, square so that we EBITDA bigger just if sold so growing you including the million market our feet number, XX in rate sold don't, of We synergies. give quarter us but production look at been you compared over inventory, as U.S. through the could

David Gandossi

is revenue the our can in see you Joe, Q. But there.

Joseph Pratt

of Okay. which And China for out waiting codified on in this to we're wastepaper? it of what watch dirty the just sort all November ban document will the

David Gandossi

contamination it goes draft And is and our rate regulation imported protection there set [China’s] It's like that Environmental a a control in sometime for and waste. final solid Ministry maximum live was Yes. of that called was in standards environmental something understanding Protection November probably.

Joseph Pratt

you very Okay. much. Thank

David Gandossi

of welcome You Q&A End Joe. are

Operator

remarks. turn I to for to closing like would over any presenters

David Gandossi

our attending always, Dave anybody there's for out everyone as if to has I. just questions you, Thank any reach follow-up either or call, and

anytime. We you talking year. to to we be happy next And are look speak forward in to again all February

So now. bye for

Operator

conclude And call. today’s this conference does

disconnect. now may You

Mercer International (MERC) 27 Oct 172017 Q3 Earnings call transcript