Q3 2019 Earnings Call

Good morning, everyone I'll begin by reviewing the third quarter's financial highlights following my remarks, I'll pass the call to David will comment on our key markets operational performance progress on our strategic initiatives, along with our own look into the final quarter of 2019.

Please note that.

In this morning's conference call, we will make forward looking statements and according to the Safe Harbor provisions of the private Securities Litigation Reform Act of 1995, I'd like to call your attention to the risk related to these statements which are more fully described in our press release and in the company's filings with the Securities and Exchange Commission.

Overall, we're pleased with our operating performance this quarter, we achieved solid pulp and lumber production and were able to take advantage of modest improvements in pulp demand across most markets to reduce our finished goods inventory to more normal levels.

Q3, consolidated EBITDA was almost 51 million dollar.

As compared to $70 million in Q2, the decrease in EBITDA was principally due to lower European pulp prices, which were partially offset by stronger U.S. dollar lower fiber costs and higher sales volumes. In addition, we recorded the reversal of previously accrued.

Wastewater fees related to our Rosenthal mill during the quarter.

Our pulp segment contributed $51.1 million of EBITDA and our wood products segment contributed EBIT dog $2.6 million are improving wood products segment results reflect steady production. Despite the construction activities.

He is currently underway on site along with the benefit of lower saw log prices.

As usual you will find additional segment disclosures in our 10-Q.

Quarterly average list prices for both softwood and hardwood pulp were down sequentially in all markets compared to Q2, our average.

Hope realized stations negatively impacted EBITDA by about $52 million.

Our pulp sales volume totaled 542000 tons, which was up 22000 tons from Q2 due to increased demand in all of our largest markets and in particular, China.

On.

The wood products side of our business, we sold the equivalent of about 97 million board feet of lumber in the quarter with about 30% of this volume being sold into the U.S. market.

Our lumber sales were down 4 million board feet from Q2 due to minor interruptions in production as a result of the construction activities combined.

Bind with lower yields from the increase supply of lower quality storm and people damage logs.

Electricity sales totaled 239 gigawatt hours in the quarter, which is down roughly 7% compared to you to to Q2 due to annual maintenance at Rosenthal and the ongoing construction at our.

Reprise out mill.

Our caribou pulp joint venture, which has accounted for using the equity method added another 12 gigawatt hours to this total.

We reported net income of $1.2 million in the quarter or two cents per diluted share compared to net income of 10.3 million.

In dollars or 16 cents per share in Q2.

Our operating performance led to the generation of $57 million of cash in the quarter compared to $89 billion in Q2, a reflection of the lower EBITDA relative to Q2 over.

Overall, we generated free cash flow.

Of almost $20 million in Q3.

We also invested $37 million of capital in our mills this quarter as noted in previous calls we have an ambitious capital expenditure plan in 2019, and David will speak more about this in a moment.

Our leverage levels.

Remained an efficient level on a on a 12 month trailing basis. Our net debt is up only slightly this quarter to two times EBITDA, primarily due to lower EBITDA.

At quarter end, we have total liquidity of approximately $544 million comprised of $265 million of.

Cash and $279 million of available revolving credit facilities.

As I noted a moment ago, we recorded the reversal of $7.2 million of previously accrued wastewater fees during the quarter.

The reversal is the result of a waiver provided by regulatory.

With Ortiz based on our successful completion of qualifying capital expenditures that targeted emission reductions that are Rosenthal mill.

You will recall that in Germany wastewater fees accrue to water consuming industries, however, under certain conditions those fees will be waived emitters complete.

Capital projects that lead to permanent reductions in permitted emission levels.

Given our focus on continuous environmental performance improved but this is a program to which we apply considerable attention.

Addition to the Rosen tall program. We're currently working to complete the final steps for the.

The application of a similar waiver for Stendal.

Low pulp prices continue to force us to revalue certain components of our inventory, resulting in a noncash 6.9 million dollar inventory write down in Q3, however, after considering the Q2 inventory write down.

Coincidentally was also $6.9 billion, our net EBITDA impact in Q3 was zero.

To the extent that pulp prices increase we will recognize a profit on this inventory in Q4.

In addition, our planned 13 days maintenance shut at Rosenthal.

Resulted in lost production and direct costs that impacted EBITDA by about $10 million, our competitors reporting under I for us our alert are allowed to capitalize the majority of these costs.

Subsequent to the ended the quarter, we issued an additional $200 million.

Pace value of arch 2025 senior notes the notes were issued at a 2.75% premium to their face amount for an effective yield rate of roughly 6.4%. These notes will be used to redeem the remaining $100 million of our seven and three quarters percent 2020.

Senior notes with the remainder being used for general corporate purposes.

Earlier this year, we completed filings necessary for us to acquire Mercer shares on the market the filings prescribed a maximum program of $50 million that if not extended will expire in may 2020 .

During this quarter, we did not purchase any additional shares.

And as we noted in our press release yesterday, our board has approved our quarterly dividend of 13, and three quarter cents per share for shareholders of record on December 12 for which payment will be made on December 19th.

That ends my.

My overview of the financial results I'll now turn the call over to David.

Thanks, Dave Good morning, everyone.

As Steve is highlighted the story of our Q3 results was dominated by weak markets, which obscures are solid operating performance this quarter.

Production was down only slightly this quarter due to rosenthals annual maintenance shut.

But other Reits remained at near record levels. Similarly, our fees Yosano production was down slightly as we work to the occasional construction disruption that we had a strong financial results from Q3, despite historically, though lumber prices.

Our strong operating performance as a result of our long term value creation strategy.

As a reminder.

The key pillars of that strategy are too.

Maintain modern world class assets sees acquisitions and organic growth opportunities in adjacent businesses and spaces, where we have core competence.

Prudent management of the balance sheet, all while maintaining the highest standard of safety and sustainability.

Now turning to our markets.

European MBS K pulp prices weakened steadily through Q3 in China prices were essentially flat through the quarter wherever we saw increased demand late in the quarter, leading us to implement a $10 price increase for October .

The European list prices in Q3 averaged $860 per tonne compared to 999 hundred 97 in Q2.

October's European list price was about $325 per ton.

In China. The Q3 average NBS key price was $585 per tonne, which was down from 653 per ton and Q2.

Decreasing producer inventory levels, resulting from resulting from maintenance downtime and recent NBS.

Curtailment announcements combined with tightening fiber supply in some regions lead us to believe that the Chinese MBS can market prices at or near the floor.

The average Q3 hardwood list price in China was $507 per tonne down $130 from Q2 hardwood list price in the U.S. market average 970.

As per ton in Q3 compared to $1100 in Q2.

The pulp markets continue to be influenced by number of factors, including macroeconomic conditions. The U.S., China trade dispute related tariffs and high pulp producer inventory levels, all of which are creating uncertainty and have been negatively affecting pulp prices in all markets.

Yeah.

These factors have been influencing pulp markets by reducing demand for screening printing and writing grades. In addition, hypo producer inventories have been allowing put buyers to limit their purchasing levels today.

Later in Q3, we could feel that the envious key market tightening as unusually high producer inventories began to shift back into balance and it was as.

As a result of good demand combined with producer maintenance downtime and containment.

We believe hardwood prices to be near their floor, but then it will take longer than what takes some time to work through the higher producer inventories. We expect the hardwood market will remain under pressure until the excess inventory at the producer level moves to customers are traders.

However, we also believe that paper producers have extremely low inventory levels. So that once this market begins to tighten paper producers will be compelled to restock.

Looking further ahead, we continue to believe that steady demand can Dan combined with the absence of new capacity will exert upward pressure on pulp prices.

With regards to her wood products.

The European lumber market continues to experience steady demand, however, pricing was down slightly compared to Q2, which was primarily the result of lower sawlog prices here in Europe .

Lumber markets in the U.S. continued their volatility through Q3, but we're seeing a slow but steady overall increase in lumber prices, we believe that lumber production curtailments.

And positive statistical data on us housing market are creating a separate pricing pressure.

In addition, lack of saw log supply in British Columbia could force for their curtailment announcements.

The random lengths U.S. benchmark for Western SPF number two and better averaged $356 per thousand board feet and Q3 compared to $333.

As in Q2.

Today, the benchmark is closer to the 400 level per thousand board feet.

In Q3 about 3% of our lumber sales volume we're in the us market with the majority of the remainder of our sales in the European market.

Although us lumber prices are up from Q2, you are still not sustainable levels, we believe.

Certain producers are currently selling below cost in part due to sell luxury outages, resulting in high log prices in western Canada.

When comparing to Q2, our average realized lumber sales price dropped slightly to $337 per thousand board feet in Q3 compared to $348 in Q2.

Our mills ran.

Very well in Q3, including our terribly joint venture, we produced 517000 tons of pulp and in your record 625 gigawatt hours of power.

Our pulp production was down from Q2 s record production, primarily due to scheduled maintenance at our Rosenthal mill in Q3.

Our wood products seven performed well this quarter despite.

Weak market conditions, we produced almost 97 million board feet of lumber and generated about $2.6 million of EBITDA in the quarter.

The Frito sawmill also allowed us to achieve over three and a half million dollars of synergies this quarter. The majority of which resulted from reduced wood chip cost for the Rosenthal pulp mill.

Year to date trios created almost $10 million.

As of such synergies.

In Germany storm and beamed be Beatle damaged would remains plentiful and is resulting in lower log costs generally.

In Western Canada Pulpwood supply continues to be tight saw mills have been curtailing production, which is limiting the volume of so much obscure available, resulting in higher cost auctions used to replace those.

As volumes.

Looking forward, we expect or would cost to be stable for Q4.

Turning now to our major maintenance schedule in Q4, we expect to have a total of 53 53 plan shut days.

At Stendal, we've taken a 16 day shut in Q4 and police and note that the shut the safely completed this week.

At silica.

So we took a 22 day shut in Q4, notably for annual maintenance, but as I mentioned last quarter, we completed the timing of some of our important productivity improvements.

Throughout the mill, including a packaging line upgrades.

At Peace River, we will take a 15 day shut this quarter. We originally plan to take an extended shut in Q3 to repair the recovery boiler, but due.

The key supplier delaying delivery of parts, we've rescheduled this work into 2020.

Well I want Peace River I should mention that the integration is more or less complete and was smooth and successful that people have adapted quickly quickly to our Mercer culture. In fact, it already feels like they've been with us for years.

As Steve noted earlier this month, we issued $200 million.

Most of our 2025 senior notes this was in our printed opportunistic transaction for us to allow us to learn average borrowing costs and create some additional flexibility to continue advancing or high return capital program.

We remain committed to our growth strategy, we will continue to take a disciplined approach to ensure we maximize long term shareholder value.

Any opportunity to consider will be framed by mercers core competencies in pulp and lumber production would derivatives and bio objectives as well as green energy our core competencies will continue to drive long term value creation for Mercer shareholders.

So this completes their prepared remarks, we'll now turn the call back to the operator for questions.

Certainly in order to ask.

A question you will need to press star one on your telephone to withdraw your question press the pound or hash key please standby and what we've compiled acuity roster.

And your first question comes from Hamir Patel with CNBC capital markets. Your line is open.

Hi, good morning to EBITDA once you get your.

Your thoughts on this European Beadle situation, how impactful do you see it.

Global lumber markets and and how much.

Further could your your your pulp costs fall.

In coming quarters.

Hi, Amir.

Okay.

Well I think there's a lot or would that is going to come out one of the things that happens over here is.

The very very strong discipline to to get at the trees as they are impacted and.

You know the further south you go in Europe , the more and more you'll see.

The spruce Beatle.

For us.

We are.

Our Stendal mill and pre show.

More.

It is closer to the north of Germany as opposed to the south.

I think another free so for you show buys from boast both directions by spring.

Bruce and pine.

Another factor to consider is.

The saw mills in the south of the country.

Tend to be the suit a one off saw mills or.

So on those held by smaller groups, so that really limited to their truck logistics.

Whereas in Mercer, we've got real.

Religious sticks that can take us all the way to those for the stages of pull and check we can bring in wood from the Baltics as we've discussed many times and Norway's other places so.

So its a.

It's an interesting situation we've got.

More than a 30% reduction or would cost today at the saw mill.

So pulpwood.

You know, it's just it's I think is going to continue for quite some time.

Whether it accelerates or not I think has a lot to do we're being told by Air Force, There's a lot to do with the weather this year.

So for example, if we had.

Really wet winter that has a really.

Damaging impact on the needle.

That will destroy a lot of the population under the bark, but if it's a super dry winter and dry in the spring then the next summer could be a similar year too.

This year, and then that would be a continuation of the kind of conditions that were seeing.

Today so.

Now I'll stop there emergency if that's.

Answers your question yeah. Thanks, Thanks, David that that does but I was curious does the beatle.

Would when you.

Pulpwood portion of it.

Does that resulted in a lower price pulp products when you.

Sela and how does that impact the quality.

No it doesn't have any impact on pulp quality at all we cook the would've part in alkali solution and we watch the cellulose.

So no. It's a there is no no quality impacts sometimes of what's a little dryer. So you have to adjuster chemistry, a little bit, but as you know from north from North.

America.

The.

Pulp mills in Western Canada, the move enough dry pine would for years and it's very very suitable for process not a problem.

Great and Dave I wanted to turn to a your pulp by contract discussions for for 2020 do you have a sense yet as to.

You know the discounts for North America in Europe .

What should we expect continued.

I had discount to creep in 2020, and then any indication yet what that might be.

Well, you're catching me just before I go to London pulp week, So I've got to be very careful about this.

You know obviously.

You know there tufted or the roll them back when things are tight and is pressure to widen when things are sloppy and with the inventory levels, where they are.

You know I'm sure, we'll be having those discussions with with our customers.

But it's.

Also when you think about.

Once you have to think about short term and medium term.

Okay comes and I think.

Even even though we've got elevated hardwood inventories today and somewhat elevated soften inventories I think the medium and longer term view is.

Fiber will be will be tights, so I think that I think the discussions.

With their customers will be very respectful and thinking more but the long term rather than just trying to grind.

Because of the current speed bump that we're in today, so it would be.

They might widen a little bit, but I'm not expecting anything too significant.

Okay Fair enough. Thanks, that's all I had I'll I'll turn or.

Your next question is from Sean students with TD Securities. Your line is open.

Thanks, Good morning, guys.

Couple of questions, David just more generally speaking your it's it sounds like softwood pulp markets or.

Starting to tighten up certainly faster than hardwood, which makes sense given the relative.

Inventory gap.

I guess your broader thoughts on over the mid term you do the industry's ability do.

Potentially raise softwood prices swells hardwood arguably should remain under pressure until that excess supply gets cleaned up.

I need any thoughts on.

The ability to have a divergent trends over the midterm until hardwood settles out.

Yes.

Well, let's let me, let me sort of talk around the corners of that question because that's what everybody's trying to get their heads around obviously.

I guess first of all.

I think my view.

Is that.

If if softwood prices get too far ahead of hardwood prices you got substitution that gets.

When you are going the other direction.

You know, there's a limit on how much topic you can take out of.

A paper grade, but but if.

Yeah.

There's always room, and I think where we've come from has been where an elevated softwood component because the price of hardwood and softwood have been close for awhile.

And now as we start to pull away that excess amount of software in the grades is going to start pulling back down to the minimum level. So there is.

There is definitely a substitution element to it hard to measure exactly how big it is but it's there.

And.

You know then is the whole psychological impact at the customers have is.

As the gap widens, we've seen gaps of $200 in the past but.

Just doesn't.

Feel like Thats, a sustainable situation and probably not something to hope for.

Another part of the whole thing to think about <unk>.

We think about it here in Mercer is is when we think about.

The the psychological.

Impacts of improving conditions are weakening conditions to the buyer and by.

That I mean.

Yes, if things are tight and everything is normal.

For for.

So could you talk a China from editor a Chinese pulp buyer. He knows it's going to take 80 days from the time he cuts as order to the time, he's ready to use that pulp in China and so when things.

[noise] are tight he tends to carry you know 80 days of inventory because that's how long it takes for.

He just always has to have that pipeline coming so it's.

Let's see opening takes 15 days.

See transports 35 days and you've got to get it through customs and clearance that's another.

In days and then he's got 15 and its warehouse so he's always making those orders and he's got the same coming.

But as we've gone through this effect the last year or nine months. This has annual effect I'll call. It.

There's so much pulp and the warehouses that he's.

Our customers are really I don't I don't need to order pulp from the from that from.

The mill I, just I can buy it out of the warehouse in China.

So where they usually sit on 80 days they are sitting on 30 days and they're comfortable.

But if it if they start becoming uncomfortable and they start.

Trying to catch up and make sure they don't get left behind us as.

As pulp prices rise.

30 days of inventory at the paper side of this business has a million tons.

So you know it's the math says it could correct fairly quickly, but it's all about psychology, and it's all about where people think it's going.

And I think another big part of it is it a lot of its going to depend on how the so.

Latin Americans behave you know if they can show some discipline and no.

Curtail you do some market curtailments and stop shipping pulp and to warehouses in China, then things could correct fairly quickly but.

Until until I guess my views until the hardwood starts to really move it's going.

To hold softened back.

That's a that's great detail I appreciate that.

I apologize if I missed this earlier, but if you guys.

Raptor heads around 2020 Capex budgets.

Relative to what you're spending this year.

You are.

For 2020 capital plan.

You can call for about 100 million that includes carry ends.

Working capital leases for things like railcars and and.

And chip real bins, which is.

Really just cost reduction initiatives so.

Sure.

We are continuing on with our expansion.

Plans at Stendal.

Completing the.

Cleaner in this orders obviously for free show.

And then some maintenance of business and a number of smaller high return projects, you've got a bit of wastewater fee work going on at both the mills in Germany, obviously.

And quite a bit of work going on at Peace River, where we've got access to.

And government grants and low carbon fun stuff and Celgars God.

Some utilization improvements Dean order in a chip conditioner little things like that but.

So we're we're carrying on with the important things that were.

But were we brought the club that quite a bit considering where pulp prices are.

Makes sense.

That's all I have for now thanks very much guys.

You're welcome.

Your next question is from Andrew Shapiro Lawndale Capital Management. Your line is open.

Hi, Thank you.

Real quick on human or two did you mentioned in your script that you implemented a $10 price increase in October .

Where does that increase take or when would you guys get a feel for whether that stock.

Yes, I know that's that stuck we announced up 20 and got 10 of it.

Okay. That's good.

No.

With the decline in pricing and it seems like there's been.

Some curtailments do you have any feel that you can share with us about.

Any industry curtailments or potential curtailments that might become more permanent in nature from some of the higher cost competitors.

Yeah.

It's tough to tough to.

See what might happen there is.

There's a few situations where pulp mills are curtailing more because of access to within the earn necessarily about price like the.

Thank you remember about pulp mills has that's got pretty high fixed cost component. So sometimes you can.

You can lose a bit of money selling pulp.

The good news a lot more if you curtailed. So you don't typically see curtailments pricing I don't think pulp prices are at a level now where you would see that.

But.

That being short of fiber.

It's possible we saw some of that out of the western out of Western Canada. This summer leg as a couple other situations out there.

Mills are in just such rough shaped.

These old mills, eventually just get older and older that.

There's quite a bit of industry speculation about who might be the next mill or two mills might go down just because the.

Now the capital left to keep them running and is not really justified. So I think you know, there's some things coming on the.

Horizon, but.

Can you can't be certain of how long it will take obviously.

I think we'll ever know until it's actually happened.

But it definitely part of it yeah.

And then you've had Dia mine now for a little while it's under your belt a bit but I think you implied that you'd see the majority of synergies.

In the first 12 months and there were other synergies to be seen little bit longer term.

What sort of integrations done or more importantly, what needs to be done in order to achieve the full synergies you estimated on this acquisition.

Yes, the I think the.

The synergies to come that.

Take a little bit little bit of time is really rolling off the contracts that we inherited for pulp sales and getting it into the Mercer program silly.

The timing of when we bought.

The Peace River mill, and the caribou tons, they did sort of a lot that entry year, there are various programs and.

So you settle add up.

A month or amount than half before the end of year. So.

We weren't really able to influence that at the time, but.

Yes, I think I mean does not terrible, but I think that in the Mercer system. We would have we would have done better and I think we could redirect some of the pope a bit going forward as well.

But we have seen.

Pretty significant synergies and things like chemical purchasing and some of the freight logistics.

Programs and that sort of thing.

And.

Sites, I think we've done pretty well and we've got more to come once we once we will for this years.

Re contracting of the pulp volumes.

Yes.

Right It seems like what the when prices improve we'll see the full benefit of this deal my last one the typical question I wanted to get a field for your plans for investment presentations non deal road shows in the coming months.

I do want to take that so we've got we've got a non deal road show coming up.

In the week of November the 25th the beginning of that week Thanksgiving week.

It will be East Coast, New York, Baltimore, and then in the first week of December we'll be attending a or.

Erica high yield.

The conference in Florida.

And next week or the week. After next week, we'll be completing a small non deal road show in a in London.

Okay. Thank you.

Your next question is from Deforest Hinman with Wall thoughts and then company. Your line is open.

Hi, Thanks for taking the questions.

I think in the past.

You've discussed.

Can you continue to little bit on this call the clearing up the market softwood side is important and.

Weve commented in the past I believe about.

How active can those traders be in terms of.

Taking inventory rather quickly you didn't mention in the prepared remarks in the press release, there was better sales to China, but.

Can you can you just give us more color.

In terms of you know what you're actually seeing I mean, how much is the phone ringing has ordered the order sizes picked up in terms of.

The amount they're looking to spend.

In any read through into October so far it would be very helpful for everybody I believe.

Sure.

Well I guess.

You know for thinking about.

The paper side in China.

Our feeling is that.

Paper paper companies over there have had a pretty good year.

Demand is good for their products I think they've done a really good job of clearing their paper inventories.

And I think Thats, primarily result of them out competing in the export markets.

To the to the detriment of Europe to be honest there just help.

Prices have been low.

Sentiments improved over there and so those guys are running pretty hard is our understanding so the so the so the saw on us off what side, what we're seeing as orders for consumption I don't think theres really any trader activity in that at all no speculative trader activity in that at all.

On the hardwood.

Right.

Our our feeling is and our.

But our team believes is that really there isn't any speculative buying yet by traders.

And I should maybe mentioned that trader activity can be a really big component in some months it could be as much as 30% of the bi and no. So those guys aren't in at all I think they just.

Scott smoked on the way down and I think there on the sidelines waiting till they're really sure pulp prices have bottomed and things are starting to improve.

And that's another that's another big driver, it's hard to hard to predict but but once sentiment rolls over and things looked like they are tightening up those big traders.

Yes, we'll come back in and when they do they take a lot of volume. So we haven't seen yet, but that's that's a dynamic that's out there.

And just so we're very clear that's inclusive of the October period, as well, but you did get to 12 to attend dollar.

Increase is without traders come.

Back to the market.

Thats correct Yep Yep, no I think october's vault volumes are great lots of demand for bulk and its it but it's all going for consumption.

At this stage okay.

And then on the capital management side capital deployment.

I think.

Yes, I would agree with your commentary the bond deal is opportunistic.

Your debt structures and it really good shape.

Capex stepping down next year after pretty high investment year.

It's this is the bottom of the ER.

The pricing cycle does does it make sense to be.

More active with the share repurchase authorization or your thoughts there would be helpful.

Yeah, well the way I've been thinking about it is we've been thinking about it is that.

You know the stocks held up reasonably well.

Really committed to the dividend.

We think things are bottoming and.

We should start moving into recovery. So we've just been patient.

We just didn't done the bond thing to enhance liquidity to allow us to continue our.

Our capital strategy so.

I can't say.

What we're going to do in the fourth quarter or if what conditions, we would do things but.

It's in place for us till the end to me if we decide we want to access it but for this quarter at this quarter. It just didn't make sense for us to.

To buy stock.

Okay. That's helpful and then.

I know in the past, we've always had some plans in the always work on plans in terms of mill based product projects. Vicki mentioned 2019, one of an investment your 2020, a less so but when we think about the mill portfolio you know.

Can you give us some color in terms of things you're thinking about or things you may be working on.

How much could they potentially cost and then what would be.

Return profile and volume expansion, a you know on that you know.

I call it like a wish list I know, what you guys call it.

You know can you help just can you just frame some things up for us what are some opportunities that we're thinking about.

Yes, I think the near term your third term things are stendal and free Shah. So stendal is a 660 670000 ton mill.

We will turn that into a 740000.

When mill in the next couple of years and.

I think thats relatively very high <unk> is very high return capital. It's just a it's a super mill.

So that work is underway the cash cost of that could be around 40 million.

Euros, but there is.

Subsidy components to that Witchel, which will help defer to free our cash cost.

On on free show the it's about 20 million of spending left for next year.

Taking that mill from.

From roughly.

500 million board feet up to on a capacity basis seven.

50 million board feet to be the largest mill in the world. It will be all the bells and whistles optical scanning C.T. scanning.

Training and the planar.

It will make it will have new you know.

Hi volume bins orders.

So we can we can optimize every log that goes through it sell into Jay grade.

The Japanese market to and better for the U.S. market.

Make all the grades we won over here in Europe , the different flexibility, we have and that mill will be tremendous so that's.

Yeah that mill will the margins on that mill I think will surprise industry.

And and I'd like to do that again, you know we've talked openly about doing.

In a similar similar mill for the Stendhal.

Area actually be right on the Stendal site and totally integrated with that mill. The same we pre show is with Rosenthal.

And then there possibly be wander maybe two other saw mills in the northern part of Germany that would fit into that cluster quite nicely, which sort of a.

Longer term vision that we have.

The stendal sawmill and the other.

Acquisitions are already sort of dependent on time, we we'd obviously not going to do it was you know we don't have the firepower today, we wouldn't take that kind of risks. So we just.

Continue to do the work to be ready and then when when when things are.

Cash flows are stronger than you'll see us start tromping away on that.

All right that's really helpful. Thanks for taking the questions.

You're welcome to fourth.

Your next question is from Sandvik upfront with credit Suisse. Your line is open.

Hey, guys. That's had a question about.

I think the currency impact yeah. There was a 14.6 million dollar FX impact during the quarter can you breakout the operating component of that relative to the onetime gains do do accounts receivable and cash GAAP adjustment.

Sure semis Dave's feeds ready for you on that one yeah, it's roughly half and.

Half this time, Sam so half of it is related to revaluing.

Foreign denominated monetary items, so think accounts receivable cash accounts payable and the other half a little bit less than half is a related to the translation of.

Our foreign denominated costs, so our euro denominated in Canadian dollar cost to U.S. dollars.

Okay got it.

Thanks, and then just in terms of 2020, how do we think about what the cost impact would be.

You know with or without maintenance.

With respect to foreign exchange, Sam or injured no sorry, just just sort of ongoing costs in terms that.

Like dollar per ton.

Yeah, well the big Guy the Big Swinger for US is of course fiber fiber is are by far largest.

Our largest cost and as you know it's been quite a we've been experiencing some pretty.

Pretty considerable fiber cost reductions really for the last four or five quarters and as David was mentioning.

We believe that Theres still.

For the.

In the near term there's going to.

Considerable low cost fiber available for us for both the the pulp business in the form of pulpwood and the lumber business in the form of saw logs. So I think we have I think the rate of reduction will will start to settle sort of law fear level off but there's still a.

Considerable amount of low cost would available to us I think you'll see that again in the next Vicki.

Next few quarters.

Okay got it. Thanks, thanks, so much I'll pass along.

Your next question is from Adam Zircon with no debt capital management. Your line is open.

Gentlemen, appreciate you taking the time.

Most of what I Havent been asked just two quick questions.

You said a lot about fiber cost I mean, David B.

Reward or Dave the the cost per tonne sort of just look at the.

The difference between EBITDA and revenue as a proxy was down.

Really significantly right.

Almost almost $50 it looks like on my numbers sort of net advantage per ton for the second.

Orders that you all fiber and FX or is there anything else it's happening.

<unk> costs.

Yeah well.

It's a big chunk of it we're we're starting to see some improvement in or kill chemical costs in Canada in particular.

You know what the bigger footprint, we've got there we've been able to lever down.

For.

Peace River and for kids and their chemical costs. So.

Some improvement there but.

Yes.

You know and costs are also impacted by by face you know the the shuts.

And then I guess, the the third piece that.

We're able to its hard to describe is the impact of the wastewater fees and so we had rosenthal in the third quarter.

Anticipating.

Stendal either in the first fourth quarter first quarter next year that'll that'll drive that'll drive things positively when that happens.

[noise].

Great and then lastly, you mentioned the delay in the Peace River work.

I guess for delayed for delay in delivery of parts is there any operating issue there that that we should expect or can that mill, rather than sort of until that maintenance on just it's on schedule.

No it's not an.

Operating issue, it's now that the boiler is fine a.

The.

You know.

We wouldn't want it we wouldn't want to have those tubes in that weather long term like you know 10, 15 20 years, because they had they had that event so they.

They were.

Wise and over time, they will overtime, they will need to more maintenance and Neil will need to be replaced sooner than at that hadn't happened.

But it's an insurable event, so we're going to completely rebuild the walls of the boiler and the Florida, where it's where the impact was.

And it's just that the supplier of those tubes had a quality issue that we caught.

And.

Which is resolved, but it just couldn't get ready for the timing of this year shot. So it's pushed out to next year it'll be a similar timeframe it'll be a roughly 50 plus days bridging that third and fourth quarter of 2020.

Operationally at this stage, we don't believe there.

It would be any impact between now and then for sure.

We'll know when we open the board will know when we opened the boy, they're up and their November a shot this year, but.

We shouldn't expect there to be an issue.

And again, ladies and gentlemen, it is star and then one secure great question.

And ladies Oh, we do have a question from Paul Quinn with RBC capital markets. Your line is open.

Yeah, Thanks, very much and sorry, I joined late so I'm not sure what questions have been asked for though how hot side question anyways.

If you can take it offline because it has been a fine, but just wondering that the maintenance.

Schedule in Q4, and how that looks in 2020.

Yeah, Okay, Q4, and 2025 I'm glad you asked the question because if somebody had and Tom I was going to.

Raise this in my closing comments so.

We do have three three large shots in the fourth quarter of this year right. So we've got Stendal celgar.

Our and Peace River.

And so analysts need to think about that.

And I could.

Point, you to the IRS disclosure that Weve historically always included in our in our conference call scripts and reason, we put the discloser out disclosure out as to help you see the magnitude of the.

Thats from an EBITDA impact.

And you can do that by looking at what it is under us GAAP compared to IRS, because the IRS companies capitalize it and they depreciate it through their depreciation amortization mine, whereas for Mercer. He gets expensed in the quarter. So weve so that numbers all out there. So you know these numbers and the impact of these shops.

For the Big Mills is around 15 million per quarter on the direct costs.

And then for the additional costs for you know your energy loss your chemical costs and the lost tons, that's about 5 million per mill.

And all of that's happening in the fourth quarter, So you need to factor that in.

In 2020.

We the lineup is Rosenthal will again be in the third quarter roughly 12 days.

For Stendal, we won't have a big shot next year it'll be too many shuts first or second quarter and fourth quarter Thats roughly three days each opera Celgar, we're not.

Not completely sure what we're going to.

Get away with here, but at the thinking is to do for many shuts rather than a big shot we're trying to migrate that mill towards an 18 month frequency. Its you got a lot of the work behind us and it should be if we can start.

You know lengthening out the time between shuts over the course of three years U shape saved the cost of.

Full year shot so.

We may have a slightly extended shut in the third quarter. It really depends on what the regulatory Tory bodies see to us about whether washouts and digester work.

And in Peace River as I've already mentioned earlier, we leave a deferred the the boiler outage to a third third and.

Fourth quarter 2020, roughly a I guess is 36 days in the third quarter and 22 in the fourth.

Remembering that Oh.

Very large component of that will be covered by inch well the capitals all covered by insurance for the boiler work and to be Hi insurance will pick up you know any any loss margin on tons.

We would have otherwise produced.

Great that's very helpful.

Thanks.

Super.

Your next question is from Dennis Collins with Stifel. Your line is open.

Hi, David I. Appreciate you taking the coal would you be able to give us so give me the percentages.

As.

By country by revenue.

But you don't have that is.

David Michael the ticket et cetera.

In the queue, I guess I don't mind ready for that.

Just don't have that they've got the Q is out down so it should be there.

Attribute of our Yep.

Got it thank you gentlemen.

Okay.

[noise].

Again, ladies and gentlemen, it is star one took your first question.

[noise].

And it sounds like there's no more questions operators.

So thanks, everyone for joining the call.

As always Dave and are happy to talk anytime so retail to US run C.E.T. time. These days, but happy to go offline if anybody needs any more information. Thanks again.

[noise].

And gentlemen, this does conclude todays conference call. Thank you for your participation and you may now disconnect.