Q3 2020 Mercer International Inc Earnings Call

Finance, Chief Financial Officer and Secretary.

Now I would like to hand, the call over to David.

Sir Please go ahead.

[music]. Thank you good morning, everyone.

Begin by reviewing the third quarter's financial highlights following my remarks, I'll pass the call to David who will comment on our ongoing response to the cold at 19 pandemic.

Key markets operational performance progress on our strategic initiatives, along with our outlook for the fourth quarter of 2020.

Please note that in this morning's conference call, we will make forward looking statements. According to the Safe Harbor provisions of the private Securities Litigation Reform Act of 1995, I'd like to call your attention to the risks related to these statements which are more fully described in our press release and in the Companys filings with the securities mix.

Strange Commission.

Our third quarter results were up when compared to Q2, primarily due to record operating results from our wood products segment solid operating performance from our pulp mills and the continuation of lower pulp wood costs in Europe.

These positive influences were partially offset by lower pulp sales right realized stations, a weaker U.S. dollar and a slightly heavier annual maintenance program in Q3, when compared to Q2.

We generated EBITDA in the third quarter of about $45.6 million compared to EBITDA of about $40.5 million in Q2.

This quarter, we curtailed our cert Celgar mill for 30 days to address a temporary spike in fiber costs a decision that resulted in a modest savings on fiber and fixed costs.

In addition, as a result of improved pulp pricing outlook, we've reduced our inventory impairment provision to $8 million from $12.3 million in Q2.

We also applied for and received about three and a half million dollars of subsidies from the Canadian Federal government in connection with its cooled at 19 wage support program in Q3.

Our pulp segment contributed to EBITDA of $32 million in our wood products segment contributed record quarterly EBITDA of $15.4 million.

Our wood products segment results reflect record high lumber sales prices in the U.S. strong sales volumes and the benefit of low saw log prices.

[music] as usual you can find additional segment disclosures in our form 10-Q, which can be found on our website and that of the FCC.

Average softwood and hardwood pulp prices were down slightly or flat in all of our markets when compared to Q2 as a result, our average pulp sales realizations were lower this quarter negatively impacting EBITDA by about $12 million compared to the prior quarter.

Pulp demand was steady in Q3, our pulp sales volume totaled 470000 tons. It was down about 22000 tons from Q2, but in line with production.

We continue to see the benefit of our recent investments in our wood products business as we achieved record sales volume the equivalent of about 118 million board feet of lumber in the quarter, which was up about 10 million board feet from our sales volumes in Q2.

Electricity sales totaled 233 gigawatt hours in the quarter, which was down slightly relative to Q2, primarily due to sell guards 30 day curtailment in Q3.

Our carried the pulp joint venture, which is accounted for using the equity method contributed another 21 gigawatt hours to this total which is our highest quarterly sales levels. Since we became a partner in the joint venture in late 2018.

We reported net income of $7.5 million for the quarter or 11 cents per share compared to a net loss of $8.4 million or 13 cents per share in Q2.

The increase in income reflects stronger EBITDA, along with an increase in other income which was the result of the opportunistic sales certain investments in the quarter, which we had been accumulating to offset the effects of low interest rate conditions on our considerable cash balances.

Cash generated in the quarter totaled $42 million compared to $17 million in Q2.

Our cash generation in Q3 was primarily driven by solid EBITDA generation modest reductions in working capital and the sales of certain investments.

We invested about $15 million of capital in our mills this quarter and David will speak more to our current capital spending expectations in 2020.

Based on this prudent cash flow management, our liquidity has improved considerably in Q3 and at the end of the quarter totaled about $600 million comprised of $345 million of cash and $255 million of Undrawn revolvers.

Low pulp prices and high fiber costs continue to force us to revalue certain components of our Canadian inventory. However, as pulp prices are expected to slowly improve we decreased our non cash provision this quarter in Q3, the noncash impairment provision was $8 million compared to 12.

Point $3 million in Q2, which resulted in a net positive EBITDA impact in Q3 of about $4.3 million.

In Q3, our planned maintenance shuts concluded a successful seven day shut at Celgar.

And the first three days of a two week shut its rosenthal compared to Q2, when we successfully executed a short three day shut at Stendal and a 12 day shut at our caribou joint venture.

The impact of the Q3 maintenance days, including lower production and higher direct costs reduced Q3, EBITDA by about $3 million when compared to Q2.

As a reminder, our competitors that report the results under IRS are permitted to capitalize the direct cost of their annual maintenance shuts well, we expense our costs in the period of shut completion.

And as you have noted from our press release, our board has approved a quarterly dividend of six and a half cents per share for shareholders of record on December 20, Threerd for which payment will be made on December Thirtyth 2020.

And finally before I pass the call to David I'd quickly like to congratulate Dave.

David Gandossi and our sales our team who have recently been recognized for excellence in three categories of the 2020, Canada's safest employer awards, David Gandossi as CEO of the year and Celgar for both best Wellness and psychological safety program and Canada safety.

See fixed manufacturing employer. These recognitions of excellence are testament to our strong commitment to health and safety leadership of Mercer.

That ends my overview of the financial results and I'll now turn the call over to David.

Yes, thanks, very much Dave and good morning, everyone.

As you all know the COVID-19 pandemic is hitting its second wave in many countries around the world.

As a result, we are redoubling our measures to ensure the safety of our employees and the continued operation of our facilities.

I would like to thank our employees for continuing their efforts to keep themselves their families and our colleagues safe.

I'm pleased with our Q3 operating results during this challenging time, our mills all continued to run well we are effectively managing our cost and we are experiencing steady demand for our products.

Our free show saw mill continues to set operational and financial records.

Our expansion project gets near to completion.

India escape pulp prices in Q3 were generally flat in both Europe, and the U.S. well, China experienced modest upward pricing pressure at the end of the quarter due to steady demand and improving economic activity.

However, when compared to Q2 average sales prices in all markets, where either down nominally or reflect.

In China, the Q3 average MBS Cape net price was $572 per ton unchanged from Q2.

European list prices averaged $840 per ton in the current quarter compared to $850 per ton in Q2.

And the average Q3 net hardwood price in China was $443 per ton down $22 from Q2, and the hardwood list price in the U.S. market averaged $868 per ton in Q3 compared to $897 in the prior quarter.

The Pandemics current secondly that infections and various governmental responses to limited spreads have created significant economic uncertainty.

Currently we are expecting a modest seasonal increase in pulp demand through the fall and winter. We also expect to see moderate demand increases from certain end uses including printing and writing as countries continue to slowly reopen their economies.

More recently packaging manufacturers in Asia are looking to replace at least in part.

Michael fiber with Virgin fiber in some other products, we see this trend continuing as higher quality recycle furnished becomes more and more difficult for stores. We believe this could be a new source of demand for Virgin pulp going forward.

We also believe the current low pulp pricing will drive additional market curtailments as mills take their delayed maintenance shuts in Q4, which will moderately reduce the supply of pulp.

Although it was a difficult decision given the impact on our employees and community stakeholders, we completed a three d. curtailment and short shut at Celgar in Q3, we.

We took roughly 52000 tons of pulp out of the market, which allowed us to build a more economical base of fiber the curtailment was necessary due to multiple market forces impacting celgars fiber basket that limited the supply of residual chips and also created a temporary and unsustainable increase in log stumpage rates.

We recognize the short term impact of these forces have made the decision to curtail.

Financial impact from the curtailment was a modest net cash sitting this quarter, but the savings from lower fiber costs will continue to be realized into early next year.

Overall, we expect the slope of recovery, which began late in Q3 to carry through into Q4. The previously noted supply side reductions are expected to be combined with increasing pulp demand as the global economy. A canyon continues its slow recovery from the pandemic related slowdown.

We're already seeing economic activity, gaining momentum in China and related upward pricing pressure.

August market statistics reflect steady demand and highlight MBS gig inventories remain high at 46 days and hardwood at 43 days.

Despite the high inventory statistics to markets are reacting in a manner that reflects the are tighter than the statistics suggest.

We are pleased that are full products are an important part of the healthcare supply chain and in some jurisdictions. We are considered an essential service. So we expect to continue to run regardless of the impact of the second wave of COVID-19 infections. We will continue to follow all government health related recommendations to ensure we keep our people sales.

To reduce the risk of the virus spreading through one of our facilities.

With regards to our wood products business the European lumber market remained steady while we saw a dramatic increase in lumber demand from the U.S. market through Q3, which drove record lumber prices.

Compared to Q2, our average lumber sales realizations were up over $100 to $453 per thousand board feet, primarily due to the significant price increases we saw in the U.S. market in the quarter.

As Steve noted earlier this enabled our wood products business to achieve record EBITDA in Q3.

The historic increase in lumber prices in the U.S. were reflective of the solid housing market and home renovation related demand combined with reduced supply lower.

Lower supply at least in part is due to reduced annual allowable cuts in regions such as Western Canada.

Spike lumber prices moderating considerably in recent weeks, we expect lumber demand to see strong due to low home inventory levels in many areas of the U.S. and sustained low borrowing costs.

The random links us benchmark for Western SPF number two in better average $768 per thousand board feet Q3 up over $400 from last quarter.

Today due to high prices lumber buyers are generally ordered wondering on an as needed basis, holding low inventory levels, which is push pricing down however, lumber prices in the U.S. remain at historically high levels and the current supply demand dynamics combined with the high levels of economic stimulus are expected to keep upward pricing pressure she plays well into 2020.

On.

The benchmark lumber prices currently close to $600 per thousand board seat.

In Q3, 39% of our lumber sales volumes were in the U.S. market with the majority of the remainder of our sales in the European market.

As we move through Q4, we expect the European lumber markets remained steady with some modest upside as some European manufacturers move inventory to the U.S. market. Despite this we expect the U.S. market to stay strong.

Our mills ran well this quarter in spite of all the pandemic related challenges and celebrates curtailment.

Including our curable joint venture, we produced almost 480000 tons of pulp down 33000 tons from Q2 the.

The decrease is primarily due to celgars curtailment.

Excluding the caribou mill, our pulp mills produced 529 gigawatt hours of power down 34, Gigawatts gigawatt hours from Q2, primarily again due to severance curtailment.

Our wood products segment performed at a high level this quarter. Despite ongoing production interruptions as we work through the free shell construction project.

We show Mill produced 97 million board feet of lumber, which was down 17 million due to interruptions to production as we tied in new equipment related to our phase two expansion projects.

In Germany, or wood costs remain at historically low levels due to the abundance of butyl damaged would we expect this log supply dynamic to last well into 2021.

In Western Canada, Pulpwood supply has improved to the saw mills running full out to take advantage of the strong U.S. lumber market, we expect fiber prices to be stable in that market.

As we discussed last year or last quarter, our annual maintenance program for 2020 has changed in order to reduce exposure to cope in 19 that may occur when the traditionally larger numbers of contractors entered the site to assist with maintenance during a shot.

Our Q4 maintenance schedule is peace River will take a five day shut in Q4. This recovery boiler rebuild has been deferred into Q2 of 2021 due to the inability of contractors being able to guarantee the availability of skilled trades people during the pandemic and Rosenthal had three days of its 15 day shut in Q3.

And the last 12 days were successfully completed earlier this month.

In Q3, we invested almost $50 million in high return projects at our Mills are planned 2020, Capex program remains at about $90 million.

Our more modest 2021 program or 20 <unk> program is focused on the completion of the free sales phase two expansion project, along with some smaller high return productivity and cost of ownership measures.

We also began early work on the production expansion project at Stendal, which when completed in late 2021 will take the total capacity of the mill from 660 to 740000 tons per year.

Drove 2020, we have experienced a wide range of pandemic related operating challenges and market shifts.

As we begin to look ahead to 2021 I remain confident that effective execution of our strategy will continue to bring a success our focus on world class assets strong balance sheet disciplined and sustainable operations will continue to serve as we focus on optimizing our fiber handling and logistics and controlling our costs.

Our balance sheet is in good shape with strong liquidity and our ongoing financial discipline will contribute to shareholder value over the longer term.

This completes our prepared remarks, but if I can take a moment to remind listeners that we are in the second wave of covert mesquite infections. The virus continues to be a significant risk to society. So please continue to keep your families friends colleagues a neighbor of seats. Thanks for listening and I'll now turn the call back to the operator for questions. Thank you.

As a reminder to ask a question he will need to press star one on your telephone.

Well your question, Chris the Penske and please stand by while the compiled the Q and a roster once again to ask a question. Please press star one on your telephone.

Your first question is from Hamir Patel of T.I. VC capital markets. Your line is now open.

Hi, good morning.

David with the recent upgrades you know what level of lumber lumber production are you targeting.

2021, and do you see that mix of volumes directed to the U.S. changing next year.

Yes, Good morning America, Yes I.

You know I think we will sort of plan.

Plan to top out around the 40% range, we won't go much beyond that.

With our new equipment I think will be.

Expanding quite.

Significantly our offerings Jay grade as well.

You know the higher quality dimension lumber into the Japanese market.

We've got a lot of really steady customers in Europe that we don't want to abandon we don't want to turn the smell into purely dimension lumber mill, we want to maintain that more diverse base.

Base is as you think you know the European market is a lot less volatile than the U.S. market. So.

On balance will will depending on how we're seeing that.

What the outlook is we can well move that needle between 25%, saying, 40%, a U.S. dimension and the rest in the other markets with an increasing component of okay.

Japanese Jay Great as well.

Okay, Great and then David just in terms of overall lumber output there next year.

Would you be would you be targeting.

Yeah, well I expect that no will produce more than 500 million board feet of lumber.

Depending on how we shifted it will have a capacity of.

750 million, but.

But it's been a little question B, how are the markets whats left whats the labor supply for shifting and you know how we feel about maintenance capacity and all those are the sort of things but.

You know to be conservative it'll run easily used to be at the $500 million.

Great. Thanks, that's helpful. If I recall I think on the last call you mentioned celgars.

Our agreement with scheduled to expire I think maybe last month, where does that stand today I'm just thinking with all this talk in the province, now sightsee potentially being canceled.

Yeah well.

Well, we yeah, we finished or in negotiation.

Cross that timeline, what we where we are as well.

Where the rest of the industry is.

C hydro treating us in a similar fashion finally, so were at 80% of what we had.

In volume and in price, but.

But there are some interesting features in there.

We we've got options if we if we find better better uses for the energetic value over black liquor for example.

We we.

We can sell everything above the 80% at market whatever that is and we can also.

We're not exclusive to BC hydro so we have the option to build up our other <unk> and other other another source.

If we.

Care to.

And we've got some fuel optimization.

Opportunities with the 80% volume at the higher price you know, we'll back off on on the fossil fuel use obviously you had done so when you take fuel use optimization into account.

You know the difference in.

In power revenue from Celgar compared to the average at the last couple of years with the really not that material sort of more or less about the million dollar range as our guests. So.

I'm not a bad result, considering how concerned we were about it initially.

Yeah, no it's definitely higher than us I want a thought and then just last one for me Alberta had made some pronouncements about growing harvest levels in the province, what sort of impact you see from that on a on your your operations there.

Yes, it will be cut so much potential in that province, I don't know listeners understand that you know the size of our forest management area is massive we utilized a little less than 50% of the available hardwood today.

There's a whole section of our.

For us management area that that.

It's really a traditional territory of of a first nations.

Banned in Alberta that that Didnt settle under Treaty eight had been settled in the last couple of years with the federal government. So they're interested to to start to manage their land with us and.

You know, it's that that that for us is getting quite old and more fire risk now so it it's a home.

The big area of working for US it will be as we enter into another another agreement will we'll be able to start certain managing.

With.

With the Lubicons and gold produce I think pretty significant volumes of softwood.

Timber could be available either to our embedded quota holders are partners in the region or.

You know, we dream of a saw mill of our own Merit Peace River someday.

And we're also looking hard at you know what what other uses for throughout spend might be available to us to value add.

You know sort of support the pulp mill that produce additional value similar to what we did for Rosenthal you show a situation so.

And the and the cut is going up in the province, as well, which will just take what I just described and add more.

Multiply it by a higher percentage of some kind so there's that that's what we really like about operative there just a lot of fiber and we've got a lot of control.

And.

The the early work there for us is going to be the optimization, but we we were seeing some pretty exciting opportunities to reduce the logistics and handling costs of the wood, we're bringing in today. So.

So if we can make a structural shift in the wood cost.

It will be much more profitable at times like this when we're at the bottom of the cycle and I couldn't be more profitable all points in the cycle, but.

We we still see lots of potential in that mill and.

It's not it's not producing.

Free cash flow today, but but there's.

There's there's a path forward for us for sure and so we're quite excited about that.

Great. Thanks, that's all I had I'll turn it over.

[noise]. Your next question is from Sean Stewart of TD Securities. Your line is now open.

Thank you Martin good.

Thanks, David I wanted to get your thoughts on the mid term pulp supply of luck.

Disproportionately heavy to to hardwood growth over the next couple of years.

You've downplayed substitution dynamics on previous calls, but can you comment on softwood price.

The I guess, the softwood markets ability to withstand it.

Extreme hardwood supply growth, especially with.

The soft wood price premium already quite high relative to.

Historical norms.

Yes, well you know I guess my first reaction is you know if I thought the long term hardwood.

Supply demand was going to be oversupplied I'd be I'd be.

Be concerned.

But but I don't believe that I you know I think this is a short term short term anomaly that's brought on by the impact of cold and on printing and writing and.

And I you know you have to remember that.

That a big chunk of a lot of these printing and writing creates a lot of that's mechanical and very little chemical pulp and compete.

Compared to.

Amount of chemical pulp that go into the growing grades.

And so the things that I think about our one you know that.

Very rapid changes in the recycled fiber baskets globally, so so more than half of all fiber.

It goes into any kind of paper product today is a recycled furnish and borders are now close to like just because the cobot because of.

Entries not wanting to transfer the pollution associated with the recycled furnishes into their countries.

You know he's in the last in the early stages of this transition.

It was we didn't see a substitution of burgeon for recycle I mean, it was just recycle is always the cheapest grade and bridge in is to more expensive greed and.

You Didnt really it never got to the point I don't think where there was a significant substitution. There were there were some paper makers to change their furnish like weve seen machines that go from Makena recycled product to back to a recurring problem for example.

But that was a brand switch.

Longer term decision.

But today I mean, we're already seeing in Asia.

You know some of the <unk>.

The bigger higher end packaging producer is starting to look to furnish you know like the for next year, even the even a clean light grades of things cycle are not going to be going into China. So.

So there's a there's.

There is a big shift in that going on.

I think there is also a pretty big shift in the brown grades coming you know the amount of packaging products that are required because of Amazon ordering from home and all that kind of stuff. It's just expanding.

Currently.

And you're seeing you're seeing a large asian companies coming into other markets to build facilities to produce packaging papers, but you're also seeing them building facilities in China trying to keep up with demand and these facilities are recurring imported wood chips from all over southeast Asia wherever they can get it and we already know that that.

Very competitive challenging way to source fiber and it's only going to get worse and as they say start calling all over each other for it.

It'll become quite significant for Virgin and.

Yeah, if you look at the Hawkins rate supply demand.

Figures, you know Hawkins has chemical pumps generally growing.

I mean, one and one and a half million tons of demand per year every year from 2023 to 2024.

They see that continuing 20. This year, obviously demand has dropped about 800000 tons, but a big chunk of that's expected to come back in 2021 and recover.

In softwood capacity, there's really very little and in hardwood capacity is.

People are going to continue to try to fill that void because they see the demand coming so.

You know, it's it's it's hard when you're in the trough to look up over the hill, but.

You know if you think about the population.

Growth on the planet you think about the growing middle class in Asia, you think about the.

The need for better hygiene concepts globally.

Fiber is going to be fiber demand is meeting coming and I think it's going to be quite exciting.

That's that's great detail thanks for that.

Question for Dave here.

Can you give us some context on sales of investments during the quarter, what what was that if you can give us any detail.

Yeah.

So as you know we've been we've been accumulating a little bit of cash well considerable amount of cash on so we're always looking at just trying to trying to see if we can do something better than than virtually zero as an interest rate. So we had to have.

Some small a certain small investments.

Using some of that cash over the last few quarters and we just we just elected to exercise.

Just sell the investments this quarter, we thought they'd.

Done what they were intended to do so we sold them and yes.

As simple as that.

Really is trying to just trying to get a little bit something more with our cash balances.

Are those public equities.

Yeah, we haven't asked about it but not at Liberty to disclose what we what we invest and we just don't think its a.

If you want to talk about too much but it's I.

I think that what I can say to listeners as you know we're not risking the balance sheet, we're being very cautious and careful but we see things which are no brainer.

And we can get a little better return on our on our cash holding steady.

Perry to prepare to do that we're very risk averse, we're not we're not taking big players or anything like that.

So well done.

Last question for me you guys were a reported bidder on AG, causing your sawmill.

And.

I guess can you talk a little bit about appetite for growing the saw mill footprint inside Europe, having a non integrated sawmill platform.

I appreciate you're probably want to be cautious with respect to growth but.

What's the appetite look like beyond.

Freeze out and maybe additional growth in Europe.

Yeah, well they just start with you know we do see lumber in our future. It's a core strategy for us.

I I've talked before about.

The benefits of having an integrated model like Freescale and Rosenthal. So you know just big numbers were thinking somewhere around.

Maybe one and a half billion board feet of lumber in Europe, but that's that's a that's an aspiration that we have.

With the with the platform we have today that the closeness saw mill made a lot of sense to us actually it's a link mill, which is the technology that we run in Europe, we knew that North American majors go run link assets they don't stay.

Adam.

It's just not something there ever.

Have you looked into so so we felt the competition would be late for the asset.

And we've got a really strong sales team and.

Lots of demand for lumber in the U.S. markets really you know at the right price it would have been a really great.

Expansion step for us and we felt comfortable to a level.

But you know as the bidding we had a couple of European bidders that showed up.

Literally the weekend before the auction bidders had to qualify we were the only qualified bidder up until three days before the auction.

The stocking horse bid, which would have been a steel, but two European showed up and they started going crazy on each other and so we just stepped away. Its you know we really would have liked it it would have been a good growth step for us and it would have given us a foot.

In the U.S. sales, which is.

Obviously, if you're.

Close to fiber closer to your customers and you have got a good assets you know that's that's a way to make some money.

If you buy it for the right price so.

So we we stepped away from that day closer to came along as well.

We're not participating in that we just.

It's a different situation the mill is not as far along it's not ready to go.

So that the cash generating.

Capacity of that mill is further out and it would it would take some work to get it up this up to snuff and with co, but we I just you know could dream the sending nurses European colleagues silver to the U.S. South right now to work on this I'm also so we're kind of in that you know were.

Would've liked to have done it but.

Starting lineup for us on that.

[music].

Understood. That's all I have thanks very much guidance.

Yes.

Your next question is from Angie Casco from Credit Suisse. Your line is now open.

Thank you. Good morning, if you could maybe just give us a bit of color on what you're seeing and pulp markets with a particular focus on just the boots on the ground view of what you're seeing in Asia.

Where most parts are really through the pandemic.

And then what you're seeing in Europe, where you've got operations, where you're clearly second waves happened or whatever we don't call. It.

And we're seeing pockets of shutdowns happening again.

Yes so.

You know.

China is.

What's sort of the first to get hit obviously complete shutdown in the areas, where they had the virus everything kind of stop Trent logistics were renewed challenging.

You know any trucker that wanted to go somewhere you had a very rigid protocol yet to follow these could deviate you know is it was a challenging challenging situation and then they.

More or less got through it they started opening up and and if you look at their manufacturing activity it looks a bit like a b and they still have outbreaks, but they they they clamp down on a very hard very isolated.

And you know more or less things or things are moving again, so so demand is good.

I think that I think that the pulp situation is as one of theirs.

I mean, if your paper producer in China, and you don't have a full warehouse of pulp you missed it because.

He has been a lot a lot of inventory available from producers, particularly on the hardwood side.

That is all transacted.

I think most of the pulp in Asia today is owned by the end producers and and they're running well demand for their products is improving.

And they're they're buying.

You know as much as they can get to to replenish they don't want it they don't want to fall behind because prices are.

Remained low but there is upward momentum we are seeing that you know we both from the Fiveseventy to 600 now looking like six to 10 615.

And generally the mood is one of things are improving and demand is actually robust is there's no shortage of men.

For Pope right now.

In Europe, I guess, the mood would be.

It's been a whole lot of ships you know there is I think the paper companies have done quite a bit of rationalization.

You know shutting machines to.

Manage the.

Drop in demand of certain grades.

But the printing and writing space generally today like the graphics grades are really starting to improve the well, there's lockdowns or not.

Complete.

Don't go to restaurants.

When things are serious don't know theaters are open.

If a if a kid if a community has a has an outbreak thinking they get locked in for a little while but but other than that you know the cities are busy people are moving around there's there's people are working and.

That's it.

Societies figuring out how to live with this thing. So so demand is no. There's no more optimism on the demand side coming out of Europe than than we saw three or four months ago.

And and there's been some some modest upward momentum on pricing.

Yes.

You know and as I was mentioning on my prepared remarks, we're starting to see restart.

We're starting to get inquiries for Virgin fiber from.

The companies, we haven't traditionally serviced and this because they are short and the printers that they normally use.

I think I think others will be getting the same kind of inbound queries and I think it's the signal at the beginning of it as I've seen or near the couple of things the impact of.

Given the lack of availability of high quality recycled for Nash and I think also the impact of this really dramatic increasing demand for brown fiber. So I think those are those are trends will be watching through the rest of the winter here to see how those Phil.

That's that's very helpful. And then has there been any change.

Really your geographic sales mix.

Started a pandemic or isn't it held pretty constant.

Well, let's see if there was one change we're you know we're we're really.

Putting a focus on.

Getting more stendal into Asia. So weve, you know weve been defining.

Optimal logistics.

Patterns that million up like booking well ahead.

Freight services to to move the product there it's it's.

We just don't want to put any pressure on the European market like Europe, Europe steady and.

You know, we just we don't want to we don't want to.

Exacerbate a condition that could put it.

In in an oversupply situation not that one mill could do that but it just pushing pushing tons into Asia, where there is this strong appetite.

Gross small discount compared to European realization as you know in our minds the right way to go.

So yeah it's.

That would be the only real change I would say we.

We've also I should say, we we do continually look at our customer list and we think about the machines and we you know we.

Very connected to our customers discussing prospects into different products and so on and.

And we really do focus on servicing customers in grades that have a long term future.

Yeah, we don't we don't need to be in the spot markets and we don't need to be with customers that need credit support or.

Or that we think may be one of the next to succumb to the you know the shifting demand patterns. So.

Yeah pretty pretty comfortable that that we've got a good steady steady.

Customer base as we go through the pandemic flu or the one that is.

Okay. That's very helpful. Thank you.

Your next question is from additional fear of Lawndale capital markets. Your line is now open.

Hi, good morning, congratulations on the hunters, David well deserved.

Thank you.

The cash flow that came out this quarter and your discussion of the prospects and pricing et cetera.

As to indicate at least a stabilization the cash flow if not likely.

A trend to likely to grow from these levels look.

What's kind of your priority on the use of cash flows.

Is there an optimal.

Debt level or a level of turns et cetera that you're you're lucky for for when the allocation of cash flows.

Might be going to more towards or other growth investments and for evaluation and.

Increase in either dividends or.

Other or not.

I wouldn't call it a return of capital, but it's the Companys stock price and valuation stayed this low.

You know.

We purchase.

You know.

Well.

Yeah. Thanks for the question Andrea.

Yeah.

The way I think about things that I kind of have to separate the conditions that were in just today.

With what would need to be considered normal conditions. So so by that I mean today the focus is.

Controlling costs.

Servicing our customers being strategic around fiber.

Sanish the Frito expansion.

Finished the the stendal.

Project, which as you know just such an accretive positive thing for that no. When you take the wastewater fee offset program into account like it was a real well.

Really great projects that we put together there with support from the wastewater.

So so that's a priority.

Finish finish those things maintain the mills.

All our people healthy.

Continue to work on process controls.

Yeah, just keep optimizing doing what we do.

And when when we get through the pandemic and we're starting to generate the free cash flow that these mills can generate.

Then we then we need to get back to our balanced capital allocation.

Approach and that would be re and reinstate the dividend continue to grow the dividend look.

Look for opportunities to de lever continue to you know we're going to have some element.

In her notes that are coming up as we get into call periods, we're going to have some options there.

And we're going to have some interesting growth opportunities to pursue so you know we'll be we'll do what we've always done which is to be the only protect the balance sheet.

Create long term value.

True to that process.

Okay, and then you know in this new era, which is extending of the.

Virtual.

Most of your sales efforts or all or your sales efforts. These days with customers is all done virtual or is there any travel and in person activities going on at all.

Yes, well well there is there has been a fair amount of in person things happening so.

Not for me, obviously like I can't get to Europe from Canada here, but what.

But our European sales team, you know visit with customers or have been they're not this week, they're not because things have locked up again, but there's been there's been quite a bit of a you know weve had meetings with our with our large pan European customers, So they'll meet somewhere safe, where they can be in a big conference room and.

Compare notes that kind of thing.

We've got an underground sales force and in China, obviously, so there's still that that direct contact going on.

For our leaders like her vice presidents.

Here in Canada, you know, it's more of a virtual arrangement.

Arrangement.

Does the international travels not possible, but but that's been going reasonably well.

You know, it's an and and we've done really well servicing our customers throughout this pandemic and you know we just continue to build that relationship and that trust.

And so am I.

That the market side of <unk>.

Stakeholder engagement I think doing.

Very well.

So the trade shows like the London, and then on the other paper and pulp wheelhouse things that go on what happened there.

Happening do they have the hardly at all yes, yeah, yeah, the Hawkins rates knows whom will be virtual next week.

Alright, so they do that virtual and they'll still be your the you know the various networking opportunities and things that you right.

Thrives on and then on the in investment.

Side of the coin or.

What's on the calendar for Youre getting on virtual storytelling for.

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To articulate the main the Mercer.

I'm proud.

Opposition and value here.

Yeah, we've been.

Doing doing the bank Vishal conferences, which actually worked really well it's interesting that you know in a in a day or or two weeks.

Comedians many of 75.

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Investors and just made that number up and then a big numbers and given that we'll have one on ones with certain ones that investors really want to talk one on one of them sometimes.

Banks will put them into a group and you know us David Neithercut groups of up to 20 investors on one call. You know you do a little bit as shown on television answer bunch of questions that we are this morning. So.

So that's working really well and I think we'll be busy through the fall of continuing to do that.

On what the next up on your calendar for that I'm, sorry, when you step on your calendar for the yeah, I'll just ask Dave to add to the list.

Yes, we've got we've got two conferences coming up and they happen to be in the same week. The week of November Thirtyth, we'll be attending the bank of America fixed income conference and also that same week the RBC Forest products conference. So that's.

Thats in the week of November Thirtyth.

Okay excellent.

Excellent all right. Thanks, guys.

Okay.

Once again to ask a question. Please press star one on your telephone.

Your next question is from Adam Zircon, if might hit your line is now open.

Gentlemen.

Hi, Thanks for thanks for taking the time and David Congratulations again.

[laughter].

Quick question too too deep you're right I know you don't want to comment on the nature of the investment sold during the period and that's fine I'm. Just I'm. Just curious are those are those investments that were that were in prior periods accounted for as.

Cash equivalents, meaning is the 21 and a half million dollars that we see is proceeds is that truly additive or is it just really a reclassification of liquid assets.

Yes, they were not in the cash they so they were non cash equivalents no.

Okay. So so this is a balance today is 21 and a half million higher than otherwise would have been if I think about equivalents.

Right yes.

Got it. Thanks, that's that's that's a helpful clarification.

And then in the different offices, just curious if you can comment as to what you're seeing.

Or thinking around maintenance cycles globally are you mentioned in the press release that that you think we'll see some capacity curtailments just on account of deferred maintenance that to seem we've been talking about for a couple of quarters now so im curious.

Where do you see what inning of that we're in <unk>.

Yeah.

Thanks.

Yeah, well I.

It's challenging you know we we've we've done some shots ourselves.

Rosenthal.

We've completed that were successful, but it was a nail biter frankly, you know we we had one contractor tip. It typically comes in to do high pressure cleaning the boilers.

And they just you know a.

Three weeks before the month before the shot they just we can't.

Camps, and the crew you're not going to do it.

Not comfortable and so you get a risk scrambling around looking for.

For an alternative supplier, we were successful ultimately and you know as well as optimal because it was kind of a new process for the <unk>.

Did it for us but.

But so that was an example, you know the scurrying around to get qualified trades, if you like and then.

I know that if we had to do that shut today. It couldn't happen like you can't cross the border from Austria, and cross border from the Czech Republic today.

You can't stay in hotels that you know as a guest.

So you know how and what does that look like so.

No we just we got lucky.

As this thing comes in waves. If a company has got a shot at a time when there is a wave in their area.

You know, there's clearly going to be disruptions and I you know I can't predict that don't have a crystal ball, but.

But it's for these big manufacturing facilities, it's a struggle and and I'm sure. It's it's impacting the decisions that other companies are making.

You know around the timing and the availability of talent.

Tractors to do the work.

We we've had I.

I mean, the hygiene protocols that are necessary to conduct and they can shut. These days are extraordinary you can imagine whole parking lots with.

With Tencent, Roes and forms and people in gallons and taking your temperature filling out questionnaires.

You know verifying information special trailers for canteens, and and and bathroom facilities.

Protocols that don't mix contractors, you know they tend to become a little pod and among themselves. They don't actually physically meet with our people like their barricaded apart they were exceptionally high.

Hi, Jane clean tools, all that kind of stuff because it's an extraordinary amount of effort to to conduct these big shots and you.

You know mercers a very modern.

Company with strong operating <unk>.

And process controls, we can handle that kind of stuff, but I'm not sure all our competitors are up to the challenge so.

I'm I'm still expecting to see you know unplanned downtime as a result of cobot.

I just can't imagine everybody is going to be successful doing what they want to do when they want to do it.

Got it Super helpful. Thanks.

Congrats on a good quarter.

Yes. Thank you.

There's no further questions and I would like to turn it back to David Gandossi for more information.

Yes, Thank you operator, and thanks, everybody for joining the call as always Steve and I are always happy to take calls anytime so don't hesitate to reach out and.

Well look forward to speaking you all upon the completion of the year.

And sales.

Thanks Heath, everyone look after your families and be careful thanks.

Ladies and gentlemen, this concludes today's conference call and thank you for participating you may now disconnect.

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