Q4 2020 Mercer International Inc Earnings Call

Yeah.

Good morning, and Mercer.

Of our International's fourth quarter of 2020 earnings conference call.

The call today is David <unk>, President and Chief Executive Officer of Mercer International and David <unk>, Senior Vice President Finance, Chief Financial Officer and Secretary.

I will now hand, the call over to David Yang. Please go ahead.

Good morning, everyone I'll.

I'll begin by reviewing the fourth quarter's financial highlights and following my remarks, I'll pass the call to David who will comment on our ongoing response to the COVID-19 pandemic key markets operational performance progress on our strategic initiatives along with our outlook for the first quarter of 2021.

Please note that in this mornings 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 risks related to these statements which are more fully described in our press release and in the Companys filings with the Securities and exchange <unk>.

Sure.

Our fourth quarter EBITDA was up when compared to Q3, primarily due to improved pulp demand and pricing record operating results from our wood products segment solid operating performance from our mills, along with lower wood costs.

These positive influences were partially offset by the impact of of weaker U S dollar and of slightly heavier annual maintenance program in Q4, when compared to Q3.

And reduced government wage subsidies that our Canadian mills with.

We generated EBITDA in the fourth quarter of about $49 $5 million compared to EBITDA of about $45 $6 million in Q3.

Our pulp segment contributed EBITDA of $34 $8 million and our wood products segment contributed record quarterly EBITDA of $16 $4 million.

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

As usual you can find additional segment disclosure in our form 10-K, which can be found on our website and out of the SEC.

Average quarterly softwood and hardwood pulp prices were up in almost all of our major markets compared to Q3 as a result, our average pulp sales realizations were up almost 30 million or $30 per ton this quarter positively impacting EBITDA by about $18 million compared to the prior.

Quarter.

Pulp demand also improved noticeably in Q4, allowing us to sell our quarterly record 563000 tonnes, which was up about 93000 tonnes from Q3 and about 39000 tons above production.

Our wood products business continues to perform well, we sold about 104 million board feet of lumber in the quarter, which was down about 14 million board feet from our sales volumes in Q3, primarily due to logistical restrictions during the Christmas holiday season.

Electricity sales totaled 251 gigawatt hours in the quarter, which is up relative to Q3, primarily due to strong production of all of our mills in Q4, and so GARS Q3, 30 day curtailment.

Our Cariboo pulp joint venture, which is accounted for using the equity method contributed another seven gigawatt hours to this total.

The caribou production is down due to unscheduled maintenance on one of its turbines that will keep it down until mid February.

We reported a net loss of $13 million for the quarter or <unk> 20 per share compared to net income of seven $5 million or <unk> 11 per share in Q3. The decrease in income reflects stronger EBITDA being offset by a decrease in other income line of our income statement include.

The negative impact of the weaker U S dollar on certain U S dollar denominated assets.

Cash generated in the quarter totaled almost $16 million compared to $42 million in Q3, our cash generation in Q4 was primarily driven by solid EBITDA generation, which was partially offset by increased capital spending and a modest increase in working capital.

We invested about $19 million of capital in our mills this quarter and David will speak more to our spending expectations in 2021.

As a.

Salt of prudent cash flow management, our liquidity has improved in Q4 and at the end of the quarter totaled about $628 million comprised of $361 million of cash and $267 million of Undrawn revolvers.

In Q4, our planned maintenance shuts included the successful five day shut at Peace River and the final of 11 days of a two week shut at Rosenthal compared to Q3, when we successfully executed a short seven day shut at SOCAR and the first three days of robust Roes.

And Paul shot.

The impact of the Q4 maintenance days, including lower production and higher direct costs reduced Q4, EBITDA by about $7 million compared to Q3.

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

I am pleased to note that in January we completed an offering of $875 million of senior unsecured notes that will bear interest at five and one 8% per year of mature in February 2029. The net proceeds from this offering were used to redeem both our outstand.

The six 5% 2024 senior notes and our 703 eighths percent 2025 senior notes with the remainder being used for general corporate purposes.

Subsequent to this transaction Mercer as earliest senior note redemption is now 2026, and our annual interest expense will be approximately $12 million lower than previously.

And as you will have noted from our press release, our board approved a quarterly dividend of six five cents per share for shareholders of record on March 31, 2021 for which payment will be made on April seven 2021.

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

Thanks, Dave and good morning, everyone.

Let me begin by saying that despite what is looking like the early stages of of global economic recovery.

COVID-19 pandemic remains a major concern.

While national of vaccine programs are gaining speed infection rates remained stubbornly high due in part to do with more infectious mutations of the virus.

And as a result, we remain focused on the protocols to ensure the safety of our employees and the ongoing operation of our plants.

I'd like to thank all of our employees for continuing the reference to keep themselves the family's center colleagues safe.

I am pleased with our operating results this quarter from wheels, Oran wells, resulting in strong production, which allowed us to achieve record annual production of pulp lumber and energy.

On the fourth quarter results also benefited from increasing pulp demand and prices combined our pulp mills set of sales volume record in Q4.

MBS K pulp prices in Europe rose steadily through the quarter and prices in the U S rose modestly late in the year what prices in China Rose significantly late in Q4.

The upward pricing pressure in China at the end of the quarter was due to a number of factors that included low pay per producer inventories unusually high pulp producer downtime and a global shortage of containers. It has limited the volume of pulp into China combined with a relatively high Chinese currency.

This upward pricing pressure in China, ultimately push prices up in all markets and looks to continue through the first quarter of 2021.

In China, the Q4 average MBS K net price was $637 per ton up $65 from Q3.

European list prices averaged $880 per ton in the current quarter compared to $840 per ton in Q3.

The average Q4 net hardwood price in China was $480 per ton up almost $40 from Q3.

And the hardwood list price in U S market averaged $868 per ton in Q4, which was flat compared to the prior quarter.

Despite the ongoing challenges created by the pandemic global economic activity has been buoyed by the rollout of vaccines and indications of ongoing government of economic support globally.

In turn this has begun to reduce the level of economic uncertainty.

Currently we believe MBS Cape fundamentals of improved with low producer inventory levels and a weak U S. Dollar supporting pulp prices, we expect demand to continue to increase through the winter but.

But we also expect some Chinese.

Chinese market moderation through the lunar new year celebration.

In addition, we believe we will see moderate demand increases from certain end uses including printing and writing. This country has continued to slowly reopen their economies.

Adding to the positive pulp market fundamentals, we expect the planned pulp mill conversions will positively impact pulp supply and Virgin pulp demand is getting a small boost from an increase from the percentage of Virgin fiber going into certain packaging products at the expense of what is becoming the degraded recycled fiber supply.

Overall, we expect the pulp markets of continue their steady recovery in 2021 the <unk>.

Current speculation driving NPS keep prices up on the Shanghai Futures exchange may take a slight step back late in Q1, but we remain optimistic that the previously noted supply and demand factors will support future strengthening of the pulp markets from the pandemic related slowdown.

December market statistics reflect steady strong demand.

With both <unk> and hardwood inventories.

Down significantly.

With regards to our wood products business of the European lumber market remains steady with modest upward pricing pressure being driven by the strong U S market share historical peak pricing late in the quarter and strong demand pool of.

Our Q4 average number of sales realization was $467 per thousand board feet compared to $453 from Q3.

As Dave noted earlier this enabled our wood products business to achieve a second consecutive quarterly record level of EBITDA in Q4.

The historically high lumber prices in the U S. Despite some volatility continued to be driven by a solid housing market and steady home renovation related demand.

The U S market supply demand dynamics are expected to remain favorable through 'twenty and 'twenty one as the largest American homebuilding companies are all predicting strong sales this year due to low home inventory levels had many areas of the United States and what are widely expected to be sustained low borrowing costs.

Random lengths U S benchmark for Western SPF member tuned better average $700 per thousand board feet in Q4, which was down $68 from last quarter.

U S lumber prices were down mid quarter before continuing the rapid increase late Q4 theres been sustained so far in 2021 compared to Q3, which included record lumber prices.

The benchmark lumber price is currently close to $945 per thousand board feet.

In Q4, 37% of our lumber sales volumes were in the U S market with the majority of the remainder of our sales from the European market.

As we move through Q1, we expect the European lumber market to remain 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 of the pandemic related challenges, including our Cariboo joint venture. We produced almost 524000 tons of pulp up 44000 tonnes from Q3 the.

The increase was primarily due to strong production at our pulp mills and the absence of celebration Q3 curtailment.

<unk> the caribou mill, our strong pulp production allowed us to produce 568 gigawatt hours of power up 39 gigawatt hours from Q3.

Our wood products segment continues to perform at a high level, producing 111 million board feet of lumber, which is up 14 million board feet.

Due to Q3 production interruptions required to tie in new equipment related to our phase two expansion project.

In Germany, our wood costs, particularly for pulpwood remain at historically low levels due to the abundance of beetle damaged wood.

We expect this log supply dynamic to last well into 2021.

In Western Canada, Pulpwood supply has improved due to the saw mills running full out to take advantage of the strong U S. Lumber market, we expect fiber prices to modestly decline but remain at.

At historically high levels into Q1, 'twenty 'twenty one.

We are of significant annual maintenance program plan for 'twenty and 'twenty, one the majority of which is due to the peace River recovery boiler rebuilds and Stendal will take 23 days of downtime compared to six days in 2020 due to its major maintenance being on an 18 month cycle.

All of our major maintenance shuts carry significant risk because of the result of the pandemic and the large number of contractors required in the mills.

We have developed strict safety protocols to mitigate these risks and based on our information today, we believe that all of this maintenance can be completed safely and effectively.

Our 'twenty to 'twenty, one maintenance schedule of since followed follows in Q1 silver will take the 20 day annual maintenance shut in.

In Q2, Stendal will take US 18 months shut the last 21 days as well Cariboo will take an 11 day shut at Peace River will begin at 64 day shut the.

This extended downtime will be used to rebuild the mill recovery boiler.

You'll recall that the shut was deferred from last year to the due to the inability of contractors being able to guarantee the availability of skills trade people during the early stages of the pandemic.

In Q3 Rosenthal has a 15 day shut planned and Selberg Silga will take a four day many shut in.

In Q4, Stendal has a two day of any shut plant.

In Q4, we invested roughly $23 million in high return projects that are mills. Our planned 2021 Capex program is expected to be about $150 million.

A more modest 2020 Capex program was focused on the completion of the free shell phase two expansion project, along with some smaller high return productivity and cost reduction initiatives.

We also began early work on the production expansion project at Stendal, which.

We'll complete in late 2021 with when it will increase the total capacity of the mill from 660000 to 740000 tons per year.

As we begin to look forward into 2021, I remain confident that the effective execution of our strategy will continue to bring of success. He will remain focused on our world class assets and a sustainable operations will continue to serve us well as we continue to focus on optimizing our fiber handling and logistics and controlling our costs.

I've discussed previously that financial Prudence required us to put the growth ambition aspects of our strategy on hold.

However, as we look forward to strengthening pulp markets and reduced economic uncertainty with their balance sheet in good shape with excellent liquidity will begin to refocus on adding shareholder value through growth.

And as I've stated previously.

Any future growth will be in areas, where we have core competencies will well maintaining the integrity of our balance sheet and our liquidity managing the liquidity.

Now the three projects are prepared to talk about today, we have.

Our board has approved the Ah <unk>.

<unk> court with the Stendhal sawmill the per.

Project Hasnt been approved per se, but the engineering to take us to the next level of getting the permits secured and any subsidies applied for.

Has happened and will be taking that back to the board.

Late summer early fall from final approval.

We also have approval in principle for two wood room projects when it sells out of one at Peace River.

These are projects that will change the way, we debark the the smaller diameter logs and are currently much of that's done with remote chipping in the bush or in satellite yards.

We will put of six flail unit sell Gar and of batch Rotary day Barker and at Peace River.

Reconfigure our truck.

The fleet too.

Alberta to be 10 axle cut to length, which will allow us to increase the weight on the trucks from.

Roughly 66 tons per truckload too.

Almost 88 tons per truck, which is a close 40% to 50% improvement the.

The rotary day Barker and centralized chipping.

At Peace River will result in a <unk>.

Reducing of wood requirement from the same volume of pulp by about eight 5%. So this is less breakage less loss of whitewood.

So it's a it's a really fantastic project.

The cost reduction for both mills is around $20 million per year, which will occur throughout the cycle, regardless of the pulp prices.

The cell Gar capital cost is the wood room itself is around $18 million there'll be some trucks of mobile equipment associated with that.

And the piece of every wood room is about $40 million.

Again, with the with trucks and mobile equipment associated.

Both have a about a $20 million EBITDA impact.

So and there are there are various carbon related government grants associated with both projects so better than two year payback on both of those were very pleased.

But the board is prioritize those and we'll.

We will be making final final decisions at the end of this month when the engineering gets to the plus or minus 10% level.

And the both would rooms should be up and running by by March of next year.

Finally, as you may have seen in our press release earlier. This morning, I'm very pleased to welcome Janine North and Alex the bearish to the Mercer Board of directors. Both of these women have tremendous experience both in force industry along with other.

Other corporate board experience in CEO and senior financial position experience.

So we're all very excited that the agreed to join the board and I'm looking forward to working with both of them.

So this completes our prepared remarks, thanks for listening and I'll now turn the call back to the operator for questions.

Thank you and ladies and gentlemen, we'll now open up the line switch Inc and.

And to ask the question at this time simply press. The Star then the number of line on your telephone keypad.

Gentlemen, please the first question.

Well. The first question comes from the line of Permeate Battlegrounds CIBC capital markets. Your line is open.

Hi, good morning.

David could you comment on the sort of M&A environment for lumber and how attractive that opportunity set is looking versus the potential of greenfields.

Well Theres, a theres a few situations out there but.

It's the time in the cycle where.

Valuation expectations are very high so it's unlikely that we'll be we'll be chasing.

Chasing M&A and the Nissan Mills at this stage in the cycle.

We are pretty pretty keen on an on the.

The closer one in Florida, we thought that would have been a great deal for us for a bunch of different reasons, but.

As you know we stepped away from the auction when it got got heated.

So I think for us the the next step in lumber expansion will be stendal, and I think that'll be a tremendous tremendous project for the company.

And then David with the preset of expansion work being completed this year, what what level of lumber output are you you're targeting this year.

Yeah round about 500 million board feet of lumber there may be a little bit more.

Yeah, we havent decided to put on the third shift at this stage.

It's the.

The stresses things a bit when you when you push towards that third shift from a maintenance perspective, but.

But it's where.

We're very pleased with the with the grade improvements that we're seeing in the profile of the wood coming out.

Still a little bit of tuned up to do with you.

With edge training and those sorts of the precision and trim.

On the new planer, those kind of things but.

Generally everything's working as we had expected.

Great. Thanks, David that's until that.

Thanks Amir.

Thank you. Our next question comes from the line of Sean Stewart from TD Securities. Your line is open.

Thanks, Good morning.

Couple of questions.

David debt.

The interested in some further context on on your take on on pulp momentum right now, it's a spectacular run off I guess, the low base for the commodity.

These are mill inventory levels debt, while they fallen dramatically from the peaks. We saw last summer would not normally support this type of <unk>.

<unk> momentum and I guess, you mentioned, the Shanghai Futures, you mentioned currency shifts and the impact on the cost curve.

How much of that is playing into what we're seeing right now and how do you think about the momentum relative to where inventories are through the system.

No.

Well first of all on the the Shanghai Futures My view is that if you didn't have the.

The fundamentals.

Right and the supply demand physic.

Physical side.

The the futures exchange would be would be of speculative sort.

The thing and more likely a bubble with heat up and cool off the kind of thing, but I think physical.

Markets are tight hardwood in particular is really tight when you think about the length of the supply chain from most of the hardwood mills to the national markets.

So I think that's that's that's the really tight side right now.

Softwood is.

Balanced.

But having said that there is there is quite a bit of supply risk with all the maintenance is going to happen.

There's no new supply coming.

Most customers are expecting prices to continue.

At elevated levels, and possibly increase so so everybody's chasing pulp that nobody wants to get behind everybody wants more of than they can get.

And so it's you know let's.

It's driving itself is really my view of unless unless something happens that.

You know really significantly impacts demand in eight out of I can't see that.

It feels it feels like a sustainable sort of the rally here I mean, it's it's the markets are balanced to tight inventories are low and.

And demand is strong and as I was saying earlier, the the printing and writing side is coming back off the floor.

As countries open.

It is any kind of.

Travel and improvements are.

The school forms or.

Just generally people are getting back to work will drive of drive some recovering pretty good writing, which is all incremental on top of where we are today. So.

Okay.

Couple of questions on on Capex.

So I understand it correctly, the the two wood room projects.

Those arent board approved yet, but they are in the $150 million budget for this year is that the correct read.

No they're not in the 150, they're there they will be incremental to that okay.

Okay.

Okay.

And.

As we think about of Stendhal sawmill.

What sort of Capex budget are you thinking about for a project like that.

Yeah.

All in.

Two completion would be around 185 million euros.

Our current thinking is to is to do it in phases, we havent established exactly what that looks like but.

There's elements of it that will.

You do first and get the lumber production going in and then you know.

I'm thinking.

Some of the long sorting equipment in lines May come may come later.

Up to <unk>.

Two.

It's just the logical weighted there.

Sawmill is not like the pulp mill you don't just build the sawmill and then started up the after started up in sections and so we're working on what that what that looks like but.

Yeah, I think well of a lot more to say about it in the summer.

Understood.

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

Sure.

And our next question comes from the line of Andrew <unk> from Credit Suisse. Your line is open.

Thank you good morning, I think the questions for David just on the pulp markets.

You could just give us maybe some color and context on structural and market changes that have happened, but youre seeing really pre COVID-19.

Where you are now and then your thoughts on really the return to normal line you alluded a little bit of a slip of the paper and rider coming back.

But color on that would be appreciated.

Yeah, well I think the.

The the at home tissue has obviously been been very strong the away from home has been weak, but that tends to be more of recycle.

No it is not us.

Not as heavy to Virgin chemical fiber.

Printing and writing is down significantly.

A lot of the packaging grades or are doing quite well.

Downside.

It is really strong you'll have reported those kind of things.

<unk>.

We see.

You'll hygiene.

The issues driving more towels and <unk>.

The napkin production in time, particularly in.

Areas, where it hasn't had great penetration so.

We've talked before about.

Say goodbye to all of US force their hand dryers.

I don't think people are going to be satisfied with with cloth towel.

And dryer systems and in restaurants hotels and things of that got so.

Right.

My view is the.

The hygiene side will drive the.

Towel.

And tissue side, even more significantly than we've seen in the past.

The general view is printing and writing has been like.

The graphics side has been declining at some significant percentage per year you of six 7%.

And with Covid.

It's like we dropped three years in a row all at once boom boom boom.

And demand.

You know as the economies open up some of that will come back not to the level that was their pre COVID-19, but but I.

It will come back to the surface.

Some some some some level of then just to continue on a slight decline from there which is fine because the growth in specialties and other tissue products.

Eclipsed the.

The decline in graphics grades units it should be coming of less and less important market for us on the chemical pulp side.

That's very helpful. And then you mentioned also earlier on the supply side risks that you see on N B S K and a lot of that really being in relation of outages.

With your own experiences what of the Covid protocols, what have you learned about doing maintenance turnarounds.

Obviously, there is an element of increased costs debt.

Just from an outright basis on the Covid protocols, but also to what degree of the productivity losses, and then what are the well through this.

Well there is I mean, it's a <unk>.

So many things that are.

One of the one of the front end challenges is making all of those arrangements. Some of your contractors can travel like making sure that you fully understand what restrictions are at the border.

What they're going to need to do to get across and.

How you test them and and.

And certify that the they don't have COVID-19.

How you keep keep crew.

Cruise apart.

So you can imagine these.

All kinds of.

Kent infrastructure separate Washington facilities.

Canteens mobile campaigns, those kind of things so that we don't we.

We don't have any cross.

Cross contamination between crews, we certainly keep all our people separate from our contractors and keep the contractors separate from each other.

Really just a lots of lots of regular assessments lots of them.

Rules to be followed.

Lots of standardization protocols.

Obviously masks.

Sometimes total masks required if people are working closely together in any kind of circumstance circumstances that kind of thing so.

So far.

We think we've got all of the border issues well identified in all of our plans in place so that.

You know the shots that are coming up in the coming months.

We.

Got a clear line of sight on everything we need to do in and should be able the conductor or shut safely but.

The risks are.

Changes at the border or debt or unforeseen surprises.

Or.

God forbid any kind of of serious transmission in the milk could slow things down or shut things down from period of time so.

It's not going to go perfectly for everybody.

And that's.

It's a lot harder than normal conditions to conduct these other just safely as others others have found.

No.

Yes, just I think the the risk is on the supply side.

More than more of it.

A reduction of demand.

The stage.

Okay very helpful. Thank you.

And now once again, if you would like to ask the question. Thank you press. The Star then the number one key on your Touchstone telephone.

Our next question comes from the line of Andrew Shapiro from Lawndale Capital. Your line is open.

Hi, David Thank you.

A few follow up questions from those that were asked.

You discussed and this may explain that the potential incremental capex on the wood projects.

And I understand you want to take a cautious approach.

But has the.

Have the prospects.

Of the of the turnaround and the returns on past recent investments, giving you any clarity on when the dividend.

Might be returned towards the prior levels.

What are you monitoring when making the decision.

That the.

<unk> would be in a comfortable position to start.

The dividend growth again.

Yeah. So.

<unk> did discuss the dividend but in the.

With with the number of very high return projects.

On the table it was decided to hold the dividend where it is and.

In pursuit of these higher return projects so.

Financing the stendhal sawmill is going to be challenging for US you know, we're going to have to work hard to do that and of safely.

Thinking some sort of a ring fence.

The financing that.

Protect bondholders and equity holders.

From the leverage but.

Sure.

I am sure that can be done.

So it.

Yes.

The dividend at its current level as is.

Viewed us as the right level considering these other other.

Men's on our cash and short term.

Oh, yes sure.

But the other projects yeah, yeah that makes sense. That's once a day, we heard that those who are at some of your plants, but I was just wondering what is it.

Looking to so that.

When some of these projects I guess kick in.

And the cash flows generated in the focus on.

The dividend growth might.

I don't think the boards I don't think the board's thinking has changed that the dividend of something to grow over time, but.

Always going to be decided in the context of.

With the highest return.

Okay, you talked about some producers with higher costs at the tipping point for closure due to the losses and what was the declining price environment.

Can you comment on whether the improved pricing now takes that opportunity off the table or there are other factors that Mike.

Mike.

Challenge some of that supply out.

Yeah.

I guess we.

In the last couple of years, we've seen a couple of mills go down.

Yeah.

There is.

We all know there is the whole fourth quartile is full of old smaller mills.

These pulp prices are certainly going to help them.

Jim.

Keep going.

But in the fullness of time the small.

Cost mills.

Ultimately become difficult to continue to.

Keep it.

Maintaining them.

Mhm.

And the payers site.

Yes go ahead.

Go on David.

Good job thus.

That's one of I was just going to see the.

As the economy starts to strengthen.

Some of the takeaways.

You know things like dissolving pulp that's been.

Running on pay per rate roll, we're already seeing a.

A lot of that capacity shifting back into the commodity.

It is all the pulp side.

The fluff markets are stronger.

So there's really very little paper grade southern softwood coming into the market site.

I think it's a combination of all of these factors that are going to contribute to.

Some of the restrictions on supply.

On the chemical softwood side.

You've stated previously and maybe its been several quarters ago and its already been done, but there was still of lot of room for improvement on the power generation.

The <unk> side, whether it was to increase the power or the byproduct profitability has that all been accomplished or is that.

Another one of the Capex opportunities here.

Well no we finalized our deal with BC hydro and.

Talked about that on the last call I think were pretty pretty satisfied with with where we ended up in its.

Got some optionality for us going forward.

So I.

I think that's.

Is what it is not much to do the report there.

Okay. So there's nothing more that is.

Hi on the <unk>.

On the on the table here for investment to enhance further cash flow.

Yeah.

Well silver is always useful.

Silver I think has.

Both of our mills that it has potential to to be expanded.

And really it's.

It's really all about.

What we call blow tanks and larger filtrate tank so.

The the Canadian mills tended to be built.

Everything balanced so that as long as everything runs.

Everything just keeps running but if you have an upset somewhere in the system.

There isn't really a lot of buffer of storage and between like the fiber line in the bleach plant for example, or between between the bleach plant in the in the dryer.

So these the big tanks allow.

The allowed if you have an upset summer you can you can run up to 12 hours continuing to produce pulp in the digester.

Without going through the bleach plant for example, or where you can build up from the bleach plant before you go to the the the driver of these.

Those kind of investments would allow the mill to produce.

Quite a bit more pulp and therefore lower its cost of fixed cost absorption we haven't prior.

Prioritize that just yet.

Really all about getting to a really competitive wood cost for that mill and that's with the wood room. It's all about deaths are sort.

It's priority and.

And that's it.

As I always say seeing of $20 million cost reduction to feed the mill at its current state.

Regardless of where you are in the cycle and it's it's it's transaction like it's the processing costs. Its just you know how many times you handle the wood.

Much weight you can put on a truck.

What your yield is two the two of the chipper or sitting in other way.

Using the centralized wood room, you have less blood loss.

So it's all.

Pretty high level of confidence that its debt, it's all going to produce the savings that we expected.

And then with the with that.

Lower wood costs, then we can think about whether whether we want to go to the next level to increase the production volume.

The step down the road.

You guys spoke of.

Capex generally being net capex, but the maintenance.

Turnarounds generally being expensed versus competitors and all of that I think is in peace River, but there's one of your plants, it's going to be doing a major.

Rebuild of boiler work et cetera, where insurance proceeds are to be.

Pain for the bulk of it.

Is that peace River and then when that happens how is that going to be accounted for.

Will it just not go through the expense line will it go through the expense line and there'll be a below the line recovery how is it supposed to work.

Yeah. So the the the capital work is all paid for by the insurance company.

And so it won't hit our P&L or balance sheet and then.

There is also a <unk>.

Business interruption component so depending on on what the margins are in the months prior to.

The shot there will be some some business interruption recovery that would.

Would come into our P&L.

And where would you guys put debt is a reduction of cost of goods sold and a reduction of SG&A something further below the line.

Yeah, I'm not I'm not sure exactly Richard shorts on the line with me are David Youre, maybe they've got a better idea, yes, it'll it'll match, where the costs are so it'll be it'll be offset in the same line.

The underlying costs are coming from.

You really hurt the business interruption, if its business interruption recovery where would that be.

So that would be in cost of goods sold.

Alright, and you'll call that out in the particular quarter in amounts once it comes through right.

Well I'm sure we'll talk about it.

Last two questions here on can you update us on the status of both the bio filaments.

Venture as well as the Sentinel venture and.

The status progress timing of cash flows.

Yeah the.

Performance file filaments are still still in the development phase of search.

Joint venture with with Resolute.

And one of the.

Leader the Theres, a whole number of different applications for bio filaments of they're working on but they're also working on masks.

Currently two.

Improve the performance and help lower the cost to produce masks in Canada and then.

The Sentinel is.

He can talk before us is.

It's it's got.

About another year and a half the two before we start to harvest and we will basically the plan is.

Harvest the trees when they get to the 15 years of age.

Or first rotation will be within the mine and a half to two years.

And then we'll harvest when your risks replant Arbus, the next replant and carry on that way.

And that's when we'll start to see the C of the cash flow from that operation.

It'll be a it'll be a.

I mean, I don't want to provide guidance at the stage of because I can't predict what the what.

With the market for for.

For the oil will be at that time, but.

We're very pleased with the investment we made there and I'm sure it's going to produce the nice cash flow for us once we start stern debt harvest.

So starting in about two years when that there is a batch of turns age 15.

Is there a batch every year thereafter.

More or less yeah, it's been it was ladder and the way it was developed.

And then there's some some years might be slightly larger and more of smaller but generally.

There'll be a harvest every year and we will produce the oil put it in inventory and kind of a <unk>.

Steady supply of product.

Right.

Okay and my last question I periodically ask its a little bit.

Maybe out of I don't know out of place, but at least the you'll do it via virtually what's the <unk>.

Investor Relations non.

Non deal road show kind of calendar that you I guess plan to attend virtually in the coming quarters.

And maybe David could speak to that.

Yes.

For the next quarter or we got to I would call them sort of organized.

Sure.

IR events Bofa is hosting US next week on the 24th for a presentation for their investors and then we'll also be attending the Raymond James Investor Conference on March the third and one of the things.

One of the trends that we're noticing is that we've got lots of people that are just calling us and are waiting for waiting for conferences anymore. So as always please give give david or I a call anytime.

We can set something up ad hoc.

Please the talk to you.

Great. Thank you guys.

Okay. Thanks, Andrew.

And our next question comes from the line of Sun.

From credit Suisse. Your line is open.

Hey, guys earlier in the call you guys struck a pretty optimistic tone with regards of the duration and potential strength of the pulp pricing environment.

With regard to that whats the ability for you guys of defer any maintenance of capture as much volume as possible in the pulp prices remained strong for quite a while.

Yes.

Not really much ability there of these these maintenance shuts take a lot of coordination of the contractors.

Moved from mill to mill to mill, it's kind.

Of all scheduled well in advance so.

If we were to step out of that lineup in the.

Run.

We may have what we would have challenges rescheduling contractors for certain work and then there's also the regulatory.

And insurance issues.

All of these pressure vessels.

The pieces of equipment have have maintenance requirements that need to be scheduled.

We're not really in a position to defer any of that maintenance at this point in time.

And that's normally the case with with pulp mills there.

They need to go down one day scheduled to go down.

Got it okay. Thank you I'll pass it along.

And now once again, if you would like to ask the question at this time since the press Star then the number one of your telephone keypad.

Our next question comes from the line of Paul <unk> from RBC capital markets. Your line is open.

Yeah. Thanks, good morning, guys.

Well I guess it started on the Capex side.

I think you've got a $1 50 per the year plus the two wood room projects. So do we assume that it.

It's half of that $8 million in 'twenty one.

Say that again.

Well I'm just wondering if you add the two would wind projects are they going to be complete in 'twenty. One is that 58, all in the 'twenty, one budget or does that spillover into 'twenty two than it did at some of the some of the some of that will spill over into early 'twenty, two but a big chunk of it will be the.

The in 'twenty one.

There's there's government grants against it as well, though Paul there's.

You've got $13 million of government.

The incentives low carbon funds, so far and there is some more of that we're waiting on to here.

So it's not the full.

Oh of 58, but.

And a chunk of it is the trucks and the mobile equipment that will either be.

It could be company company leased or it could be pushed off the contractors and recovered through rates of sorts of things. So theres lots of optionality of what we're doing.

Okay. So.

On 'twenty, one capex I should be thinking somewhere in the $175 million, including some of them for that wood room projects.

Yeah, that's not a bad number okay.

Okay.

And then just the timing of the Stendhal sawmill, if the board approves it.

At the end of the somewhere in the fall is that at 23 start.

Yes, probably the.

The equipment suppliers or the other up in the 18 month range right now for some of the big pieces.

So if you.

If youre in the fall of 'twenty, one you got all of 'twenty, two and then you're putting it together.

Somewhere in 'twenty three.

Yes.

Okay and are we envision in the same sort of the capacity that you've got a piece of it and all of their thinking of small installment.

It'll be a little smaller and it'll be a slightly different configuration.

We will be a link mill of B b.

Hughes I think but.

Bobby.

800000.

Net meter input something of that size.

Okay, and then you guys referenced the the Rosenthal power price.

It's come off and now are back on market rates. If you can just.

Help me out of just understanding the impact of that.

Well today kind of market rates in Germany or.

I think it's around 45 euros of megawatt hour and the the green right. The tariff was around between 80 and 85, depending on the season. So.

So it's it's roughly half of what it was.

Just right now.

Low power rates of Germany, really really of results of the lower economic activity.

Before Covid I would've said that within a couple of years the market rate with the more or less equal to.

What the green rate tariff sewer.

But but they've fallen off as of <unk>.

Salt of the slowdown in and all of the industrial activity they'll come back in time, we expect that as you know.

Germany is moving.

Moving away from all of their coal and lignite.

The fired boilers so.

It's going to be.

The recovery of power prices and well.

We'll be we'll be I think of.

Don.

Something to look forward to but today, it's about six or $7 million.

Euro hit too to their P&L most of them.

Okay, and then you sort of referenced the <unk>.

German gum range, probably bringing back in the incentives for Green energy do you expect to get that in the in the back half of the year I E. Should we model. This is sort of half of that rate from the front half and then back to the full rate in the backhaul.

I don't I don't think you can model that Sean.

Paul.

We don't have any clarity on what's going to happen in the back half of the year at this stage.

Alright, and then just maybe overall.

Pricing I mean, it's a.

And quite a rally here it.

Definitely literally net this one.

Like many of these pulp rallies in the path that.

It sounds like you think it's quite durable here what are you seeing in terms of price.

Prices.

In China for February and March.

Yes.

Yeah well.

Prices are going up it feels like in China.

You know I think there is.

You were transacting today would be.

A pick the seven type of thing.

Spot.

The spot in all of the markets is up.

And that eight to 900 net range.

Okay.

That's all I had thanks, correct, Dave best of luck.

And at this time I would like to turn it back to the speakers for any further comments.

Yes, thanks, very much and thanks, everyone for joining our call today and as David mentioned earlier, if anybody has further questions. Please.

Hesitate to reach out and.

We look forward to.

Speaking with you again in another quarter, thanks very much.

Ladies and gentlemen, this concludes today's conference call. Thank you Barbara dissipating you may now disconnect.

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Sure.

Yes.

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