Q3 2020 West Fraser Timber Co Ltd Earnings Call
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Good morning, ladies and gentlemen, and welcome to the West Fraser Q3, 2020 results conference call. At this time all lines are in listen only mode. Following the presentation. We will conduct a question and answer session. If at any time. During this call you require immediate assistance. Please press star zero for.
The operator during this conference call West Braziers Representatives will be making certain statements about potential future developments. These forward looking statements are intended to provide reasonable guidance to investors what the accuracy of these statements depends on a number of assumptions and is subject to various risks and uncertainties actual outcomes.
This will depend on a number of factors that could affect the ability of the company to execute its business plans, including those matters described under risk and uncertainties in the company's annual Mdna, which can be accessed on west Fraser as website or through the door.
And as supplemented by the company's quarterly M to get amaze accordingly listeners should exercise caution in relying upon forward looking statements. This call is being recorded on Tuesday October 27, 2020, I would now like to turn the conference over to Ray Affairs. Please go ahead.
Thank you operator, good morning to everyone and thank you for joining US with me today is our Chief Financial Officer, Chris Ferrara stick.
Chris Mckeever, our vice President sales and marketing.
And several other members of the West Fraser Executive team.
Before I turn the call over to Chris for financials, I am deeply saddened to report that in the early stages of a major shutdown at our hitting pulp facility that Orrin Hatch Army scaffold are working for Arlinda systems suffered a fatal fall from Hite, while erecting scaffolding inside.
The vessel.
This is a difficult period for all impacted.
And our deepest sympathy goes to Norman Khatami's family space.
As friends and fellow workers.
With that I'd I'd like to acknowledge that we recently posted our updated E.S.G. and responsibility report and is now available on our website. It references the sustainability accounting accounting standards Board Global reporting initiative and it.
Kluge information recommended by the task force on climate related financial disclosure.
And with that I'm now going to turn the call over to Chris for Us stick.
Thanks, Ray and good morning, everyone.
A few months has certainly made a dramatic difference and things when we last reported earnings in July of this year. We were just a couple of months into the restart of many of our facilities coming out of the first wave of the pandemic.
Strong demand for lumber from new home construction and for renovation applications, coupled with lean channel inventories and a limited ability for a supply response drove a significant pricing reaction in wood products.
Our lumber segment adjusted EBITDA increased to 552 million eclipsing the 467 million recorded in the second quarter of 2018, which was the prior high point of pricing in recent years.
Our panels segment rebounded as well ramping back up production and shipments with significantly improved plywood pricing.
Adjusted EBITDA for the panels segment increased to $51 million.
And while adjusted EBITDA on pulp declined to $5 million in the quarter, principally due to price, we offset a significant amount of the price headwinds with lower costs through improved reliability and production rates.
Consolidated adjusted EBITDA rose to $605 million and operating earnings were $487 million.
Finance expense declined as we repaid debt during the quarter and interest rates declined as well.
We recorded earnings of $350 million for the quarter.
Improve what products pricing reduced costs and increased production volumes all contributed to better earnings.
While the progression from Q2 to Q3 involved a healthy dose of price 430 million of which 424 million was attributable to lumber.
We also made progress on the cost front not only from increased production, but also from the benefits of capital. We've spent in prior years and continued close management of fiber costs.
Volume was a slight drag overall in the quarter coming mostly from reduced shipments of SPF, partially offset by higher syp in plywood shipments.
SGT costs increased in the quarter due principally to increases in provisions for variable compensation.
Along with slightly higher wage costs, resulting from pandemic related staffing actions.
Our prior quarter also included $7 million of insurance recovery that did not carry over.
Turning to the comparison to the first nine months relative to last year. There has been a remarkable turnaround in wood product markets.
Leasing in lumber and panel has increased significantly partially offset by softness in pulp markets.
We are particularly pleased with the progress we have made on cost at each of our segments over the prior year through continued focus on safety.
Operational excellence and management of fiber costs, Weve improved costs by $169 million over the comparable nine month period.
Timing of pulp shutdowns year over year did provide a benefit as well.
SGN a changes year over year were largely attributable to the fact, there was no variable compensation recorded in the prior year period, given the earnings performance.
Year to date adjusted EBITDA up 916 million has drawn more in line with the 819 million and $1.4 billion of adjusted EBITDA for the comparable periods in 2017 and 2018.
Lumber production for the quarter increased by 125 million board feet as SPF production increased 8% and syp production increased 9%.
Shipments were down slightly in the quarter, but for the full year shipments are slightly ahead of production as we reduced inventories during downtime earlier in the year.
Plywood shipments reflect a full quarter of operating near capacity.
Cash flow from operations was $613 million as improved earnings and favorable working capital both contributed.
In the quarter, we pay down a number of the COVID-19 related deferrals that were put in place earlier in the year, notably on stumpage and property taxes.
Capital spending was in line with the prior quarter and we expect the full year to be towards the higher end of our previous guidance as we brought forward a few small projects.
Net debt declined by 563 million and net debt to capital is now 12%.
During this quarter, we have repaid our operating loans and increased our cash by $179 million.
Our cumulative duties on deposit grew to $495 million U S.
The duty rates adjust as anticipated in Q4, we will record a U.S. $93 million recovery in Q4 in respective overpayment of duties for the 2017 and 2018 periods.
Evaluation of 2019 duties is currently underway.
Liquidity continue to improve and is now approximately $1.3 billion with the majority of that comprised of Undrawn Bank lines.
We remain well on side with our financial covenants and have no near term maturities.
We are entering currently entering the period of seasonal inventory accumulation of logs in Western Canada, which will carry on through March of next year.
With that I'd like to turn it over to Ray for some comments on market perspective, and recent developments on some of our capital projects.
Thanks, Chris.
I'm going to keep my comments.
Fairly brief.
First just a little bit about the pulp business, our pulp operations again had a had a solid operating quarter.
However, the impact of coal that has obviously resulted in the acceleration of the decline in printing and writing demand, which.
Which has only been marginally offset by growth in tissue and packaging we.
We expect continued difficult markets for pulp and the short term before production.
Comms aligned with the overall demand and market preference.
Hinton, Paul Thank you RP Cornell River, Paul both completed shutdowns in early Q4.
As Chris noted.
And further to his comments with respect to the dynamics of lumber demand.
Reasonable housing starts combined with good repair and remodel activity.
With export volumes, although down from previous years remain at a similar level to the last half of 2019.
On the supply side, it's important to note that north American production in the third quarter of 2020 remain below similar periods of record pricing in early 2018.
Partly due to permanent capacity closures in British Columbia that were not fully offset by increased capacity in the U.S. So.
Import volumes, although flat over the previous year are up roughly about 100 million board feet per quarter over 2018, and 29 team.
This stronger than expected demand and limited supply response contributed to record pricing in the third quarter.
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As everyone has multiple sources of housing forecasts for the balance of 20, and 2021 I did not intend to repeat them here, except that consensus appears to indicate that housing starts are expected to continue to improve.
Seeing that demand can be hard to predict.
But we do have a good understanding of supply and that the difficulty and adding supply has been a driving factor in price response.
And the respective short term fluctuations of price, saying that we believe it is not coincidental that we have experienced record pricing twice in the past two years.
When the long term evolution of lumber prices examine after a long period of relatively stable prices from 2011 through to 2016. The last four years have seen a markedly higher trend in pricing as the current supply and demand dynamic has influenced lumber pricing.
The last three cycles in both southern yellow pine and SPF have resulted in successful successful successively excuse me higher floors and higher peaks.
So what is the impact of potentially higher pricing on harmful home affordability.
Peak pricing in September FDA estimated the increased cost could advantage at an average of $10000 to a median home.
Well not insignificant disappears manageable and should not be a significant impediment to builders and homeowners.
Pricing has retreated from September levels, and critical gaps and supply have been mitigated.
Short interruptions in the supply chain in the past few years have not been quickly overcome.
As we've done in the past few quarters.
Moving beyond supply and demand as we've done in the past few quarters, we thought we'd update you on another step in our modernization journey in the U.S. So we.
We have owned Joyce.
She is in Louisiana since 2001.
The log handling and merchandising systems for growth were built in the early nineties.
And we're quite inefficient and lack the technology to meet current expectations.
Although.
I have to tell you there was a delay in the crane delivery.
The 30 million dollar you use the project was essentially delivered on time in your budget.
The project eliminated a high cost a bottleneck in the operation and we are pleased with the results that our joys team has delivered which has met or exceeded our payback expectations.
We're continuously focused on the improvement of all of our segments and for.
Particularly our luck our lumber segment in 2007, we made significant investment in U.S, so by buying 13 mills from IP.
The first few years were difficult as we entered the most significant collapse of the housing construction industry and the turmoil of the great financial crisis as we started to emerge from that difficult time, we continue to grow through acquisition and invest capital to keep our assets low cost and to improve the operations, where we have the opportunity.
To do so.
Our work is not done yet.
And we remain convinced of further upside.
While it may seem obvious that lumber profitability comes with inherent volatility the 10 year average EBITDA margin for our lumber business is just under 15%.
And the trend has been increasing in three of the last four years, our lumber EBITDA margin has been in excess of 20% type.
Tightening supply increasing demand.
The prudent deployment of capital and a focus on operational excellence have all played a role in margin improvement.
Overtime.
Our consistent strategy has worked and we remain focused on our key priorities since the peak of the last housing cycle in 2005 to the significant downturn through the late two thousands and into recovery and the last decade. Our total shareholder return has been about the comp set and ahead of.
Most of our direct that.
Directly comparable peers.
Just a few wrap up comments.
Before I turn it back to the operator.
We expect that BC or British Columbia production, including West Fraser will continue to shrink over the next few years as the industry continues to rationalize today available and the accessible timber supply.
We also expect that our U.S., so modernization and operational improvement focus will continue to deliver and improve our relative cost structure.
Our modernization and operational improvement runway in the U.S. South will continue to be a focus area for disciplined capital.
Record and unexpected pricing in our wood products business has significantly improved our balance sheet.
However, as the past few quarters have demonstrated it would be prudent to be prepared for further volatility and uncertainty as the impacts of coal that continue to play out.
We will be conservative with respect to our balance sheet, but are well positioned to further invest in the growth and performance of the company and as conditions allow responsibly return capital to the shareholders.
Finally.
All injuries and serious incidents are preventable at West Fraser.
And although our injury and incident rates have improved to record lows. We have more work to do in order to eliminate all life altering incidents for our employees and contractor partners.
With that I will turn it back to you operator for follow up questions.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your Touchtone phone you will hear a three tone prompt acknowledging your request and your questions will be pulled in the order. They are received as should you wish to decline from the pulling power.
Also please press star followed by two if you are using a speaker phone. Please lift the handset before pressing any key one moment for your first question.
Okay. So your first question comes from Sean Stewart from TD Securities Sean. Please go ahead.
Thank you good morning, everyone.
Few questions.
I gather from the Mdna that your content to let liquidity build on the balance sheet in the near term.
We're forecasting a transition to net cash at some point next year.
Rick can you give us some context on priorities for capital allocation growing the asset base versus potential returns of capital to shareholders as we move.
Moving to the 2021.
Well, thanks, Sean I'll I'll take a stab at that and let Chris chip in here as well I mean I.
I don't think our capital allocation strategy is really ever changed I mean, our our.
Our first priority is.
As to invest in ourselves and.
And so we continue to see significant runway primarily in U.S, so to continue to modernize our assets and will.
You know.
Be disciplined in how we do that we don't want to get out ahead of our skis and we were digesting some major capital that we want to make sure it meets our objectives and but but our expectations are to continue to grow and invest in us. So.
And.
And but when it as we kind of work through that hierarchy of capital allocation.
And we and we frankly see a little bit more certainty.
And visibility in.
And and what the next few quarters will allow then then we'll assess our AR.
The other options as far as returning capital back to the shareholders, Chris you want to.
Jeff and I think Thats I think thats a great summary.
The other couple of things I would point out is.
We are entering the period of time in the year when demand is a little bit seasonally slower at the same time as were building log inventories through March of next year to carry us through breakup and into the summer and that usually consumes.
Consume some liquidity as we work through that and I think while the while the fundamentals that we all talked about around housing and interest rates and repair and renovation the fundamentals are all good.
There's still a fair amount of uncertainty out there when you look at the case counts that are going on and.
All the other factors that may impact the market. So I think we're going to take a measure of caution now I think that measure of caution in the past has done us well it allowed us to keep our dividend and not touch our dividend through the dark as part of this pandemic in May June of this year and so.
Being being cautious I think given the backdrop of of.
Uncertainty, even though the fundamentals are good.
Is the right strategy for now, but as Ray said, our balanced approach is overtime.
As opposed to a quarter by quarter kind of assessment of things. So I don't think fundamentally anything's really changed.
Hey, Thanks, a lot guys.
Question for Chris Mckeever.
Wondering if you can give us some context on the the pullback we've seen in lumber the last five or six weeks.
I suppose some of that was to be expected after a run like we had through.
The second and third quarter.
Can you give us a sense of how your order files that trended.
Speculative on inventories through the channels right now.
And any sense on we're headed for a bottom.
Any time in the next step back for a while.
Sure sure good morning, Sean.
Well as you said I don't think this is entirely unexpected.
Prices got way ahead of us for a while.
We're seeing a bit of a pullback but.
And we really got both our lumber businesses are a bit different.
Certainly we saw our southern Pine business, Ron first and probably a little further.
SPF took a little while to get going.
We were able to build a bigger order file and SPF. So we're still winding that down a bit in.
Trying to get our last orders out.
You know we are seeing.
Certainly we're hearing from our partners in the field that.
Their inventories are very low.
Whether it's.
Retailers or pro dealers.
Distribution.
So that is a difference than we saw in 2018 going into 2019.
We are selling I would say, we're selling better in the south right now than we are in Canada, which is quite usual usually the so it's a bit earlier.
But.
No.
I can't say, we're at a bottom.
We're beginning to build an order file breast why fee and we are going to need to build in order to file for SPF in the next little while so.
What that bottom is I don't know I would suggest it's higher than the bottom we've seen earlier this year.
And so again back to the comments rated and Chris at.
We see the fundamentals for next year has pretty strong and and our partners are saying the same thing so.
We'll see where it goes I couldn't give you a price but.
I think we are close to seeing things turn a little bit.
Thanks for that detail, Chris I'll get back in the queue.
Your next question comes from him tell from CBC kept little markets Amir. Please go ahead.
Hi, good morning.
Great Albert has announced plans to increase harvest levels in the province, what sort of production uplift could that represent for west Fraser and what's the timing of that.
Hi, Good morning America.
Good question.
And.
I'm going to coach my words here, but I mean, I would say that remains to be seen so what I.
I think the Alberta government.
Probably about a year ago, now I would say announced.
All of that.
The challenge.
Of.
Industry and government.
To look at the opportunities to rain at a raise annual allowable cut.
That that opportunity is there and said, it's not an insignificant number.
Dave.
Asked for 30% I think.
That might be aggressive, but thats certainly the tone that you want from and that certainly is available on the land base.
And I would say it'll play out differently across the province, depending on.
The region.
That year end include.
Including West Fraser so.
We continue to work through that with government and our people and I would just say that it's positive and.
Rather than talking about whether it's a 5% or 30% I think the key is.
It's great to be talking to.
People that that want to grow access to the land base and so I think it's positive and it goes along way too.
Help us.
Continue to grow up in Alberta.
Hi, Thanks for that rate. That's a that's helpful. Do you have any in terms of your capital projects.
After Dudley and Oak Lake are there any other saw mill sort of rebuilds that you have ondecks for for next year.
Well, what I would say is yes, we do have more projects in the queue and.
That would be what I call, it significant and strategic and.
That that Ted but at this point, where we were not to we're not going to pull the trigger on any large ones at this point, but we continue to look at that and.
And and think about our portfolio and when we might do that but so we have them in the Q, but.
But I'm not ready to kind of say that we're ready to move forward on that stuff today.
Fair enough and Chris Chris for Us that should we any.
Any sort of directional guidance you can give on capex for 2021.
Well I think as we've we've said all year, we've had a couple of big years of capital.
We've done a lot of stuff in the U.S, So in 2018 and 29 team.
And certainly this year, we've had a big focus on on Operationalizing, not and getting the benefits of that will.
We'll be bringing Dudley online next year.
And I think I think.
Good comp next year capital probably somewhere between.
Where it was this year and where it was in the couple of prior years, but I don't think were set on a final number and final list of projects yet but.
Our focus right now is really on on squeezing all the benefits out of the capital that we spent over the last couple of years more so than it is tackling a whole bunch of new stuff.
Yeah makes sense that that's that's all I had I'll turn it over thanks.
Your next question comes from Mark will be from.
Bank of Montreal, Mark. Please go ahead.
Good morning, Ray morning, Chris.
Yeah.
Uh huh.
Just back on the capital allocation front I, just would like to get your thoughts prospectively.
Any share repurchase activity I mean, your leverage is quite low the stock is more than $25 below where you that that accelerated repurchase back in 18, I guess my question would really be why not just take a a portion of this extraordinarily windfall that we're getting here in the second half maybe 20% 25.
<unk> percent and just put that capital to opportunistic share repurchase because the mark.
The market Doesnt think your prospects are as good as I do and I think they probably don't think prospects are as good as you think they are.
Sure go ahead.
So so mark.
I think so.
It it look it's a fair question I think all the options are on the table for us.
Executing on and on and see IB is is something that.
Can be can be done.
In reasonably short order I think our our our.
Our approach.
As we said earlier has been.
You know Theres Theres still uncertainty there I don't think we would kind of disagree with your assessment that.
It's probably.
Didn't seem to be reflecting a more common outlook of the of the market, but there is still uncertainty in the background and I think we have to just balance all those things together.
The amount of cash that we're holding right now is not that much different than what we're holding at the same point in time in 2017 or 2018. So.
2019 was a pretty tough year, and and so holding that liquidity and making sure that we're prepared for what may come out at the different eventuality is is I think you know top of mind for US right. Now is only kind of six months ago. When people were scrambling to raise additional liquidity and get facilities and they couldn't do it.
So.
It's been a great.
Return since basically the end of May, but it's only been four months.
And I think we just have to be mindful of.
Where where things could go and make sure we're prepared for all the outcomes and and how we best add shareholder value over the long term.
Yeah, I think Thats fair enough, Chris I mean that don't get me wrong.
I'm not pushing for like a real aggressive program I think in a cyclical business a strong balance sheet makes a lot of sense, but I also think we work we've got kind of a a very unusual second half of the year here by I think any historic measures now Im just saying when you've got a kind of a mismatch with the.
Huh.
The fundamentals in the business versus your share price. It just seems like taking a portion of that cash.
And putting it to share repurchase very good use of capital couple of other questions away from that.
I wondered ray is it possible for you to just talk about kind of fiber supply cost issues for the pulp mills over the next.
Three to five years with the shrinkage, that's taking place, particularly NBC.
Sure Mark.
And.
So yes.
And I believe we talked about this on previous calls and of course.
Theres lots of public information out there.
And.
And emerge I think this is primarily around.
Paul, but I mean there.
There is without a doubt.
Significant shortage of fiber.
You know available to the pulp mills.
Yeah.
I would say, we probably havent seen a lot of that significant cost pressure on the residual aside but certainly.
As pulp mills, gloat and reach out to purchase for whole log chips those.
Those those costs.
Continue to be difficult. So I mean, it depends on who's math, you want to use bits, but certainly you know our view would be that in British Columbia in general.
You know.
Almost irrespective of cost, but more about supply there.
Theres not enough supply to.
Fully operate all the pulp mills in the province so.
It's hard to predict exactly because I do think cab.
In the short term people beam can be pretty creative defined fiber supply.
But you know that we'd expect you know one or two pulp mills to come out of the system at some point.
You know look we we understand the supply side quite well, we've been planning for it for a decade.
Everyone is under stress, including West Fraser.
But I think our fiber position is is probably.
A little bit better relative to two others, but.
That doesn't mean that it's great. So I.
I guess, we'll see how it plays out Mark I think.
Much depends on on where and when the pulp capacity comes out and how this plays out for.
For us and others.
Okay, and then finally, just I wondered if ray either you or Chris Mckeever.
Thoughts on one of your peers, saying recently that.
Customers are becoming more open to kind of alternative lumber pricing structures.
And I don't know whether this is perfunctory 900 dollar lumber prices I'm just I'm curious whether you guys are are seeing any of this or having any dialogue I think they suggested it might be 15 or 20% of their volume where they're starting to have some discussions like that.
Chris.
Good morning, Mark.
Morning, Chris.
I would say that.
Certain jurisdictions are more prone to that and certainly those who do business in Europe are more used to that kind of relationship.
We are seeing customers and I think you've kind of nailed it at $900.
Lumber and even more importantly, with major supply constraints.
Customers tend to be much more interested in the longer term relationship.
Be a contractual vendor managed inventories whatever it is and potentially different pricing structures.
Yes, I don't think we've seen anything that would tell us that theres a enormous move in that direction.
But I would say that we are getting closer to our customers are what we would.
I would say our target customers and we're moving further downstream, which I think is good for visibility of inventory and hopefully help us manage a business it better so.
Okay, Alright, Thats helpful. Chris I'll turn it over.
Your next question comes from.
Paul Quinn from RBC, Paul Please go ahead.
Okay. Thanks.
Hi, guys.
Good morning.
Let's start in on the lumber side, you get a good slide on North American imports there it looks like annualized rate somewhere around 2 billion board feet right. Now do you think Thats a peak or do you think it's going to go a lot higher.
In the next year.
So.
Well, Paul I'll take a shot last mckeever to kind of jump in so I mean, I mean, you can go back and look at the previous peaks back in 2005 in 2006, and Mckeever correct me here three and a half million three three so look I mean, we I mean, I think we certainly expect.
You know, particularly with the pricing that we see.
And.
And available timber supply in Europe that we're going to see.
No more volume come over I think it's I think our view would be.
He is its difficult that tell us that it will significantly surpass.
Peaks in 2005, and six and we can we can debate all the reasons why for that but.
It'll increase but I think.
No probably near.
Something like 2005 2006.
Levels, Chris Paul I'd, just say a couple of things to that.
I agree with Ray that sort of is there another billion board feet that could come over I think so.
But.
A couple of different things than in the past one is Europe is pretty strong their markets are good and that is their first target and then secondly, a lot of their distressed needle that they're having is.
It's just hearing pretty quickly from what we understand and and so it's more targeted to let's call. It a china market than maybe it's been a big box retail.
North American market.
And then finally, the Europeans tend to make.
A lot of just a couple of land sells their mix is not exactly what every customer wants so theres theres, if theres a spot for North America, but Amit.
It is limited geographically as far as they come in and also a bit on the product mix that mix.
Yes, I would I would suspect we're going to see more.
And then if I could flip it around and take a look at your export volumes and what you anticipate going forward I mean, obviously, we've had this record pricing does that mean that you lowered your export volumes into Asia as a result of better realizations in North America, and what are you expecting going forward.
Yep.
Yes, Paul I, Yes, I would say that we have lowered our volumes.
But we've kept a meaningful volume.
Both in Japan and China.
Japan has slowed considerably for everyone including ourselves.
But it's traditionally been the highest returning market and we're in this for the long term not just for.
For this year, so and China's and China's always always changing whether its Russian fiber our European fiber.
There are competitive fibers there but.
But again, we we keep a foothold there and we find it very helpful, particularly in lower grades too.
To to be able to get better returns within North America like EBITDA presence. There. So so yes, I would suspect to be up and down a bit with a fairly consistent relatively modest volume.
Okay, and then maybe just rate you mentioned that BC lumber supply is going to come down overtime, not not just for west Fraser, but for others just wonder if you've got an estimate.
Of how much and then.
To piggyback on marks question on fiber availability.
Down caribou in Q2 on the fiber issues.
Is that the mill that that looks like the one or two pulp mills it will come out.
At some point down the road.
Well thanks, Paul So first on on numbers by look what I mean.
I think theres lots of good public information out there on timber supply.
And.
And.
And I think you know the ill be Frank the issue we have in British Columbia is one is timber supply. The other one is access to the available timber supply and.
And I think Thats, I think thats, even a bigger issue than the available timber supply at times. So.
Well.
So therein lies a bit of uncertainty, but there's certainly I'd.
Don't think.
I think the information that's out there is it somewhere.
North of 1 billion board feet more to come out of the interior and I would say that that's likely I. Our guess would be is that is going to be spread around.
Somewhat so and also at and we'll certainly be part of that were planning and have been planning on how to.
It gets smaller over time.
On.
With respect to pulp Paul.
I can't answer that and.
And with respect to which mills are going to go to I think you can look across the provinces mills that are not running.
Theres mills that have taken significant amounts of downtime over the last couple of years.
And and I guess, we'll start to see how that strategy plays out, but we'll stated.
Okay, and then maybe just squeak in a bonus questions. You said I guess, maybe not so much a change in BC government, but do you expect any kind of change in foreign policy going forward as a result of the deal.
And last week.
Well you probably have the wrong guys on the call to answer that question, so I'd refer into two to them.
I would I would say I don't think we're expecting significant changes, but you know.
And that it's more of a status quo, but.
I guess I guess, we'll see.
That's it like that.
Your next question. Another question here from Sean Stewart from TD Securities Sean. Please go ahead.
Thanks, Chris Karasik, just one follow up can you give us an update of where things stand with your your tax carryforwards in Canada and the US just trying to gauge when we will be looking at a transition to cash taxes going forward.
Sure and maybe if you want to give me a shout. After you talked about it but I think when you look at the last couple of years and.
And I think we had this disclosure in the earlier quarters.
In 19, we carried back.
And so in Canada and little bit in the in the U.S.. So I would say the accelerated depreciation on the capital that we're doing in the us.
Helps mitigate some of that but probably.
You know, we're a little bit lighter on attributes in Canada would be taxable in Canada, and getting close to that point in the U.S.
Okay.
Thats all I had thanks.
Another question from our Mark will be from.
Bank of Montreal, Mark. Please go ahead.
Yes, Chris is it also possible to just get an outlook on.
Log costs in both BC and Alberta over the next four or five quarters.
Well four or five quarters might be a little tough well, let's go [laughter].
Two quarters that if I'll tell you that if you can tell me what the price of lumber is going to be a January mark.
So in in Alberta, the system is quite responsive.
It generally kind of lags with about a month.
And then.
In BC, you've got two main inputs, you've got kind of the quarterly input on lumber prices, which is one factor and then the other factor is the July one adjustment, which is largely the purchase would adjustment and so.
The next quarterly adjustment on lumber prices is going to be in January.
I think as we put in the disclosure we estimate thats probably.
25 to $30 potentially.
Where it goes kind of April one is going to be dependent on how lumber does here over the next few months, but that should with a January one is going to comp catch just about all of the peak.
In in SPF over the last quarter or so so you know if if that.
If if we see this bit of correction here right that gets probably baked in in April and then.
I don't have off the top my head kind of where the purchase market has been trending.
So far but we can take a look at that and because it will be the purchase market for calendar 20 that will effect July one of 2021.
Okay, all right that's helpful and then.
I'm just curious if you could talk a little bit about sort of what type of M&A opportunities you're seeing right now.
Southern U.S. and maybe if you'd also just want to share any thoughts. We've we've had one or two kind of greenfield mills announce.
In the south and at least one of most from our very non typical player and going and what looks like a pretty challenging area down in Mississippi.
With respect to M&A opportunities I mean I know.
I mean, mark were plugged in everyday to every opportunity that's out there it's kind of built into our DNA and so we are.
I would say I think I said in the last call. It's a it was it's a little bit quiet and I would say, but there is always something going on and there is always opportunities out there I would say that.
And so we tend we tend to look at at many things, but quite frankly, they need to be something that.
That we see synergies in and that can make the company better.
Either in the short term or in the mid term and so.
You know so there's opportunities out there I think there's.
I think.
You know.
Yes.
I still think there is a valuation is always a major obstacle.
And rich with respect to others that are out there building Greenfield projects I think I saw one that was announced.
I think look theres, a great opportunity in U.S, so you've got good ample timber supply.
And I think Theres always money out there to venture into these things.
I think we've seen that over the last number of years, whether it be lumber or SP.
And I would just say that.
Those those opportunities come with significant amount of risk.
You know both financially and execution.
You need to have a well thought out home for your residuals and we think those things will continue to happen over.
As we see quite frankly robust pricing hopefully in the next few years.
And.
I would just say that.
You know.
I would just say that we should expect that and and the end but understand that.
Building, a greenfield and running again Greenfield mill in finding a home for the residuals.
Will create some headwinds on on and it takes quite a while for that production to actually land in the marketplace and a meaningful meaningful manner. Yeah. It would just seem like if you're not in the lumber business already it might be probably challenging.
One final one for me just Alberta newsprint joint venture I mean, I've always understood that to be maybe the lowest cash cost newsprint mill in North America.
Is the strategy there just to be kind of last man standing right.
Just further year last comment and I think that said I think we know for a large company like west Fraser, which weren't far from perfect, but we've got a fair amount of talented and resourceful people in.
It's a challenge for us to start up and run and execute to our expectation so.
I think thats a.
It's hard to do.
With respect to and see look it's been a it is a great well run we don't run Nancy but is an extremely well run very.
Very thoughtful team they've been.
So wildly successful and in executing on their business plans year over year.
And their cost structure is certainly one that most people would envy so as far as strategy is last man standing on I'm not sure that's ever a great strategy.
Right, but I do think and see.
Accretes profitability on a number of things.
Outside of newsprint, including energy.
Trans loading and a few other things so it's a pretty inventive group there and so I kind of leave it at that Okay sounds good good luck in the fourth quarter.
Thank you.
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