Q3 2021 Mercer International Inc Earnings Call

Good morning, and welcome to Mercer Internationals third quarter earnings Conference call.

On the call today is David Kendall.

President and Chief Executive Officer of Mercer International M.

And Bvd are senior Vice President Finance, Chief Financial Officer, and Secretary I will now hand, the call over to BBVA.

Good morning, everyone as usual I'll make a few opening remarks about our financial performance before turning over the call to David to discuss our operations, our strategic capital program the markets and of course, our recent acquisition.

I'd like to remind you 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 company's filings with the securities and exchange.

<unk> Commission.

We achieved record EBITDA in Q3, primarily due to solid overall production in sales strong and product pricing in most markets and relative to Q2, a much lighter scheduled maintenance program.

While somewhat mixed depending on the particular market our average MBS case price realization remained stable and relatively high in the quarter.

We also benefited from the impact of a stronger U S dollar on our Euro and Canadian dollar denominated expenses. These tailwind to our earnings were partially offset by modestly higher wood costs, particularly in our wood products segment, along with the weakening of the U S lumber market as.

We reported in July we also operated our Rosenthal pulp mill for the quarter without the benefit of its turbine generator. The absence of green electricity generation at Rosenthal during the quarter negatively impacted our results by about $12 million.

We are now roughly midway through the process of repairing the turbine generator.

But as expected the largest contributor to the sequential improvement in the quarter was the absence of a heavy scheduled maintenance and capital downtime that we took in Q2, you will recall that we took 105 days of downtime in Q2 to both rebuild our recovery boiler at Peace River and complete most of the work.

To increase stendal pulp and electricity production capacity.

We generated EBITDA in the third quarter of $148 million compared to EBITDA of about $84 million in Q2.

Our pulp segment contributed record EBITDA of almost $130 million and our wood products segment contributed solid quarterly EBITDA of $22 million.

As usual you can find additional segment disclosures in our Form 10-Q, which can be found on our website is that of the FCC.

Yeah.

Changes during the quarter for softwood and hardwood pulp price movements were mixed across major markets in China. The Q3 average N B S. K net price was $832 per ton down $130 from Q2.

European list prices averaged <unk> hundred $45 per ton in the current quarter compared to $288 per ton in Q2.

N D S. K remains at a considerable premium to hardwood with the average Q3 net eucalyptus hardwood price in China at $623 per ton down $144 from Q2.

Total average pulp sales realization movements positively impacted EBITDA by about $5 million compared to the prior quarter.

Pulp demand remained steady in the quarter and our higher overall production led to higher sales volume compared to the previous quarter. Our Q3 sales totaled almost 448000 tonnes, which was up about 87000 tonnes from Q2.

In Q3, our mills were down a combined 44 days for capital and annual maintenance work. This is roughly the equivalent of 43000 tons of production compared to 117 days or about 173000 tons of production in Q2.

The impact of the Q3 planned downtime compared to Q2, including higher production and lower direct costs benefited EBITDA by $65 million.

Our lumber realizations were also mixed this quarter compared to Q2 the.

The random lengths U S benchmark for Western SPF, <unk> and better averaged $495 per thousand board feet in Q3, which was down $848 from last quarter.

Our average European sales realization were up approximately $180 per thousand board feet compared to Q2.

Historically, the European market has not been as volatile as the U S market and generally lags the U S pricing trends.

The benchmark lumber price in the U S is currently about $620 per thousand board.

Our wood products segment.

It continues to perform well, we sold about 98 million board feet of lumber in the quarter, which was down slightly compared to our Q2 sales volumes, primarily due to the mill, taking a week of planned downtime in Q3.

Our electricity sales totaled roughly 200 gigawatt hours in the quarter, which was up relative to Q2 due to less planned downtime. However, our sales volumes were held back due to the absence of the generation at Rosenthal for most of the quarter.

Our Cariboo pulp mill joint venture, which is accounted for using the equity method contributed another 20 gigawatt hours to this total.

Included in these energy sales results East River set a quarterly sales record at Stendal and caribou, both achieved near record level of sales in Q3.

We reported net income of $69 million in the quarter or $1 <unk> per basic share compared to net income of $21 million or <unk> 32 per share in Q2.

Cash used in the quarter totaled approximately $46 million compared to $11 million in Q2.

Our cash usage in Q3 was primarily the result of our acquisition of Mercer mass timber, our capex spending and working capital movements in the form of higher accounts receivable and inventory balances.

The uses of cash were partially offset by strong operational cash inflow.

We invested $39 million of capital in our mills this quarter and we remain on course to invest approximately $150 million in our mills this year.

We also invested roughly $51 million and the acquisition of Mercer mass timber cross laminated timber production facility located in Spokane, Washington, David will provide updates on our recent acquisition and our Capex program shortly.

At the end of the quarter, our liquidity position totaled about $647 million comprised of $339 million of cash and $308 million of Undrawn revolvers.

Our strong liquidity position will support planned seasonal growth and working capital along with our ambitious 2021, and 2022 high return capital spending programs.

We continue to work on finalizing the business interruption insurance claim associated with the recovery boiler rebuild at our Peace River Mill as a reminder, GAAP treats. These types of insurance claims is contingent gains which means that we won't be able to record the insurance proceeds until we have an agreement with the insurer.

We believe the proceeds will ultimately be in excess of $20 million.

In addition, we are now working on a business interruption insurance claim for Rosenthal as turbine downtime as part of this downtime. We made the decision to pull roughly 50 days of major planned turbine maintenance from 2022 into 2021.

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

And as you will have noted from our press release Board approved a quarterly dividend of six and a half cents per share for shareholders of record on December 20, <unk> 2021 for which payment will be made on December 30, <unk> 2021.

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

Thanks, Steve.

Now this has been an exciting quarter for US we returned to normal production levels. After an extensive period of maintenance and capital shuts in Q2.

We achieved record earnings while navigating the ongoing complications of the pandemic and we advanced a key element of our strategic growth plan with our entry into the mass timber space I'll talk more about how this <unk> acquisition fits with our view of a low carbon high value add future for Mercer in a moment, but lets first review our operating performance.

I'll begin by saying I'm very pleased with our record operating results. This quarter. These results reflect the hard work of our teams during the period often under challenging operating conditions.

Along with the benefits of our recent investments in Standalone free show.

In Q2, Stendal completed the work necessary to increase annual MBA Skip hop production by 80000 tons.

And despite ramping up that equipment in Q3 still managed to achieve near record pulp and energy production. In addition.

Yes, new planer scanning edge trimming control drying and sorting capabilities.

Our providing the expected benefits of maximizing our production efficiency and grade outturn.

Overall, our mills ran very well and strong production combined with overall steady demand for our products when compared to Q2.

Key drivers in our strong results this quarter.

Excuse me.

I believe these results highlight mercury's cash flow generation potential considering we achieved these results with Rosenthal as turbines being down for most of the quarter along with a long Peace River mill outage for the recovery boiler rebuild both of these situations will generate significant business interruption insurance claims, which as of yet have not been finalized.

Our pulp markets were mixed due to regional differences that were primarily the result of global logistical challenges, we saw modest pace improvements in Europe, and weakening prices in China, where paper makers down its difficult to export to paper products due to high shipping costs.

These factors combined with energy usage restrictions in some areas of China resulted in reduced paper production and overall reduced pulp demand means.

Meanwhile, in Europe paper makers benefited from reduced pay for imports and ran their machine school, creating solid pulp demand in that market.

The negative Chinese pulp market dynamics were more pronounced on the hardwood side in part due to expectations of maybe eucalyptus capacity set to come online.

Softwood pulp capacity or supply in China was relatively tight due to delays in Canadian pulp deliveries again, the result of supply chain bottlenecks.

We don't expect the supply chain issues to be resolved in the near term. Consequently, we expect generally steady MBS get pulp demand in Europe with reasonably stable pricing.

In China, we expect a continuation of modest negative pricing pressure as energy restrictions continue and logistics channels remain constricted, we should all remember however, how quickly China can bounce back once conditions begin to normalize.

Currently the price premium software commands over hardwood is at historically high levels and we believe this discrepancy could remain for some time due to the different capacity growth trends for each grade.

The August pulp statistics reflect increased producer inventory levels, but these numbers need additional context as we believe the global logistics challenge.

Challenges are increasing the number of days reflect a balanced market in.

In addition, these statistics don't reflect paper producer inventory levels, which we feel are low due to logistics slowdowns and delayed buying especially in China.

Paper producers are not expecting pulp price increases in the near term.

Overall, we believe that growing global economic activity will support demand for all commodities, including pulp lumber and extract as we also believe government economic support will bolster this growth and as a result, we are optimistic steady economic growth and strong market fundamentals will support pulp prices.

I would products business achieved solid operating results the European lumber market was strong during the quarter, while the U S market experienced a significant correction.

As we discussed last quarter. The correction was was precipitated by a drop in do it yourself demand and.

And fears the negative outlook could spread to the housing market. However, since mid quarter U S. Since mid quarter U S. Lumbar pricing has been slowly increasing due to limited supply in part due to the heavy wildfire activity in western Canada, and higher stumpage fees.

On the housing demand side in the U S. Despite modestly higher mortgage rates housing starts has stayed steady and homebuilder sentiment remains positive.

The European lumber market has shown steady price increases through the first half of the year and as a result of the weaker U S market, we are seeing downward pricing pressure as some European producers reduce their exports to the U S market.

We will continue to optimize our lumber products and customers to achieve strong the strongest sustainable realizations that we can in Q3, 39% of our lumber sales volumes, which are the U S market with the majority of the remainder of our sales in the European market.

To date Mercer has not been directly impacted by the global logistics challenges in a meaningful way we are seeing modest increases in freight cost as we are for us at times to utilize more expensive modes of transportation.

The increased storage costs as a result of delays we.

We did have small volumes of pulp and lumber sales that will be recorded in Q4 due to shipment delays, but overall, our logistics strategies are serving us well.

Looking forward Rosenthal as turbine and generator will likely remain down until the first quarter of 2022, as we effect the necessary repairs.

At current energy prices the negative impact of lost energy sales and energy purchases is roughly $4 million a month.

Our wood products segment achieved another solid production result, producing almost 102 million board feet of lumber.

Which was down compared to Q2 due to a weak of planned maintenance downtime during the quarter.

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

And we expect this pulp log supply dynamic to generally continue in the fourth quarter.

<unk> prices to increase modestly.

We're seeing strong demand for saw logs, which is driving some log cost inflation, but we expect a dedicated fleet of railcars will allow us to mitigate transportation cost increases that many of our competitors will be unable to avoid.

In Western Canada, pulpwood supply remains steady and price changes have been modest in our fiber baskets. However, the impacts of the summer's forest season are being felt in the form of reduced sawmill activity, which we expect will create modestly higher fiber costs in Q4.

While our annual major maintenance work is complete significant capital expenditures to grow. The company are ongoing we are using are well managed liquidity and strong balance sheet to continue to pursue the growth aspect of our strategic plan in areas, where we have core competencies spin.

Specifically, we have focused our growth on market pulp building products Green energy and chemical extract is because we believe our expertise in these areas along with our expertise in timber supply procurement and logistics will add long term shareholder value.

We also recognize the importance of planning for the long term and as part of that we are putting a lot of effort into our transparency related to ESG practices policies and performance. We're looking forward to the publication of our sustainability sustainability report in early 2022, which we trust will further support our messaging regarding our sustainability approach and values.

Two good examples of putting sustainability and innovation into action or the Canadian fiber logistics and processing projects, commonly referred to as the wood room projects. These projects will allow us to transform our supply chain and increase our capacity and significantly reduce the cost to produce our own wood chips.

The projects will also allow us to accept alternative forms of lower quality residual harvest would that previously could not be effectively processed.

As a result, we will lower our costs improve our resource utilization efficiency and reduce our greenhouse gas emissions.

We expect the projects to be largely complete by mid 2022.

We have continued to cautiously advance the engineering and permitting process for our stendhal sawmill.

The initial plan for the mill contemplates, a 400 million board foot capacity, where the product lineup and flexibility of refusal mill.

We expect to build the mill in such a way that will allow for incremental capacity increases in the future.

Currently however, we are seeing significant delays in the delivery of sawmill equipment, along with large increases in capital costs for many components, including the equipment itself for steel concrete and electrical installations.

We will obviously move forward cautiously on this and hope to advance this project at some point in the future when conditions are less challenging.

In the shorter term, we expect to invest about $25 million of Capex in Q4, putting our total 2021 Catholics niches at approximately $150 million.

And while I have more to say on that at our next earnings call. In February we are expecting our 2022 high return capital plan will be quite ambitious with a portfolio of projects that will drive new product development ESG advances production improvements in input cost reductions.

The 2021 highlight of our growth strategy will likely be our recent acquisition of Mercer mass timber this as an entry point for us into a sector that fits well with our value add solid wood strategy and a product whose end demand growth is very exciting.

Well, we built up the order book for the plants core product cross laminated timber panels. We recently began producing long lengths inventory a number and we expect to begin producing our first <unk> panels in Q4.

This facility has an annual production capacity of approximately 140000 cubic meters of CLC, which represents about 30% of the current PLP manufacturing capacity in North America.

We are truly excited about the <unk> market going forward and believe that the environmental and construction flexibility benefits.

Bear to traditional steel and concrete construction methods make this product great for future growth.

After considering our recent investments Mercury's financial position remains strong we will continue to take advantage of our financial flexibility as we move forward with executing our growth strategy.

Ah catch rates, we're using a lot within Mercer. These days is fit for the future. What we mean by this is that we strive to be on the right side of the climate change challenge.

Given our role in managing forests, and producing physical goods and green power from renewable resources, along with our focus on human talent and our strategy to operate only top performing modern mills, we believe and expect commercial will be a welcome industrial player for the future. This will not be the case for everyone operating in our space and therein lies the opportunity.

Now let me conclude my remark in that COVID-19 continues to be a concern, including the impact of variance on infection rates globally.

As a result, we remain focused on our protocols to ensure the safety of our employees contractors and the ongoing operation of our mills and.

And in keeping with one of our core values I encourage anyone to get the COVID-19 vaccines vaccine to keep your families friends colleagues and neighbors safe.

Thanks for listening and I'll now turn the call back over to the operator for questions. Thank you.

Again as a reminder to ask a question you will need to press star one on your telephone.

I've got a question or if your question has been answered westbound at Husky. Please go.

Okay.

Yeah.

Sure.

Your first question comes from the line of Hemiacetal from CB IC capital market your.

Your line is now open.

Hi, good morning.

David.

What level of sales would you be targeting for 2022 from the CLC plant and should we think of.

The initial year as kind of being at breakeven in terms of profitability and where would you see sort of steady state EBITDA contribution from that plant when it's fully ramped up.

Yeah. Thanks for the question here and good morning.

I think the honest answer is we're just going to have to wait and see.

We haven't been in this business before.

In emerging business and.

We are booking our first projects for the plant.

And what the what the margins are going to be is really going to depend on.

Things like fixed cost coverage.

<unk> doing a good job of matching the wood cost with the panel coats and those sorts of things and so we're working hard on those strategies.

It's a very it's a very modern facility, it's got all the electronic scanning capability.

<unk> and certification of the panels can be top end.

And.

And it's got a lot of horsepower a lot of capacity so.

Yeah.

Very optimistic about it but I can't I really can't.

I'd be kidding, you if I tried to imagine what the how how quickly we're going to have that pressed bowl and what the margins are quite a bit.

But I do believe in the fullness of time.

I believe it's going to ramp up faster than most would expect memory, we're seeing all kinds of inbound interest and we're quoting on projects as we speak.

Yes, I'm expecting they'll be making panels by the fourth quarter.

And I believe we will be investing in capacity enhancements in that facility in the coming year or two as well which will.

Further further take us down that road of generating.

Good EBITDA levels.

Okay fair enough and not David just turning to the lumber side I know you're pointing to some further moderation in prices in Q4.

Is there any way you could maybe scale, what the domestic price in Europe.

<unk>.

Levels are.

At least you know what sort of maybe sequential change you would expect there in Q4.

Yes, it's been a pretty shallow slope downwards I mean, it's just a like a softening I don't have a percentage for you in Europe, it's nothing like the U S. In terms of the correction. It's just.

Just a psychological feeling in the market that there should be.

Little more product available because.

Less less product going into the U S market I don't know how much truth there is to that.

It's more of an impression that market has I would guess.

So, it's a slight downward movement, but not.

Not a big correction.

A way to describe it.

Thanks, and just last question from me for David Your could you remind us if the.

Timing Thats, a major maintenance outages in 2022.

Yes.

Yeah, we haven't.

We haven't pinned those down.

Emily yet Amir I think we've probably.

February would be a better time, but it should be I couldn't say that it'll be a.

It'll be a more normal year next year. So each each mill will have a typical shut so youll recall that we have.

One or two mills that can go on an 18 months schedule, but for 2022, all four of the pulp mills will have a typical.

Two to three week shutdown last year.

And Dave I can say that I've got a pretty good idea of where theyre going to fall I think peace River and <unk> will be Q2.

Stendal and Rosenthal will be Q3 would be my guess.

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

Your next question comes from the line of Shaun to walk from TD.

Your line is now open.

Thanks, Good morning, guys.

I want to follow up on <unk> questions on the <unk> facility.

Can you give us David some context on.

I guess, how you're marketing the product as it all inbound calls at this point or is there a formal.

Process.

You're setting up to to sell the product into the market and I wanted to follow up on.

A little bit vague in terms of the response with respect to the ramp up timeframe and.

What EBITDA might ultimately look like.

If you're spending $50 million to acquire the asset.

The return parameters youre focusing on over the long run for that investment any detail you can give us there.

Yeah.

Yes, I don't mean to be evasive, but I don't I don't want to blow Sunshine, either Shawn and it's like I said, we haven't operated this.

The facility like this before.

And.

In the early stages.

Growth in demand for <unk> is staggering.

The forward looking CAGR it could be in the 35% to 40% growth per year range. There's more projects in design today that had been built in the previous five to seven years.

So.

How these are all going to be how these projects will won't be priced by the various competitors and I just don't know.

But.

The demand is significant and the amount of things we have to work on is significant.

What we've been doing is building our team.

We've got gentlemen, with us that.

Everything.

I believe we've got very good operations personnel, we've got very good marketing support.

And we're continuing to build some of our some of our technical.

Sales support staff as well.

It's a number of different.

Assets to marketing see LTE I mean, some of it is the custom buildings like you might think of the architect Michael Green and the type of buildings. He would do which are all custom bid.

Big.

Big surely.

Architectural wonders.

By all stretches.

But then <unk> is also becoming almost like a catalog component for for architects and owners.

<unk> that are.

Wanting to build a building so.

Certain sizes will be specced, and designed and more or less a catalog and these engineering firms that are supporting architects will just pick out of the catalog of different floor plates for walls or the.

The components that they need and and.

And when you get specified.

You away from bidding on every project you become a component of a bid from a bigger.

Like you're not bidding just your P. Soon you feed into a.

Bigger project, that's being bid to an owner type of deal if that makes any sense. So.

Obviously, we're in this business to make money in and I'm sure. We've got a very modern a modern facility and similar to what we did when we entered the lumber business, we're going to build our team to win.

Not really.

We're going to expect to grow this business quite aggressively and so we are recruiting and bringing in top talent.

And.

And we just honestly need need a few quarters to really get a better feel for how it's all going to ramp up.

Being honest.

Understood and is the intent to break this out as a separate segment and your financial disclosures going forward.

Yeah, and I think that's our understanding is that it will need to be it's a different order fulfillment process different customers.

Quite a different business to lumber so.

Initially it will be in the corporate segment, but.

As it becomes more material it will be broken out on its own as well.

What I've been told by our finance team.

Okay.

Second question for me Freak out of this quarter.

Seasonal downtime I think in the last call you had suggested that Q3 production would still be around 125 million board feet even with.

Seasonal shots.

<unk>.

Any context on the discrepancy there or is it just the fact that north American markets rollover. So how are you.

We're inclined to take more downtime than you might've, otherwise any detail there.

No no there would be no reason to take any any kind of market curtailment downtime, it's really just more a function of.

A number of factors that.

The maintenance is a kind of a rotating outage is not like a potent when you take everything down all at once.

In our sawmill and our sawmill, we would take the log input lined down.

Take us all lined out and taken other salt lined down work on sorters.

That sort of thing so.

It's just the court.

Coordination of all of those different pieces of work.

I think there was some COVID-19.

Delays in Theyre not transmissions within the mill, but availability of contractor support.

I think the average log dimension that we procured in the quarter was a little a little narrower than than had been planned and then that reduces the volume as well.

All in all I would say it was a great quarter for the metal and they've got all their work done and they got it done safely.

Mills.

The whole ticket booth.

<unk>.

Yeah.

Onwards, and upwards or feeling pretty positive about the direction that lumber markets youre going to go as well.

Okay. Thanks, very much David I'll get back in the queue.

Your next question comes from the line of Marcus <unk> from RBC capital markets.

Your line is now open.

Hey, good morning, and thanks for taking my questions.

Firstly could you help us understand what you're seeing from the Chinese pulp market currently including in the sectors that are most impacted how much production is actually being curtailed.

When your customers expect from the mandated curtailments to end.

Yeah. So it's.

It's not everywhere in China, but particularly along the coastal regions, where there's a lot of paper production, they're having these.

Really.

Provincially mandated caps on.

On power power usage so.

Maybe on average paper mills might be able to run three days out of the week.

So there.

It's really a.

A shock to the system, it's quite unusual for them to have to operate that way so.

And then as well as not being able to operate fully.

It's also <unk>.

Really important to understand that the globalization of.

The different fiber markets right now so like a Chinese paper producer cannot get paper into.

Any of its export markets economically like there's the freight costs are just crazy like 10 times, what they would normally be so.

So they don't have they don't have the electricity to produce but they don't have the export market to serve either so it's really all driven towards domestic.

Consumption.

And this is where I.

I personally think that this China concern that.

It's a little bit overblown.

I made a comment in my prepared remarks that when China comes back.

<unk>.

We've seen many times how quickly it can recover.

The paper companies are not going to be sitting on massive overhangs of paper stocks.

There is not going to be a lot of pulp in the pipeline for them.

And when when logistics normalize which could be sometime.

Second and third quarter next year, I'm guessing, but they.

It will normalize.

There'll be back and we'll be back with abandon and so.

I don't think we need to be as negative about China as we are being and I think also in.

In the near term.

Our markets are pretty stable because they don't have.

Competition on the end product side coming from from imports so.

The situation is ICL markets.

Alright, thanks for the detail there that's helpful.

Maybe jumping over to the wood products business then your unit.

Manufacturing costs stepped up pretty materially quarter over quarter here.

Part of that is probably due to the downtime, but theres also increased usage of green within the mix.

Are we through most of that beetle damaged wood now and should we therefore expect an upward shift in the cost structure going forward.

For the sawmill.

Yes, I think thats right.

The.

A lot of our competitors in Germany can't handle beetle killed wood basically I think a lot of the European sawmill errors.

Clean and kill them drive a producing green products.

So there is.

Theres been steady demand on fresh wood and and as.

So there is more fresh wood available we can create a good margin with that what should we do buy it we also by beetle pedal wind if we can if it's.

The right length and the rate right dimension.

For now I'd say pulp log prices are going to inch up slightly.

I think we're going to get through the spruce beetle by next year or so so we will see some pulp log cost inflation going into next summer probably.

I think we can see.

Sure.

German saw logs are going.

I think we're at a level of hours kind of.

Feels top ish to me.

It has moved up quite a bit in the last the last three call it three or four months.

Okay, Great and then maybe lastly, still on the lumber business your average selling prices were down quarter over quarter.

But all of your European peers, who are also reporting higher quarter over quarter pricing.

I know you have a bit of a higher exposure to the north American market, but is there anything else in there that could help to explain the quarter over quarter decline in pricing.

No.

It's primarily the U S market.

Alright, Thanks, that's all I had.

Once again, if you would like to ask a question. Please press star one.

Tom.

Your next question comes from the line of Deforest Hinman from Walt Hoffman and co. Your line is now open.

Hey, Thanks for taking my questions.

First one can you just give us a little refresher on revenue recognition as it relates to.

Yes.

Product on the water.

All the stuff, we're dealing with on the logistics side.

Is there any.

Issues with.

Being able to recognize revenue on stuff that's.

Floating or stuff that's on the dock.

As it relates to revenue recognition.

Yes, I think David hinted in his comments the forest.

So if you're if you're shipping to Asia by vessel.

If the product if you've got the order and it's more or less committed you recognize the revenue.

Under the sale when the ship leaves the Doc linkage.

Push off that.

Is the transfer of risk and we did have I think about 15000 tons on a vessel that was supposed to go.

In September they got pushed into October so.

It just simply gets booked.

After that.

The month end.

With unreal.

It's usually F&B your plant or the customer depending on our customers' wishes, but a lot of times, we book it when it when it when its receipt by the customer.

Okay perfect and this is more of a big picture question Big picture question.

You see your share price at the current levels you talk.

In your prepared comments about.

Looking to build a saw mill.

Knowing the costs that are out there, but you had previously purchased free solid invested money there you probably have some expectation or.

Our thought around what the value of that asset is.

You put a mark on cross laminated timber was $50 million investment in then.

You probably.

Probably you're thinking.

But replacement values for your pulp mills.

You put that all together and you have your debt and you have your cash balances.

And you're weighing.

Making a pretty substantial investment in our stendhal sawmill, but.

When you see your share price at the current levels, having a pretty.

Good understanding of replacement values, and having a pretty substantial amount of cash or not.

Near term debt maturities to worry about.

Should the board be thinking about buying back some amount of the shares.

The forest.

We talk about it every quarter.

Somebody always brings the question up and our board. We do we do think a lot and hard about capital allocation, but the way we see it right now is.

Our leverage is a little bit high for the comfort of some because of the cyclicality of the business. So in time.

Our goal is to continue to.

Chomp away at the debt levels and bring those down.

Levels I'm nervous about by the way, but but I think bringing taking some capital and buying back debt.

Or refinance on refinancing opportunities to try to bring that down.

It makes good sense I think one of the challenges we have as a company and our stock is that we're we're a smaller sized company compared to many of our peers and I think a bigger a bigger market cap would provide more liquidity, which would unlock some of that liquidity discount that we believe is inherent in that spot.

I think another piece is that.

We really believe that this company is going to be on the right side of the climate equation and the type of assets, we operate and the way we operate them in the way we engage with stakeholders.

All of this work we do around logistics in time is going to become recognized and in a fiber constrained world where people are worried about carbon.

Industrial players that are not on the right side of this stuff.

We're going to find failures.

And that won't be us and so we believe the inherent value of our.

Portfolio of mills.

<unk> is significant and I agree with you it's under undervalued by the market.

But we're here to create long term value.

Taking are taking or liquidity and buying back stock you can do the math on an enterprise value calculation.

It's it's psychologically it.

Feels like the right thing to do if you had massive amounts of liquidity like some of the.

Some of the sort.

Some of the companies have had that just makes sense to start buying themselves back that's great but in our case.

The amount of stock we would buyback.

Well trying to keep all of our other options open for these growth opportunities.

It just doesn't feel like the right thing to do it hasn't felt like the right thing to do so far so.

So we're focusing on growth, we're focusing on maintaining liquidity. So we've got flexibility deploying our capital in a very smart way.

And and focusing on debt reduction as and when we see the opportunities and that's how that may change over time, but that's been that's been our strategy for quite some time.

Don't see that changing in the short term.

Okay. Just for clarity then when you're talking about debt reduction are you thinking in terms of the mathematical.

Higher cash.

Net debt falling and maintaining that dry powder or.

Open market purchases of bonds.

We've even potentially go out and refinance those bonds early.

Well.

We've got a long track record of.

Yes.

Working on our bond portfolio.

In transactions that are there.

It makes sense for us at the time.

I always look for can we do this in a net.

NPV positive way.

We continue to.

Bringing the rate down in <unk>.

Bringing the levels down.

I'm not trying to do something.

We're not talking machete stuff here, we're just talking.

Proper financial engineering to to recognize that seeing some debt reduction I think would be appealing to some of our investors and it.

It makes sense to me as well.

And Meanwhile, grow the continue to grow the platform of assets and ensure that they are fit for the future and.

Once once the light bulb goes on for for.

But the market.

Yeah, I think the stock is going to perform really well some of them.

So steady state you at home.

You bet.

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

Hi, Good morning, guys. A few questions here quick ones on the business interruption insurance claim status here regarding each of these large claims is there any beyond normal negotiations that are going on between the company and your insurers or is this just standard.

Stuff disputes right now.

Yes, I wouldn't even call it a dispute I mean, it's.

Strong word.

It's a ton of work to get your claim together and then you have to get it over to factor neutral. It may have to review would be disgusting.

Check all the assumption and it puts and all that kind of stuff. So this is just this is process.

Okay, the generators a little bit unusual.

You don't see many generator failures and so how the how the waiting period or in other words. The deductible gets applied is always a question.

Making sure that we really.

I get that right before we submit the claim so.

Yeah.

I mean these are proper insurable events, and we will resolve them I'm sure in the next few months.

And the $20 million was that both of them combined are that was John no.

Just always forever.

Peace River and business interruption, there is not enough of it.

No I don't want to give guidance on the generator until I until I know what word okay.

But again, you don't know yet.

And what's the expected timing of resolving what is owed on the Peace River and then I guess you haven't submitted Rosenthal yet what is the general timing after.

For you to get this together to submit and then.

How should out with the insurer.

Yeah.

Team feels that we've got a pretty good shot at getting this all into the fourth quarter.

Both both of them.

Yes.

Oh good.

And when it does come in and that payment comes due whatever it is for accounting purposes is it above the line and where or where will it flow through on the income statement.

Dave do you want to take that.

Yes generally they go they go in in the cost section and the cost of sales section so in EBITDA, but in the costs.

Okay and on the <unk> business did you say or can you say what the burn rate of operation is at present and do you expect the burn rate to increase before starting its move towards profitability.

Yeah, no. It's interesting it doesn't it's such a modern facility I think we've got roughly 20 employees today and we.

We'll be hiring probably about 10 more.

Half of that on the marketing order fulfillment side and.

In half one.

On the operation and maintenance side, so it's not a big burn.

And.

What we're doing today is we're making what's called long Lake Stinker joint materials. So we buy.

We buy dimension lumber in the market.

Two basics.

And whenever lengths, we get and we think theyre joined it into long legs, we can finger joined up to 40 foot boards. So the average length.

The market seems to want is somewhere around 2018 and.

And there is a pretty good margin on that value add product. So I would say it's.

That covers the overhead more or less plus some today.

And.

So it's not going to be it's not it's not going to be a drain but then the real margin will come next week.

Art loading up depression.

Those higher value added products out of the facility.

It's not it's not a big number of people Andrew.

Okay.

Or is it optimal to source your timber for the plant and as your lumber from Germany of the type that would ever be needed to be used and could be used.

Supply cost surged again.

Yes, no we wouldn't.

We don't need to buy from Germany.

So local options for us.

Around the around the facility in Spokane and.

Our procurement strategy.

One of the things you.

You need a number of different qualities to make C. L. T. I know you've always got number twos on the outside longer two-tone panels parts and you can put number three on the inside.

And you've got all the fingers joining capacity so.

Yes.

Basically it's.

It's a strategy of local suppliers that are sort of selected based on.

Optimizing what youre getting for what you're paying.

And I know it sounds complicated but.

Some mills have there.

Premium qualities and their grades that they want to ship to the market right away and then they often have some out of profile or.

Maybe maybe they've got some shorter lengths or defer.

Different material that is needs.

It needs to be discounted to move it that's the kind of stuff, we can buy and just re man it ourselves.

We create our own land stock in effect of everything that we buy.

We sort wet boards go one way dry board score another way.

They're all electronically scan they go into a whole bunch of different bins.

And then we have dry and we plane creator on them stock. So there's really no reason to focus on bringing in our own product I think we do a much better job buying from <unk>.

Mills around us.

Okay and.

I ask just a few quarters ago and.

Your guidance was to give an X amount of time, so I'm asking now.

<unk> is the time period for the first harvest four pant and all and the sandalwood business still around the end of this year.

And what are the metrics that will be involved.

I don't know if you want to call it kpis or otherwise is it acres.

Akers tons of.

Trees as it pounds of oil.

How are we going to start thinking about this and measuring the ramp up of that business.

Well when we when we announce results I mean, you've got the timing right next year will be a year, where youll start seeing some results and.

We'll be describing how many how many hectares were harvested how many tons of wood, we processed how many kilograms of Av.

Sandalwood oil we produced in our in our sales and cost of sales and EBITDA.

That's all to come.

And around when might you be expected to provide an estimate of the quantity of oil to be produced and the potential price range of those oil sales and margins in other words kind of setting forth the business model and your expectations since you know.

Well to operate in that you have.

Have like crop each year, that's going to start coming in as an annuity.

Right, Yeah, Yeah, we'll definitely be working on helping the helping the street understand that business as it is.

As it unfolds I'm reluctant to give guidance today on pricing or volumes partial bill right.

But in time in time, I think we'll be able to signal pretty clearly what that business is going to be looking like going forward.

Okay and last.

What are your plans for virtual or in person on the Investor relations activities in the coming months.

Yeah, I'll, let Dave take that.

A few things on the books here.

We will have a pretty busy next few months.

Goldman Sachs is hosting us for a call it a client buyer side in the in the third week of November.

And then in the first week of December we'll be attending conferences sponsored by Bofa.

And the also the RBC Forest products Conference an annual conference.

And then in mid January we will be presenting at the CIBC Industrials conference and also the Sidoti small cap corporate so a pretty.

Pretty busy couple of Bucks, if there's anything there that's of interest to folks.

Don't hesitate to give me a call at all aligned with the right people.

Excellent. Thank you.

Your next question comes from the line of Roger Spitz from Bank of America. Your line is now open.

Thank you very much.

On the insurance proceeds I just wanted to make sure I heard that you were not going to give an estimate of insurance proceeds you could receive or did you give one I heard $20 million versus peace forever, but I wasn't sure if that was accurate.

Yes Roger.

Yes, Roger David in his remarks.

Suggested that the.

Peace River business interruption will be in excess of $20 million debt, we're comfortable saying that.

We don't have the number for us for Rosenthal, yet the event is not over and.

So we are.

We're just not.

Kind of put a guess that we need to we need to.

Find out when when when <unk> is ready to.

Bring back into service and then.

Add up all the chips and make our claim so.

Got it and of course, you did call out 12 million headwind just in Q3 related to the Rosenthal turbine.

Yeah.

So the way it so the way to think about it is at some point during the event.

We will be through the deductible component.

And the business interruption.

We will compensate us for everything were missing under normal operating circumstances and happy to answer your question.

No go ahead.

And have you given the amount of the deductible and I suspect, it's a per incident deductible, meaning theres a piece forever deductible and a.

Rosenthal deductible.

I don't think we've really talked about it it's pretty complicated for the street to get their head around it.

The coal waiting days deductible for a turbine would be 45 days.

And then.

As David mentioned.

Because the because the generator is is down for repairs.

2022 was the year, we were going to do a full revision of the turbine and generator. The once every 10 year revision we've pulled all that other work forward into this period, so that roughly that's a 50 day.

Chunk of work. So we're just rather than doing that next year, we're doing it all this year, while the turbines down anyway. So that's another factor in determining what the pie is going to be.

Okay. So then it'll get a sizable it'll be it'll be a sizeable clean because of the length of time, it's taking to prepare the generator.

Got it so when you said youre going to get some proceeds in Q4. It sounds like that is just the peace River component that we're speaking about.

Hi.

Are you, saying you might get campus.

I can't promise you mean.

We're far enough along and you know what it's going to be then you can bucket.

It's just a question of warehouses, where we get to.

It might be a bit optimistic to think it will come in the fourth quarter, but it's possible that it could.

In terms of accounting how are you.

You said, it's going to go on cost of sales and EBITDA will that just be the <unk>.

A portion of the proceeds or would you be also including.

The casualty amount that you are proceeds from Nick from fixing the plant.

France Yeah.

That's just the BVI.

So let's just.

Imagine the the capital the cost of the actual repair is actually not.

Not particularly high its really the downtime.

In this case, it's creating the loss.

Got it and then shifting to the 44 days of downtime I didn't think I heard it did you break it down number of days at each of the nodes that made up to 44 days.

I don't think we deal with Roger but again.

The primary the primary.

Rosenthal was.

What is the primary little bit of Peace River.

And sort of a bit of spend on there should be there.

Three components a day, yes.

That's right.

Okay.

Got it and.

Hi.

Given.

Any.

Can you give any thoughts on working capital in Q4 might look like and if our outflow in 2022.

Are there things, presumably you will need to build inventory.

On the <unk> plant.

Thanks.

Okay.

Yes, I think so.

What we saw what we saw for working capital here in Q3 would certainly be the largest change in the year. So you can imagine we're coming off of a period in Q2 with a lot of maintenance shuts. So were building the inventory up again and at fairly high high prices. So now that were run.

Full again, all the mills are back up I would say the inventory in terms of the finished goods should be relatively stable. We are a little bit of inventory build for wood, just preparing ourselves for the winter our inventories rise a little bit and then.

Depending on your view on pricing and the impact that has on on accounts receivable, we might have some changes there, but I would say, it's going to be more stable than material changes going forward through the winter here.

And then as far as far as CLC sorry.

Parts of your question Arthur.

In terms of C. L T.

The inventory is.

It's remarkably smaller than you might have at other other parts of our business. For example, we don't have you don't have but would the large log inventories year, but you're just you're buying.

Lumber different grades of lumber inventories there, but because these products are generally.

Made to order.

We have large inventories of panels for example, going forward. So it will not be.

Not be as material as you would see at a pulp mill or even our sawmill.

Kind of lastly from me is there any.

Or if not guidance on 2022, Capex, we can put into our models.

Okay.

Yeah, I think it's going to be ambitious.

And we have quite a bit of carryover from this year, obviously as you know we've got the two would rooms and.

So I think I'd be.

For your model you can think about moving from $1 50 to 175 something like that.

We will give you a better feeling in February.

I think it'll be ambitious we've got lots of good things for <unk> that we're working on.

Perfect. Thank you very much.

There are no further question at this time I will turn it over back to the event.

Okay, well thank you.

Everyone and thanks for joining our call and as always Dave and I are around and happy to talk when I'm wondering if anybody.

Wants to take the time to call us and otherwise we look forward to speaking you all again on our next call in February.

Bye for now and have a great day.

This concludes today's conference call. Thank you for participating you may now disconnect.

[music].

Yes.

Hum.

[music].

[music].

[music].

Good morning, and welcome to Mercer Internationals third quarter 2021 earnings conference call.

On the call today is David Kendall.

President and Chief Executive Officer of Mercer International M.

I'm, David <unk> Senior Vice President Finance, Chief Financial Officer, and Secretary I will now hand, the call over to David here.

Good morning, everyone as usual I'll make a few opening remarks about our financial performance before turning over the call to David to discuss our operations, our strategic capital program the markets and of course, our recent acquisition.

I'd like to remind you 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 company's filings with the securities and exchange.

<unk> Commission.

We achieved record EBITDA in Q3, primarily due to solid overall production in sales strong and product pricing in most markets and relative to Q2, a much lighter scheduled maintenance program.

Well somewhat mixed depending on the particular market our average MBS case price realization remained stable and relatively high in the quarter.

We also benefited from the impact of a stronger U S dollar on our Euro and Canadian dollar denominated expenses. These tailwind to our earnings were partially offset by modestly higher wood costs, particularly in our wood products segment, along with the weakening of the U S lumber market as.

We recorded in July we also operated our Rosenthal pulp mill for the quarter without the benefit of its turbine generator. The absence of green electricity generation at Rosenthal during the quarter negatively impacted our results by about $12 million.

We are now roughly midway through the process of repairing the turbine generator.

But as expected the largest contributor to the sequential improvement in the quarter was the absence of the heavy scheduled maintenance and capital downtime that we took in Q2, you will recall that we took 105 days of downtime in Q2 to both rebuild our recovery boiler at Peace River and complete most of the war.

To increase spend all pulp and electricity production capacity.

We generated EBITDA in the third quarter of $148 million compared to EBITDA of about $84 million in Q2.

Our pulp segment contributed record EBITDA of almost $130 million and our wood products segment contributed solid quarterly EBITDA of $22 million.

As usual you can find additional segment disclosures in our Form 10-Q, which can be found on our website and that of the SEC.

Yeah.

Changes during the quarter for softwood and hardwood pulp price movements were mixed across major markets in China. The Q3 average <unk> net price was $832 per ton down $130 from Q2.

European list prices averaged $345 per ton in the current quarter compared to $288 per ton in Q2.

N V S. K remains at a considerable premium to hardwood with the average Q3 net eucalyptus hardwood price in China at $623 per ton down $144 from Q2.

In total average pulp sales realization movements positively impacted EBITDA by about $5 million compared to the prior quarter.

Pulp demand remained steady in the quarter and our higher overall production led to higher sales volume compared to the previous quarter. Our Q3 sales totaled almost 448000 tonnes, which was up about 87000 tonnes from Q2.

In Q3, our mills were down a combined 44 days for capital and annual maintenance work. This is roughly the equivalent of 43000 tons of production compared to 117 days or about 173000 tons of production in Q2.

The impact of the Q3 planned downtime compared to Q2, including higher production and lower direct costs benefited EBITDA by $65 million.

Our lumber realizations were also mixed this quarter compared to Q2 <unk>.

The random lengths U S benchmark for Western SPF, two and better average $495 per thousand board feet in Q3, which was down $848 from last quarter.

Our average European sales realization were up approximately $180 per thousand board feet compared to Q2's.

Historically, the European market has not been as volatile as the U S market and generally lags the U S pricing trends.

The benchmark lumber price in the U S is currently about $620 per thousand board.

Our wood products segment.

Continues to perform well, we sold about 98 million board feet of lumber in the quarter, which was down slightly compared to our Q2 sales volumes, primarily due to the mill, taking a week of planned downtime in Q3.

Our electricity sales totaled roughly 200 gigawatt hours in the quarter, which was up relative to Q2 due to less planned downtime. However, our sales volumes were held back due to the absence of the generation at Rosenthal for most of the quarter.

Our Cariboo pulp mill joint venture, which is accounted for using the equity method contributed another 20 gigawatt hours to this total.

Included in these energy sales results East River set a quarterly sales record at Stendal and caribou, both achieved near record level of sales in Q3.

We reported net income of $69 million in the quarter or $1 <unk> per basic share compared to net income of $21 million 32 per share in Q2.

Cash used in the quarter totaled approximately $46 million compared to $11 million in Q2.

Our cash usage in Q3 was primarily the result of our acquisition of Mercer mass timber, our capex spending and working capital movements in the form of higher accounts receivable and inventory balances.

The uses of cash were partially offset by strong operational cash inflow.

We invested $39 million of capital in our mills this quarter and we remain on course to invest approximately $150 million in our mills this year.

We also invested roughly $51 million and the acquisition of Mercer mass timber cross laminated timber production facility located in Spokane, Washington, David will provide updates on our recent acquisition and our Capex program shortly.

At the end of the quarter, our liquidity position totaled about $647 million comprised of $339 million of cash and $308 million of Undrawn revolvers.

Our strong liquidity position will support planned seasonal growth and working capital along with our ambitious 2021, and 2022 high return capital spending programs.

We continue to work on finalizing the business interruption insurance claim associated with the recovery boiler rebuild at our Peace River Mill as a reminder, GAAP treats. These types of insurance claims is contingent gains which means that we won't be able to record the insurance proceeds until we have an agreement with the insurer.

We believe the proceeds will ultimately be in excess of $20 million.

In addition, we are now working on a business interruption insurance claim for Rosenthal as turbine downtime as part of this downtime. We made the decision to pull roughly 50 days of major planned turbine maintenance from 2022 into 2021.

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

And as you will have noted from our press release, our board has approved a quarterly dividend of $6 five per share for shareholders of record on December 20, <unk> 2021 for which payment will be made on December 32021.

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

Thanks, Steve.

Yes. This has been an exciting quarter for US we returned to normal production levels. After an extensive period of maintenance and capital shuts in Q2.

We achieved record earnings while navigating the ongoing complications of the pandemic and we advanced a key element of our strategic growth plan with our entry into the mass timber space I'll talk more about how this <unk> acquisition fits with our view of a low carbon high value add future for Mercury in a moment, but lets first review our operating performance.

I'll begin by saying I'm very pleased with our record operating results. This quarter. These results reflect the hard work of our teams during the period often under challenging operating conditions.

Along with the benefits of our recent investments in stand alone <unk>.

In Q2, Standalone completed the work necessary to increase annual MBS Skip hop production by 80000 tons.

And despite ramping up that equipment in Q3 still managed to achieve near record pulp and energy production. In addition, excuse Jasmine cleaners scanning edge trimming control drying and sorting capabilities.

Our providing the expected benefits of maximizing our production efficiency and greater <unk>.

Overall, our mills ran very well and strong production combined with overall steady demand for our products when compared to Q2.

Key drivers in our strong results this quarter.

Excuse me.

I believe these results highlight mercury's cash flow generation potential considering we achieved these results with Rosenthal as turbines being down for most of the quarter along with Elong Peace River mill outage for the recovery boiler rebuild both of these situations will generate significant business interruption insurance claims, which as of yet have not been finalized.

Our pulp markets were mixed due to regional differences that were primarily the result of global logistical challenges, we saw modest pace improvements in Europe, and weakening prices in China, where paper makers found it difficult to export to paper products due to high shipping costs.

These factors combined with energy usage restrictions in some areas of China resulted in reduced paper production and overall reduced pulp demand mean.

Meanwhile, in Europe paper makers benefited from reduced pay for imports and ran their machine school, creating solid pulp demand in that market.

The negative Chinese pulp market dynamics were more pronounced on the hardwood side in part due to expectations of new eucalyptus capacity set to come online.

Softwood pulp capacity or supply in China was relatively tight due to delays in Canadian pulp deliveries again, the result of supply chain bottlenecks.

We don't expect the supply chain issues to be resolved in the near term. Consequently, we expect generally steady and GSK pulp demand in Europe with reasonably stable pricing.

In China, we expect a continuation of modest negative pricing pressure as energy restrictions continue and logistics channels remain constricted we.

We should all remember however, how quickly China can bounce back once conditions begin to normalize.

Currently the price premium software commands over hardwood is at historically high levels and we believe this discrepancy could remain for some time due to the different capacity growth trends for each grade.

The August pulp statistics reflect increased producer inventory levels, but these numbers need additional context as we believe the global logistics challenge challenges are increasing the number of days reflect a balanced market.

In addition, these statistics don't reflect paper producer inventory levels, which we feel are low due to logistics slowdowns and delayed buying especially in China.

Paper producers are not expecting pulp price increases in the near term.

Overall, we believe that growing global economic activity will support demand for all commodities, including pulp lumber and extract as we also believe government economic support will bolster this growth and as a result, we are optimistic with steady economic growth and strong market fundamentals will support pulp prices.

I would products business to solid operating results the European lumber market was strong during the quarter, while the U S market experienced a significant correction.

As we discussed last quarter. The correction was precipitated by a drop in do it yourself demand and fears the negative outlook could spread to the housing market. However, since mid quarter U S. Since mid quarter U S. Lumbar pricing has been slowly increasing due to limited supply in part due to the heavy wildfire activity in western Canada and higher stumpage fee.

Yes.

On the housing demand side in the U S. Despite modestly higher mortgage rates housing starts has stayed steady and homebuilder sentiment remains positive.

The European lumber market has shown steady price increases through the first half of the year.

As a result of the weaker U S market, we are seeing downward pricing pressure as some European producers reduce their exports to the U S market.

We will continue to optimize our lumber products and customers to achieve strong the strongest sustainable realizations that we can.

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

To date Mercer has not been directly impacted by the global logistics challenges in a meaningful way we are seeing modest increases in freight cost as we are for us at times to utilize more expensive modes of transportation or increased storage costs as a result of delays.

We did have small volumes of pulp and lumber sales that will be recorded in Q4 due to shipment delays, but overall, our logistics strategies are serving us well.

Looking forward Rosenthal as turbine and generator will likely remain down until the first quarter of 2022, as we effect the necessary repairs.

At current energy prices the negative impact of lost energy sales and energy purchases is roughly $4 million a month.

Our wood products segment achieved another solid production result, producing almost 102 million board feet of lumber.

Which was down compared to Q2 due to a weak of planned maintenance downtime during the quarter.

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

And we expect this pulp log supply dynamic to generally continue in the fourth quarter.

<unk> prices to increase modestly.

We are seeing strong demand for saw logs, which is driving some log cost inflation, but we expect our dedicated fleet of railcars will allow us to mitigate transportation cost increases that many of our competitors will be unable to avoid.

In Western Canada, pulpwood supply remains steady and price changes have been modest in our fiber baskets. However, the impacts of the summer's fire season are being felt in the form of reduced sawmill activity, which we expect will create modestly higher fiber costs in Q4.

While our annual major maintenance work is complete significant capital expenditures to grow. The company are ongoing we are using are well managed liquidity and strong balance sheet to continue to pursue the growth aspect of our strategic plan in areas, where we have core competencies spin.

Specifically, we have focused our growth on market pulp building products Green energy and chemical extract is because we believe our expertise in these areas along with our expertise in timber supply procurement and logistics will add long term shareholder value.

We also recognize the importance of planning for the long term and as part of that we are putting a lot of effort into our transparency related to ESG practices policies and performance. We're looking forward to the publication of our sustainability sustainability report in early 2022, which we trust will further support our messaging regarding our sustainability approach and values.

Two good examples of putting sustainability and innovation into action or the Canadian fiber logistics and processing projects, commonly referred to as the wood room projects. These projects will allow us to transform our supply chain increased our capacity and significantly reduce the cost to produce our own wood chips.

The projects will also allow us to accept alternative forms of lower quality residual harvest would that previously could not be effectively process.

As a result, we will lower our cost improve our resource utilization efficiency and reduce our greenhouse gas emissions, we expect the projects to be largely complete by mid 2022.

We have continued to cautiously advance the engineering and permitting process for our stendhal sawmill.

Initial plan for the mill contemplates, a 400 million board foot capacity, where the product lineup and flexibility of refusal mill, but.

We expect to build the mill in such a way that will allow for incremental capacity increases in the future.

Currently however, we are seeing significant delays in the delivery of sawmill equipment, along with large increases in capital costs for many components, including the equipment itself for steel concrete and electrical installations we.

We will obviously move forward cautiously on this and hope to advance this project at some point in the future when conditions are less challenging.

In the shorter term, we expect to invest about $25 million of Capex in Q4, putting our total 2021 capex niches at approximately $150 million.

And while I have more to say on that at our next earnings call. In February we are expecting our 2022 high return capital plan will be quite ambitious with a portfolio of projects that will drive new product development ESG advances production improvements in input cost reductions.

The 2021 highlight of our growth strategy will likely be our recent acquisition of Mercer mass timber this as an entry point for us into a sector that fits well with our value add solid with strategy and a product whose and demand growth is very exciting.

While we build up the order book for the plants core product cross laminated timber panels.

We recently began producing long lengths in Detroit, a number and we expect to begin producing our first CLC panels in Q4.

This facility has an annual production capacity of approximately 140000 cubic meters of <unk>, which represents about 30% of the current PLP manufacturing capacity in North America.

We are truly excited about the <unk> market going forward and believe that the environmental and construction flexibility benefits compared to traditional steel and concrete construction methods make this product right for future growth.

After considering our recent investments <unk> financial position remains strong we will continue to take advantage of our financial flexibility as we move forward with executing our growth strategy.

The catch rates, we're using a lot within Mercer. These days is fit for the future.

Mean by this is that we strive to be on the right side of the climate change challenge.

Given our role in managing for us and producing physical goods and green power from renewable resources, along with our focus on human talent and our strategy to operate only top performing modern mills, we believe and expect commercial will be a welcome industrial player for the future. This will not be the case for everyone operating in our space and therein lies the opportunity.

Now, let me conclude by remarking that COVID-19 continues to be a concern, including the impact of variance on infection rates globally.

As a result, we remain focused on our protocols to ensure the safety of our employees contractors and the ongoing operation of our mills.

And in keeping with one of our core values I encourage anyone to get the COVID-19 vaccine and vaccine to keep your families friends colleagues and neighbors safe.

Thanks for listening and I'll now turn the call back over to the operator for questions. Thank you.

Again as a reminder to ask a question you will need to press star one on your telephone.

I got a question or if your question has been answered westbound please.

Please standby.

Yeah.

Yes.

Your first question comes from the line of EMEA Vitale from CB IC capital markets.

Your line is now open.

Hi, Good morning, David.

What level of sales would you be targeting for 2022 from the CLC plant and should we think of.

The initial year as kind of being at breakeven in terms of profitability and where would you see sort of steady state EBITDA contribution from that plant when it's fully ramped up.

Yeah. Thanks for the question here and good morning.

I think the honest answer is we are just going to have to wait and see.

We haven't been in this business before.

It's an emerging business and.

We are booking our first projects for the plant and what the what the margins are going to be is really going to depend on.

Yeah.

Things like fixed cost coverage.

Doing a good job of matching the wood cost with the panel coats and those sorts of things and so we're working hard on those strategies.

It's a very it's a very modern facility. It's got all of the electronic scanning capabilities. So the grading and certification of the panels can be top end.

<unk>.

And it's got a lot of horsepower a lot of capacity so.

Yes.

Very optimistic about it but I can't I really can't.

<unk>.

I'd be kidding, you, if I tried to imagine what the.

How quickly we're going to have that pressed bowl and what the margins are quite a bit.

But I do believe in the fullness of time.

I believe it's going to ramp up faster than most would expect.

All kinds of inbound interest and recorded nine projects as we speak.

Yes, I'm expecting we'll be making panels by the fourth quarter and.

I believe we'll be investing in capacity enhancements in that facility in the coming year or two as well which will.

Further further take us down that road of generating.

Good EBITDA levels.

Okay fair enough and not David just turning to the lumber side I know you're pointing to some further moderation in pricing in Q4.

Is there a way you could maybe scale what the domestic price in Europe.

Yeah.

Levels are or.

Or at least you know what sort of maybe sequential change you would expect there in Q4.

Yes, it's been a.

I mean, it's a pretty shallow slope downwards I mean, it's just a like a softening I don't have a percentage for you in Europe nothing like the U S. In terms of the correction. It's just.

Just a psychological feeling in the market that there should be.

Little more product available because.

Less less product going into the U S market I don't know how much truth. There is to that it is more of an impression that market has I would guess so.

It's a slight downward movement, but not.

Not a big correction.

Describe them.

Thanks, and just last question from me for David Your could you remind us of the.

Timing Thats, a major maintenance outages in 2022.

Okay.

Yeah, we haven't.

We haven't pinned those down.

Formally yet Amir I think we've probably.

February would be a better time, but it should be I couldn't say that it'll be a.

It'll be a more normal year next year. So each each mill will have a typical shot so youll recall that we have.

One or two mills that can go on an 18 months schedule, but for 2022, all four of the of the pulp Mills will have.

Typical.

Two to three week shut next year.

And Dave I can maybe add I've got a pretty good idea of where theyre going to fall I think peace River and <unk> will be Q2, and Stendal and Rosenthal will be Q3 would be my guess.

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

Your next question comes from the line of Sean <unk> from TD Securities. Your line is now open.

Thanks, Good morning, guys.

To follow up on <unk> questions on the <unk> facility can.

Can you give us David some context on it.

I guess, how you're marketing the product as it all inbound calls at this point or is there a formal.

Process.

You're setting up to to sell the product into the market.

And I wanted to follow up on.

A little bit vague in terms of the response with respect to the ramp up time frame and what.

What EBITDA might ultimately look like.

If you're spending $50 million to acquire the asset what are the return parameters you're focusing on.

Over the long run for that investment any detail you can give us there.

Yeah.

I don't mean to be evasive, but I don't I don't want to have those sunshine either shine and it's like I said, we haven't operated this.

The facility like this before.

<unk>.

In the early stages I mean, the growth in demand for <unk> is staggering.

The forward looking CAGR it could be in the 35% to 40% growth per year range. There's more projects in design today that had been built in the previous five to seven years.

So.

How these are all going to be how these projects will won't be priced by the various competitors.

I just don't know.

But the demand is significant and the amount of things we have to work on is significant the way we are.

What we've been doing is building our team.

We've got gentlemen, with us that.

No everything.

I believe we've got very good operations personnel and we've got very good marketing support.

And we're continuing to build some of our some of our technical.

Sales support staff as well.

There's.

A number of different.

Assets to marketing see LTE I mean, some of it is the custom buildings like you might think of the architect Michael Green and the type of buildings. He would do which are all custom.

Big.

Big Shirley.

<unk> wonders.

Bye Bye all stretches but then <unk> is also becoming almost like a catalog component for for architects and owners gcs that are wanting.

Wanting to build a building so.

Certain sizes will be specced, and designed and more or less a catalog and these engineering firms that are supporting architects will let's just pick out of the catalog of different floor plates for walls or the.

The components that they need and and.

And when you get specified.

<unk> away from bidding on every project you become a component of a bid from a bigger.

Like you're not bidding just your P. Soon you feed into.

Bigger project, that's being bid to an owner type of deal if that makes any sense. So.

Obviously, we're in this business to make money in and I'm sure. We've got a very modern a modern facility and similar to what we did when we entered the lumber business, we're going to build our team to win.

We're going to expect to grow this business quite aggressively and so we are recruiting and bringing in top talent.

And we just.

Honestly, you need a few quarters to really get a better feel for how it's all going to ramp up just being honest.

Understood and is the intent to break this out as a separate segment and your financial disclosures going forward.

I think that's our understanding is that it will need to be it's a different order fulfillment process different customers.

Quite a different business to lumber so.

Initially it will be in the corporate segment.

As it becomes more material it will be broken out on its own.

I've been told by our finance team.

Okay.

Second question for me Freak out of this quarter.

Seasonal downtime I think in the last call you suggested that Q3 production would still be around 125 million board feet even with.

Seasonal shots.

Yeah.

Any context on the discrepancy there or is it just the fact that north American markets rollover. So how are you.

We're inclined to take more downtime than you might have otherwise.

Detailed there.

No no there would be no reason to take any any kind of market curtailment downtime, it's really just more a function of.

A number of factors that the maintenance is a kind of a rotating.

Outage is not like a potent when you take everything down all at once.

In our <unk>.

In our sawmill, we would take the logs and put lined down that we would take us all lined out and take another salt lined down work on sorters.

That sort of thing so.

Just to.

Coordination of all of those different pieces of work.

There was some COVID-19.

Delays in Theyre not transmissions within the mill, but availability of contractor support.

I think the average log dimension that we procured in the quarter was a little a little narrower than that had been planned and then that reduces the volume as well.

All in all I would say it was a great quarter for the mill they've got all their work done and they got it done safely.

Mills.

All to Guinea Booth.

Yeah.

I will mention are preserved feeling pretty positive about the direction that lumber markets youre going to go as well.

Okay. Thanks, very much David I'll get back in the queue.

Your next question comes from the line of Marcus <unk> from RBC capital markets. Your.

Your line is now open.

Hey, good morning, and thanks for taking my questions.

Firstly could you help us understand what you're seeing from the Chinese pulp market currently including the sectors that are most impacted how much production is actually being curtailed.

And when your customers expect from the mandated curtailments to end.

Yeah. So it's.

It's not everywhere in China, but particularly along the coastal regions, where there's a lot of paper production, they're having these.

Really.

<unk> mandated caps on on.

In power power usage so.

Maybe on average paper mills might be able to run three days out of the week.

So there.

It's really a.

A shock to the system, it's quite unusual for them to have to operate that way so.

And then as well as not being able to operate fully.

It's also <unk>.

Really important to understand that the globalization of.

The different fiber markets right now so like a Chinese paper producers cannot get paper into.

Any of its export markets economically.

The freight costs are just crazy like 10 times, what they would normally be so.

So they don't have they don't have the electricity to produce but they don't have the export market to serve either so it's really all driven towards domestic.

Consumption.

And this is where I personally think that this.

China concern that.

It's a little bit overblown.

I made a comment in my prepared remarks that when China comes back.

<unk>.

We've seen many times how quickly it can recover.

The paper companies are not going to be sitting on massive overhangs of paper stocks.

There is not going to be a lot of pulp in the pipeline for them.

And when when logistics normalize which could be sometime.

Second and third quarter next year, I'm guessing, but they.

It will normalize.

There'll be back and we'll be back with abandon and so I just.

Don't think we need to be as negative about China as we are being and I think also in.

In the near term.

Markets are pretty stable because they don't have.

Competition on the end product side coming from from imports so.

The situation as I see it markets.

Alright, thanks for the detail there that's helpful.

Maybe jumping over to the wood products business than a year.

Unit manufacturing costs stepped up pretty materially quarter over quarter here.

Part of that is probably due to the downtime, but theres also increased usage of green within the mix are.

Are we through most of that beetle damaged wood now and should we therefore expect an upward shift in the cost structure going forward.

For the sawmill.

Yes, I think that's right.

<unk>.

A.

A lot of our competitors in Germany can't handle beetle killed wood basically I like a lot of the European sawmill errors.

Clean and Killen dry they are producing green products. So.

So there is.

Theres been steady demand on fresh wood and and as.

So there is more fresh wood available we can create a good margin with that what should we do buy it we also by beetle butyl wind if we can if it's.

The right length and the rate right dimension.

For now I'd say pulp log prices are going to inch up slightly.

I think we're going to get through the spruce beetle by next year or so so we will see some pulp log cost inflation going into next summer probably.

I think we can see.

German saw logs are going.

I think we're at a level of hours kind of.

Feels top ish to me.

It has moved up quite a bit in the last the last three call it three or four months.

Okay, Great and then maybe lastly, still on the lumber business your average selling prices were down quarter over quarter, but.

But all of your European peers, we're also reporting higher quarter over quarter pricing.

I know you have a bit of a higher exposure to the north American market, but is there anything else in there that could help to explain the quarter over quarter decline in pricing.

No no.

It's primarily the U S market.

Alright, Thanks, that's all I had.

Once again, if you would like to ask a question. Please press star one on your television.

Tom.

Your next question comes from the line of Deforest Hinman from Walt Hoffman and co. Your line is now open.

Hey, Thanks for taking my questions.

First one can you just give us a little refresher on revenue recognition as it relates to.

Yes.

Product on the water and all the stuff, we're dealing with on the logistics side.

Are there any.

Issues with.

Being able to recognize revenue on stuff that's.

Floating or stuff that's on the dock.

As it relates to revenue recognition.

Yes, I think David hinted in his comments the forest.

So if you're if you're shipping to Asia by vessel.

If the product if you've got the order and it's more or less committed you recognize the revenue.

Or the sale when the ship leaves the Doc linkage.

The push off that.

As the transfer of risk and we did have I think about 15000 tons on a vessel that was supposed to go.

In September they got pushed into October so.

It just simply gets booked.

After the.

The month end.

With on rail.

It's usually applebee your plant or the customer depending on the customer's wishes, but a lot of times, we book it when it when it when its receipt by the customer.

Okay perfect and this is more of a big picture question Big picture question.

You see your share price at the current levels you talk.

In your prepared comments about.

Looking to build sawmill.

Knowing the costs that are out there, but you had previously purchased a free solid investment money. There you probably have some expectation.

Our thought around what the value of that asset is.

You put a mark on cross laminated timber was $50 million investment in then.

Probably our thinking.

But replacement values for your pulp mills.

If you put that all together.

And you have your debt and you have your cash balances.

And you're weighing.

Making a pretty substantial investment in our stendhal sawmill, but.

When you see your share price at the current levels, having a pretty.

Good understanding of replacement values, and having a pretty substantial amount of cash or not.

Near term debt maturities to worry about.

Should the board be thinking about buying back some amount of the shares.

Yes, the forest.

We talk about it every quarter.

Somebody you always brings the question up and our board. We do we do think a lot and hard about capital allocation, but the way we see it right now is.

Our leverage is a little bit high for the comfort of some because of the cyclicality of the business. So in time.

Our goal is to continue that.

Chomp away at the debt levels, bringing those down I think did not levels I'm nervous about by the way, but but I think bringing taking some capital and buying back debt.

Or refinance on refinancing opportunities to try to bring that down.

It makes good sense I think one of the challenges we have as a company and our stock is that we're we're a smaller sized company compared to many of our peers and I think a bigger a bigger market cap would provide more liquidity, which will unlock some of that liquidity discount that we believe is inherent in that slot.

Another piece is that.

We really believe this company is going to be on the right side of the climate equation and that type of assets, we operate and the way we operate them in the way, we engage with stakeholders and <unk>.

All of this work we do around logistics in time is going to become recognized and in a fiber constrained world where people are worried about carbon.

Industrial players that are not on the right side of this stuff.

We're going to find failures.

And that won't be us and so we believe the inherent value of our.

Portfolio of mills.

<unk> is significant and I agree with you it's under undervalued by the market.

But we're here to create long term value.

Taking are taking or liquidity and buying back stock you can do the math on an enterprise value calculation.

It.

It's psychologically it feels like the right thing to do if you had massive amounts of liquidity like some of the.

Some of the.

Right.

Some of the companies that have had that just makes sense to start buying themselves back that's great, but in our case the amount of stock we would buyback.

Well trying to keep all of our other options open for these growth opportunities.

Yes.

It just doesn't feel like the right thing to do it hasn't felt like the right thing to do so far so.

So we're focusing on growth, we're focusing on maintaining liquidity. So we've got flexibility deploying our capital in a very smart way.

And and focusing on on debt reduction as it when we see the opportunities and that's you know that may change over time, but that's been that's been our strategy for quite some time and I don't see that changing in the short term.

Okay. Just for clarity then when you talk about debt reduction are you thinking in terms of the mathematical.

A higher cash.

Net debt falling and maintaining that dry powder or.

Open market purchases of bonds.

Actually you ought to refinance those bonds early.

Well, we've got a long track record of.

Yes.

Working on our bond portfolio.

In transactions that are there.

It makes sense for us at the time.

I always look for can we do this in a net.

MPV positive way.

Continue to.

Bringing the rate down in <unk>.

Bringing the levels down.

I'm not trying to do something.

We're not talking machete stuff here, we're just talking.

Proper financial engineering to to recognize that seeing some debt reduction I think would be appealing to some of our investors and it makes sense to me as well.

And Meanwhile, grow the continue to grow the platform of assets and ensure that they are fit for the future and and.

Once once that light bulb goes on for.

With the market.

Yeah, I think the stock is going to perform really well.

So steady state your helm, yes, you bet.

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

Hi, Good morning, guys. A few questions here quick ones on the business interruption insurance claim status here regarding each of these large claims is there any beyond normal negotiations that are going on between the company and your insurers or is this just standard.

Stuff disputes right now.

Yes, I wouldn't even call it a dispute I mean, it's.

Strong word.

It's a ton of work to get your claim together and then you have to get it over to factor neutral and they have to review would be discussed and <unk>.

All the assumption and it puts and all that kind of stuff. So this is just this is process.

Okay, the generators a little bit unusual.

You don't see any generator failures and so how the how the waiting period in other words the deductible get supplied is always a question.

Making sure that we really can't.

Get that right before we submit the claim so.

Yeah.

I mean these are proper insurable events, we will resolve them I'm sure in the next few months.

The $20 million was that both of them combined are that was John no just always forever.

Peace River and business interruption, there is not enough of it.

No I don't want to give guidance on the generator until I until I know what work okay.

And again, you don't know yet.

And what's the expected timing of resolving what is owed on the Peace River and then I guess you haven't submitted Rosenthal yet what is the general timing after.

For you to get this together to submit and then.

How should out with the insurer.

Yeah.

Our team feels that we've got a pretty good shot at getting this all into the fourth quarter.

Both both of them.

Yes.

Oh, good and when it does come in and that payment comes due.

It is for accounting purposes is it.

The line, and where or where will it flow through on the income statement.

Dave do you want to take that.

Generally they go they go in in the cost section and the cost of sales section so in EBITDA in the costs.

Okay and on the <unk> business did you say or can you say what the burn rate of operation is at present and do you expect it.

The burn rate to increase before starting its move towards profitability.

Yeah, no. It's interesting it doesn't it's such a modern facility I think we've got roughly 20 employees today and we will.

We will be hiring probably about 10 more.

Half of that on the marketing order fulfillment side and.

In half one.

On the operation and maintenance side, so it's not a big burn.

And.

What we're doing today is we're making much called long lengths finger joint materials. So we buy.

We buy dimension lumber and the market to.

To basics.

And whatever lengths, we get and we think they're joined it into long legs. We can finger joined up to 40 foot boards. So the average length of the market seems to want is somewhere around 2008 feet.

And Theres, a pretty good margin on that value add product. So I would say it's.

That covers the overhead more or less plus some someday.

And.

So it's not going to be it's not it's not going to be a drain but then the real margin will come next week.

Art loading up depression.

Those higher value added products out of the facility.

It's not it's not a big number of people Andrew.

Okay.

Or is it optimal to source your timber for the plant and as your lumber from Germany of the type that would ever be needed to be used and could be used.

Supply cost surged again.

Yes, no we wouldn't we don't need to buy from Germany.

So local options for us.

Around the around the facility in Spokane and.

Our procurement strategy.

It was one of the things you need a number of different qualities to make <unk>, you've always got number twos on the outside longitudinal panels parts and you can put number three on the inside.

And then you've got all the finger joining capacity so.

Yes.

<unk>.

It's a strategy of local suppliers that are sort of selected based on.

Optimizing what youre getting for what you're paying.

It sounds complicated but.

Some mills have there.

Premium qualities and their grades that they want to ship to the market right away and then they often have some out of profile or.

Maybe maybe they've got some shorter lengths are.

Material that is.

It needs to be discounted to move it that's the kind of stuff, we can buy and just renamed it ourselves.

We create our own land stock in effect of everything that we buy.

Wet for Ensco, one way dry boards go another way.

<unk>.

They're all electronically scan they go into a whole bunch of different bins.

And then we have dry and we planed creator on them stock. So it's it's really.

No reason to focus on bringing in our own product I think we do a much better buying from local mills around us.

Okay.

<unk>.

I ask just a few quarters ago and.

Your guidance was to give at X amount of time, so im asking now.

Is the time period for the first harvest for Hampton all in the sandalwood business still around the end of this year.

What are the metrics that will be involved.

I don't want to call it kpis or otherwise is it acres.

Akers tons of <unk>.

Trees as it pounds of oil.

How are we going to start thinking about this and measuring the ramp up of that business.

Well when we when we announce results I mean, you've got the timing right next year, it will be a year, where youll start seeing some results.

I'll be describing how many how many hectares were harvested how many tons of wood, we processed how many kilograms of of <unk>.

Sandalwood oil we produced in our in our sales and cost of sales and EBITDA.

That's all to come.

And around when might you be expected to provide an estimate of the quantity of oil to be produced and the potential price range of those oil sales and margins in other words kind of setting forth the business model and your expectations since.

Well and to operate you have you have like a crop each year, that's going to start coming in as an annuity.

Right, Yeah, Yeah, we'll definitely be working on helping the helping the street understand that business as it is.

As it unfolds I'm reluctant to give guidance today on pricing or volumes partial bill right.

But in time in time, I think we'll be able to signal pretty clearly what that business is going to be looking like going forward.

Okay and last.

What are your plans for virtual or in person on the Investor relations activities in the coming months.

Yeah, I'll, let Dave take that.

A few things on the books here.

We will have a pretty busy next few months.

Goldman Sachs is hosting us for a call it a client buyer side in the third week of November.

And then in the first week of December we'll be attending conferences sponsored by Bofa.

And the also the RBC Forest products Conference an annual conference.

Then in mid January we will be presenting at the CIBC Industrials conference and also the Sidoti small cap corporate so a pretty.

Pretty busy couple of months, if there is anything there thats of interest to folks.

Don't hesitate to give me a call at all aligned with the right people.

Excellent. Thank you.

Your next question comes from the line of Roger Spitz from Bank of America. Your line is now open.

Alright, Thank you very much.

On the insurance proceeds I just wanted to make sure I heard that you were not going to give us an estimate of insurance proceeds you could receive or did you give one I heard $20 million versus peace forever, but I wasn't sure if that was.

Yes Roger.

Yes, Roger David.

His remarks.

Suggested that the <unk>.

Peace River business interruption will be in excess of $20 million debt, we're comfortable saying that.

We don't have the number for us for Rosenthal, yet vantage not over and.

Yes, so where we.

We're just not.

Trying to put a guess we need to we need to.

Find out when when when <unk> is ready to.

Bring back into service and then.

Add up all the chips and make our claim so.

Got it and of course, you did call out $12 million headwind just in Q3 related to the Rosenthal turbine.

Yeah.

So the way it so the way to think about it is at some point during the event.

We will be through the deductible component.

And the business interruption.

We will compensate us for everything were missing under normal operating circumstances and happy to answer your question.

No go ahead.

Have you given the amount of Dr. <unk> and I suspect, it's a per incident deductible, meaning if there is a piece forever deductible and a rosenthal deductible.

I don't think we've really talked about it it's pretty complicated for the street to get their head around it.

The coal waiting days deductible for a turbine would be 45 days.

And then as is.

As David mentioned.

Because the because the generator is is down for repairs.

22 was the year, we were going to do a full revision of the turbine and generator. The once every 10 year revision with <unk>.

Pulled all that other work forward into this period, so that roughly that's a 50 day.

Chunk of work. So we're just rather than doing that next year, we're doing it all this year, while the turbines down anyway. So that's another factor in determining what the pie is going to be.

Okay, So a little getting sizable it'll be it'll be a sizeable clean because of the length of time, it's taking to prepare the generator.

Got it so when you said youre going to get some proceeds in and Q4. It sounds like that is just the peace River component that we're speaking about.

No.

Are you, saying you might get kind of erosion.

Prominence.

We're far enough along and you know what it's going to be then you can bucket. That's it's just a question of warehouse, where we get to.

It might be a bit optimistic to think it'll come in the fourth quarter, but it's possible that it could.

In terms of accounting how are you.

I'm just going to go on cost of sales and EBITDA will that just be the <unk> portion of the proceeds or would you be also including.

The casualty amount that you have proceeds from the from fixing to plant.

France.

That's just the BVI.

Let's just.

Imagine the the capital the cost of the actual repair is actually not.

Not particularly high its really the downtime.

In this case, it's creating the laws.

Got it and then shifting to the 44 days of downtime I didn't think I heard it did you break it down number of days at each of them knows that made up to 44 days.

I don't think we deal with Roger but.

The primary the primary.

Rosenthal was.

Was the primary little bit of Peace River.

And sort of a bit of spend on there could be there.

Three components.

Yes, that's right.

Yes.

Okay.

Got it and.

I have you given.

Any.

Can you give any thoughts on what working capital in Q4 might look like and if our outflow in 2022.

On the other things, presumably you will need to build inventory.

On the <unk> plant.

Thank you.

Okay.

Yes, I think so.

What we saw what we saw for working capital here in Q3, but certainly be the largest change in the year. So you can imagine we're coming off of a period in Q2 with a lot of maintenance shuts. So we're building inventory up again and at fairly high high prices. So now that we're running.

Full again Theyre all the mills are back up I would say the inventory in terms of the finished goods should be relatively stable. We are a little bit of inventory build for wood, just preparing ourselves for the winter our inventories rise a little bit and then.

Depending on your view on pricing and the impact that has on on accounts receivable, we might have some changes there, but I would say, it's going to be more stable than material changes going forward through the winter here.

And then as far as far as <unk> sorry.

Parts of your question Arthur.

In terms of C. L T.

The inventory is.

It's it's remarkably smaller than you might have at other other parts of our business. For example, we don't have you don't have but would the large log inventories youre really just youre buying.

Lumber different grades of lumber inventories, there, but because the end products are generally.

Made to order.

We have large inventories of panels for example, going forward so.

Not be.

It won't be as material as you to read you'd see at a pulp mill or even our sawmill.

Kind of lastly from me is there any.

Or if not guidance on 2022, Capex, we can put into our models.

Okay.

Yes, I think it's going to be ambitious.

It was quite a bit of carryover from this year, obviously as you know we've got the two would rooms and.

So I think I'd be.

For your modeling you could think about moving from $1 50 to 175 something like that.

We will give you a better feeling in February 9th.

I think it'll be ambitious.

Lots of good things working on we're working on.

Perfect. Thank you very much.

There are no further questions at this time I will turn it over back to David.

Okay, well thank you.

Everyone and thanks for joining our call and as always Dave and I are around happy to talk one on one with anybody.

Wants to take the time to call us and otherwise we look forward to speaking you all again on our next call in February.

Bye for now and have a great day.

This concludes today's conference call. Thank you for participating you may now disconnect.