Q4 2021 Mercer International Inc Earnings Call

February 18, 2022

Good morning, and welcome to Mercer International's fourth quarter 2021 earnings conference call on the call today is David <unk>, President and Chief Executive Officer of Mercer International and David Ure, Senior Vice President Finance Chief.

Financial Officer, and Secretary I will now hand, the call over to David <unk>.

Good morning, everyone I would 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 would 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 Commission.

We achieved record EBITDA in Q4 on strong pulp and lumber sales volumes high energy sales prices are much lighter scheduled maintenance program when compared to Q3 and the settlement of the business interruption insurance claim associated with the repair our peace River recovery boiler admits.

2021.

These positive impacts were partially offset by lower pulp realizations in all markets.

Our Rosenthal pulp mill ran the entire quarter without the benefits of its turbine generator, which had the impact of lowering our EBITDA by about $30 million at today's electricity prices.

However, I'm happy to report that the turbine has been repaired and returned to service in mid January .

We also experienced modestly higher fiber prices in both Canada and Germany.

In addition, our freight costs were up at our Canadian operations due to the increased use of trucking and higher warehousing costs due to extreme weather and COVID-19 related supply chain slowdowns.

Our peace River mill recovery boiler damage insurance claim was settled in late December which allowed us to recorded in Q4.

Total Q4, EBITDA impact was about $32 million. We are pleased to have this claim behind us and that our 2021 fiscal year includes both the loss associated with the downtime needed to prepare the boiler and the insurance proceeds meant to compensate us for that lost income.

We were generating.

<unk> had record EBITDA in the fourth quarter of almost $165 million compared to EBITDA of about $148 million in Q3.

Our pulp segment contributed record quarterly EBITDA of roughly $143 million and our wood products segment contributed total quarterly EBITDA of almost $24 million.

You can find additional segment disclosures in our Form 10-K , which can be found on our website and that of the SEC.

For the full year, we also generated record EBITDA totaling almost $479 million exceeding our previous record by well over $100 million and this was achieved despite our rosenthal turbine being down for almost six months, which negatively impacted EBITDA by over $40 million.

On average softwood and hardwood pulp prices in Q4 were lower than Q3 in all of our major markets in China. The Q4 average <unk> net price was $2 $723 per ton down $109 from Q3.

European list prices averaged <unk> hundred $2 per ton in the current quarter compared to <unk> hundred $45 per ton in Q3.

<unk> remains at a considerable premium to hardwood with the average Q4 net eucalyptus hardwood price in China at $562 per ton down $61 from Q3.

In total average pulp sales realization movements negatively impacted EBITDA by just over $30 million compared to the prior year quarter.

Pulp demand was strong in the quarter and our modestly higher overall production led to higher sales volumes compared to the previous quarter.

Our Q4 sales totaled almost 516000 tonnes, which is up about 68000 tonnes from Q3.

We did not take any planned downtime in Q4, while our Q3 in Q3, our mills were down a combined 44 days for capital at annual maintenance work. This was roughly the equivalent of 43000 tons of production.

The impact of no planned downtime in Q4 compared to Q3's maintenance downtime included higher production and lower direct costs benefited Q4, EBITDA by almost $15 million.

Our lumber realization were also mixed this quarter compared to Q3.

Randall lengths U S benchmark for Western SPF, two and better averaged $711 per thousand board feet in Q4, which was up $217 per thousand from the last quarter.

Our average European sales realizations were down approximately $44 per thousand board feet compared to Q3.

The benchmark lumber price in the U S is currently $275 per thousand.

Our wood products business continues to perform well, we sold about 104 million board feet of lumber in the quarter, which is up slightly compared to our Q3 sales volumes.

Our electricity sales totaled roughly 207 gigawatt hours in the quarter, which was up relatively to Q relative to Q3 due to less planned downtime. However.

However, our sales volumes were held back due to the absence of generation at Rosenthal for the entire quarter.

Our Cariboo pulp mill joint venture, which is accounted for using the equity method contributed another 16 gigawatt hours to this total.

We reported net income of $74 $5 million for the quarter or $1 13 per basic share compared to net income of $69 million or $1 <unk> per share in Q3.

For the full year 2021, we reported record net income of $171 million or $2 59 per basic share compared to a net loss of $17 $2 million or <unk> 26.

<unk> per share in 2020.

Cash generated in the quarter totaled approximately $7 million compared to cash used of $46 million in Q3.

Our cash generation in Q4 was primarily the result of strong EBITDA being offset by working capital movements, primarily in the form of higher accounts receivable and to a lesser extent higher inventory balances.

Our higher accounts receivable balance is principally the result of timing of sales late in the quarter along with the recognition of the Peace River insurance claim receipt of which did not occur until January .

Higher inventory was due to finished goods increases in North America due to logistics restrictions and higher priced raw materials combined with relatively high seasonal inventory levels. We expect the majority of this working capital build to reverse itself in Q1.

We invested almost $34 million of capital in our mills this quarter, which put our total capital investments in 2021 at $159 million. In addition in 2021, we completed the $51 million acquisition of Mercer mass timber are.

Cross laminated timber production facility located in Spokane, Washington, David will provide updates on this business and our Capex program shortly.

Yes.

At the end of the quarter, our liquidity position totaled about $631 million comprised of $346 million of cash and $285 million of Undrawn revolvers, our strong liquidity position will support our planned working capital movements along with our ambitious.

2022 high return capital spending program.

In January we entered into a new $160 million Canadian dollar revolving credit facility for our Canadian operations. This new syndicated facility has a five year term and replaces the $260 million Canadian facilities for ourselves Rmp's, where.

Mills this will lower our.

This will be a lower cost facility secured by working capital and gives our Canadian operations significantly more financial flexibility.

In addition, we have commenced discussions with our property insurer on a business interruption claim for our Rosenthal turbine downtime and expect settlement sometime in the second half of 2022.

And we are pleased to highlight that our board has approved a 15% quarterly dividend increase which will increase it to seven five cents per share for shareholders of record on March 32022 for which payment will be made on April six 2022.

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

Thanks, Dave Good morning, everyone.

Let me begin by saying.

How pleased I am with our overall operating results. This quarter, we benefited from our global operating footprint strong European pulp market conditions helped mitigate the impact of supply chain restrictions that we experienced at our Canadian operations.

And while our strategic core focus to maintain owning world class assets keeps your costs and carbon impact low in normal times.

<unk> of high energy prices like we are experiencing at the moment in Europe , our net energy export position is a tremendous differentiator for us.

In Q4, our operations generally ran well in the year ends with a number of operating records, including record quarterly EBITDA.

We will also remember 2021, a speedier considerable evolution.

As a company with the addition of mass timber in engineered wood products and steady expansion in London capacity.

And while we continue to diversify our products. We also remain committed to our legacy as our stendal pulp expansion will attest.

These results reflect the hard work of our team during the period under often challenging operating conditions, along with the benefits of our recent investments.

Again, our mills generally ran well this quarter and strong production combined with steady overall steady demand for our products were key drivers behind our record Q4 results.

In fact, our results would have been even better but for the complete absence of power generation at the Rosenthal.

To conduct turbine repairs.

Although lengthy downtime was unfortunate we took the opportunity to pull 84 days of planned turbine maintenance from 2022 into 2021.

And this decision will reduce our insurance claim for the period, but we also expect to result in a net benefit to the mill given that electricity prices in Germany are much higher today than they were back in 2021.

While still relatively strong average pulp prices fell modestly in Q4 as negative sentiment in parts of the market caused by fears of new Eucalyptus hardwood capacity general negative economic outlook and logistics restrictions for paper products that made it challenging to ship product economically all started to weigh on the markets.

However, the sentiment seems to have shifted in the early days of Q1 due to supply chain restrictions for pulp producers in Western Canada, along with the labor dispute affecting MBS K production in Finland.

The supply side restrictions from created upward pricing pressure.

And most pulp makers have been able to implement some modest price increases in.

In addition, we believe that low consumer inventory levels heavy pulp producer maintenance levels and new hardwood supply.

Coming to market more slowly than anticipated excuse me will create average pricing conditions that are sequentially higher than Q1, and possibly Q2.

Lumber market slate pulp are relatively strong but variable.

Average number of pricing in both Europe , and the U S. We could modestly during the quarter.

The U S pricing has shown considerable strength since late in Q4.

While the mid term backdrop for U S pricing conditions remained solid with relatively low housing inventory low borrowing costs as well as strong homeowner demographics. The dimension lumber market is currently characterized by short term weather events and flexible supply chains, along with labor and home construction supply shortages.

Add to this the sometimes inconsistent supply from Canada and you have the markets. We are currently witnessing which is long term growth with intermittent volatility.

Looking ahead positive homebuilder sentiment remains despite the expectation that mortgage rates will rise in 2022, which is consistent with our view that we will continue to see strong lumber demand based on expected steady U S home construction.

The variability of European pricing is much less pronounced as expected prices in the European market have moderated.

A trend that has developed over the past few years of European market changes generally lag and those of the U S.

Consistent with that trend after reaching a modest trough in Q4, and we're seeing pricing in Europe now recovering early 'twenty and early 'twenty two as European producers. Despite the small numbers begin to direct some production to the strengthening U S market.

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

In Q4, 46% of our lumber sales volumes were in the U S market with the majority of the remainder of our sales in the European market.

Although we feel our logistics strategy has put us at a competitive advantage to many of our competitors we experienced some freight cost increases in Q4.

This primarily came in the form of increased use of trucking and higher warehousing costs in North America caused by extreme weather and pandemic related shipping delays, which has reduced the availability of railcars.

These delays forced us to take our caribou mill down for three weeks in December and at times slow production modestly at silver in the Peace River Mills in December and into early 2022, we expect the.

The situation to begin to ease once temperatures begin to moderate.

Looking forward our turbine generator at Rosenthal was put back into service in mid January we are pleased to once again have a mill producing its own electricity and selling surplus production into a very strong German electricity market.

Having the turbine down from almost six months negatively impacted our annual operating results by approximately $41 million.

And having a world class energy balance has never been more important.

I am sure that most of our listeners are aware of the steep rise in European energy prices over the last few quarters.

This affects our business in a few ways first we are net electricity sellers in the last year the grain market energy price has on average more than tripled in price. As a result, you can expect our revenues to grow in Q1 relative to Q4 now that the rosenthal through buying is back online.

We believe that the conditions that are giving rise to the current power prices are not likely to abate in the near term.

Germany remains on pace to decommission as remaining nuclear power plants and the perceived natural gas supply threat. This tension between Russia and the westbound do not seem to offer an opportunity for a quick retreat of power prices.

And while fossil fuels to become a relatively small source of energy for us limited to airline kilns were impacted by higher gas prices, which have increased dramatically.

And we are expecting a knock on effect of high gas prices in the coming months as we expect that many central European households will turn to alternative supplies to heat their homes, such as wood pellets, which will put some upward pricing pressure on our main raw material low cost pulpwood.

However, we believe the benefit of higher electricity prices will more than offset the impact of higher gas and potentially higher wood costs.

I Wouldnt products segment achieved another solid production results, producing 111 million board feet of lumber, which was up 9 million board feet compared to Q3.

We're pleased with the rate that our wood product segment segment investment is developing particularly as we've been forced to regulatory interrupt production during our ongoing construction projects.

As I mentioned, we believe that we have the conditions in place to see improving pricing for all of our products power lumber and pulp and we are aware of inflationary pressure on the cost side at the moment inflation has been limited to natural gas some elements of our delivery channels and more recently to fiber costs.

In Germany, we are seeing strong demand for both pulpwood and saw logs, which is driving increased fiber costs demand for pulp logs is being driven by pellet producers as I mentioned as high European energy prices are creating more demand for wood based heating solutions.

While solid demand and pricing appears to be peaking youre expecting increases in the prices, we pay for lower value bulk would rise over the next two quarters.

In Western Canada reduced harvesting due to extreme winter weather combined with COVID-19 related hauling limitations.

Which pushed pulpwood prices up modestly in the quarter.

However, we are beginning to see incremental harvesting activities and we are optimistic COVID-19 restrictions will begin to ease trends that we believe will limit Canadian fiber cost increases in the near term.

We're excited about the benefits these projects screen, including improved fiber resource utilization reduced greenhouse gas emissions and lower fiber costs.

You are using our liquidity and strong balance sheet to continue to pursue the growth aspect of our strategic plan and areas, where we have core competencies specifically.

Specifically as we focused our growth in building products screen energy market pulp and chemical extract is and we will continue to do so in 2022.

And we have another ambitious capital expenditure plan in 2022, we expect to invest approximately $175 million in our mills this year.

The majority of that being on high return projects that will drive new product development, ESG advances productivity improvements and input cost reductions.

Our two would rooms at saga in Peace River will be completed late this year and we will be making additional investments in our German wood procurement infrastructure that will add to our competitive advantage.

We have one more sort of to add to our <unk> mill to maximize the benefits of our new planer by allowing for even greater great differentiation and while most of the <unk> 740 pulp expansion project is complete and running as expected we will complete the final element some modest modifications to the pulp machine wrapping line in 2022.

You can also look to us to take steps in our carbon strategy in 2022, as we expect to commence construction of the lignin extraction plant, leading edge technology that will allow us to look at commercializing derivatives of liquid products that have historically been limited to biomass fuels.

And of course, we remain committed but cautious in our approach to solid wood expansion. We continue to develop our stendhal sawmill project, but we need more stable equipment supply conditions to emerge before launching this project conditions that we expect to return when the pandemic claims.

We have long recognized the importance of sustainable operations and planning for the long term. We are proud of our sustainable performance and we are applying a lot of resources to ensuring that our ESG performance continues to improve another performance objectives are transparent.

We're looking forward to the publication of our sustainability report in early 2022, which will further support our messaging regarding our sustainability reports and values.

R 22, 2020 to annual maintenance schedule will be significantly less intensive in 2021 due to the peace River recovery boiler rebuild being completed and we will be running through Q1 without any planned maintenance downtime at the time.

<unk> of our scheduled downtime for the remainder of the year is as follows in Q2, Stendal will take a three day shut.

<unk> will have its regular 15 day shut.

Distributor will have a 16 day shut.

And caribou has a six to eight maintenance shut.

In Q3 Rosenthal has its regular 14 day shut plant and in Q4 Stendal has a 14 day maintenance shut scheduled and.

In total we are planning for about 67 days of major maintenance in 2022.

The 2021 highlight of our growth strategy was our acquisition of grocery mass timber we remain very excited about the potential of this business and it fits well with our value add carbon focused solid wood strategy.

We continue to build up the order book for the plants core product cross laminated timber panels.

Already producing long length finger jointed lumber and we're studying the possibility to produce other complementary engineered wood products.

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

We feel that the environmental and construction flexibility benefits compared to traditional steel and concrete construction methods.

This product right for future growth.

Looking forward our record 2021 operating results liquidity position and strong balance sheet leave mercury well positioned to use that financial flexibility to add shareholder value by continuing to execute on our growth strategy.

Finally, as Dave mentioned, our board has approved a 50% dividend increase this year I believe this emphasizes the confidence we have in our ability of our world class assets to generate strong cash flow throughout the cycle.

The term we're using a lot within Mercer. These days is fit for the future our commitment to being 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 Mercer 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 the safety of our people continues to be our focus as COVID-19 variance spread globally. We are committed to our safety 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 everyone to get COVID-19 vaccine to keep your families friends colleagues and neighbors safe.

Thanks for listening is safe and I'll now turn the call back to the operator for questions.

Thank you, Sir and we will now begin the question and answer session to ask a question you May Press Star one on your telephone again Thats Star one on your telephone keypad to withdraw your question. Please press the pound key.

Please standby, while we compile the Q&A roster.

Your first question comes from the.

The line of Sean Stewart with TD Securities. Please go ahead.

Thanks, Good morning, guys I appreciate all the detail as always.

A few questions you gave a lot of detail on cost trends right.

Fiber and I might have missed it but can you give us some context on what youre seeing with with chemical costs for your pulp mills right now.

Quantify the pressure you might be seeing for for that element.

Excellent Yeah go ahead, Dave.

Yes.

I'd say at this point Shawn in 2021, we haven't experienced.

Yes.

Material changes at our chemical costs, but as you might imagine we have some chemicals that are derivatives.

Chemicals, particularly natural gas.

Electricity. So we are expecting some sort of inflationary pressure in 2022, probably as early as Q1.

In Q2, but at the moment.

2022, the increases were not were not material, but yes, we're expecting something in the future for sure.

Okay. Thanks for that.

And on the Rosenthal generator.

Couple of questions.

<unk>.

Business interruption insurance claim that you expect to receive.

We received compensation for the second half can you quantify that.

<unk>.

I think the context, you gave was that generator was running in the fourth quarter that would have been an incremental $30 million can you.

Can you clarify that as well.

Yes, so maybe to start with the latter part of your question there so the $30 million in the third quarter. Another 10 in the second quarter.

So, hence the $40 billion or $41 million in total for the year and Theres really two elements of that as you might imagine one.

We're not selling to the grid at the moment when the prices are particularly high.

And in fact, we're actually buying we had been buying some power from the grid. So it's sort of a bit it's been a bit of a double double whammy and those both of those conditions will.

We'll be gone here in.

In Q Q1.

In terms of the <unk>.

Business interruption. This is definitely an insurable insurable loss and we will be working with our insurer to developer.

Claim and.

But it is a it is a fairly complex claim there are elements.

As David had mentioned we had planned on doing a maintenance shut on this particular turbine in 2022, so that will roll into the into the size of the claim its a fairly complex claim and one that we're just beginning discussions with the insurers. So I think it's a little bit too early to Esther.

Eight.

The total value of the <unk>.

But.

Possibly in the next quarter, it'll be a little bit more a little bit more clear.

Okay, one last one on.

Shipping logistics.

Do you have any sense that things are starting to improve on that front at all do you have any clarity on.

So getting back to normal is ways off potentially but.

Any sense that things are improving at the margin on that front at this point.

Well Cps improved a lot.

For the <unk> mill and <unk>.

<unk> is the company that is still struggling.

That is.

It seems just wind their way out.

And from Peace River, we've been we've been using more trucks.

And we've been redirecting tonnes east out of Edmonton that kind of thing so.

Yes, it's kind of it's costing us roughly.

On average about 12000 tonnes a month.

Yes.

Peace River mill.

In terms of slowing the mill down when we can't get can't get logistics sorted out so it's.

It's annoying, but it's not catastrophic so we describe it.

Yes.

We had expected to unwind itself over the next one or two months I would guess.

Okay. Thanks.

Thanks for all the detail guys. That's it for me.

Your next question comes from Amir Patel with CIBC capital markets. Please go ahead.

Hi, good morning, Dave.

David.

Maybe help us just understand maybe the magnitude of how.

Energy prices that you receive in Europe , how they may have changed.

Or how they're tracking in Q1 versus Q4.

Sure.

Maybe just some metrics here.

In the middle of the pandemic.

<unk> market, which is.

The rate you can sell that as a generator.

Not green just normal was about 40 a megawatt hour.

The green rate tariffs that we've had at both Rosenthal and Stendal are.

Our roughly 90 euros, a megawatt hour and remember Rosenthal came off.

Its 20 year tariffs last year.

Today, the gray rate is about 180.

In December we saw it at times above 200.

So it's a very dramatic increase so both rosenthal and stendal are selling today at the great right.

We have the right to clip off the green rate tariffs onto the great market.

At our discretion.

So.

This double what the green rates were.

On average.

Thanks, Thanks, David.

That's helpful and I just wanted to ask about.

The acquisition pipeline and just given where we are in the cycle.

Wanted to get your thoughts on whether you see more attractive opportunities in pulp or our lumber and then within the lumber side is the focus on Europe or is North America off interest as well.

Yes, I think.

Yes, I don't I don't think you should plan us.

Chasing pulp.

Pulp mills right now.

Strategy is simply World class modern mills fit for the future and we are just aren't many like that on those that exist or not for sale.

But on the lumber side and the mass timber side.

We definitely see a bright future and it's all about being disciplined and picking the right Lane.

And some of that has to do with synergies with pulp assets as well. So so we're open for lumber and in Europe and in North America, and we're also very focused on mass timber.

Engineered wood products.

We've got quite a bit of work to do at our Spokane plant.

We're making London finger jointed today.

We're getting a tremendous amount of interest on <unk>.

But theres other engineered wood products that can come out of that plant as well so similar to what we did with <unk> when we bought it.

As we build our team up and we get going here I think we're going to have some pretty exciting projects, we can implement at that facility.

And.

It's going to take a little while but.

Super excited about that whole mass timber space I think thats thats a place for us in the future.

For sure Okay.

Great. Thanks, SaaS almost most of the number of mass timber and then would be the focus right now.

Right.

Okay.

That's all I had I'll turn it over thanks, Dave.

Your next question comes from the line of Andrew Shapiro with <unk> Capital Management. Please go ahead.

Hi, Thank you a few follow ups to Mr. Bertelli, Mr. Stuart questions regarding.

Mercer mass timber have you said or updated us at all on what the burn rate of the operation is at present.

Did you expect that to increase before starting its move towards profitability and when might.

That would be what's your expectation for.

Operations to be.

Geared up to be.

Adding.

<unk> being additive versus.

Small drain.

Yeah.

Yes, Thanks, Andrew and good morning.

From a burn perspective, I'd say, it's immaterial to the to the to the Mercer scale.

We're selling it.

So they were buying box cars.

Lumber and converting it into a value added product called long length.

Long lengths.

Thank you Duane.

Lumber and and there is a margin on that that's really helping to cover.

The cost as we as we ramp up the facility.

When we bought the facility there, meaning we didn't have any employees. So it does it is it will be an extensive ramp up period building the team too.

To be able to successfully execute on CLO.

And other.

Associated products, but.

But I think what investors should expect as the internal rate of return for the investment in the facility.

As soon as we get through ramp up which is probably six to nine months is okay. It's a good internal rate of return.

With the additions and the.

The strategy that we're developing.

Reasonably modest investments, we're going to really knock it out of the park. We're really excited about it that will take that will be something that will progressively happen over the next couple of years.

Similar to very similar to how it occurred at the <unk> facility.

It's.

It's something look forward to Andrew It is it's not a burden on the company at all today and maybe what we're doing is building a team that can execute on these on these.

High value or high return capital projects that are coming and also help us develop.

Our strategy for growth in that area.

So that we can be really smart about it.

In turn this into a into a platform.

Okay, and a follow up to Mr. Stewards Atlantic questioning I'm, just trying to make sure if it's from dealing with apples to oranges.

Your press release spoke about a logistical delay of about 35000 tons of pulp from Canada.

Sure.

And you spoke of about 12000 tons a month of pulp.

Zinc was going eastbound instead of westbound perhaps.

One on the team.

They are different and I think I think I might've missed characterized with 12000 tons for it so I'll correct that.

Okay.

Three things going on we had a vessel slipped from December to January .

And that's just.

Just going to push it and push the you can't record the revenue until the vessel leaves the birth and that so that's pushed from Q4 into Q1.

We also have an inventory of unsold pulp that's higher than normal because it's taking longer to get it to the ports and to customers at the Canadian Mills.

And I would say.

Both both the Canadian Mills are running with finished goods inventory in and around the 60000 ton range. They should be closer to 40000 tonnes kind of under normal conditions equaled, 35% to 40, each and they're both at 60 ish.

And then the 12000 tons I was referring to was.

Because it's winter and it's very cold.

These mills are located.

We would never dream of allowing them to you can't shut them, but they have to run it to stay warm to keep things increasing so when we're when we're short of box cars in.

Sure.

You have nowhere nowhere left to put the pulp we slow the mills down a bit and just produce less than their normal operating rate and thats to $12000 a month for peace River South of ours running cloud out again, we had a we had some modest curtailments. During this last couple of months nothing really significant.

For a few days of their timing and slow the mill down.

But at Peace River, we're losing about 12000 tonnes a month on average December and January .

I expect the same for February because of the shortage of rail cars.

So then as you're describing this it's fair to assume then that the shifting.

Into Q1 doesn't impact or force the shifting of Q1 into Q2. This is something that can get made up in <unk>.

Q1 are gradually between Q1 and Q2 be made up is that right.

That's right, yes, I mean, the the vessel for sure that'll be that'll be rich I'll, let has happened already shipped and recorded in the first quarter.

There is no no challenge selling pulp right now at least.

We can sell every two or three times. So so we're just we just need the logistics to work through.

Sitting in our warehouses.

I think we'll get through most of that this quarter, maybe some of them. So then into the second quarter.

So call. It Q1 Q2, there was a little bit of kind of a surge of carryover from from the Q4.

When that happens are we dealing with the higher Q1 net prices are these are already contracted out at the Q4 price level.

That's a mix of both where nothing at the moment.

The vessel that slipped would have been Q4 pricing.

And thats going to Asia.

And then yes, you're right. There is there was a price increase.

In January and February ended March for China. So it's there is also something that is unsold today that will.

We will when we when we know we feel.

Logistics path to get it to the customer.

So are we deal with.

We're dealing with perhaps at a $20 million or more revenue surge opportunity.

I haven't done the math, but we got a nice tailwind coming I think.

Cutting prices and you've got a bunch of inventory to sell.

Okay moving onto my final two here.

It's been about half a year since I last asked so I do want to just ask if you might give us an update on the status of the bio settlements.

A joint venture.

And the status progress and the timing of the cash flows that are in that emerging business.

But the bioequivalence.

It continues to be a research and development projects.

No.

We still see lots of potential and it is not.

We don't have any any real.

Customer opportunities today.

But it's a very it's a small amount of money.

But I think it I think.

There's something in it so we're going to stick with it for a little longer and.

See what we can make of it on the Sentinel side of things the other small sort of on this on the <unk>.

All are on the side.

Biochemicals.

Project.

When we come out of winter.

Get into harvest season, this is going to be the year that we start that bigger harvest and as we go towards the end of this year and into next year.

As I have signaled before this is when we'll really start to notice the benefits of that operation.

Higher volumes in sandalwood oil.

That's the update there.

That wasn't going to ask about that one until next quarter and I'll hold this one off first half year and lastly.

I've been here for years, and Youre doing a great job with all of this.

And lastly, what are your upcoming plans for virtual or in person IR activities in the coming quarter or two.

Yes, well I'll, let Dave speak to that in a second but one of the things we're recognizing is that.

Yes.

We think we can do a lot more on the whole ESG story, and we need to get out more in Europe and look for more of the <unk> tried to get more of the retail of the family office.

Get on some of these more social media type promotion.

Methodologies, so so thats going to be a real focus for the next couple of years are frankly quite.

Great.

Struggled with the multiples of the analysts give us an entre all the analysts on the call and I apologize for calling you out like that but I just I just think you've got it wrong.

Mercury should have a much higher multiple based on the quality of its assets in the energy story biochemical situation and.

And what's going to happen to all the high cost.

In our in our space. So we're really going to put up kind of refreshed IR move on.

Maybe we need to get out to a slightly different audience audiences that have more more more understanding of how important the future really is so that some.

That's in the works, we're doing a lot of thinking and planning for that looking for some consulting support to help us and <unk>.

Dave maybe you can.

Jump in and just a little bit of the more traditional investor relations activity.

Yes, and it will be.

Andrew it'll be fairly quiet over the next couple of months, we don't have any large formal conferences booked over the next couple of months, but we are taking a lot of calls right. Now so just a reminder to folks.

Wanted to talk to us, we're always available, David and I and I'd be happy to take.

Take calls from from investors and folks wanting to learn more about the company. So please reach out to us and we'll make sure that happens.

Great. Thank you guys and ESG stuff call me offline and obviously have some ideas given the governance.

<unk> is a very important part of loan deals mission for the last three decades.

Great. Thank you Andy I will do that.

For sure.

Your next question comes from Deforest Hinman with loved housing and company. Please go ahead.

Alright, thanks for taking my questions.

Sure.

As we look at the power situation in Europe , I know you talked about selling equity gray market.

A lot of uncertainty out there is there any opportunity to enter into a power purchase agreement either in the short term or long term.

Okay.

Yes, there may be there may be some room there.

And we're looking at it to for us, but we.

We're at spot today for a bunch of reasons so.

More to come in the future.

Okay. That's helpful. And then just I was checking my notes last fourth quarter call, we discussed the wardroom projects.

In your prepared comments you made it sound like there was some amount of wood room spending.

2021 period.

Can you tell us the amount that was spent in 2021 of those projects came out plan for 2022.

And then I believe there was a previous discussion about grant realization at some of those projects can you give us an update there and if those will be aired in 2022.

Yes, well.

Let's see the first <unk>.

Most of the.

Capital spending will be 2022, I mean, there was engineering and ramp up in orders made.

A big chunk of the civils and the installations will be.

It will be this year.

Similarly for Peace River is a little bit more done in 2021 I think.

They've got close to $10 million into the ground and in 2022 will be will be the remainder.

Yes. The guidance we gave for both of those was remember this is getting better resource utilization, which is with or without.

Centralized chipping versus remote chipping you'd get a wood recovery.

Eight.

8% so for every logging process.

We keep the bark for fuel when you do it in a central location and you get about 8% more wood from the Chipping exercise and then it's also the.

On <unk>, what we're doing is we're bringing in waste wood that used to be left behind so that's all.

Reasonably cheap wood.

The thing you are paying for it really is so logistics and the processing.

And in peace river, rather than bringing in <unk> logs to satellite yards and shipping them there in shipping the chips to the mill.

Putting cut to length on 10 axle trucks, which Terry.

100 tons of <unk>.

Hello, all the way to the mill and shipping at the mill So both both projects coincidentally.

We're expected to reduce our our wood.

Input costs by about $20 million each per year.

Including including all of the greenhouse gas reductions and resource utilization efficiencies.

And it's also in the Peace River situation. It's also a much more attractive type of.

A job driving truck, where you where you are coming back to the mill all the time because it means they can go home at night.

So it will be easier to develop our own fleet.

For contract partners to develop their driver fleet.

When it says.

It's a circular circular traffic group, where they can be at home the language specific deal for a lot of them. So it.

Because it makes us more competitive.

Just curious trucking market as well.

Okay. That's helpful. And then just on the grant realizations is that is that still feasible.

You'll have to all the grants that have been committed to will be collected in due course as part of the projects yet.

Okay and Thats just upon completion and they are up and running is that how it is going to work or is there some sort of monitoring you get there with <unk>.

Each one to each one has a contribution agreement each one has slightly different and we'll disclose them as they fund.

And some of them some of the some of the money already.

Each contribution agreement has milestones that need to be reached for funding.

But it's all on track.

Okay. That's very helpful and then on the.

Stendhal sawmill project I know there was a discussion at the board level.

And you did touch on it in your prepared remarks, but can you just give us an update in terms of what Youre thinking now what you think the pricing number is potentially to do that project and.

You did talk about equipment availability as well I mean, what are some of the things that in your mind mean ticket better before.

We're looking to do this project.

Well, maybe I'll even go up.

100000 feet for us.

The Stendhal project is.

You really attractive.

Components of having saw milling capacity up at Stendal region. There's a lot of that for us is becoming a nice mature timber and will be for some extended period of time. So.

It's an underutilized smaller timber baskets that we want to take advantage of.

And we want to make sure nobody else does so so we're ready to go with the Stendhal sawmill.

It's all engineered the land as we own the land and it's.

Everything's Everything's ready to go at it.

It's a slow return on investment because because of these long delays with equipment suppliers. So there's no rush to do it today.

We don't need to rush at it.

There are also some M&A opportunities in northern Germany.

With our logistics, we could take advantage of and would have strategic.

Opportunities that existing owners might not have so we focus on those kind of opportunities as well.

And we also have presale, which.

We're currently on track to produce about 550 million board feet of lumber.

This year.

We get our sort of completed.

That will creep up again, but we could also put a third shift on.

And if we add a third shift at the facility, we could take it up to 700 million board feet of lumber.

And so we're also focused on.

Thats really a human resource issue that gets making when you're running a sawmill on three shifts you've got to have all your operators really well trained you don't want to have anybody making mistakes you've.

<unk> got to have some excess capacity to deal with illnesses to make sure you can cover every shift and you've got to have.

A pretty robust maintenance team and strategy because youre running the mill harder so you've got it.

On top of your maintenance.

So that's where we're heading and we're working towards that.

200 million board feet of lumber by putting a third shift on think about that compared to <unk>.

Building up.

Our whole Greenfield sawmills. So so we're going to do the right thing at the right time and take it in steps.

I'm really pleased.

That we know what we know what the stendal situation is.

Nobody is going to be able to come in and start planning something and beat us. They all know that we're ready to go so kind of protected the timber resource there.

And we just have so many really great strategic opportunities as a company, we just have to evaluate them and do them all at the rate and the rate.

Order in time thing.

So.

I hope that helps okay. Thank you for taking my questions.

Net.

Your next question is from Andrew <unk> with Credit Suisse. Please go ahead.

Thanks, Good morning.

You talked a little bit about fiber costing a bit of attention there and I guess on the positive side, you see Canada costs going down a little bit because cover the restrictions coming off and then.

Maybe some issues from a German standpoint, but.

Maybe if we could just dive into that a little bit more because if I go back I don't know seven eight years ago, when fiber costs kind of got out of control because the pellet market in Germany.

It doesn't seem like those incentives are in place right now.

For people to consume of the pellets to the same degree as they were back then and your businesses not being patronizing about it but your business is just better positioned.

If you could just give us some thoughts on fiber costs, both North America and Europe , It would be great.

Well I think the.

New leaders in Germany saw log prices have.

Moved up quite a bit from <unk>.

In the early part of 2021 too.

What youre seeing in Q4 is quite different from what it was in Q2, when we had all the beetle wood.

Now what we're really the what the market is seeing is primarily fresh Greenwood.

So it's back up to what I would say would be more normal saw on pricing, we don't see a huge amount of further inflation in 2022 may be.

Maybe 10% at the most something like that on the pulpwood side, we've been enjoying really cheap.

Really cheap pulpwood for a couple of years now with the beetle situation.

That's unwound itself there is.

Not a lot of calamity wood at the moment and is pretty strong demand in the winter anyway.

The pellet side.

So we didn't have a ton of inflation in 2021 from maybe Q2 Q3 up to Q4 might have been 7% rise.

And then in 2022, it's going to be more significant.

Im thinking pulpwood could get up to maybe as much as $60 a cubic meter which could be roughly 30% increase from what the calamity level was.

But that's more normal from.

The calamity levels.

And that.

I think thats kind of the peak that we would see and then if we get dry summer.

We get some needle beetle kill is coming back.

Then things so things.

Obviously softened up a bit as well is that the pellet.

The pellet.

And as more of a seasonal thing so that pressure will come off as things warm up as well.

So that gives you the kind of the goalposts I hope.

It does but that's very helpful. And then maybe for the second question, if we could talk a little bit about.

The potential on the higher multiple than just the positioning on the <unk> facility.

So it's a great position once again, helping patronizing about it but <unk> got a great market share in North American market.

Is this something that you really see yourselves as a little bit of the.

Maybe the wedge on where you can grow this business not just in <unk>, but in some other areas and be more exposed to higher multiple more stable market positions without the volatility.

Well, yes, the mass timber will definitely.

Definitely deserves a much higher multiple it's a value added product.

Our facility.

The amount of sorting and declining and scanning capacity in this facility is enormous.

<unk> got very large CLC press, which gives side press as well so.

Actually I would at a building yesterday that was under construction from <unk>.

Panels that were.

Produced in Spokane facility.

And the owner of that project was telling you. This is the best <unk> ever seen.

He says he.

He is building an office for his engineering group to provide engineering services to the vast timber owners.

And what's unique about our presses that it's got a side press on it squeezes sideways.

It's not a side glue it subsides press with volume growth.

So that's one thing.

So very high quality.

Excellent excellent.

Big operation already 30% of the capacity in North America, but it also.

The sawmill.

Without sampling, but the grade and feed gradings drawing sorting.

Trimming and all of that kind of planning.

There is enough capacity that we can add a second press. So you don't have to build the whole facility you can put a set compression. So we've got this huge upside in terms of capacity and what our thinking is we put a smaller press and thats more flexible. So we can do the full spectrum from a big floor plates the bigger panels.

It can be cut into all sorts of different products, but we can also custom smaller panels. Furthermore, the catalog things grow housing and smaller.

Waller applications when.

And we've also got the space and the capacity put in <unk> and make other engineered wood products one that site. So.

I see this as a really big deal and it within a couple of years, we're going to be fully up.

Really really making people notice and I also think that with our pulp mills and our sawmill.

And just in our logistics and compared to who we're competing with.

We just we went the wrong ZIP codes like we got to find a different audience, because we're not getting recognized for the quality of our assets right.

And Thats.

What I was trying to say.

I appreciate the thoughts on the detail on the <unk> I think that.

We're well positioned there.

Yes, Thanks, Andrew.

Once again to all participants if you have a question. Please press star one on your telephone keypad again star one on your telephone keypad.

Next question is from line of Paul Quinn with RBC capital markets. Please go ahead.

Yes, thanks, very much good morning, guys.

Just a question that a little confused on these global pulp markets.

Yesterday, we had were up 20 pulp stats.

Software is at 43 days hardwoods at 40 days don't seem particularly low.

But we're seeing all kinds of price increases.

January February and March, but how do you make what do you make of the market and how sustainable is it.

Good morning, Paul.

Well I think.

I think.

In China.

The comparative.

Concerned about supply like I think it's really a supply story I mean demand is off quite a bit in China right now as everybody knows.

If we can get through Covid and get back to anything close to normal I think there is a.

Huge pent up.

Opportunity there, but just at the moment I think.

What's impacting.

Paper producers over there is for those who are running they are worried about whether they can get pulp and.

There's a bit of speculation in the market from that perspective, the Shanghai futures is something they will look at and it's popped up so.

So youre right its.

850, 880 type of thing.

Sure.

In Europe too.

Really strong market and I think that has a lot to do with the absence of competition on the paper side.

It's by logistics challenges soldiers.

And I think the Finnish situations.

So all of those paper machines are down up in Finland, So there those pan European.

<unk>.

Accounts that have operations in Germany, as well will be running those very hard.

And the U S market spot smoothed up there as well so.

Yes.

It's also something I'm not sure I fully understand it I think is mostly supply and logistics driven.

<unk>.

And and as things as we come out of Covid.

I think on the demand center, we're going to see quite a tick up because it's.

It has been.

Significant curtailments that have had to happen a lot of people a lot of the paper guys I think I worry a little bit about about.

The cost side for some producers in these energy costs in Europe are tough on paper guys, obviously, great for us, but tough on them and.

I think one of the things to watch going forward is to see how successful the paper guys arent getting the prices up because they really need to.

I know, they're working on it but it takes a little bit of time.

I'll stop there policy, if you want to drill into anything else on that.

No that's good there.

Sounds like you are equally confused.

Just maybe.

Thanks for that.

Sure.

In the European energy side.

What are you guys generate on an annual basis in Europe .

Thanks for the color on the increased prices I'm, just trying to see what the incremental.

Revenue or.

EBITDA could be now maybe the way I could answer that is in a way that's helpful to the audiences in the past.

I always have thought of Mercer is having $100 million U S of revenue that was flat.

<unk> of it was 80 ish of it was energy in.

20 of it was biochemical right.

And that was at a time when rates were averaging around 90.

So at today's rates today that Amy becomes a 160.

Right like it's a double.

On average that's how significant to this.

That is material thanks for that and best of luck going forward.

Great. Thanks, Paul.

Your last question is from coal happen with Jefferies. Please go ahead.

Good morning, Thanks for taking my question just a follow up on the European pulp wood costs, and then kind of longer term demand question.

On the on the pulpwood.

Talked about there being less calamity wood available and demand from pellet producers.

That 30% number kind of off the lows how should we think about German pulpwood cost relative to other regions I mean, if I look at Sweden, and Finland pulp.

Pulpwood, it's going up but the increase is a little bit more muted because theres a lot of stall mill demand. There is that pulpwood available. So I'd just like to kind of put that pulpwood.

Increases into context, and then I'll follow on with that demand question.

Yes, I would say the German.

German wood cost is going to be a little bit higher than Scandinavia, but our energy side of the business and the proximity of our customers to our mills, both significant advantages relative to them.

In Canada.

Wood costs will be.

Gosh, maybe think about it on a on a per ton of pulp basis, we'd be.

70, or $80 slower in Canada compared to Germany. So we've got a very.

Distinct wood wood advantage.

But we're a little further away from our markets and we don't get as much for power.

And then if I think about wouldn't construction demand in Europe , We've got you.

Commentary the EU forest strategy, various other documents coming out of the EU talking and prioritizing kind of the <unk>.

And the benefits of wood construction.

Trying to promote that as kind of the first use of wood, how do you see this playing out when do you expect to start getting legislation that really supports demand or.

Are you involved in any kind of discussions of how you'd like to see.

Sure.

Regulation to support demand of wood based construction in Europe and do you think this is going to be.

Kind of underappreciated multiyear kind of demand boost for wood based construction. Thank you.

Yes, I do.

That's going to really help the engineered wood side of things.

As we move further and further into the future I think Gil.

System building factory built.

Components going into buildings.

Buildings is.

It's going to become more and more how it's done like a lot like that Japan is miles ahead of us.

Everything gets broken the factory and it gets taken out and it goes up like Lego very little waste.

I think thats got to be the future.

And all of the developed economies.

That's why we're seeing such high growth rates in North America around mass timber.

Yes, I think.

<unk>.

We have to be involved in the policy development to make sure the government so I'll get it right, but a forest and.

And I'm not talking about old growth here, but a typical for us I think like a central European forest or the boreal forest, where we operate or southern British Columbia for us.

These force need to be managed like a few leads of course alone too long.

Just get to an H will become susceptible to droughts to pests to forest fires.

And you have huge problems. So I think society is going to figure out if it's properly managed and it's.

Planted and looked after.

It's a tremendous renewable resource and of course, the most important thing is to get the maximum value out of the resource that you can so.

We were rewarded for resource efficiency, so making high value added products versus commodity products utilizing the waste to make heat and steam and electricity and.

In the future, we will be making biochemicals out of our black liquor and all these other sorts of things. So so so we're really I believe on the right side of this whole climate things I think are our operations will evolve too.

Really participate well in both looking after the forest and producing as much high value materials, we can from it.

And I think the pure conservation argument is not going to win.

If people are going to see forest fires that are going to see calamity Wood you got it you got to deal with the Forest you can't just leave it sit there.

And really good examples all over the place that can Canada, when they left our national parks like Casper and Bath and said you cant hurt nobody can harvest anything in here, we just call it via natural for US well when you get into pharmacies in Canada municipal parks anymore, because it's so dangerous so.

So.

I think I think there's a whole movement towards.

Ecosystem based management.

Doing the right thing.

<unk>.

Our vibrant healthy biodiverse forest in.

Creating value for most renewable products.

And I think those products are going to be more and more in demand in the future for all of these different reasons.

Thank you and I suppose I mean, not just focusing on the sink.

Zinc benefits of the forest, but the substitution effect wishes I think often under appreciated but if we think about cross laminated timber hill competitors like store, Enzo and solder in the U S that ray talk up the benefits and the Blue skies, there and the Sidoti reduction in buildings I'd love to get some color of how you perceive it.

In North America are you getting similar traction from kind of your architects and support there to build and cross laminated timber. Thank you.

Yes, I think so as.

As Ive seen earlier I was visiting a building yesterday.

Still under construction.

And so what's the heating sourcing here.

And the orders that we don't need the heating source humans and laptops are heating source I think out like our 48 or whatever it is and the losses cross laminated walls and ceiling and.

On the other components come with the installation and the rain screen already applied the whole building four stories went up in 10 days.

And it's incredible.

And so he is all about.

Demonstrating the environmental benefits of building this way so.

He's got all kinds of really cool features in there.

<unk>.

More and more.

All of these.

Organizations with a conscience.

One of the thinking about having passive buildings like this in homes that are energy and carbon efficient.

Both in terms of their construction and <unk>.

<unk>.

Sequester is a lot of carbon.

Renewable carbon sink that's turned into a building and it sits there for 100 years.

And can usually be potentially repurposed whenever the building like this needs to be.

Renovated or whatever so.

I think.

Think society is going to grow a conscience and more and more.

So thats.

Big part of the story.

Thank you.

Okay.

As there are no further questions in the queue. This concludes today's question and answer session. I will now hand, the conference over back to David <unk>, President and CEO for any closing remarks.

Yeah, great. Thanks, Paul and thanks, everyone for joining the call and as and as usual and as always if you have any further questions or want to connect with us don't hesitate.

Can you give us a call and otherwise we'll look forward to speaking to you again on our next call in April .

Thanks, very much bye bye.

Sure.

That concludes today's conference call. Thank you for your participation you may now disconnect stay safe and well have a great day.

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On the call over to David here.

Good morning, everyone.

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 would 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.

Inge condition.

2021.

These positive impacts were partially offset by lower pulp realizations in all markets.

Our Rosenthal pulp mill ran the entire quarter without the benefits of its turbine generator, which had the impact of lowering our EBITDA by about $30 billion at today's electricity prices.

However, I am happy to report that the turbine has been repaired and returned to service in mid January .

We also experienced modestly higher fiber prices in both Canada and Germany.

In addition, our freight costs were up at our Canadian operations due to the increased use of trucking and higher warehousing costs due to extreme weather and COVID-19 related supply chain slowdowns.

Our peace River mill recovery boiler damage insurance claim was settled in late December which allowed us to recorded in Q4. The total Q4 EBITDA impact was about $32 million. We are pleased to have this claim behind us and that our 2021 fiscal year includes both the loss of <unk>.

Associated with the downtime needed to repair the boiler and the insurance proceeds meant to compensate us for that lost income.

We generated record EBITDA in the fourth quarter of almost $165 million compared to EBITDA of about $148 million in Q3.

Our pulp segment contributed record quarterly EBITDA of roughly $143 million and our wood products segment contributed total.

EBITDA of almost $24 million.

You can find additional segment disclosures in our Form 10-K , which can be found on our website and that of the SEC.

On average softwood and hardwood pulp prices in Q4 were lower than Q3 of all of our major markets in China. The Q4 average <unk> net price was $2 $723 per ton down $109 from Q3.

European list prices averaged <unk> hundred $2 per ton in the current quarter compared to $345 per ton in Q3.

<unk> remains at a considerable premium to hardwood with the average Q4, net eucalyptus hardwood pricing, China at $562 per ton down $61 from Q3.

In total average pulp sales realization movements negatively impacted EBITDA by just over $30 million compared to the prior year Court.

Pulp demand was strong in the quarter and our modestly higher overall production led to higher sales volumes compared to the previous quarter.

Our Q4 sales totaled almost 516000 tonnes, which was up about 68000 tonnes from Q3.

The impact of no planned downtime in Q4 compared to Q3's maintenance downtime included higher production and lower direct costs benefited Q4, EBITDA by almost $15 million.

Our lumber realization were also mixed this quarter compared to Q3.

Random lengths U S benchmark for Western SPF, two and better averaged $711 per thousand board feet in Q4, which was up $217 per thousand from the last quarter.

Our average European sales realizations were down approximately $44 per thousand board feet compared to Q3.

The benchmark lumber price in the U S is currently $275 per thousand.

Our wood products business continues to perform well, we sold about 104 million board feet of lumber in the quarter, which is up slightly compared to our Q3 sales volumes.

Our electricity sales totaled roughly 207 gigawatt hours in the quarter, which was up relatively to Q relative to Q3 due to less planned downtime. However.

However, our sales volumes were held back due to the absence of generation at Rosenthal for the entire quarter.

Our Cariboo pulp mill joint venture, which is accounted for using the equity method contributed another 16 gigawatt hours to this total.

We reported net income of $74 $5 million for the quarter or $1 13 per basic share compared to net income of $69 million or $1 <unk> per share in Q3.

For the full year 2021, we reported record net income of $171 million or $2 59 per basic share compared to a net loss of $17 $2 million or 26%.

<unk> per share in 2020.

Cash generated in the quarter totaled approximately $7 million compared to cash used of $46 million in Q3.

Timber production facility located in Spokane, Washington.

David will provide updates on this business our Capex program shortly.

At the end of the quarter, our liquidity position totaled about $631 million.

Price of $346 million of cash and $285 million of Undrawn revolvers, our strong liquidity position will support our planned working capital movements, along with our ambitious 2022 high return capital spending program.

River Mills this will lower our.

This will be a lower cost facility secured by working capital and gives our Canadian operations significantly more financial flexibility.

In addition, we have commenced discussions with our property insurer on a business interruption claim for our Rosenthal turbine downtime.

<unk> settlement sometime in the second half of 2022.

Yes.

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

Thanks, Dave Good morning, everyone.

We begin by saying.

How pleased I am with our overall operating results. This quarter, we benefited from our global operating footprint, a strong European pulp market conditions helped mitigate the impact of supply chain restrictions that we experienced at our Canadian operations.

And while our strategic core focus to maintain on the world class assets keeps our cost and carbon impact low in normal times and times of high energy prices like we are experiencing at the moment in Europe , our net energy export position is a tremendous differentiator for us.

In Q4, our operations generally ran well in the year ends with a number of operating records, including record quarterly EBITDA.

We will also remember 2021, a speedier of considerable evolution.

As a company with the addition of mass timber in engineered wood products and steady expansion of <unk> capacity.

And while we continue to diversify our products. We also remain committed to our legacy as our stendal pulp expansion will attest.

These results reflect the hard work of our team during the period under often challenging operating conditions, along with the benefits of our recent investments.

Again, our mills generally ran well this quarter and strong production combined with steady overall steady demand for our products were key drivers behind our record Q4 results.

In fact, our results would have been even better but for the complete absence of power generation at the Rosenthal.

To conduct turbine repairs.

The lengthy downtime was unfortunate we took the opportunity to pull 84 days of planned turbine maintenance through 2022 into 2021.

While still relatively strong average pulp prices fell modestly in Q4 as the negative sentiment in parts of the market caused by fears of new Eucalyptus hardwood capacity general negative economic outlook and logistics restrictions for paper products that made it challenging to ship product economically all started to weigh on the markets.

The supply side restrictions from created upward pricing pressure and most pulp makers have been able to implement some modest price increases in.

In addition, we believe that low consumer inventory levels heavy pulp producer maintenance levels and new hardwood supply.

Coming to market more slowly than anticipated excuse me will create average pricing conditions that are sequentially higher than Q1, and possibly Q2.

Lumber market slate pulp are relatively strong but variable.

Average number pricing in both Europe , and the U S. We could modestly during the quarter. The U S pricing has shown considerable strength since late in Q4.

Add to this to sometimes inconsistent supply from Canada and you have the market. We are currently witnessing which is long term growth with intermittent volatility.

The variability of European pricing is much less pronounced as expected prices in the European market have moderated following the trend that has developed over the past few years of European market changes generally lag and those of the U S.

Consistent with that trend after reaching a modest trough in Q4, we are seeing pricing in Europe now recovering early in early 'twenty two as European producers. Despite the small numbers begin to direct some production to the strengthening U S market.

We will continue to optimize our mix of lumber products and customers to achieve the strongest sustainable realizations that we can in Q4, 46% of our lumber sales volumes were in the U S market with the majority of the remainder of our sales in the European market.

Although we feel our logistics strategy has put us at a competitive advantage to many of our competitors we experienced some freight cost increases in Q4.

This primarily came in the form of increased use of trucking and higher warehousing caused the Miss America caused by extreme weather and pandemic related shipping delays, which has reduced the availability of railcars used.

These delays forced us to take our caribou mill down for three weeks in December and at times slow production modestly at solar in the Peace River Mills in December and into early 2022.

We expect the situation to begin to ease once temperatures began to moderate.

Having the turbine down from almost six months negatively impacted our annual operating results by approximately $41 million.

And having a world class energy balance has never been more important.

I am sure that most of our listeners are aware of the steep price in European energy prices over the last few quarters.

This affects our business in a few ways first we are net electricity sellers in the last year the grain market energy price has on average more than tripled in price. As a result, you can expect our revenues to grow in Q1 relative to Q4, although the rosenthal through buying is back online.

We believe that the conditions that are giving rise to the current power prices are not likely to abate in the near term.

Germany remains on pace to decommission its remaining nuclear power plants and the perceived natural gas supply threat. This tension between Russia and the west Mount do not seem to offer an opportunity for a quick retreat of power prices.

And while fossil fuels to become a relatively small source of energy for us limited to airline kilns were impacted by higher gas prices, which have increased dramatically.

However, we believe the benefit of higher electricity prices will more than offset the impact of higher gas and potentially higher wood costs.

Wood products segment achieved another solid production results, producing 111 million board feet of lumber, which was up 9 million board feet compared to Q3.

In Germany, we are seeing strong demand for both pulpwood and saw logs, which is driving increased fiber costs demand for pulp logs is being driven by pellet producers as you mentioned as high European energy prices are creating more demand for wood based heating solutions.

Saw log demand and pricing appears to be peaking youre expecting increases in the prices, we pay for lower value bulk would rise over the next two quarters.

In Western Canada reduced harvesting due to extreme winter weather combined with COVID-19 related hauling limitations.

Which pushed pulpwood prices up modestly in the quarter. However.

Despite not having any manual annual major maintenance in Q4, we did continue to invest in our operations in Q4 capital expenditures totaled $34 million, mostly in high return projects like upgrading the wood rooms that are future and silver Mills. We were excited about the benefits these projects screen, including improved fiber resource utilization reduced greenhouse.

Gas emissions and lower fiber costs.

You are using our liquidity and strong balance sheet to continue to pursue the growth aspect of our strategic plan and areas, where we have core competencies.

Specifically as we focused our growth in building products screen energy market pulp and chemical structures and we will continue to do so in 2022.

And we have another ambitious capital expenditure plan in 2022, we expect to invest approximately $175 million in our mills this year the.

The majority of that being on high return projects that will drive new product development, ESG advances productivity improvements and input cost reductions.

Our two would rooms that saga in peace River will be completed late this year and we will be making additional investments in our German wood procurement infrastructure that will add to our competitive advantage.

We have one more sort of to add to our <unk> mill to maximize the benefits of our new planer, allowing for even greater great differentiation.

And while most of the spend of 740 pulp expansion project is complete and running as expected we will complete the final element some modest modifications to the pulp machine wrapping line in 2022.

You can also look to us to take steps in our carbon strategy in 2022, as we expect to commence construction of malignant extraction plant, our leading edge technology that will allow us to look at commercializing derivatives of liquid products that have historically been limited to biomass fuels.

We're looking forward to the publication of our sustainability report in early 2022, which will further support our messaging regarding our sustainability reports and values.

R 22, 2020 to annual maintenance schedule will be significantly less intensive in 2021 due to the piece of the recovery boiler rebuild being completed and we will be running through Q1 without any planned maintenance downtime.

The timing of our scheduled downtime for the remainder of the year is as follows in Q2 Stendal will take a three day shut.

<unk> will have its regular 15 day shut.

Distributable have a 16 day shut in.

And caribou has a six to eight maintenance shut.

In Q3 Rosenthal has its regular 14 day shut plant and in Q4 Stendal has a 14 day maintenance shut scheduled.

In total we are planning for about 67 days of major maintenance in 2022.

The 2021 highlight of our growth strategy was our acquisition of Bruce Your mass timber we remain very excited about the potential of this business and it fits well with our value add carbon focused solid wood strategy.

We continue to build up the order book for the plants core product cross emanated timber panels.

Already producing long length finger jointed lumber and we're studying the plant's ability to produce other complementary engineered wood products.

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

We feel that the environmental and construction flexibility benefits compared to traditional steel and concrete construction methods.

This product right for future growth.

Looking forward our record 2021 operating results liquidity position, a strong balance sheet leaves mercury well positioned to use that financial flexibility to add shareholder value by continuing to execute on our growth strategy.

The term we're using a lot within Mercer. These days is fit for the future our commitment to being on the right side of the climate change challenge.

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

Thanks for listening is safe and I will now turn the call back to the operator for questions.

Thank you, Sir and we will now begin the question and answer session.

Ask a question you May press Star one on your telephone again Thats Star one on your telephone keypad to enjoy your question. Please press the pound key.

Please stand by while we compile the Q&A roster.

Your first question comes from.

The line of Sean Stewart with TD Securities. Please go ahead.

Thanks, Good morning, guys I appreciate all the detail as always.

A few questions you gave a lot of detail on cost trends right.

Fiber and I might have missed it but can you give us some context on what youre seeing with with chemical costs for your pulp mills right now.

Wanted by the pressure you might be seeing for for that element.

Excellent Yeah go ahead, Dave.

Yes.

I'd say at this point Shawn in 2021, we haven't experienced.

Material.

<unk> changes that are chemical costs, but as you might imagine we have some chemicals that are derivatives of petrochemicals, particularly natural gas.

Electricity. So we are expecting some sort of inflationary pressure in 2022, probably as early as Q1.

In Q2, but at the moment.

2022, the increases were not were not material, but yes, we're expecting some of the future for sure.

Okay. Thanks for that.

On the Rosenthal generator.

Couple of questions.

<unk>.

Business interruption insurance claim that you expect to receive compensation for the second half can you quantify that.

And.

I think the context, you gave was that generator was running in the fourth quarter that would have been an incremental $30 million can you.

Can you clarify that as well.

Yeah. So.

If you start with the latter part of your question there so the $30 million in the third quarter. Another 10 in the second quarter.

So, hence the $40 billion or $41 million of total for the year and Theres really two elements of that as you might imagine one we're not selling to the grid at the moment when the prices are particularly high.

In fact, we're actually buying we have been buying some power from the grid. So it's sort of a bit it's been a bit of a double a double whammy.

Those both of those conditions will.

We'll be gone here in.

In Q Q1.

In terms of the <unk>.

Business interruption. This is definitely an insurable insurable loss and we will be working with our insurer to developer.

Claim and.

But it is a it is a fairly complex claim there are elements.

As David had mentioned we had planned on doing a maintenance shutdown. This particular turbine in 2022, so that will that will roll into the into the size of the claim its a fairly complex claim and one that we're just beginning discussions with the insurers. So I think it's a little bit too early to Esther.

Eight.

The total value of the <unk>.

But.

Possibly in the next quarter, it'll be a little bit more a little bit more clear.

Okay, one last one on.

Shipping logistics.

Do you have any sense that things are starting to improve on that front at all do you have any clarity on.

So getting back to normal is ways off potentially but.

Any sense that things are improving at the margin on that front at this point.

Well Cps improved a lot.

For the <unk> mill and <unk>.

<unk> is the company that is still struggling.

It is.

It seems just wind their way out.

And from Peace River, we've been we've been using more trucks.

And we've been redirecting tonnes east.

Out of Edmonton that kind of thing so.

Yes, it's kind of it's costing us roughly.

On average about 12000 tonnes a month.

The Peace River mill.

In terms of slowing the mill down when we can't get can't get logistics sorted out.

It's annoying, but it's not catastrophic so we describe it.

Yes.

We would expect to have to unwind itself over the next one or two months I would guess.

Okay.

Thanks for all the detail guys. That's it for me.

Your next question comes from <unk> Patel with CIBC capital markets. Please go ahead.

Hi, good morning.

David could you maybe help us just understand maybe the magnitude of how.

Energy prices that you receive in Europe , how they may have changed.

Or how they're tracking in Q1 versus Q4.

Sure.

Yes, maybe just some metrics here.

In the middle of the pandemic.

The gray market, which is that.

The rate you can sell that as a generator.

Not green just normal was about 40 a.

Megawatt hour.

The.

The green rate tariffs that we've had at both Rosenthal and Stendal.

Our roughly 90 euros, a megawatt hour and remember Rosenthal came off.

Its 20 year tariffs last year.

Today, the gray rate is about 180.

In December we saw it at times above 200.

So it's a very dramatic increase so so both rosenthal and stendal are selling today great right.

Have the right to clip off the green REIT tariffs onto the grade market.

Our.

At our discretion.

So it's.

This double what the green rates were.

On average okay great.

Thanks, Thanks, David.

That's helpful and I just wanted to ask about.

The acquisition pipeline and just given where we are in the cycle.

Wanted to get your thoughts on whether you see more attractive opportunities in pulp or lumber and then within the lumber side is the focus on Europe or is North America off interest as well.

Yes, I think.

Yes, I don't I don't think you should plan us.

Chasing pulp.

Pulp mills right now.

Strategy is something the world class modern mills fit for the future and we just don't like that and those that exist or not for sale.

But on the lumber side and the mass timber side.

We definitely see a bright future and it's all about being disciplined and picking the right Lane.

And some of that has to do with synergies with pulp assets as well. So so we're open for lumber and in Europe and in North America, and we're also very focused on mass timber.

Engineered wood products.

We've got quite a bit of work to do at our Spokane plant.

We're making London finger drilling today.

We're getting a tremendous amount of interest on <unk>.

But theres other engineered wood products that can come out of that plant as well so similar to what we did with <unk> when we bought it.

As we build our team up and we get going here I think we're going to have some pretty exciting projects, we can implement at that facility.

And.

It's going to take a little while but.

Really super excited about that whole mass timber space I think that's that's that's a place for us in the future.

For sure Okay.

Great. Thanks, SaaS most of your number of mass timber and then that would be the focus right now.

Right Okay.

Thats, all I had I'll turn it over thanks, David.

Your next question comes from the line of Andrew Shapiro with <unk> Capital Management. Please go ahead.

Hi, Thank you a few follow ups to Mr <unk> and Mr. Stuart questions regarding.

Mercer mass timber have you said or updated us at all on what the burn rate of the operation is at present.

And did you expect that to increase before starting its move towards profitability and when might.

That would be what's your expectation for.

Operations to be so.

Geared up to be.

Adding <unk> being additive versus.

Small drain.

Yeah.

Yes, Thanks, Andrew and good morning.

From a burn perspective, I'd say, it's immaterial to the to the to the Mercer scale.

We're selling it.

So that we're buying box cars.

Lumber and converting it into a value added product called long length.

Long lengths.

I think a joint.

Lumber and and there is a margin on that that's really helping to cover.

The cost as we as we ramp up the facility.

When we bought the facility that really we didn't have any employees. So it does it is it will be an extensive ramp up period building the team too.

To be able to successfully execute on on <unk>.

And other.

Some shade products.

But I think what investors should expect as the internal rate of return for the investment in the facility.

As soon as we get through ramp up which is probably six to nine months.

Okay. It's a good internal rate of return.

The additions.

<unk>.

The strategy that we're developing for.

So reasonably modest investments, we're going to really knock it out of the park.

Really excited about it and that will take that'll be something that will progressively happen over the next couple of years.

Similar to very similar to how it occurred at the <unk> facility.

So it's.

It's something look forward to Andrew It is it's not a burden on the company at all today and maybe what we're doing is building a team that can execute on these.

On these high value or high return capital projects that are coming and also help us develop our strategy for growth in that area.

So that we can be really smart about it.

<unk>.

In turn this into a into a platform.

Okay, and the follow up to Mr. Stewards Atlantic question, and I'm, just trying to make.

Sure.

With apples to oranges.

Your press release spoke about a logistical delay of about 35000 tons of pulp from Canada to Asia.

And you spoke of about 12000 tons, a month of pulp I think whats going eastbound instead of westbound perhaps.

One of them the same.

There are different and I think I think I might've missed characterized the 12000 tons for it so I'll correct that.

Okay.

Three things going on we had a vessel slipped from December to January .

And that's just.

Push it didnt push the you can't record the revenue until the vessel leaves the birth and that so that's pushed from Q4 into Q1.

We also have an inventory of unsold pulp that's higher than normal because it's taking longer to get it to the ports and to customers at the Canadian Mills.

And I'd say both.

Both the Canadian Mills are running with finished goods inventory in and around the 60000 ton range. They should be closer to 40000 tonnes kind of under normal conditions April 35% to 40, each and they are both at 60 ish.

And then the 12000 tons I was referring to was.

Because it's winter and it's very cold.

These mills are located.

We would never dream of allowing them to you can't shut them, but they have to run it to stay warm to keep them is increasing so when we're when we're shored up box cars than we are.

You have nowhere nowhere left to put the pulp per se, we slow the mills down a bit and just produce less than their normal operating rate and thats to $12000 a month.

Peace River.

<unk> is running flat out again, we had a we had.

Some modest curtailments during this last couple of months.

Really significantly.

Maybe for a few days of the timing and slow the mill down.

But at Peace River, we're losing about 12000 tonnes a month on average December and January and I expect the same for February because of the shortage of rail cars.

So then as you're describing this it's fair to assume then that the shifting.

Into Q1 doesn't impact of course, the shifting of Q1 into Q2. This is something that can get made up in Q1 are gradually between Q1 and Q2 be made up is that right.

That's right, yes, I mean, the the vessel for sure that'll be that'll be rich I'll, let has happened already shipped and recorded in the first quarter.

There is no no challenge selling pulp right now at least we can sell every two or three times. So so we're just we just need the logistics to work through.

Sitting in our warehouses.

I think we'll get through most of that this quarter, maybe some of them. So then into the second quarter.

So call. It Q1 Q2, there was a little bit of kind of a surge of carryover from the Q4.

When that happens are we dealing with the higher Q1 net prices are these are already contracted out at the Q4 price level.

That's a mix of both where nothing that bimbo became the vessel that slipped would have been Q4 pricing.

And thats going to Asia.

And then yes, you're right. There is there was a price increase.

January and February ended March for China. So it's there is also some that is unsold today that will.

We will when we when we know we got out.

Logistics path to get it to the customer.

So are we deal with.

We're dealing with perhaps at a $20 million or more revenue surge opportunity.

I haven't done the math, but now we've got a nice tailwind coming I think.

Prices and you've got much inventory to sell some.

Okay moving onto my final two here.

It's been about half a year since I last asked so I do want to just ask if you might give us an update on the status of the bio settlements.

A joint venture.

And the status progress and the timing of cash flows that are in that emerging business.

For the bioequivalence.

It continues to be a research and development projects were still.

We still see lots of potential and it is not.

We don't have any any real.

Customer opportunities today.

But it's a it's a small amount of money.

But I think it.

I think there's something in it so we're going to stick with it for a little longer and.

See what we can make of it on the Sentinel side of things the other small sort of on this.

Smaller on the side.

Biochemicals.

Project.

When we come out of winter.

Get into harvest season, this is going to be the year that we start that bigger harvest and as we go towards the end of this year and into next year.

As I have signaled before this is when we'll really start to notice the benefits of that operation.

The sale of higher volumes at sandalwood oil.

That's the update there.

That wasn't going to ask about that one until next quarter and I'll hold this one off for the half year and lastly.

I've been here for years, and Youre doing a great job with all of this.

And lastly, what are your upcoming plans for virtual or in person IR activities in the coming quarter or two.

Yes, I'll, let Dave speak to that in a second but one of the things we're recognizing is that.

<unk>.

We think we can do a lot more on the whole ESG story, and we need to get out more in Europe .

For a more of the REIT trying to get more of the retail of the family office.

Get on.

Some of these more social media type.

Motion.

Methodologies so.

That's going to be a real focus for the next couple of years are frankly quite.

Great.

Struggled with the multiples of the analysts give us all the analysts on the call and I apologize for calling you out like that but I just I just think you've got it wrong.

Mercury should have a much higher multiple based on the quality of its assets.

Energy story of biochemical situation.

And what's going to happen to all the high cost mills.

In our space. So so we're really going to put out kind of whole refreshed IR move on.

We need to get out to a slightly different audience and audience that have more more more understanding of how important hit for the future really is so thats.

That's in the works, we're doing a lot of thinking and planning for that looking for some consulting support to help us and.

And Dave maybe you can.

Jump in and just a little bit of the more traditional investor relations activity.

Yes, and it will be.

Wanted to talk to US, we're always available David and I would be happy to take.

Take calls from from investors are folks wanting to learn more about the company. So please reach out to us.

We'll make sure that happens.

Great. Thank you guys.

ESG stuff call me offline and obviously have some ideas given the governance.

ESG is so very important part of loan deals mission for the last three decades.

Great. Thank you Andy I will do that.

For sure.

Your next question comes from Deforest Hinman with loft housing and company. Please go ahead.

Alright, thanks for taking my questions.

<unk>.

As we look at the power situation in Europe , I know you talked about selling equity gray market.

A lot of uncertainty out there is there any opportunity to enter into a power purchase agreement either in the short term or long term.

Okay.

Yes, there may be there may be some room there.

And we're looking.

Looking at it for us, but we.

We're at spot today for a bunch of reasons so.

More to come in the future.

Okay. That's helpful. And then just I was checking my notes last fourth quarter call, we discussed the wood room projects.

In your prepared comments you made it sound like there was some amount of wood room spending.

<unk> 2021 period.

Can you tell us the amount that was spent in 2021 of those projects came out plan for 2022, and then I believe there was a previous discussion about grant realization at some of those projects can you give us an update there and if those will be earned in 2022.

Yes, well.

I'd say the for <unk>.

Most of the <unk>.

Capital spending will be 2022, I mean, there was engineering and ramp up in orders made.

But a big chunk of the civils and the installations will be.

We'll be this year.

Similarly for Peace River is a little bit more done in 2021 I think.

They've got close to $10 million into the ground and in 2022 will be will be the remainder.

Yes, the guidance, we gave for both of those wars releases getting better resource utilization, which is with or without <unk>.

Centralized chipping versus remote chipping youll get a good recovery.

B <unk>.

8% so for every logging process.

We keep the bark for fuel when you do it in a central location and Youll get about 8% more wood from the chipping exercise.

And then it's also the.

On <unk>, what we're doing is we're bringing in wastewater that used to be left behind so that's all.

Reasonably cheap would only thing youre paying for it really is so logistics and the processing.

And in peace river, rather than bringing in tree length logs to satellite yards from shipping them there in shipping the chips to the mill.

Putting cut to length on 10 axle trucks, which carry.

100 tons of <unk>.

Hello, all the way to the mill and shipping at the mill So both both projects coincidentally.

We're expected to reduce our our wood.

Input costs by about $20 million each per year.

Including all of the greenhouse gas reductions and resource utilization efficiencies.

And it's also in the Peace River situation. It's also a much more attractive type of.

A job driving truck, where you where you are coming back to the mill all the time because it means they can go home at night and.

So it will be easier to develop our own fleet.

For contract partners to develop their driver fleet.

When it says.

It's a circular circular traffic group, where they can be at home, which is a big deal for a lot of them. So it.

Is it makes us more competitive.

Just curious trucking market as well.

Okay. That's helpful. And then just on the grant realizations is that is that still feasible.

You only have to all the grants that have been committed to will be collected in due course as part of the projects yes.

Okay, and Thats, just upon completion and they're up and running is that how it is going to work or is there some sort of monitoring and you get no <unk>.

Each one to each one has a contribution agreement and each one has slightly different and we'll disclose them as they fund.

And some of them some of the some of the money already.

Each contribution agreement has milestones that need to be reached for funding.

But it's all on track.

Okay. That's very helpful and then on the <unk>.

<unk> saw mill project I know there was a discussion at the board level.

And you did touch on it in your prepared remarks, but can you just give us an update in terms of what Youre thinking now what you think the pricing number is potentially to do that project and.

You did talk about equipment availability as well I mean, what are some of the things that in your.

Mind me ticket better before.

We're looking to do this project.

Well, maybe I'll even go up.

We're up to 100000 feet for us.

The Stendhal project is.

Yeah.

You are really attractive.

Components of having some loading capacity up at Stendal region. There's a lot of that for us is becoming a nice mature timber and will be for some extended period of time. So.

It's an underutilized saw log timber baskets that we wanted to take advantage of.

And we want to make sure nobody else does so so we're ready to go with the Stendhal sawmill.

It's all engineered to land.

We own the land and that's it.

Everything's Everything's ready to go.

It's a slow return on investment because because of these long delays with equipment suppliers. So there's no rush to do it today.

We don't need to.

Rush at it.

There are also some M&A opportunities in northern Germany.

With our logistics, we could take advantage of strategic.

Opportunities are existing owners might not have so we focus on those kind of opportunities as well.

And we also have presale, which.

We're currently on track to produce about 550 million board feet of lumber.

This year.

As we get our sort of completed.

That will creep up again, but we could also put a third shift on.

And if we add a third shift at the facility, we could take it up to the 700 million board feet of lumber.

And so we're also focused on.

That's really a human resource issues like it's making when you're running a sawmill on three shifts you've got to have all your operators really well trained you don't want to have anybody making mistakes you've.

<unk> got to have some excess capacity to deal with illnesses to make sure you can cover every shift and you've got to have.

A pretty robust maintenance team and strategy because youre running the mill harder so you've got it.

On top of your maintenance.

So that's where we're heading and we're working towards that.

200 million board feet of lumber like putting a third shift on think about that compared to <unk>.

Building up.

Our whole Greenfield sawmills. So so we're going to do the right thing at the right time and take it in steps.

I'm really pleased that we know what we know what the stendal situation as well.

Nobody is going to be able to come in and start planning something and beat us. They all know that they know we're ready to go so kind of protected the timber resource there.

And we just have so many really great strategic opportunities as a company, we just have to evaluate them and do them all at the rate and the rate.

Order in time thing and clever about it so.

Hope that helps okay. Thank you for taking my questions.

You bet.

Your next question is from Andrew <unk> with Credit Suisse. Please go ahead.

Thanks, Good morning.

A little bit about fiber costing a bit of attention there and I guess on the positive side, you see Canada costs going down a little bit because covered restrictions coming off and then.

There may be some issues from a German standpoint, but.

Maybe if we could just dive into that a little bit more because if I go back I don't know seven eight years ago, when fiber costs kind of got out of control because the pellet market in Germany.

It doesn't seem like those incentives are in place right now.

For people to consume the pellets to the same degree as they were back then and your businesses not being patronizing about it but your business is just better positioned.

If you could just give us some thoughts on fiber costs, both North America and Europe , It would be great.

Well I think the.

New leaders in Germany saw log prices have.

Moved up quite a bit from say the early part of 2021 too.

What youre seeing in Q4 is quite different from what it was in Q2, when we had all the beetle wood.

And now what we're really the what the market is seeing is primarily fresh Greenwood.

It's back up to what I would say.

Be more normal saw log pricing, we don't see a huge amount of further inflation in 2022 may be maybe.

Maybe 10% at the most something like that.

On the pulpwood side, we've been enjoying really cheap.

Really cheap pulpwood for a couple of years now with with the beetle situation.

That's unwound itself there's.

Not a lot of calamity wood at the moment and is pretty strong demand in the winter anyway.

The pellet side.

So we didn't have a ton of inflation in 2021 from maybe Q2 Q3 up to Q4, it might have been 7% rise.

And then in 2022, it's going to be more significant.

Im thinking.

Thinking pulpwood could get up to maybe as much as $60 a cubic meter which could be roughly 30% increase from what the calamity level was.

But that's more normal from.

The calamity levels.

And that.

I think thats kind of the peak that we would see and then if we get dry summer.

We get some beetle beetle kill is coming back.

Then things will things will.

Obviously softened up a bit as well as the pellet.

The pellet.

And as more of a seasonal thing so that.

Sure will come off as things warm up as well.

So that gives you the kind of the goalposts there I hope.

It does but that's very helpful. And then maybe for the second question, if we could talk a little bit about that.

The potential in a higher multiple than just the positioning on the <unk> facility.

It's a great position and once again, helping a patronizing about it but you've got a great market share in the North American market.

Is this something that you really see yourselves as a little bit of the.

Maybe the word John where you can grow this business not just in <unk>, but in some other areas and be more exposed to higher multiple more stable market positions without the volatility.

Well, yes, the mass timber will definitely.

Definitely deserves a much higher multiple it's a value added product.

Our facility.

The amount of sorting and wining and scanning capacity in this facility is enormous.

We've got very large CLC press, which gives side press as well. So I was actually I would at a building yesterday that was under construction from <unk>.

Panels that were.

Produced in Spokane facility.

And the owner of that project was telling you. This is the best <unk> ever seen.

He says he is building an office for his engineering group to provide engineering services to the vast timber owners.

And what's unique about our presses that it's got a side press on it like it squeezes sideways.

It's not a side glue it subsides press with volume growth.

So that's.

That's one thing.

So very high quality.

Excellent and big Big Operation already 30% of the capacity in North America, but it also.

Saw milling sawmill.

<unk>.

The in feed gradings, drawing sorting trimming and all of that kind of planning.

There is enough capacity that we can add a second press. So you don't have to build the whole facility you can put a second pressing so we've got this huge upside in terms of capacity.

Thinking is we put a smaller pressure and thats more flexible. So we can do the full spectrum from a big floor plates. The bigger panels that can be cut into all sorts of different products, but we can also custom smaller panels. Furthermore, the catalog things for row housing and smaller.

Smaller applications.

And we've also got the space and the capacity, we put in <unk> and <unk>.

Other engineered wood products on the site so I.

I see this as a really big deal.

Within a couple of years, we're going to be fully up.

Really really making people notice and I also think that with our pulp mills and.

Our sawmill.

And just in our logistics and compare it to who we're competing with.

We just went the wrong ZIP codes like we got to find a different audience, because we're not getting recognized for the quality of our assets right.

And Thats.

What I was trying to say.

I appreciate the thoughts on the detail on the <unk> I think that well.

We're well positioned there.

Great Yes, thanks, Andrew.

Once again to all participants if you have a question. Please press star one on your telephone keypad again star one on your telephone keypad your.

Your next question is from line of Paul Quinn with RBC capital markets. Please go ahead.

Yes, thanks, very much good morning, guys.

Just a question that a little confusion these global pulp markets.

Yesterday, we had were up 20 pulp stats sausage at 43 days hardwoods at 40 days don't see and particularly low.

But we're seeing all kinds of price increases.

January February and March, but how do you make what do you make it a market and how sustainable is it.

Good morning, Paul.

Well I think.

I think in.

In China.

The comparative.

Concerned about supply like I think it's really a supply story I mean demand is off quite a bit in China right now as everybody knows.

If we can get through Covid and get back to anything close to normal I think.

Huge pent up.

Opportunity there, but just at the moment I think.

What's impacting.

Paper producers over there is for those who are running the worried about whether they can get pulp and.

There is a bit of speculation in the market from that perspective, the Shanghai futures is something they will look at and it's popped up so.

So youre right its.

Just on the 850 880 type of thing.

<unk>.

In Europe to.

Really strong market and I think that has a lot to do with the absence of competition on the paper side.

It's by logistics challenges soldiers.

And I think the Finnish situations.

So all of those paper machines were down up in Finland, So there those pan European.

<unk>.

Accounts that have operations in Germany, as well will be running those very hard.

And the U S market spot smoothed up there as well so.

Yes.

It tells us something I'm not sure I fully understand it I think is mostly supply and logistics driven.

<unk>.

And and as things as we come out of Covid.

I think on the demand side youre going to see quite a tick up because it's.

There's been some pretty significant curtailments that have had to happen a lot of people a lot of the paper guys I think I worry a little bit about about.

On the cost side for some producers who moves energy costs in Europe are tough on paper guys, obviously, great for us, but tough on them.

I think one of the things to watch going forward is to see how successful that paper cash on getting our prices up because they really need to.

I know, they're working on it but it.

It takes a little bit of time.

I'll stop there policy, if you want to drill into anything else on that.

No that's good there.

Sounds like you are equally confused.

And then just maybe on <unk>.

Phoenix to that.

Right.

In the European energy side.

What are you guys generate on an annual basis in Europe . Thanks for the color on the increased prices I'm, just trying to see what the incremental.

Revenue or.

<unk> could be now maybe the way I could answer that is in a way that's helpful to the audiences in the past you would always have thought of Mercury is having $100 million U S.

Revenue that was flat.

<unk> of it was 80 ish of it was energy in.

20 of it was biochemical right.

And that was at a time when.

<unk> rates were averaging around 90.

So at today's rates like just today that Amy becomes a 160.

I think it's a double.

On average that's how significant to this.

That is material thanks for that and best of luck going forward.

Great. Thanks, Paul.

Your last question is from coal happen with Jefferies. Please go ahead.

Good morning, Thanks for taking my question just a follow up on the European pulpwood costs, and then kind of longer term demand question.

On the pulpwood.

Talked about there being less calamity wood available and demand for the pellet producers.

That 30% number kind of off the lows how should we think about German pulpwood cost relative to other regions I mean, if I look at Sweden, and Finland pulp.

Pulpwood, it's going up but the increase is a little bit more muted because theres a lot of stall mill demand. There is that pulpwood available. So I'd just like to kind of put that pulpwood.

Increases into context, and then I'll follow on with that demand question.

Yes, I would say the German.

In Canada.

Wood costs will be.

Gosh, maybe think about it on a on a per ton of pulp basis, we'd be.

70, or $80 slower in Canada compared to Germany. So we've got a very.

Distinct.

Wood advantage.

But we're a little further away from our markets and we don't get as much for power.

And then if I think about wouldn't construction demand in Europe , We've got you.

Commentary the EU forest strategy, various other documents coming out of the EU talking and prioritizing kind of the <unk> and the benefits of wood construction.

Already trying to promote that as kind of the first use of wood. How do you see this playing out when do you expect to start getting legislation that really supports demand or.

Are you involved in any kind of discussions of how you'd like to see.

Regulation to support demand of wood based construction in Europe and do you think this is going to be.

Kind of underappreciated multiyear kind of demand boost forward based construction. Thank you.

Yes, I do.

That's going to really help the engineered wood side of things.

As we move further and further into the future I think.

System building factory built.

Components going into.

Buildings is.

It's going to become more and more how it's done like a lot like that Japan is miles ahead of us right.

Everything gets built in the factory and it gets taken out and it.

It goes up like Lego very little waste.

I think thats got to be the future.

When all of the developed economies.

That's why we're seeing such high growth rates in North America around mass timber.

Yes, I think.

There we have to be involved in the policy development to make sure the government so I'll get it right, but our forest.

And I'm not talking about oil growth here, but a typical for us okay like central European Forest, or the boreal forest, where we operate or southern British Columbia for us.

These force needs to be managed if you leave the course alone too long.

You just get to an age where they become susceptible to droughts to pests to forest fires.

And you have huge problems. So I think society is going to figure out if it's properly managed and it's.

The planted and looked after.

It's a tremendous renewable resource and kind of course, the most important thing is to get the maximum value out of the resource that you can so.

We're rewarded for resource efficiency, so making high value added products versus commodity products utilizing the waste to make heat and steam and electricity.

<unk>.

In the future, we will be making biochemicals out of our black liquor and all these other sorts of things. So so so we're really I believe on the right side of this whole kind of thing I think are our operations will evolve too.

Really participate well in both looking after the forest and producing as much high value materials, we can from it.

And I think the pure conservation argument is not going to win.

People are going to see forest fires are going to see calamity Wood you got it you got to deal with the Forest you can't just leave it sit there.

And really good examples all over the place that can Canada, when they left our national parks like Casper and Bath and said you cant hurt nobody can harvest anything in here, we just call. It a natural for us well when youre going into fire season, you can even disappear parks anymore, because it's so dangerous so.

So.

I think I think there's a whole movement towards.

Ecosystem based management.

Doing the right thing.

<unk>.

Our vibrant healthy biodiverse forest and.

Creating value for most renewable products and.

And I think those products are going to be more and more in demand in the future for all of these different reasons.

Thank you, yes, I suppose.

Not just focusing on the sink.

Think benefits of forest, but the substitution effect wishes I think often underappreciated, but if we think about cross laminated timber youll competitors like store, Enzo and solder in the U S.

Talk up the benefits and the Blue skies, there and the Sidoti reduction in buildings I'd love to get some color of how you perceive it in North America are you getting similar traction from kind of your architects and support there to build and cross laminated timber. Thank you.

Yes, I think so as.

As Ive seen earlier I was visiting a building yesterday.

Still under construction.

And so what's the heating sourcing here.

And the order said, we don't need the heating source humans and laptops are heating source I think like our 48 or whatever it is and the losses cross laminated walls and ceiling and.

On the other components come with the installation and the rain screen already applied the whole building four stories went up in 10 days.

And it's incredible.

And so he is all about.

Demonstrating the environmental benefits of building this way so.

He's got all kinds of really cool features in there.

<unk>.

More and more.

All of these.

Organizations with a conscience.

Sure.

One of the thinking about having passive buildings like this.

Homes that are energy and carbon efficient.

Both in terms of their construction and CLC.

Sequesters a lot of carbon.

Renewable carbon sink that's turned into a building and it sits there for 100 years.

And can usually be potentially repurposed whenever the building like this needs to be.

Renovated or whatever so.

Well I think.

Society is going to grow a conscience and more and more.

So that's that's a big part of the story.

Thank you.

Okay.

As there are no further questions in the queue. This concludes today's question answer session I will now hand, the conference over back to David <unk>, President and CEO for any closing remarks.

Yeah, great. Thanks, Paul and thanks, everyone for joining the call and as and as usual and as always if you have any further questions or want to connect with us don't hesitate.

Give us a call and otherwise we'll look forward to speaking you would get on our next call in April .

Thanks, very much bye bye.

That concludes today's conference call. Thank you for your participation you may now disconnect stay safe and well have a good day.

Q4 2021 Mercer International Inc Earnings Call

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