Q2 2025 Mercer International Inc Earnings Call

Good morning and welcome to Mercer International second quarter 2025 earnings conference call.

Richard Short: Thank you, Michelle, and good morning, everyone. Thanks for joining us today. I will begin by touching on the financial and operating highlights of the second quarter before turning the call over to Juan Carlos Bueno to provide further color into the markets, our operations, and our strategic initiatives. Also, for those of you that have joined today's call by telephone, there is presentation material that we have attached to the investor section of our website. Before turning to our results, I would like to remind you that we will make forward-looking statements in this morning's conference call. 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 Mercer International's filings with the Securities and Exchange Commission.

On the call today is Juan Carlos Bueno, Mercer's, president and chief executive officer, and Richard short, Richard's Chief Financial Officer and secretary. I will now hand the call over to Richard

Thank you, Michelle, and good morning, everyone. Thanks for joining us today. I will begin by touching on the financial and operating highlights of the second quarter before turning the call over to Juan Bueno to provide further color into the markets, our operations, and our strategic initiatives.

Also, for those of you who have joined today's call by telephone, there is presentation material that we have attached to the investor section of our website.

But before turning to our results I would like to remind you that we will. We will make forward-looking statements in this morning's conference call.

Richard Short: This quarter, our EBITDA was negative $21 million, a significant decrease from Q1's positive EBITDA of $47 million. The key drivers of the lower results included a negative foreign exchange impact from a weaker dollar, primarily on our euro and Canadian dollar denominated costs and expenses, which reduced EBITDA by approximately $26 million relative to Q1. Lower pulp prices in China negatively impacted EBITDA by roughly $8 million and led to a non-cash hardwood inventory impairment of $11 million. We also incurred higher fiber costs for both our pulp and solid wood products segments. Our pulp segment had negative quarterly EBITDA of $10 million in Q2, and our solid wood products segment had negative EBITDA of $5 million. You can find additional segment disclosures in our Form 10-Q, which can be found on our website and that of the SEC.

According to the safe harbor, provisions of the private Securities. Litigation Reform, Act of 1995. I'd like to call your attention to the risks related to these statements, which are more fully described in our press release. And in the company's filings with the Securities and Exchange Commission.

This quarter, our EBA was -21 million. A significant decrease from q1's positive IBA, 47 million.

The key drivers of the lower results, included a negative Foreign Exchange impact from a weaker dollar primarily on our Euro and Canadian dollar denominated costs and expenses.

Which reduced debt da by approximately 26 million relative to q1?

Lower pulp prices in China, negatively impacted ebit da by roughly 8 million dollars and led to a non-cash hardwood inventory. Impairment of 11 million

We also incurred higher fiber costs for both our pulp and solid wood segments.

Our pulp segment had negative quarterly Eva dot of 10 million in Q2 and our solid wood segment had negative IBA of 5 million.

Richard Short: In the second quarter, our MBSK pulp sales realizations decreased compared to the first quarter due to the ongoing uncertain global trade environment impacting demand from China. In North America, MBSK published prices modestly increased due to both stable demand and supply constraints, while in Europe, prices were stable. In Q2, the MBSK net price in China was $734 per ton, a decrease of $59 from Q1. The North American MBSK list price averaged $1,820 per ton, an increase of $67 from Q1. The European MBSK list price averaged $1,553 per ton, flat compared to Q1. Hardwood sales realizations remained largely unchanged in Q2 compared to Q1, as lower prices in China were offset by higher prices in North America. The North American NBSK average Q2 list price was $1,310 per ton, up $42 from Q1.

You can find additional segment disclosures in our form 10 Q which can be found on our website and that of the SEC.

in the second quarter, our nbsk pulp sales realizations, decreased compared to the first quarter due to the ongoing uncertain global trade environment, impacting demand from China,

In North America, mvsk published prices modestly, increased due to both stable demand and Supply. Constraints while in Europe prices were stable,

in Q2 the mbsk, net price, in China was 734 per ton, a decrease of 59 from q1

The North American mbsk list price. Averaged 1,820 per ton and increase of 67 from q1.

The European mbsk list price, averaged 1,553 per ton.

Flat compared to q1.

Realizations remain largely unchanged in Q2 compared to q1 as lower prices. In China were offset by higher prices in North America.

Richard Short: In China, the Q2 average net price for NBSK was $533 per ton, a decrease of $45 from Q1. As a result, the average price gap between NBSK and BHKP in China for the quarter was about $200 per ton, a gap we anticipate will be sustained in the second half of 2025. In addition, lower Chinese hardwood prices resulted in us recording an $11 million non-cash inventory write-down this quarter. Pulp sales volumes in the second quarter decreased by 51,000 tons to 427,000 tons. This decrease is due to weaker demand caused by the ongoing uncertainties in the global trade landscape. Pulp production was flat in Q2 compared to Q1. We had 23 days of planned maintenance downtime in Q2 compared to 22 days in Q1, but we also had a total of six days of downtime related to a slow startup from Zellstoff Stendal's Q1 shut.

The North American nbh, average Q2 list, price was 1,310 per ton up $42 from q1.

In China, the Q2 average net price for NBH.K was $533 per ton, a decrease of $55 from Q1.

As a result, the average price gap between mbsk and mhk in China. For the quarter was about $200 per ton.

A gap we anticipate will be sustained in the second half of 2025.

In addition, lower Chinese hardwood prices resulted in us recording at 11 million. Non-cash inventory write down this quarter.

Pulp sales volumes in the second quarter decreased by 51,000, tons to 427,000 tons. This decrease is due to a weaker is due to weaker demand caused by the ongoing uncertainties in the global trade landscape.

Hope production was flat in Q2 compared to Q1. We had 23 days of planned maintenance and downtime in Q2 compared to 22 days in Q1.

Richard Short: In the third quarter of 2025, we had a total of 18 days of planned maintenance downtime. This includes 14 days at our Rosenthal mill and four days at our Zellstoff Stendal mill. For our solid wood segment, realized lumber prices increased about 10% in the second quarter compared to the first quarter. This was primarily due to higher realized prices in the European market, a result of reduced supply and steady demand, while realized prices in the U.S. market were essentially flat. The Random Lengths U.S. benchmark price for Western SPF No. 2 & Btr averaged $472 per 1,000 board feet in Q2, down from $492 per 1,000 board feet in Q1. Today, that benchmark for Western SPF No. 2 & Btr is around $533 per 1,000 board feet, an increase of about $90 from the beginning of 2025.

But we also had a total of 6 days of downtime related to a slow startup from cellar's q1 shut.

In the third quarter of 2025, we had a total of 18 days of planned maintenance, downtime.

This includes 14 days at our Rosenthal Mill and 4 days at our Cellar Mill.

For our solid wood segment, realized lumber prices increased by about 10% in the second quarter compared to the first quarter.

This was primarily due to higher realized prices in the European market, a result of reduced Supply and steady demand.

While realized prices in the US market were essentially flat.

The random links us Benchmark price for Western SPF number to embed better. Averaged 472 dollars per thousand board feet in Q2 down from 492 per thousand board feet in q1.

Richard Short: In Q2, lumber production decreased to about 120 million board feet, or 6% from Q1, due to planned maintenance at our Friesau mill. Lumber sales volumes also decreased to 121 million board feet, down about 8% from Q1, reflecting a lower production. Electricity sales for the quarter totaled 216 gigawatt hours, an 8% decrease from Q1 due to planned maintenance downtime at the Stendal mill. Q2 pricing decreased to about $90 per megawatt hour from $112 in Q1, caused by lower spot prices in Germany. Fiber costs for both our pulp and solid wood segments increased in Q2 compared to Q1 due to strong demand in Germany and higher logistics costs in Western Canada. Our mass timber operations within the solid wood segment had lower revenues in Q2 compared to Q1, as the prevailing market uncertainty is impacting project timelines and overall market momentum.

Today that that Benchmark for Western SPF number 2 and better is around 533.4% board feet an increase of about $90 from the beginning of 2025.

In Q2 Lumber production decreased to about 120 million board feet or 6% from q1, due to plan maintenance, at our freeze owl Mill.

Lumber sales volumes also decreased to 121 million board feet down about 8% from q1 reflecting the lower production.

Electricity sales for the quarter, total 216 gigawatt hours and 8% decrease from q1 due to plan maintenance, downtime at the stendhal Mill.

Q2 pricing decreased to about $90 per megawatt hour from 112 in q1 caused by lower spot prices in Germany.

5 our costs for both our pulp and solid wood segments, increase in Q2 compared to q1, due to strong demand in Germany and higher Logistics costs in western Canada.

Richard Short: However, we believe this is a temporary headwind, and we continue to see strong and growing underlying interest in mass timber and expect improved results going into 2026. In Q1, we announced our One Goal 100 program. This initiative focuses on cost reduction and operational efficiencies with a target to improve our profitability by $100 million by the end of 2026, using 2024 as a baseline. To date, we have approximately $5 million in cost savings, with an anticipated total of $25 million of cost savings for 2025. We also expect our implemented operational efficiencies to further improve profitability. Juan Carlos will provide more details on our progress on this initiative. We reported a consolidated net loss of $86 million for the second quarter, or $1.29 per share, compared to a net loss of $22 million, or $0.33 per share in the first quarter.

Our Mass Timber operations within the solid wood segment had lower revenues in Q2 compared to q1. As the prevailing Market uncertainty is impacting project timelines and overall Market momentum

However, we believe this is a temporary headwind and we are continuing. We continue to see strong and growing underlying interest in Mass Timber and expect improved results going into 2026.

In q1, we announced our 1 goal 100 program. This initiative focuses on cost reduction and operational efficiencies with a Target to improve our profitability by 100 million dollars by the end of 2026 using 2024 as a Baseline.

Today, we have approximately 5 million in cost savings with an anticipated, total of 25 million of cost savings for 2025.

We also expect our implemented operational efficiencies to further improve profitability.

Juan Carlos will provide more details on our progress on this initiative.

Richard Short: In Q2, we consumed $35 million of cash compared to $3 million in Q1. This increase was primarily driven by lower EBITDA, partially offset by a $21 million decrease in our net working capital, excluding non-cash items, due in part to working capital reductions from our One Goal 100 initiative. In Q2, we invested a total of $24 million in capital across our facilities. These investments include upgrades to the log yards at Freezal and Torgau. These strategic projects are expected to enhance efficiencies, positioning us favorably for improvements in the solid wood market. At the end of Q2, our strong liquidity position totaled $438 million, comprised of about $146 million of cash and $292 million of undrawn revolvers. That ends my overview of the financial results. I will now turn the call over to Juan Carlos.

We reported a Consolidated, net loss of 86 million for the second quarter or $1.29 per share compared to a net loss of 22 million or 33 cents per share in the first quarter.

In Q2 we we consumed. 35 million of cash. Compared to 3 million in q1.

This increase was primarily driven by lower EBITDA, partially offset by a $21 million decrease in our networking capital, excluding non-cash items, due in part to working capital reductions from our 1 Goal 100 initiative.

Yards that freeze out and to go.

These strategic projects are expected to enhance efficiency efficiencies positioning us favorably for improvements in the solid wood Market.

At the end of Q2 our strong liquidity position totaled 438 million comprised of about 146 million of cash and 292 million of un undrawn revolvers.

Juan Carlos Bueno: Thanks, Rich. Trade uncertainty resulting from tariffs and global trade disputes was the main driver behind our disappointing Q2 results. This is despite the fact that our products are not being tariffed up to this point. Market uncertainty, coupled with excess supply of cheap hardwood fiber locally, has caused Chinese demand for imported hardwood pulp to weaken, resulting in an 8% decrease in prices, with a similar knockdown effect on softwood when compared to Q1. In addition, trade disputes have caused the U.S. dollar to weaken dramatically against the euro and Canadian dollar. This U.S. dollar weakness created almost $26 million of negative EBITDA for us relative to Q1. While these uncontrollable factors create significant macroeconomic headwinds for our business, we continue to focus on the things we can control. For example, we are beginning to see improvements in our reliability as our mills ran well this quarter.

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

Thanks Rich.

Freedom certainty resulting from tariffs and global trade disputes was the main driver behind our disappointing Q2 results.

This is despite the fact that our products are not being tired up to this point,

Market uncertainty coupled with excess supply of cheap hardwood fiber, locally has caused Chinese demand for imported, hardwood popped weekend. Resulting in an 8% decrease in prices with a similar knockdown effect on softwood. When compared to q1

In addition, the trade disputes have caused the U.S. dollar to weaken dramatically against the Euro and Canadian dollar.

This US dollar weakness, created almost 26 million dollars of negative dbda for us relative to q1.

Juan Carlos Bueno: Early in the second quarter, we launched a company-wide program aimed at identifying $100 million in cost savings and profitability improvement opportunities by the end of 2026 when compared with 2024. Our organization has actively embraced this program, which is known internally as One Goal 100. At the end of Q2, we achieved $5 million of cost savings and have already identified an additional $20 million by the end of this year. This initiative also includes targeting working capital reductions of $20 million, as well as another $20 million in CapEx reductions. Beyond this, we have started to unlock some significant reliability improvements that, combined with additional cost savings next year, give us high confidence that we will reach our $100 million target by the end of 2026. In parallel, our working capital and CapEx reduction plans are tracking exactly as planned.

For these uncontrollable factors create significant macroeconomic headwinds for business, we continue to focus on the things we can control. For example, we're beginning to see improvements in our reliability as our Mills ran. Well, this quarter

Early in the second quarter. We launched a companywide program in identifying a hundred million dollars in cost savings and profitability Improvement opportunities by the end of 2026 when compared with 2024

The organization has actively embraced this program, which is known internally as "1 Goal 100."

At the end of Q2, we achieved $5 million in cost savings and have already identified an additional $20 million by the end of this year.

This initiative also includes targeting working capital, reductions of 20 million dollars as well as another 20 million dollars in capex. Reductions

Beyond this, we have started to unlock some significant reliability, improvements that combined with additional cost savings next year? Gives us high confidence that we will reach our 100 million Target by the end of 2026.

Juan Carlos Bueno: The trade war has created an unprecedented level of uncertainty in the markets in general. As a reminder, on average, we sell about 200,000 tons of pulp into the U.S. annually. About half of this volume is hardwood pulp. We also export from Germany about 200 million board feet of lumber to the U.S. Today, these products do not have any tariffs applied to them. However, lumber is subject to Section 232 review by the U.S. Department of Commerce, so it is unclear if tariffs will be applied at some point in time. This review is to be completed before the end of the year, but we expect decisions will be made beforehand. In contrast, our main import from the U.S. into Canada is wood chips for our Selgar pulp mill, which today amounts to about 45% of the fiber consumption of the mill.

In Poe are working capital and capex. Reduction plans are tracking exactly as planned.

The trade War has created an unprecedented level of uncertainty in the markets in general, as a reminder, on average, we sell about 200,000 tons of Pulp into the us annually.

About half of this volume is hardwood pulp.

We also export from Germany about 200 million board feet of lumber to the U.S.

Today, these products do not have any tires applied to them. However, Lumber is subject to section. 232 review, by the US Department of Commerce. So it is unclear. If tires will be applied at some point in time,

this reduced to be completed before the end of the year, but we expect decisions will be made beforehand.

Juan Carlos Bueno: There are no counter tariffs currently applied to this fiber. As I previously mentioned, our businesses are being impacted by the secondary effects of tariffs, as this uncertain business environment directly affects the regular trade flows of the commodities we produce and forces delay in construction projects that we aim to serve. In addition to the above, the weaker dollar has an immediate effect on our cost basis and our receivable balances. With this global economic uncertainty in the background, our board has taken the difficult decision to suspend our dividend. We view the suspension as temporary but prudent from a capital allocation standpoint, as we focus on debt reduction and navigate the uncertainty impacting our industry. Our board of directors remains committed to a competitive dividend as the market uncertainty dissipates and our balance sheet strengthens. Our EBITDA of negative $21 million reflects a heavy maintenance quarter.

In contrast, our main import from the U.S. into Canada is wood chips for our Cellar Pulp Mill, which today amounts to about 45% of the fiber consumption of the mill.

There are no counterterrorist currently applied to this fiber.

As I previously mentioned, our businesses are being impacted by the secondary effects of terrorists as this uncertain business environment directly affects the regular trade, flows of the Commodities we produce and forces delaying construction projects that we aim to serve

In addition to the above, the weaker dollar has an immediate effect on our cost spaces on our receivable balances.

With this global economic uncertainty in the background, our board has taken the difficult decision to suspend our dividend.

We view the suspension as temporary but prudent from a capital allocation standpoint as we focus on debt reduction and navigating the uncertainty impacting our industry.

A board of directors remains committed to a competitive dividend as the market uncertainty dissipates on a balance sheet strengthens.

Juan Carlos Bueno: Our Peace River mill was down for 20 days. Stendal took a short three-day shut, and as a reminder, Selgar's Q1 shut had six days of slow startup in Q2. In Q2, the combined effect of uncontrollable negative market impacts, including a weakening of the U.S. dollar and pulp pricing and the associated hardwood inventory impairment, reduced our EBITDA by almost $45 million compared to Q1. These were the results of the indirect impact of tariffs and trade uncertainty. Even though we carried good momentum during Q1, the strength changed very quickly as we entered into Q2. Midway through the quarter, the Chinese market weakened dramatically on concerns and uncertainty on tariff costs and the availability of export markets. Today, pulp prices in China appear to have hit the floor.

Our Eva of -21 million, reflects a heavy maintenance quarter.

Our Peace River Mill was down for 20 days. Standall took a short 3-day shut, and as a reminder, sellers, q1 shot had 6 days of slow startup in Q2.

In Q2 the combined effect of uncontrollable negative Market impacts including a weakening of the US dollar and P pricing and the associated hardwood. Inventory impairment reduced our ibida by almost 45 million dollars compared to q1.

These were the results of the indirect impact of tariffs and trade uncertainty.

Even though we carried. Good momentum. During q1 to strength change. Very quickly as we entered into Q2

Midway through the quarter, the Chinese market weakened dramatically on concerns and uncertainty on Tire of costs and the availability of export markets.

Juan Carlos Bueno: Given that we are now in the seasonally low summer period, we do not expect pulp prices to regain any positive momentum until the fourth quarter. While some trade agreements are beginning to take shape, the global trade landscape continues to be unclear. We will continue to work on mitigation strategies and remain flexible to manage through the uncertainty. In the meantime, we continue to maintain an open dialogue with our customers, government officials, and our industry associations, and are prepared to take swift action, redirecting products to other geographies if necessary, and adjusting our operations accordingly, depending on the scenario that actually plays out once the dust settles and the tariff map is completed. Turning to the pulp markets, softwood pricing is expected to remain weak through the summer months.

Today. Pot prices in China appear to have hit the floor.

Seasonally low summer period. We don't expect pulp prices to regain any positive momentum until the fourth quarter.

While some trade agreements are beginning to take shape the global trade landscape continues to be unclear.

We will continue to work on mitigation, strategies and remain flexible to manage through the uncertainty.

In the meantime, we continue to maintain an open dialogue with our customers government officials and our industry associations and are prepared to take Swift action. Redirecting products to other geographies if necessary and adjusting our operations accordingly. Depending on the scenario that actually be plays out once the dust settles and the Tariff map is completed.

Juan Carlos Bueno: However, we are confident that overall demand for softwood will be steady in the midterm, which, when combined with reduced supply, will create some upward pricing pressure in most markets in the fourth quarter of 2025 and into 2026. In the second quarter, hardwood pricing remained weakened significantly in China due to weak paper demand and increased domestic pulp supply. Conversely, hardwood pricing in North America was resilient due to steady demand. As we have highlighted in previous calls, we believe that the ability of paper makers to substitute hardwood pulp in the place of softwood pulp is limited, as most of the substitution options have already been exhausted. Understand that while customers will continue to push the limits, given the wide gap that still persists between the two fibers, only a marginal amount will still be possible.

Turning to the pulp markets software pricing is expected to remain weak through the summer months. However, we are confident that overall demand for soft food will be steady in the midterm, which when combined, with reduced Supply will create some upward pricing pressure in most Market in the fourth quarter of 2025 and into 2026.

The second quarter hardwood pricing remained. Uh, we can significantly in China, due to weak paper, demand and increased

Domestic pulse Supply, conversely Hardware, pricing in North America was resilient due to steady demand.

Juan Carlos Bueno: In total, our pulp production was flat at almost 460,000 tons compared to Q1. Our lumber production was down slightly relative to Q1 by about 6% due to planned maintenance at our Freezal mill. Overall, we are pleased with our lumber production and look forward to the incremental lumber production at our Torgau mill going forward. As a reminder, we expect the increased annual capacity to be about 100,000 cubic meters of dimensional lumber, or roughly 65 million board feet. In Q2, our overall pulp fiber costs were up slightly relative to Q1. In Germany, we saw increased demand for saw logs, which pushed up the price of sawmill chips, while in Canada, costs were up slightly due to the increased logistic costs. The increased demand for saw logs in Germany also pushed the price of fiber up for our sawmilling business.

As we have highlighted in previous calls, we believe that the availability of paper makers to substitute hardwood pulp in the place of softwood pulp is limited, as most of the substitution options have already been exhausted. We understand that while customers will continue to push the limits, given the wide gap that still persists between the two fibers, only a marginal amount will still be possible.

In total, our P production was flat at almost 4 6 0.

Our lumber production was down slightly relative to Q1 by about 6% due to planned maintenance at our Freestyle mill.

Overall, we are pleased with our lumber production and look forward to the incremental Lumber production that our toga Mill going forward.

As a reminder, we expect the increase annual capacity to be about 100,000 cubic meters of dimensional Lumber or roughly 65 million board feet.

In Q2, our overall fiber costs were up slightly.

Relative to q1 in Germany. We saw increased demand for solos which pushed up the price of Sawmill chips. While in Canada costs were up slightly due to the increased logistic costs.

Juan Carlos Bueno: Looking ahead to Q3, we expect fiber costs to modestly decrease for our pulp business and increase by about 10% for our solid wood business, as harvesting levels in Germany are very low due to lack of calamity wood. The business environment for our solid wood segment remains consistent with Q1. Our solid wood segment continues to be held back by a weak European economy and the impact of high interest rates on the construction industry, despite some modest price improvements on certain grades in the U.S. lumber market. As a result, our solid wood segment posted a negative EBITDA of $5 million in Q2, with higher European lumber pricing not offsetting the sustained weak demand for pallets. Looking ahead, we feel we are seeing the beginning of improved economic recovery growth in Germany and Europe in general, which we believe will bring improved pallet pricing.

The increased demand for solids in Germany. Also pushed the price of fiber up for a sink business.

Looking ahead to Q3, we expect fiber cost to modestly. Decrease for p business and increase. By about 10% for solid wood business. As harvesting levels in, Germany are very low, due to lack of Calamity would

The business environment for the solid wood segment remains consistent with Q1. Our solid wood segment continues to be held back by a weak European economy and the impact of high interest rates on the construction industry, despite some modest price improvements on certain grades in the U.S. lumber market.

As a result, our solid wood segment posted a negative EBITDA of $5 million in Q2, with higher European lumber pricing not offsetting the sustained weak demand for pallets.

looking ahead, we feel

Juan Carlos Bueno: As a reminder, a $1 per pallet increase, or roughly 10%, will put this business into a very positive cash flow position. Given the economic forces affecting the U.S. construction activity, U.S. lumber pricing would be volatile in the short term. Currently, weak housing construction due to high mortgage rates is a headwind, but the expected implementation of significantly higher anti-dumping and countervailing duties is expected to push lumber prices up. It may also result in the curtailment of some Canadian sawmills, which could create additional pricing tailwinds. In contrast, we expect modest upward pricing pressure in the European market, primarily due to increasing saw log prices. However, any meaningful long-term improvement in either the European or U.S. markets will be dependent on improved economic conditions and lower interest rates.

We are seeing the beginning of improved economic recovery growth in Germany and Europe in general, which we believe will bring improved pallet pricing. As a reminder, a 1 dollar per pallet increase or roughly 10% will put this business into a very positive cash flow position.

Given the economic forces affecting the US construction activity us, lumber pricing would be volatile in the short term.

Currently, weak housing, construction. Due to high mortgage rates is a headwind, but the expected implementation of significantly, higher anti-dumping, and countervailing duties is expected to push, lumber prices up.

It may also result in the curtailment of some Canadian SOS, which could create additional pricing Tailwind.

Juan Carlos Bueno: The cost-competitive configuration we have in Freezal gives us the flexibility to have a strong presence in Europe, the U.S., and the quality-sensitive Japanese market. In Q2, 40% of our lumber volume was sold in the U.S., as we continue to optimize our mix of products and target markets to current conditions. Looking forward, we believe the U.S. lumber market will be driven by favorable homeowner demographics. Additionally, factors that we believe will improve lumber market dynamics include potential Canadian sawmill curtailments in the aftermath of higher softwood lumber duties and relatively low housing stock. Combined, we expect these factors will put sustained positive pressure on the supply-demand balance of this business in the midterm. Shipping pallet markets remain weak, with the pallet pricing staying generally flat due to the overhang of the European economy, particularly in Germany.

In contrast, we expect modest upward pricing pressure in the European market, primarily due to increases in solid prices. However, any meaningful long-term improvement in either the European or U.S. markets will be dependent on improved economic conditions and lower interest rates.

The cost competitive configuration we have in Free Cell gives us the flexibility to have a strong presence in Europe, the US and the quality sensitive Japanese Market.

in Q2 40% of our, lumber volume was sold in the us as we continue to optimize our mix of products and Target markets to current conditions,

Agent Sawmills in the aftermath of higher softwood. Lumber duties and relatively low housing stock.

Combined, we expect these factors will put sustained positive pressure on the supply-demand balance of this business in the midterm.

Juan Carlos Bueno: Once the economy begins to show signs of recovery, we expect pallet prices to recover towards more historical levels, allowing Torgau to deliver significant shareholder value. Heating pellet prices were up in Q2, which is unusual given the seasonality of this product, but higher German fiber costs created supply constraints and drove prices up. We expect demand and prices to be slightly lower in Q3. With regard to our mass timber business, we have seen steady growth in the number of incoming projects/inquiries. In the last two quarters, the potential sales volumes of these inquiries have exceeded $400 million and equate to well over 100 projects per quarter. As a result, our order book is growing. The projects we're bidding on and winning today are meant to be constructed nine months from now, well into 2026.

Shipping pallet markets remain weak, with pallet pricing staying generally flat due to the overhang of the European economy, particularly in Germany.

Once the economy begins to show signs of recovery, we expect Pilot prices to recover towards more historical levels, allowing Target to deliver significant shareholder value.

Heating pallet prices were up in Q2 which is unusual, given the seasonality of this product, but higher German fiber costs, created Supply constraints and drove prices up.

We expect demand and prices to be slightly lower in Q3.

With regard to on mass Timber business, we have seen steady growth in the number of incoming projects. Inquiries in the last 2 quarters. The potential sales volumes of these inquiries have exceeded 400 billion dollars and equates to well over a 100 projects per quarter.

And as a result, our order book is growing.

Juan Carlos Bueno: While our work orders for Q3 remain weak, revenue will start picking up momentum in Q4 to the point that we're planning on ramping up one of our facilities to two shifts in the early part of next year. Today, our mass timber backlog of projects sits at about $68 million. We remain confident that the environmental, economic, speed of construction, and aesthetics benefits of mass timber will allow this building product to grow in popularity at a pace similar to what happened in Europe. As such, we're highly confident in this business being a growth engine for Mercer International.

The projects were bidding on and winning today. Are meant to be constructed 9 months from now well into 2026.

While our orders.

While our work orders for Q3 remain weak, our revenue will start picking up momentum in Q4 to the point that we're planning on ramping up one of our facilities to two shifts in the early part of next year.

Today, our Mass Timber backlog of projects is about 68 million.

Juan Carlos Bueno: We are well positioned to take advantage of that market growth, as we have roughly 30% of North American cross-limited timber production capacity, a broad range of product offerings, including design assist and installation services, and a large geographic footprint with manufacturing sites in the Northwest as well as Southeast, giving us competitive access to the entire North American market. As part of our objective to keep all of our pulp mills running reliably, we plan major maintenance shutdowns at all mills throughout the year. Our remaining shut schedule is as follows: in Q3, Rosenthal will be down for 14 days, or about 14,300 tons, and Selgar will take four days, or 5,300 tons. In Q4, Stendal will be down for 18 days, or 37,100 tons. In light of recent economic uncertainty, we have reduced planned CapEx and now expect to spend about $100 million on capital projects in 2025.

We remain confident that the environmental economic speed of construction and Aesthetics benefits of mass Timber, will allow this building product to grow in popularity at a pace. Similar to what happened in Europe as such. We're highly confident in this business, being a growth engine for Mercer.

We are well, positioned to take advantage of that market growth, as we have roughly 30% of North American cross. Laminated Timber production capacity, a broad range of product offerings, including design, assist, and installation services. And a large Geographic footprint, with manufacturing sites in the Northwest, as well as Southeast giving us competitive access to the entire North American Market.

As part of our objective to keep all of our partners running reliably, we plan major maintenance shutdowns at all males, throughout the year.

Our remaining shots schedule is as follows.

In Q3 Rosen file will be down for 14 days or about 14,300 tons and Cellar will take 4 days or 5,300 tons.

In Q4 standard will be down for 18 days or 37,100 tons.

Juan Carlos Bueno: This capital budget is heavily weighted to maintenance, environmental, and safety projects and includes both Torgau's lumber expansion project and Selgar's recently completed woodroom project. We're currently conducting a FEL II engineering review for a potential carbon capture project at our Peace River mill. We have a lot of work to do given where we are in the project, but we're excited about the potential that such a venture could have on the economics of this mill. As we look forward, we believe that products like mass timber, green energy, lumber, pulp, and lignin will play increasingly important roles in displacing carbon-intensive products, products like concrete and steel for construction or plastic for packaging. Furthermore, the potential demand for sustainable fossil fuel substitutes is very significant and has the potential to be transformative to the wood products industry.

In light of recent economic uncertainty we have reduced planned capex and now expect to spend about 100 million dollars on capital projects in 2025.

His capital budget is heavily weighted towards maintenance, environmental, and safety projects, and includes both a house number expansion project and the recently completed woodroom project.

We're currently conducting a fell 2 engineering review for a potential carbon capture project that our Peace River Mill.

We have a lot of work to do given where we are in the project, but we're excited about the potential that such a venture could have on the economics of this Mill.

As we look forward, we believe that products like mass timber, green energy, lumber pulp, and lignin will play increasingly important roles in displacing carbon-intensive products.

Products like concrete and steel for construction or plastic for Packaging.

Juan Carlos Bueno: We remain committed to our 2030 carbon reduction targets and believe our products form part of the climate change solution. In fact, we believe that demand for low carbon products will dramatically increase as the world looks for solutions to reduce its carbon emissions. We remain bullish on the long-term value of pulp and are committed to better balance our company through our growth in our lumber and mass timber businesses. Overall, our Q2 operating results were disappointing and equally frustrating given the cause for our weak earnings lies in this uncertain business environment created by global trade challenges. We believe our businesses have strong fundamentals, and when combined with a debt reduction strategy, we're poised to create significant shareholder value. We will continue to pursue the benefits of our One Goal 100 program and continue to improve the reliability of our mills to strengthen our resilience.

For the more the potential demand for sustainable fossil fuels substitutes is very significant and has the potential to be transformative to the wood products industry.

We remain committed to our 2030 carbon reduction targets, and we leave our products form, part of the climate change solution. In fact, we believe that demand for a low carbon products will dramatically increase as the world looks for solutions to reduce its carbon emissions.

We remain bullish on the long-term value of Pulp and are committed to better balance our company throughout growth in our lumber and mass Timber businesses.

Overall our Q2 operating results were disappointing and equally frustrating. Given the cost for a weak earnings lies on this uncertain business environment, created by global trade challenges.

We believe our businesses have strong fundamentals, and when combined with a debt reduction strategy, we're poised to create significant shareholder value.

Juan Carlos Bueno: We remain committed to increasing shareholder value by reducing our leverage through aggressive cost reduction programs, strong mill reliability, and prudent capital management. Thanks for listening, and I will now turn the call back to Michelle for questions. Thank you.

we will continue to pursue the benefits of our 1 goal 100 program and continue to improve the reliability of our males to strengthen our resilience

We remain committed to increasing shareholder value, by reducing our leverage to aggressive cost reduction programs, strong meal reliability and Peru Capital Management.

Michelle: Thank you. If you'd like to ask a question, please press star one. If your question has been answered and you'd like to remove yourself from the queue, please press star one again. Our first question comes from Roger Spitz with Bank of America. Your line is open.

Thanks for listening and I will now turn the call back to Michelle for questions. Thank you.

If you like to ask a question, please press star 1 1.

If your question hasn't been answered, and you'd like to remove yourself from the queue, please press *1 1 again.

Roger Spitz: Thank you very much. Can you provide any information on other cash flow items like 2025 cash taxes and perhaps all the way through the 2025 operating cash flow, less than $100 million of CapEx?

And our first question comes from Roger Spitz with Bank of America, your line is open.

Uh, thank you very much. Um,

all right, just can you provide any information on other cash flow items like uh, 2025 cash taxes and and perhaps all the way through the, you know, 2025 operating cash flow.

You know, less than $100 million of capex.

Richard Short: Yeah, Roger, it's Richard. So we expect our tax for the year to be about $20-25 million cash tax. I'm not sure. Our CapEx, we mentioned we're targeting $100 million, interest, probably around $110 million, and working capital should be slightly negative, if not flat, for the year. Does that answer your question?

Hey Roger, it's Richard. Um,

So we expect our tax for the year to be about 20, 25 million cash tax.

Um, and then I'm not sure. So, our CapEx. We mentioned we're targeting $100 million.

Uh, interest probably around 110 and working capital should be slightly negative if not flat for the year.

Roger Spitz: I'm sorry, slight outflow to cash.

Is that does that answer your question? I'm sorry. A slide out out out out Florida. Um, Outlook it Flash.

Richard Short: Exactly. Working capital, yeah. Just a modest negative, yeah.

Roger Spitz: Sure. I think you just said cash tax of 25, but you have already kind of there in the first two quarters, no?

Example. Yeah, it's like Rich. Yeah. Just a, a modest negative. Yeah.

So, uh, I think you just said a cash tax of 25, but you,

You've already.

Richard Short: Yeah.

Roger Spitz: Or did I mishear you?

Kind of there in the first 2 quarters. Now,

Richard Short: No, no, you're right. It's about $25 for the year.

Yep, or did I miss hear you?

Roger Spitz: Okay, got it. My other question is regarding the German revolver facility. Can you remind us of any maintenance covenants under that, and what kind of headroom you have given where you are as of June 30th?

No, no, you're right. It's about 25 for the year.

Okay.

Richard Short: Yeah, there's no maintenance covenants, and we have lots of headroom. The number escapes me, but it exceeds $100 million, probably like $150 million, $200 million-ish. So there's lots of capacity there. I just don't have the number off the top of my head.

I got it and my other question is regarding the German. Uh, uh, facility revolver facility? Can you uh, remind us of the uh, you know, any maintenance covenants under that and what kind of uh, you know, head room you have given uh, you know where you are, as of uh, June 30th jaw.

Yeah, there are no maintenance covenants, and we have lots of headroom. The number escapes me, but it exceeds $100 million—probably around $150 million.

Roger Spitz: No, no.

Richard Short: But the.

Roger Spitz: Is it all solid covenants?

200 million, ish. So there's lots of capacity there. Um, I just don't have the number off the top of my head. Um,

Richard Short: Not all, but most.

but the

Roger Spitz: Okay, got it. Okay, that's great. That's it. Thank you very much.

Not all. But, uh, most

Okay, got it.

Okay, that that that's great.

That that's it.

Richard Short: Okay.

Michelle: Thank you. Our next question comes from Sean Steuart with TD Cowen. Your line is open.

Which thank you very much.

Okay.

Sean Steuart: Thank you. Good morning. I want to follow up on the balance sheet. Rich, I guess just perspective on what, given the capital intensity of the business and the exposure to maintenance downtime schedules, what is the minimum liquidity level you guys are comfortable with as sort of a baseline going forward? Then follow up on that. You are talking about flat to slightly negative working cap changes this year, but Juan Carlos, you mentioned an opportunity to bring working cap down further as a part of broader cash management initiatives. Can you give a little bit of perspective on longer-term opportunities to bring working capital down?

Thank you. Our next question comes from Sean Stewart with TD Cowen. Your line is open.

Thank you. Good morning. Um, I want to um follow up on the balance sheet.

Rich, I guess just perspective on.

what given the capital intensity of the business and

the exposure to maintenance, downtime schedules.

What is the minimum liquidity level you guys are comfortable with as sort of the baseline?

Going forward and then follow up on that. I I you're talking about flat to slightly negative, working cap.

Um, changes this year. But, Carlos, you mentioned an opportunity to bring working capital down further as a part of broader.

Task management and cash management. Um, initiatives, can you can you give a little bit of perspective on longer term opportunities to bring working capital down?

Richard Short: Well, maybe I will touch on that first. We have some initiatives around inventory, specifically wood inventory, that will continue to push our working capital down. This is an ongoing thing with the mills, you know, managing those inventories. We are confident that we will get our One Goal 100 target hit. Sean, sorry, your first question.

Uh, well maybe I'll touch on that first. So we've got uh some initiatives around inventory, specifically would inventory, um, that will will continue to push our working capital down. Uh this is sort of a an ongoing thing with the Mills, um you know, managing that those inventory. So we're we're confident that we'll get our, our 1 goal 100 Target hit.

Sean Steuart: Just the minimum available liquidity that you're comfortable with, just given the capital intensity inherent in the business.

Richard Short: Yeah, we're a long way from being uncomfortable, I would say. We've, I don't know if I have a minimum number in mind, but we're not even close to that. When we look out and we look at the levers that we can still pull around CapEx, we've talked before, Sean, about the MOB is probably like $60 million or $70 million a year. And we could probably push that down if we needed to. I mean, I think we've got, yeah, plenty of room. Not worried about liquidity at all at this point.

Um, and then transfer, your first question, I just want to know the minimum available liquidity that you're comfortable with, just given the capital intensity inherent in the business.

Yeah, I we're a long way from being uncomfortable, I would say. So we've, I don't know if I have a minimum number in mind, but uh, we're not even close to that, uh,

When we look out and we look at the levers that we can still pull around capex, um, we've talked before, Sean about the, the MLB is probably like 60 or 70 million and a year. Um, and we can probably push that down if we needed to. Um,

Sean Steuart: Okay, that's all I have for now. Thanks.

So I I mean I think we've got yeah plenty of room. Not not worried about liquidity at all at this point.

Okay. Uh, that's all I have for now. Thanks.

Michelle: Thank you. Our next question comes from Sanford Burns with Stifel Nicolaus. Your line is open.

Thank you.

Sanford Burns: Hi. Good morning, everyone. You mentioned how you had to take the write-down on the hardwood pulp side in the quarter. Given how it looks like based on the production versus sale numbers on the softwood side, your softwood inventories are probably at elevated levels. Maybe Juan, can you comment if you would agree with that or how you view your softwood inventory levels? Related, do you think there is the potential risk to have to take a non-cash write-down on those inventories as well?

You, you you mentioned how you had to take the right down on the hardwood, pulp side in the corner, just given how it looks like based on the production versus sale numbers. On the softwood side, your softwood inventories are probably an elevated levels, I mean, maybe 1 can you comment if you would agree with that or how you view your softwood, inventory levels and then maybe related, do you think there is the potential risk to have to take a non-cash? Write down on those inventories as well.

Richard Short: I can take that. At least the impairment part of it. We're not close to taking any impairments on solid wood products inventories. Inventory levels, I would say, are slightly elevated, primarily in Canada, just due to the slower Chinese sales. But I wouldn't say we're uncomfortable with the inventory levels at this point.

Uh I I can take that. I can at least the the the impairment part of it. Yeah, we're not not close to taking any impairments on softwood inventories. Um, inventory levels, I would say are slightly elevated primarily in Canada just due to the uh,

The slower Chinese sales. Um, but I wouldn't say we're we're uncomfortable with the inventory levels at this point.

Sanford Burns: Okay. Then also, maybe just to discuss your current liquidity, maybe discuss the covenants under the German revolver. I mean, I guess under the Canadian revolver, anything that may start to, you are getting close on or may trip up in the next quarter or so, given current conditions?

Richard Short: No. That covenant, I'm sorry, that revolver has a springing covenant that kicks in once you hit a certain threshold of borrowing, which again, we're not. It's sort of when you sort of top out on the overall facility, but again, not even close to that at this point. So, no concerns.

Okay and then also maybe just to discuss the your your current liquidity. You mean, you discussed the covenants under the German revolver. I mean I guess under the Canadian revolver or anything that may start to uh you you getting close on or may trip up in the next quarter or so giving current conditions

Sanford Burns: Okay. Lastly, just to follow up on your previous comment, the $60 million to $70 million, was that more like a maintenance CapEx level you were referring to?

Uh, know, so that's Covenant. Uh, sorry. That revolver has a springing Covenant that, um, kicks in, once you hit a certain threshold of borrowing, which again, we're not sort of when you sort of top out on the, on the overall facility. But again, not not even close to that at this point. So, so yeah, no concerns.

Richard Short: Exactly, yeah. Sorry, I used the term MOB, maintenance of business.

Okay. And then lastly, just to follow up on your previous comment, the $60 to $70 million. Was that more like a maintenance capex level you were referring to, sorry?

Sanford Burns: Okay, great. Thank you very much. Good luck with everything.

Yeah, I’m sorry. I used the term MLB maintenance of business.

Michelle: Thank you. As a reminder, to ask a question, please press star one one. Our next question comes from Matthew McKellar with RBC Capital Markets. Your line is open.

Okay, great. Thank you very much. Good luck with everything.

Thank you as a reminder to ask a question. Please press star 1, 1 1.

Matthew Mckellar: Good morning. Thanks for taking my questions. First, could you just talk through what you would expect to catalyze pulp prices gaining some momentum as we kind of get into the latter part of the year? Have we already seen enough production to come out of the markets to put it in a more balanced position, or what are you looking for there? Thanks.

And our next question comes from Matthew McKellar with RBC Capital markets, your line is open.

Juan Carlos Bueno: Absolutely. Thanks for your question. Yes, we believe that there is positive momentum coming into the later part of the year as it comes to pulp prices. This is on the back of restocking after the low summer season process that we go through year after year. So as demand picks up, we do see that inventories will come down and there would be a need for restocking. In the particular case of solid wood products, we do see the market being tight in terms of supply. In previous years, there has been several mill closures and capacity that have come down. We have seen some announcements of also additional closures in recent times, particularly in Finland, and that will take some volumes out of the market as well.

Good morning. Thanks for taking my questions. Um, first, could you just talk through what you would expect to catalyze, call prices gaining some momentum? As we kind of get into the latter part of the year, have we already seen enough production to come out of the markets um to put it in a more balanced position or we're going to be looking for there? Thanks.

Absolutely. Uh, thanks for your question. Uh, yes, we believe that there's, uh, positive momentum coming into the later part of the year as it comes to bulk prices. Uh, this is on the back of, uh, restocking after, uh, the low summer season, uh, process that we go through year after year.

Uh so as demand picks up uh we do see that inventories will will come down and there would be a need for restocking. Now in the in the particular case of of softwood

Uh, we do. See the market being, uh, tight in terms of supply.

Juan Carlos Bueno: So when you add everything up, we do believe that once demand comes picking up from the low summer season, we would start feeling the pressure of the tight supply, and that would drive prices up for the later part of the year, let's say end of Q3 and coming into Q4. For hardwood, it is a bit different because obviously there is some excess capacity. But at the same time, as always, after the low summer season kicks in and we see some of the restocking happening, it would naturally go up again. Not materially, not significantly. We are not expecting a hockey stick on hardwood. We expect probably a better recovery on solid wood products than we see on hardwood in the later part of the year.

Uh, in previous years, there's been several meal closures and capacity that have come down. Uh, we've seen some announcements of also, uh, additional closures, uh, in recent times, uh, particularly in Finland, um, or containments and that will take some volumes out of the market, as well. So in when you add everything up, we do believe that once the man comes, um, picking up from the low summer season. Um, we would start feeling the, the pressure of the type Supply and that would drive prices up for the second, for the latest part of the year. Uh, come, let's say, end of Q3 and coming into Q4.

for hardwood, uh it's a bit different because obviously there is uh some

uh, some, uh,

Excess capacity, but at the same time, uh, as as always, after the low summer season kicks in, uh, and we we see some of the restarting happening. It would naturally, uh, go up again. Uh, not not materially not significantly, we're not expecting a hockey stick on hardwood. Uh, we expect, probably a, a better recovery on software than we see on hardwood in the later, part of the year.

Matthew Mckellar: Great. Thanks for that detail. I would like to ask just quickly about this carbon capture plant at Peace River as well. Is there anything that you could share at this point, recognizing the project is pretty early stages, around how meaningful the project could be financially to Mercer International or how we should think about a potential capital commitment there, if any? Thank you.

Juan Carlos Bueno: Absolutely. As I mentioned earlier, we're very excited about how that project is progressing. Despite the fact that we're still a couple of years away from it becoming a reality, the fact is that we have completed FEL I with very good results. We're in the middle of FEL II. We will go into feed already by the beginning of next year. So it's progressing in a very favorable way. The impact that this project may have on the mill is very significant because when we look at the potential revenue stream that can come out of that, it would be tied to about 500,000 tons of CO2 that we can capture. Given where the prices of CO2 credits are, we can easily come up with a number that is close or north of $100 million per year of revenue.

Absolutely. As I mentioned earlier, we're very excited about how that project is progressing.

And despite the fact that we're still a couple years away from it, becoming a reality. Uh, the fact is that we have completed Fail 1 with, with very good results, we're in the middle of fail to. Uh, we will go into feed, um, already by the beginning of next year. So, uh, so it's progressing in, in a very favorable way.

Uh, now the impact of this project may have on the mill is very significant. Um, because when we look at the potential Revenue stream that can come out of that, uh, it would be tied to about 500,000 tons of CO2 that we can capture.

Juan Carlos Bueno: Given how this project works, the cost associated with that revenue is very low. So it's a highly profitable venture for the mill. Obviously, it would be a very significant upgrade to the financials of the asset itself. It basically becomes a biorefinery with a prime product, if you put it that way, that are those carbon credits. Remember that that market, when we negotiate those carbon credits, those contracts are 10-year contracts. That means that the mill would have a guaranteed revenue for 10 years of $100 million per year. So that is why we see this as something that is strategically important for Peace River and for Mercer International as a whole, because it opens the door of what we can do with carbon capture in other mills as well.

Uh, and given where the prices of CO2 credits are. Uh, we can easily, uh, come up with a number that is close or north of 100 million dollars per year of Revenue. Um, and given how this project Works, uh the the costs associated with that revenue is is is very low. So it's a it's a highly profitable Venture for the mill and obviously it would be a very significant upgrade um, to the financials of uh, of the asset itself. It it basically becomes

A.

Juan Carlos Bueno: Now, to the second part of your question around the capital requirement for it, it is obviously an expensive project. When I say expensive, it's probably north of $500 million. However, the beauty of this is that it is one of these, these types of projects are incredibly supported by the government and by the state of Alberta. So we expect no less than 60% of it to be covered by grants. The remaining 40% or 35% that we're seeing would be up to us. In this particular case, this is a joint venture that we're doing with a company called Svante. That's a 50/50 venture. So basically, half of that would be on us. When you bring it down, it's a much smaller, it's probably less than $100 million what would be our share of the pie.

A, a, a biorefinery, uh, with a, with a, a prime product. Uh, if you see if you put it that way, that is, uh, that are those carbon credits. And remember that, that, that market, when when we negotiate, those carbon credits, those contracts are 10 year contracts, so that means that the meal would have a guaranteed revenue for 10 years of a hundred million dollars per year. Um so that is why we we see this as something that is strategically important for Peace River and for Mercer as a whole because it it it opens the door of what we can do with carbon capture uh in other Mills as well.

Now, to the second part of your question around the capital requirement for it.

It is obviously an expensive project. Uh, but when I say expensive, it's probably north of $500 million.

However, the beauty of this is that it is one of these. These types of projects are incredibly supported by the government and by the province of Alberta.

So we expect no less than 60% of it to be covered uh by grants. Uh and then the remaining uh, 40% or 35% that we're seeing um would be uh, up to us. Uh, and in this particular case, this is, uh, joint venture that we're doing with a company called fante,

Juan Carlos Bueno: So it becomes a bite-sized project with a very, very quick payback given the revenue stream that comes out of it.

Matthew Mckellar: Great. Thanks for all that detail. If I could just fit in one more on solid wood products, could you please remind us if Torgau is configured to produce lumber for the U.S. markets and how that 65 million board feet of incremental production, plus maybe duties on Canadian lumber pushing higher, could affect your geographical sales mix through the balance of the year? It sounds like you have visibility to mass timber revenue picking up in Q4. What kind of magnitude are we talking about, and how do you think about a timeline to get back to that revenue run rate we saw kind of Q2, Q3 of last year? Thank you.

So and that's a 50/50 uh, Venture. So basically half of that would be on us. Uh when you when you bring it down, uh it's a it's a much smaller, it's probably less than 100 million, what would be our our share of the pie. So it becomes a bite-size project with a very very quick payback given the revenue stream that comes out of it.

Great, thanks for all that detail. And if I could just fit in 1 more on Wood Products, um, could you please remind us if to guys configured to produce a number for the US markets and how that 65 million uh board feet of incremental production plus maybe duties on Canadian Lumber pushing higher could affect the geographical sales, mix through the balance of the year.

And, um, and then it sounds like you have visibility to Mass Timber revenue picking up in Q4.

Juan Carlos Bueno: Absolutely. Yes, on Torgau, it is equipped and capable to supply the U.S. market. As a matter of fact, that is already happening. We have basically pine 2x4s and studs coming out of Torgau into the U.S. market. It actually complements very nicely the offer that we have from SPF with Friesau. That has actually come on in a very positive way. We expect to see that capacity continue to grow. As we were saying, by the end of this year, we should be around 100,000 cubic meters of plain lumber being produced at Torgau. That should escalate. The capacity that we have right now installed is about 250,000 cubic meters. We still have a way to go in order to capture value from Torgau.

What kind of magnitude are we talking about? And and how do you think about a timeline to get back to that Revenue, run rate? We saw kind of Q2 Q3 of last year. Thank you.

Absolutely. Yes. On Togo, it is equipped and capable to supply the US market. Uh, as a matter of fact that is already happening. Uh, so we we have basically Pine uh, 2 by4 and studs uh, coming out of Togo into the US market. And it actually compliments very nicely, the offer that we have from uh SPF with free cell.

Juan Carlos Bueno: If I can remind everybody, that was the thesis when we invested in Torgau, was the fact that despite of it being a pallet mill, we wanted to invest in it so that it could become a much more stronger sawmill from a plain lumber perspective. That's what we're doing, and that's what we're proving right now, that the mill is capable of doing that. Gradually, we'll continue to increase as time progresses. We're satisfied with the way that it's progressing and obviously look forward to having that full capacity of plain lumber out of Torgau, and which a big part of it goes into the U.S. Now, it will be an advantage when we think about the position that we are in producing out of Germany, both at Friesau and Torgau.

Capture value from Target. And, and if, if I can remind everybody that was the thesis, uh, from we invested in Togo was the fact that despite of it being a pallet. Now, uh, we wanted to invest in it so that it could become a, a much more stronger soil from a lumber plane, Lumber perspective and, uh, and that's what we're doing. And that's what we're proving right now that the mill is, is capable of doing that. Uh, and

Gradually, we will continue to increase, uh, as time progresses.

So we're we're satisfied with the way that is progressing and uh and obviously look forward uh to having that full capacity of of plain Lumber out of Togo.

Juan Carlos Bueno: We compare with the position that the Canadian sawmill industry is relative to the U.S., with the countervailing duties and the anti-dumping duties going up. Obviously, that puts our German product in a much more competitive position relative to the Canadians. For us, regardless of what happens with tariffs, we're obviously now much more competitive than the Canadians from that point of view. That's something that is obviously very eager for us to continue in that direction. To your second question on mass timber, yes, the order book is picking up steam as we go through. One of the things that is probably important to explain as how this is different from what we saw last year is the fact that last year we had some very significant projects, large projects. We had the Walmart campus, which was a very big mega project. We had also the Google project.

Uh, and which a big part of it goes into the US now, it it it will be an advantage when, when we think about the position that we are and in producing out of Germany, both at freeze out and Togo, uh, and we compared, with the position that the Canadian Sawmill industry is relative to the US with a countervailing duties and the anti-dumping duties. Uh, going up, obviously that puts our our German, uh, product in a much more competitive, uh, position relative to the Canadians. So, uh, so for us, regardless of what happens with terrorists, uh, we're obviously now, uh, much more competitive, uh, than the Canadians from that point of view. So, so that's, that's something that is obviously very eager.

For us to uh, to continue in that direction.

Uh, and to your second question on math Timber.

Yes, the the order book is is picking up steam as we go through uh as 1 of the things that this that is probably important to uh, explain as as how this is different from what we saw. Uh last year.

Juan Carlos Bueno: There were two very large projects that commanded a big part of the revenue. Those projects are obviously very productive and were very efficient for us. That pushed our results very nicely last year. This year, as the year has come, the weight has come, those mega projects are not there. What we have seen is an incredible amount of growth on the smaller projects. That is what has built up the momentum this year, just an incredible amount of growth in smaller projects. We do expect some of those mega projects to come back in 2026 and 2027. There is very good progress with several of them.

Uh, the fact that last year we had some very significant projects, uh, large projects. We had the Walmart campus, which was a very big mega project, uh, and we had also, uh, the Google project. So there were two very large projects that commanded a big part of the revenue. And those projects are obviously, um, very productive and work very efficiently for us. So that pushed our results very nicely in.

Juan Carlos Bueno: Given the reputation that we built for ourselves with some of the ones that we delivered, we are highly confident that we will get back on those mega project trends in 2026, on top of the growth that we are seeing already on the smaller projects that we are picking up. That is why we are very, very confident about the growth potential for this in 2026.

Last year. Uh this year as as the year has come the way it has come. Those Mega projects are not there. So what we've seen is an incredible amount of growth on the smaller projects and and that's what has built up the the momentum this year uh just an incredible amount of growth in in smaller projects uh and we do expect some of those Mega projects to come back in 26 and 27. There's very good progress with several of them, uh, given the reputation that we build for ourselves with some of the ones that we delivered. Uh, we're highly confident that.

Matthew Mckellar: Thanks, Charles McCullough. I'll take it back.

Back on those Mega project Trends, uh, in 26, on top of the growth that we're seeing already on the smaller projects that we're picking up. So, uh, so that's why we're very, very confident about the growth potential for this in in 2026.

Thanks for all the callers. I'll turn it back.

Michelle: Thank you. Our next question comes from Cole Hathorn with Jefferies. Your line is open.

Thank you. Our next question comes from coal. Hawthorne with Jeffrey. Your line is open.

Cole Hathorn: Good morning. Thanks for taking my question. I would just like to follow up on the pulp markets. We have seen Metz fiber take softwood downtime. We are seeing UPM take some softwood downtime in the Nordics, which hopefully reduces inventory levels. You talk about some potential recovery of the fourth quarter and into 2026. I am actually wondering what the lumber duties do to some of the Canadian sawmills and ultimately the pulp mills. With the lumber duties at the moment, does this put some sawmills at risk, which reduces the available fiber to some of your competitor pulp mills? Are we potentially going to see further supply disruptions in Canada now that we have got these lumber duties? I would just like your thoughts around that and who is better placed versus not. Thank you.

Good morning. Thanks for taking my question. Um, I'd just like to follow up on, um, the pulp markets. I mean, we've seen, uh, meta fiber, take software downtime, we're seeing upm take some software downtime, um, in the nordics which hopefully reduces inventory levels, and you talk about um, some potential recovery, the fourth quarter, and into 2026.

And I'm actually wondering what the lumber duties.

Do to some of the Canadian. Um,

Saw mills and ultimately the pulp mills, um, with the lumber duties at the moment, you know, does this put some saw mills at risk, which reduces the available fiber to some of these, um, your competitor pulp mills, you know?

Juan Carlos Bueno: Perfect. Appreciate the call and the question. Yes, you are absolutely right in the diagnosis that you put forward. We share your opinion that with the countervailing duties going.

How are we? Um, potentially going to see further Supply disruptions in Canada, now that we've got these Lumber duties. I just like your, your thoughts around that and um, you know, who's better placed? Uh, versus not thank you.

Michelle: way they have increased, that will put a lot of strain on sawmills in Canada. We would not be surprised if, as a consequence of this increment in the countervailing duties and anti-dumping duties, more sawmills may need to close and shut down. With that, obviously, that would put a lot more pressure on fiber, or access to chips in B.C. in particular. That obviously doesn't play well for any of the mills located in B.C. We feel we're very lucky that we are located where we are located, that we have put in place a strategy two years ago to look at sourcing from the U.S. rather than depending on B.C. As I mentioned in the call earlier, 45% of our fiber is coming from the U.S. We have potential to increase that if we need, and it is very competitive fiber. For us, we don't suffer.

Michelle: We're very well positioned, and we won't suffer if there's further closures of sawmills and whatnot, in comparison to others. I think that any other pulp mill in B.C. in particular, especially those that are further up north, they would suffer the consequence directly. There could be potential for a pulp mill closure or further curtailment in Canada and not only in Finland like we've seen. So yes, that all goes back to some of the reasons why we think that from a pricing perspective for softwood, the trend, no matter how you look at it, is upwards. From a supply perspective, there's going to be further and further constraints. Obviously, if fiber prices go up, that will also push breakeven prices for pulp mills to go up. That kind of sets a little bit of the floor at which softwood can settle. We see it today.

That's a consequence of of this increment in the countervailing duties and anti-dumping duties. Uh, that more Smiles May uh need to close and and shut down. Uh and with that obviously what that would put is a lot more pressure on fiber uh or access to chips in BC in particular, uh that obviously doesn't play well for for any of the most located in BC. Uh, we feel we're very lucky that we've are located where we are located that we have put in place a strategy 2 years ago to look at sourcing from the US rather than depending on BC as I mentioned in in, in the call earlier, 45% of our fiber is coming from the US. Um, we have potential to increase that if we need. Uh, and it is very competitive fiber. Um, so for us, uh, we don't suffer. We're very well positioned and we won't suffer if

there's further, uh,

Closures of sawmills and whatnot, uh, in comparison to others. I, I think that any other, uh,

Michelle: The $700 is probably the floor price right now for softwood, just as it's a little bit below $500 for hardwood. For our mills again, Selgaard, pretty much okay, under that circumstance. In Peace River, obviously, we don't, since we have our own FMA, we have no problem with access to fiber. It's pretty much the country to have more fiber than what we need.

Uh, pulp Mill in, BC in particular, uh, especially those that are further up, north, uh, they would suffer the consequence directly, uh, and and, and there could be potential for for a problem of closure, or further, detailment, in Canada, and not only in Finland, like like we've seen so, so, yes, that that all goes back to some of the reasons why we think that from a pricing perspective for softwood, uh, the trend, no matter how you look at it is upwards, uh, because from a supply perspective, there's going to be further and further constraints. Uh, and obviously if if Fiber prices go up the rollouts of push, uh, Break, Even uh, prices for partners, go up and and that kind of sets a little bit of the floor at, which softwood can settle. So uh so we see it today. Uh the the 700 uh is is probably the floor price right now for softwood, just as it's a little bit below 55.

Richard Short: Expanding on that, I agree with the $700 a ton cost curve support levels. If there was an exit in Canada, it would be material for the solid wood products markets to impact pricing. But if I look at your business in Europe, you are second to first cost quartile in Europe. Is there any disclosure you can give on the relative profitability levels of your pulp operations in Europe versus Canada, just to give a feel for where you are in Europe versus Canada, what the profitability is like in Europe? Maybe just frame the value of those European pulp mills. We had Metsafiber that recently built their expanded pulp mill. The replacement value of those two European assets would be bordering $2 billion. I am just wondering how you see the value of that European pulp mill system.

For hardwood, uh, so for our mills again, seller, uh, pretty much okay, uh, under that circumstance. And in Peace River, obviously, we don't since we have our own FMA. We have no problem with access to fiber. It's pretty much the country; you have more fiber than what we need.

And then maybe expanding on that. I mean, like, I agree with kind of the 700 a ton kind of cost curve, support levels and, um, you know, if, if there was an exit in Canada, it would, it would be material for the softwood markets to to impact pricing. But if I look at your business in Europe, um,

You know, you are second to the first cost quartile in Europe. As any kind of disclosure, can you give us an idea of the relative profitability levels of your pulp operations in Europe versus Canada? Just to kind of give a feel for, um, where you are in Europe versus Canada. What are the profitability levels like in Europe?

Maybe just frame the value of those European pulp mills. I mean, we had Mets of fiber that recently built their expanded pulp mill. But, you know, the replacement value of those two European assets would...

Richard Short: If you can give any color there, that would be helpful.

Michelle: Absolutely. We have a very large pulp mill in Stendal. We are talking 740,000 tons of softwood capacity, and Rosenthal being probably 370 or so. So, one very large and one average-sized pulp mill. However, that average-sized pulp mill, Rosenthal, is an incredibly efficient pulp mill. It runs like clockwork. When it comes to the competitiveness of it, it is up there, and very, very, very high. We feel very confident about the profit stream that comes from Rosenthal. Even in times like these, we are well below, our breakeven point is well below where the market sits nowadays. So, those assets are very competitive. Selgaard, very similar to Rosenthal. It has demonstrated, and last year was testament to that. The profitability of Selgaard last year was just as equivalent as Rosenthal. So, very, very resilient, still positive even with pulp prices at the levels that they are right now.

Be bordering on $2 billion. I'm just wondering how you see the value of that European pulp mill system. If you can give any kind of color there, that would be helpful.

Absolutely. Well we have we have a very large pot Mill in Standalone. Uh we're talking 740,000 tons of softwood capacity. Uh and and Rosenfeld uh being probably 3007 or so. Uh so 1 very large and 1 average sized pot mil uh however

Probably that average size Department. Uh, Rosenthal is is an incredibly efficient, uh, partner. Uh, it runs like clockwork. Uh, so when it comes to the, the competitiveness of it, it is, it is up there, uh, and and very, very, very high. We feel very confident about the, the, The Profit Stream that comes from Rosenthal even in in times like these,

Uh, we're well below. Uh, our break even point is well below for the market sits nowadays. So, so those houses are are very competitive um, essay very similar, uh, to Rosenthal. Uh,

Michelle: When it comes to softwood, even with the prices that we see today, our mills, all of our mills are profitable. Obviously, Stendal being the largest, is obviously we take advantage of those economies of scale and it becomes incredibly resilient. Hardwood is a different story, because obviously we are located in Alberta, and further from markets, logistic costs are more expensive to get the pulp out of there. We are talking Aspen pulp, not eucalyptus grown in Brazil. So obviously, our competitiveness on hardwood is different than when it comes to softwood. In terms of evaluation, I would not be able to give you a number. That would be a guess at this point in time. We are very confident about the high value of the assets that we have in both continents.

the software, even, even with the prices that we see today, uh, are Mills, all of our Mills are are profitable, uh, and obviously, stand up being the, the largest is is obviously we take advantage of those economies of scale and, and

It, it becomes incredibly resilient.

Uh, now hardwood is a different. It's a different story. Uh, because obviously, we're we're located in Alberta, uh, and uh, and further from markets, uh, logistic costs are are are more expensive to get the pulp out of there, and we're talking Aspen pulp, uh, not not eucalyptus grown, uh, in Brazil. So obviously, our our competitiveness on hardwood is different uh, than what it comes to software in terms of valuation. I I I wouldn't be able to to give you a number uh that would that would that would be a guess at this point in time. Uh, but we're we're very confident about the high value of of the assets that we have.

Michelle: Again, the value comes not only from the potential that they are offering today, but what they can also bring in the future. We talk about lignin out of Rosenthal. That could be a very significant revenue stream for the mill. We have a pilot plant that is running. We have plans to build the commercial plant, probably starting in 2027. That is what we aim for, to have a project for commercial facility of lignin. That could generate three times as much value than what we get from energy revenues today. In Stendal, we have a similar project looking also at gasification of black liquor and the potential that that can bring, and the fallback position being lignin on both assets. In Stendal, we have the possibility of CO2 capture, which is what we are doing in Peace River, as we mentioned.

In both, uh, contexts. Again, the value cards are not only from the potential that they are offering today, but what they can also bring in the future. We talk about lining out of Rosenthal, that could be a very significant revenue stream for the mill. We have a pilot plant that is running. Uh, we have plans to build the commercial plant.

Michelle: So there is a lot of potential in the assets beyond what we are doing. That is why we see them incredibly more valuable than just thinking of them as pure pulp assets. We see them strategically as biorefineries, and we want to develop them that way.

Richard Short: Finally, if you permit me, we have heard a lot in Europe around Germany infrastructure spending, and improvements into 2026. I am just wondering how you think about your pallets and lumber business, in particular, exposed to any form of either infrastructure spending or recovery spending if the German government does give tax deductions like they are giving in the U.S. for accelerated depreciation, etc. Will Mercer International be a beneficiary there? Richard Short, just a quick one, are you expecting any energy rebates in your business in Q4 at all from Germany? Thank you.

Probably starting in 2027. Um, that that's what we aim for to have our project for commercial, uh, facility of ligman. Uh, that could generate 3 times as much value than what we get from energy revenues today. Uh, in Rosen in stanza, we have a similar project looking also at at uh, gasification of black liquor and the potential that that can bring, uh, and the fall back position, being lien on both assets and in standard, we have the possibility of CO2 capture which is what we're doing in in peace, reverse, we mentioned. Um, so there's there's a lot of potential in the assets beyond what we're doing. Uh, and that's why we see them incredibly more valuable than just thinking of them as as pure pulp assets. Uh, we see them strategically as biorefineries and we want to develop them that way.

And then finally, if you commit me, I mean we've heard a lot in Europe around, you know, Germany's infrastructure spending and improvements into 2026. I'm just wondering how you think about your pallets and lumber business, in particular exposed to any form of either infrastructure spending or kind of recovery spending if the German government does give tax deductions like they're giving in the US for accelerated depreciation, etc. You know, will...

Michelle: On Germany, what we can see is that, as you well mentioned, this push from the government for further spending is obviously very good news for the country as a whole. It would generate a lot of push for the economy. If we have that push for the economy, that immediately translates into benefits for industry moving goods. If goods are being moved, then pallet prices should go up because pallet demand will obviously pick up naturally. We are very sensitive to any price increase in pallet prices, as I mentioned before. We are very energized by the policies that the current government has laid out and what that would mean for the German economy recovering. Although we recognize that even though they have been announced already and that they are in place already, it does not have an immediate effect.

Immersive. Be a beneficiary there, and then maybe Richard, just a quick one. Are you expecting any energy rebates in your business in Q4 at all from Germany? Thank you.

Yeah, on Germany. What we can see is that as you will mention, uh, this push from the government, uh, for further spending is is obviously, um, very good news for the country as a whole, it would, it would generate a lot of push for the economy. And if we have that push for the economy, that immediately translates into, uh, benefits for industry moving goods. And if goods are being moved, then pallet prices are pallet prices should go up because pallet demand will will obviously pick up, uh, naturally. So and, and we are very sensitive. Very sensitive to any price increasing in in, in Pallet prices as I mentioned before. So we we're very, uh, energized by the policies that the current government has uh, laid out.

Michelle: We do see a gradual improvement, more into the second half of 2026 than earlier than that. We wish it was faster, but I think these things will take time to simmer into all the economy and the different industries as well. Rich, I will pass it on to you to the second part.

And what that would mean for the German economy is recovery, although we recognize that even though they have been announced already and that they're in place already, it doesn't have any immediate effect.

So we we do see a gradual Improvement uh more into the second half of 26 than than earlier than that. We wish it was faster but but I think these things will will take time to simmer into into all the economy and the different Industries as well. Uh rich, I pass it on to you to the second part.

Juan Carlos Bueno: Thanks, Paul. No, we're not expecting any energy rebates in Germany or for Europe in general.

Hey Cole. Yeah, so no, we're not expecting any Energy rebates in in Germany or or Europe in general. Um,

Richard Short: Thank you.

Yeah.

Thank you.

Roger Spitz: Thank you. I am showing no further questions. I would like to turn the call back over to Juan Carlos for closing remarks.

Michelle: Thank you, Michelle, and thanks to you all for joining our call. Rich and I are available to talk more at any time, so don't hesitate to call one of us. Otherwise, we look forward to speaking to you again on our next earnings call in November. Bye for now.

Thank you. I'm showing no further questions. I'd like to turn the call back over to Juan Carlos for closing remarks.

Roger Spitz: Thank you for your participation. This does conclude the program, and you may now disconnect. Everyone, have a great day.

For joining our call, Rich and I are available to talk more at any time, so don't hesitate to call one of us. Otherwise, we look forward to speaking to you again on our next earnings call in November. Bye for now.

Thank you for your participation. This does conclude the program. You may now disconnect. Everyone, have a great day.