Mercer International Inc (MERC) 2020 Q4 法說會逐字稿

Good morning, and welcome to Mercer International's Fourth Quarter 2020 Earnings Conference Call.

On the call today is David Gandossi, 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 Ure.

Please go ahead.

Good morning, everyone.

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

Please note that in this morning's conference call we will make forward-looking statements. And according to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, I'd like to call your attention to the risks related to these statements, which are more fully described in our press release and in the company's filings with the Securities and Exchange Commission.

Our fourth quarter EBITDA was up when compared to Q3, primarily due to improved pulp demand and pricing, record operating results from our wood products segment, solid operating performance from our mills, along with lower wood costs. These positive influences were partially offset by the impact of a weaker U.S. dollar and a slightly heavier annual maintenance program in Q4 when compared to Q3, and reduced government wage subsidies at our Canadian mills. We generated EBITDA in the fourth quarter of about $49.5 million compared to EBITDA of about $45.6 million in Q3.

Our pulp segment contributed EBITDA of $34.8 million, and our wood products segment contributed record quarterly EBITDA of $16.4 million. Our wood products segment results reflect high lumber sales prices in the U.S., strong sales volumes and the benefit of low sawlog prices. As usual, you can find additional segment disclosure in our Form 10-K, which can be found on our website and that of the SEC.

Average quarterly softwood and hardwood pulp prices were up in almost all of our major markets compared to Q3. As a result, our average pulp sales realizations were up almost 30 million -- $30 per tonne this quarter, positively impacting EBITDA by about $18 million compared to the prior quarter. Pulp demand also improved noticeably in Q4, allowing us to sell a quarterly record 563,000 tonnes, which was up about 93,000 tonnes from Q3 and about 39,000 tonnes above production.

Our wood products business continues to perform well. We sold about 104 million board feet of lumber in the quarter, which was down about 14 million board feet from our sales volumes in Q3 primarily due to logistical restrictions during the Christmas holiday season. Electricity sales totaled 251 gigawatt hours in the quarter, which is up relative to Q3 primarily due to strong production at all of our mills in Q4 and Celgar's Q3 30-day curtailment. Our Cariboo pulp joint venture, which is accounted for using the equity method, contributed another 7 gigawatt hours to this total. The Cariboo production is down due to unscheduled maintenance on one of its turbines and will keep it down until mid-February.

We reported a net loss of $13 million for the quarter or $0.20 per share compared to net income of $7.5 million or $0.11 per share in Q3. The decrease in income reflects stronger EBITDA being offset by a decrease in Other Income line of our income statement, including the negative impact of the weaker U.S. dollar on certain U.S. dollar-denominated assets.

Cash generated in the quarter totaled almost $16 million compared to $42 million in Q3. Our cash generation in Q4 was primarily driven by solid EBITDA generation, which was partially offset by increased capital spending and a modest increase in working capital. We invested about $19 million of capital in our mills this quarter, and David will speak more to our spending expectations in 2021.

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

In Q4, our planned maintenance shuts included a successful 5-day shut at Peace River and the final 11 days of a 2-week shut at Rosenthal, compared to Q3 when we successfully executed a short 7-day shut at Celgar and the first 3 days of Rosenthal's shut. The impact of the Q4 maintenance days, including lower production and higher direct costs, reduced Q4 EBITDA by about $7 million compared to Q3. As a reminder: Our competitors that report their results under IFRS are permitted to capitalize the direct costs of their annual maintenance shuts, while we expense our costs in the period of shut completion.

I am pleased to note that in January, we completed an offering of $875 million of senior unsecured notes that will bear interest at 5.125% per year and mature in February 2029. The net proceeds from this offering were used to redeem both our outstanding 6.5% 2024 senior notes and our 7.375% 2025 senior notes, with the remainder being used for general corporate purposes. Subsequent to this transaction, Mercer's earliest senior note redemption is now 2026, and our annual interest expense will be approximately $12 million lower than previously.

And as you will have noted from our press release, our Board has approved a quarterly dividend of $0.065 per share for shareholders of record on March 31, 2021, for which payment will be made on April 7, 2021.

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

Thanks, Dave. And good morning, everyone.

Let me begin by saying that, despite what is looking like the early stages of a global economic recovery, the COVID-19 pandemic remains a major concern. While national vaccine programs are gaining speed, infection rates remain stubbornly high, due in part to new and more infectious mutations of the virus. And as a result, we remain focused on our protocols to ensure the safety of our employees and the ongoing operation of our plants. I would like to thank all our employees for continuing their efforts to keep themselves, their families and our colleagues safe.

I'm pleased with our operating results this quarter. Our mills all ran well, resulting in strong production which allowed us to achieve record annual production of pulp, lumber and energy. Our fourth quarter results also benefited from increasing pulp demand and prices. Combined, our pulp mills set a sales volume record in Q4. NBSK pulp prices in Europe rose steadily through the quarter and prices in the U.S. rose modestly late in the year, while prices in China rose significantly late in Q4. The upward pricing pressure in China at the end of the quarter was due to a number of factors that included low paper producer inventories; unusually high pulp producer downtime; and a global shortage of containers that has limited the volume of pulp into China, combined with a relatively high Chinese currency. This upward pricing pressure in China ultimately pushed prices up in all markets and looks to continue through the first quarter of 2021.

In China, the Q4 average NBSK net price was $637 per tonne, up $65 from Q3. European list prices averaged $880 per tonne in the current quarter compared to $840 per tonne in Q3. The average Q4 net hardwood price in China was $480 per tonne, up almost $40 from Q3. And the hardwood list price in the U.S. market averaged $868 per tonne in Q4, which was flat compared to the prior quarter.

Despite the ongoing challenges created by the pandemic, global economic activity has been buoyed by the rollout of vaccines and indications of ongoing governmental economic support globally. In turn, this has begun to reduce the level of economic uncertainty. Currently, we believe NBSK fundamentals have improved, with low producer inventory levels and a weak U.S. dollar supporting pulp prices. We expect demand to continue to increase through the winter, but we also expect some Chinese market moderation through the Lunar New Year celebration. In addition, we believe we will see moderate demand increases from certain end uses, including printing and writing, as countries continue to slowly reopen their economies. Adding to the positive pulp market fundamentals, we expect that planned pulp mill conversions will positively impact pulp supply. And virgin pulp demand is getting a small boost from an increase in the percentage of virgin fiber going into certain packaging products at the expense of what is becoming a degraded recycled fiber supply.

Overall, we expect the pulp markets to continue their steady recovery in 2021. The current speculation driving NBSK prices up on the Shanghai Futures Exchange may take a slight step back late in Q1, but we remain optimistic that the previously noted supply and demand factors will support future strengthening of the pulp markets from their pandemic-related slowdown. December market statistics reflect steady strong demand, with both NBSK and hardwood inventories down significantly.

With regards to our wood products business, the European lumber market remains steady, with modest upward pricing pressure being driven by the strong U.S. markets near-historical peak pricing late in the quarter and strong demand pull. Our Q4 average lumber sales realization was $467 per thousand board feet compared to $453 in Q3. As Dave noted earlier, this enabled our wood products business to achieve a second consecutive quarterly record level of EBITDA in Q4.

The historically high lumber prices in the U.S., despite some volatility, continue to be driven by a solid housing market and steady home renovation-related demand. The U.S. market supply-demand dynamics are expected to remain favorable through 2021, as the largest American homebuilding companies are all predicting strong sales this year due to low home inventory levels in many areas of the United States, and what are widely expected to be sustained low borrowing costs. The Random Lengths U.S. benchmark for Western S-P-F #2 and better averaged $700 per thousand board feet in Q4, which was down $68 from last quarter. U.S. lumber prices were down mid-quarter before continuing a rapid increase late in Q4 that has been sustained so far in 2021, compared to Q3 which included record lumber prices. The benchmark lumber price is currently close to $945 per thousand board feet.

In Q4, 37% of our lumber sales volumes were in the U.S. market, with the majority of the remainder of our sales in the European market. As we move through Q1, we expect the European lumber market to remain steady, with some modest upside as some European manufacturers move inventory to the U.S. market. Despite this, we expect the U.S. market to stay strong. Our mills ran well this quarter in spite of all the pandemic-related challenges. Including our Cariboo joint venture, we produced almost 524,000 tonnes of pulp, up 44,000 tonnes from Q3. The increase was primarily due to strong production at our pulp mills and the absence of Celgar's Q3 curtailment. Excluding the Cariboo mill, our strong pulp production allowed us to produce 568 gigawatt hours of power, up 39 gigawatt hours from Q3.

Our wood products segment continues to perform at a high level, producing 111 million board feet of lumber, which is up 14 million board feet due to Q3 production interruptions required to tie-in new equipment related to our Phase II expansion project. In Germany, our wood costs, particularly for pulpwood, remain at historically low levels due to the abundance of beetle-damaged wood. We expect this log supply dynamic to last well into 2021. In Western Canada, pulpwood supply has improved due to sawmills running full out to take advantage of the strong U.S. lumbar market. We expect fiber prices to modestly decline but remain at historically high levels into Q1 2021.

We have a significant annual maintenance program planned for 2021, the majority of which is due to the Peace River recovery boiler rebuild. And Stendal will take 23 days of downtime, compared to 6 days in 2020, due to its major maintenance being on an 18-month cycle. All of our major maintenance shuts carry significant risk as a result of the pandemic and the large number of contractors required in the mills. We have developed strict safety protocols to mitigate these risks, and based on our information today, we believe that all this maintenance can be completed safely and effectively.

Our 2021 maintenance schedule is as follows. In Q1, Celgar will take a 20-day annual maintenance shut. In Q2, Stendal will take its 18-month shut that will last 21 days. As well, Cariboo will take an 11-day shut and Peace River will begin its 64-day shut. This extended downtime will be used to rebuild the mill's recovery boiler. You'll recall that the shut was deferred from last year due to the inability of contractors being able to guarantee the availability of skills (sic) [skilled] trade people during the early stages of the pandemic. In Q3, Rosenthal has a 15-day shut planned, and Celgar will take a 4-day mini shut. In Q4, Stendal has a 2-day mini shut planned.

In Q4, we invested roughly $23 million in high-return projects at our mills. Our planned 2021 CapEx program is expected to be about $150 million. Our more modest 2020 CapEx program was focused on the completion of the Friesau Phase II expansion project, along with some smaller high-return productivity and cost reduction initiatives. We also began early work on the production expansion project at Stendal, which will complete in late 2021, with -- when it will increase the total capacity of the mill from 660,000 to 740,000 tonnes per year.

As we begin to look forward into 2021, I remain confident that the effective execution of our strategy will continue to bring us success. We will remain focused on our world-class assets, and our sustainable operations will continue to serve us well as we continue to focus on optimizing our fiber handling and logistics and controlling our costs. I've discussed previously that financial prudence required us to put the growth ambition aspects of our strategy on hold. However, as we look forward to strengthening pulp markets and reduced economic uncertainty, with our balance sheet in good shape and with excellent liquidity, we will begin to refocus on adding shareholder value through growth. And as I've stated previously, any future growth will be in areas where we have core competencies while maintaining the integrity of our balance sheet and our liquidity -- managing our liquidity.

Now there's 3 projects [I] prepared to talk about today. We have -- our Board has approved the, pushing forward with the Stendal sawmill. The project hasn't been approved per se, but the engineering to take us to the next level of getting the permits secured and any subsidies applied for has happened. And we'll be taking that back to the Board late summer, early fall for final approval. We also have approval in principle for 2 woodroom projects, 1 at Celgar, 1 at Peace River. These are projects that will change the way we debark the smaller-diameter logs. Currently, much of that is done with remote chipping in the bush or in satellite yards. We'll put a sixth flail in at Celgar and a batch rotary debarker in at Peace River; reconfigure our truck fleet to -- in Alberta to be 10 axle cut to length, which will allow us to increase the weight on the trucks from roughly 66 tonnes per truckload to almost 88 tonnes per truck, which is a close 40% to 50% improvement. The rotary debarker and centralized chipping at Peace River will result in reducing our wood requirement for the same volume of pulp by about 8.5%. So this is less breakage, less loss of white wood, so it's a really fantastic project.

The cost reduction for both mills is around $20 million per year, which will occur throughout the cycle regardless of pulp prices. The Celgar capital cost is -- the woodroom itself is around $18 million. There'll be some trucks and mobile equipment associated with that. And the Peace River woodroom is about $40 million, again with trucks and mobile equipment associated. Both have about a $20 million EBITDA impact, so -- and there are various carbon-related government grants associated with both projects, so better than 2-year payback on both of those. We're very pleased that the Board has prioritized those. And we'll be making final decisions at the end of this month when the engineering gets to the plus or minus 10% level, and both woodrooms should be up and running by March of next year.

Finally, as you may have seen in our press release earlier this morning, I'm very pleased to welcome Janine North and Alice Laberge to the Mercer Board of Directors. Both these women have tremendous experience both in forest industry, along with other corporate board experience and CEO and senior financial position experience, so we're all very excited that they've agreed to join the Board. And I'm looking forward to working with both of them.

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

(Operator Instructions) And our first question comes from the line of Hamir Patel from CIBC Capital Markets.

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

Well, there's a few situations out there, but it's that time in the cycle where valuation expectations are very high, so it's unlikely that we'll be chasing M&A sawmills at this stage in the cycle. We were pretty keen on the Klausner one in Florida. We thought that would have been a great deal for us for a bunch of different reasons, but as you know, we stepped away from the auction when it got heated. So yes. I think for us the next step in lumber expansion will be Stendal, and I think that'll be a tremendous project for the company.

And then Dave, with the Friesau expansion work being completed this year, what level of lumber output are you targeting this year?

Yes, around about 500 million board feet of lumber there, maybe a little bit more. We haven't decided to put on a third shift at this stage. It's -- stresses things a bit when you push that third shift from a maintenance perspective, but it's -- we're very pleased with the grade improvements that we're seeing and the profile of the wood coming out. Still a little bit of tune-up to do with edge trimming and those sorts of -- like precision and trim on the new planer, those kind of things, but generally everything is working as we had expected.

Our next question comes from the line of Sean Steuart from TD Securities.

A couple of questions. David, would be interested in some further context on your take on pulp momentum right now. It's a spectacular run, off a low base for the commodity. These are mill inventory levels that, while they've fallen dramatically from the peaks we saw last summer, would not normally support this type of price momentum. And I guess you mentioned the Shanghai futures. You mentioned currency shifts and the impact on the cost curve. How much of that is playing into what we're seeing right now? And how do you think about the momentum relative to where inventories are through the system?

Yes. Well, first of all, on the Shanghai futures, my view is that, if you didn't have the fundamentals right in the supply-demand physical side, the futures exchange would be a speculative sort of a thing and more likely a bubble, would heat up and cool off, that kind of thing, but I think physical markets are tight. Hardwood in particular is really tight when you think about the length of the supply chain from most of the hardwood mills to their natural markets. So I think that's the really tight side right now. Softwood is balanced, but having said that, there's quite a bit of supply risk with all the maintenance that's going to happen. There's no new supply coming. Most customers are expecting prices to continue at elevated levels and possibly increase, so everybody is chasing pulp, that -- nobody wants to get behind. Everybody wants more than they can get. And so it's just it's driving itself is really my view, unless something happens that really significantly impacts demand; and I can't see that. It feels like a sustainable sort of a rally here. I mean it's -- the markets are balanced to tight. Inventories are low and demand is strong. And as I was saying earlier, the printing and writing side is coming back off the floor as countries open and as any kind of travel improvements or school forms, or just generally people getting back to work will drive some recovery in printing and writing, which is all incremental on top of where we are today. So...

Okay, a couple of questions on CapEx. So I understand it correctly, the 2 woodroom projects, those aren't Board approved yet, but they are in the $150 million budget for this year. Is that the correct read?

No, they're not in the $150 million. They're -- they will be incremental to that.

Okay, okay. And as we think about a Stendal sawmill, what sort of CapEx budget are you thinking about for a project like that?

Yes. All in, to completion would be around EUR 185 million. Our current thinking is to do it in phases. We haven't established exactly what that looks like, but there's elements of it that we'll -- you do first and get lumber production going. And then I'm thinking some of the log-sorting equipment and lines may come later as step 2, just to -- it's just a logical way to -- there are -- a sawmill is not like a pulp mill. You don't just build a sawmill and then start it up. You have to start it up in sections. And so we're working on what that looks like, but we'll have a lot more to say about it in the summer.

And our next question comes from the line of Andrew Kuske from Crédit Suisse.

I think the question is for David and it's [related] just on the pulp markets. And if you could just give us maybe some color and context on structural end market changes that have happened, that you've seen from really pre COVID to sort of where you are now; and then your thoughts on really the return to normal. And you alluded to a little bit of this with the paper and writing coming back, but color on that would be appreciated.

Yes. Well, I think the at-home tissue has obviously been very strong. The away from home has been weak, but that tends to be more recycle, not as heavy to virgin chemical fiber. Printing and writing is down significantly. A lot of the packaging grades are doing quite well, the brown side is really strong, [our B] board, those kind of things. We see hygiene issues driving more towel and napkin production in time, particularly in areas where it hasn't had great penetration. So we've talked before about say goodbye to all of those forced-air hand dryers. I don't think people are going to be satisfied with cloth towels, hand dryer systems in restaurants and hotels and things like that, so I -- my view is the hygiene side will drive the towel and tissue side even more significantly than we've seen in the past. The general view is printing and writing has been -- like the graphic side, has been declining at some significant percentage per year, 6%, 7%. And with COVID, it's like we dropped 3 years in a row all at once, boom, boom, boom, in demand. As the economies open up, some of that will come back, not to the level that was there pre-COVID, but I -- it will come back to some level and then just to continue a slight decline from there, which is fine because the growth in specialties and other tissue products will eclipse the decline in graphics grades. I mean it's becoming a less and less important market for us on the chemical pulp side.

That was very helpful. And then you mentioned also earlier on the supply side risks that you see on NBSK and a lot of that really being in relation to outages. With your own experiences with just the COVID protocols, what have you learned about doing maintenance turnarounds? Obviously, there's an element of increased costs that just come from an outright basis on the COVID protocols, but also to what degree are they productivity losses? And then what have you learned coming through this?

Yes. Well, there's -- I mean it's so many things, but one of the front-end challenges is making all of those arrangements so your contractors can travel, like making sure that you fully understand what restrictions are at the border and what they're going to need to do to get across, and how you test them and certify that they don't have COVID, how you keep crews apart. So you can imagine these, that it's all kinds of tent infrastructure; separate washroom facilities; canteens, mobile canteens, those kind of things, so that we don't have any cross-contamination between crews. And we certainly keep all our people separate from our contractors and keep our contractors separate from each other. And it's just lots of regular assessments, lots of rules that need to be followed, lots of sanitization protocols, obviously masks and sometimes double masks required if people are working closely together in any kind of circumstances, that kind of thing, so. So far, we think we've got all the border issues well-identified and all our plans in place so that the shuts that are coming up in the coming months -- I think we're -- we've got a clear line of sight on everything we need to do and should be able to conduct our shuts safely, but the risks are changes at the border or that are unforeseen, surprises or, God forbid, any kind of a serious transmission in the mill could slow things down or shut things down for a period of time. So it's not going to go perfectly for everybody. And that's -- it's a lot harder than in normal conditions to conduct these outages safely, as others have found. So yes, just I think the risk is on the supply side, more than a reduction of demand at this stage.

(Operator Instructions) Our next question comes from the line of Andrew Shapiro from Lawndale Capital.

A few follow-up questions from those that were asked. You've discussed, and this may explain it, the potential incremental CapEx on the wood projects. And I understand you want to take a cautious approach. But has the -- have the prospects of the turnaround and the returns on past recent investments given you any clarity on when the dividend might be returned towards prior levels? And what are you monitoring when making the decision that Mercer would be in a comfortable position to start dividend growth again?

Yes. So the Board did discuss the dividend, but in the -- with the number of very high-return projects on the table, it was decided to hold the dividend where it is and pursue these higher-return projects. So financing the Stendal sawmill is going to be challenging for us. We're going to have to work hard to do that in a safe way, thinking some sort of a ring-fence financing that protects bondholders and equity holders from the leavers, but I'm sure that can be done. So I just -- the dividend at its current level is viewed as the right level, considering these other demands on our cash in the short term. [And getting a fair] return from some of these projects, yes.

Yes, sure. No, that makes sense, yes. That's -- we heard that those were some of your plans, but I was just wondering what is it you're looking to, so that when some of these projects, I guess, kick in and the cash flow is generated, then the focus on dividend growth might be coming more to the...

Yes. I don't think the Board's thinking has changed, that the dividend is something to grow over time, but it's always going to be decided in the context of what the highest return is, yes.

Exactly.

Okay. You've talked about some producers with higher costs at the tipping point for closure due to the losses in what was a declining price environment. Can you comment on whether the improved pricing now takes that opportunity off the table? Or there are other factors that might challenge some of that supply out?

Yes. It's, I guess we -- in the last couple of years, we've seen a couple of mills go down. There's -- as we all noticed, there's -- the whole fourth quartile is full of old, smaller mills. These pulp prices are certainly going to help them, help them to keep going, but in the fullness of time, these small higher-cost mills will ultimately become difficult to continue to keep maintaining them. I think there's -- yes, go ahead...

[No, I was going to say if they did a good job].

Yes, no, that's fine. I was just going to say the -- as the economy starts to strengthen, some of the takeaways -- things like dissolving pulp that's been running on paper grade, will -- we're already seeing a lot of that capacity shifting back into the commodity, dissolving pulp side. The fluff markets are stronger. So there's really very little paper-grade Southern softwood coming into the market. So I think that it's a combination of all of these factors that are going to contribute to the restrictions on supply on the chemical softwood side.

You stated previously -- and maybe it's been several quarters ago and it's already been done, but there was still a lot of room for improvement on the power generation at Celgar's side, whether it was to increase the power or the byproduct profitability. Has that all been accomplished? Or is that another one of the CapEx opportunities here?

Well, no. We finalized our deal with BC Hydro, and I think I talked about that on the last call. I think we're pretty satisfied with where we ended up. And it's got some optionality for us going forward, so I think that is what it is, so not much new to report there.

Okay. So there's nothing more that is high on the -- on the table here for investment to enhance further cash flow.

Well, Celgar has always -- Celgar, I think, has -- of all of our mills, it has potential to be expanded. And really, it's really all about what we call blow tanks and larger filtrate tanks. So the Canadian mills tended to be built everything balanced. So that as long as everything runs, it -- everything just keeps running, but if you have an upset somewhere in the system, there isn't really a lot of buffer or storage in between, like, the fiberline and the bleach plant, for example, or between the bleach plant and the dryer. So these big tanks allow -- if you have an upset somewhere, you can run up to 12 hours, continuing to produce pulp in a digester without it going through the bleach plant, for example. Or you can build up from the bleach plant before you go to the dryer. And these, those kind of investments would allow the mill to produce quite a bit more pulp and would therefore lower its costs through fixed cost absorption. We haven't prioritized that just yet. I mean it's really all about getting to a really competitive wood cost for that mill, and that's what the woodroom is all about. That's our first priority. And that's, as I was saying, seeing a $20 million cost reduction to feed the mill at its current state regardless of where you are in the cycle. And it's transaction, like it's the processing costs. It's just how many times you handle the wood and how much weight you can put on a truck, what your yield is through the chipper. Or saying another way, using a centralized woodroom, you have less wood loss. So it's all pretty high level of confidence that it's all going to produce the savings that we expected. And then with that lower wood costs, then we can think about whether we want to go to the next level, to increase the production volume. It's a step down the road.

You guys spoke of CapEx generally being -- not CapEx but the maintenance turnarounds generally being expensed versus competitors and all that. I think it's Peace River, but there's one of your plants that's going to be doing a major rebuild, a boiler worked, et cetera, where insurance proceeds are to be paying for the bulk of it. Is that Peace River? And then when that happens, how is that going to be accounted for? Will it just not go through the expense line? Will it go through the expense line and there will be a below-the-line recovery? How is that supposed to work?

Yes. So the capital work is all paid for by the insurance company, and so it won't hit our P&L or our balance sheet. And then there is also a business interruption component, so depending on what the margins are in the months prior to the shut, there will be some business interruption recovery that would come into our P&L.

And where would you guys put that, as a reduction of cost of goods sold, is it a reduction of SG&A, something further below the line?

Yes, I'm not sure exactly. Richard Short is on the line with me. Or David Ure -- maybe they've got a better idea...

Yes, it'll match where the costs are, so it'll be offset in the same line that the underlying costs are coming from. So you really aren't going to be...

Well, if it's business interruption recovery, where would that be?

Yes. So that would be in costs of goods sold.

Okay, excellent, all right. And you'll call that out in the particular quarter and amounts once it comes through, right?

Oh, I'm sure we'll talk about it, yes, you bet.

Yes.

Last 2 questions here, on can you update us on the status of both the BioFilaments venture as well as Santanol venture and the status, progress, timing of cash flows?

The Performance BioFilaments is still in the development phase. It's our joint venture with Resolute. And one of the leader -- there's a whole number of different applications for BioFilaments that they're working on, but they're also working on masks currently, to improve the performance and help lower the costs to produce masks in Canada. And then the Santanol is -- I think I've talked before, is it's got about another 1.5 years to 2 before we start to harvest. And we'll -- basically the plan is you harvest the trees when they get to be 15 years of age, and our first rotation will be within about 1.5 to 2 years. And then we will harvest 1 year worth, replant, harvest the next, replant and carry on that way. And that's when we'll start to see the cash flow from that operation. And I -- it'll be a -- I mean I don't want to provide guidance at this stage because I can't predict what the market for the oil will be at that time, but we are very pleased with the investment we made there. And I'm sure it's going to produce a nice cash flow for us once we start that harvest.

So starting in about 2 years when that -- there is a batch that turns age 15...

Yes...

Is there a batch every year thereafter?

More or less, yes. It's been -- it was laddered in the way it was developed. I mean there are -- some years might be slightly larger and -- or smaller, but generally there will be a harvest every year. And we'll produce the oil, put it in inventory and have a steady supply of product for the market.

Okay. And my last question I periodically ask. It's a little bit maybe, I don't know, out of place, but at least it's -- you'll do it via virtually. What's the investor relations non-deal road show kind of calendar that you, I guess, plan to attend virtually in the coming quarters?

Yes, maybe Dave could speak to that.

Yes. Probably for the next quarter, we've got 2, I would call them sort of organized IR events. BofA is hosting us next week, on the 24th, for a presentation for their investors. And then we'll also be attending the Raymond James Investor Conference on March 3. And one of the things, one of the trends that we're noticing is that we've got lots of people that are just calling us and not waiting for conferences anymore. So as always, please give David or I a call anytime, and we can set something up ad hoc. We would be pleased to talk to you.

And our next question comes from the line of Sam McGovern from Crédit Suisse.

Earlier on the call, you guys struck a pretty optimistic tone with regard to the duration and potential strength of the pulp pricing environment. With regard to that, what's the ability for you guys to defer any maintenance to capture as much volume as possible if pulp prices remain strong for quite a while?

Yes, Sam, not really much ability there. These maintenance shuts take a lot of coordination. The contractors move from mill to mill to mill. It's kind of all scheduled well in advance, so if we were to step out of that lineup and run, we may have -- well, we would have challenges rescheduling contractors for certain work. And then there's also the regulatory and insurance issues. Like all these pressure vessels and pieces of equipment have maintenance requirements that need to be scheduled in. We're not really in a position to defer any of that maintenance at this point in time, and that's normally the case with pulp mills. They're -- they need to go down when they're scheduled to go down.

(Operator Instructions) Our next question comes from the line of Paul Quinn from RBC Capital Markets.

I guess I'll start on the CapEx side because I think you guided $150 million for the year, plus the 2 woodroom projects. So do we assume that it's half that $58 million in '21?

Say that again? Half? I don't follow...

Well, I'm just wondering. The 2 woodroom projects, are they going to be completed in '21? Is that $58 million all in the '21 budget, or does that spill over to '22? And is it a...

Well, some of that -- yes, some of that will spill over into early '22, but a big chunk of it will be in '21. There's government grants against it as well, though, Paul. There's, you've got $13 million of government incentives, "low carbon" funds so far. And there is some more that we're waiting on to hear. So it's not the full $58 million but -- and a chunk of it is the trucks and the mobile equipment. That will either be -- could be company leased or could be pushed off to contractors and recovered through rates, those sorts of things. So there's lots of optionality in what we're doing.

Okay. So on '21 CapEx I should be thinking somewhere in the $175 million, including some for the woodroom projects?

Yes, that's not a bad number, yes.

Okay. And then just the timing of the Stendal sawmill if the Board approves it at the end of the summer, in the fall. Is that a '23 start?

Yes, yes, probably. The equipment suppliers are, they're up in the 18-month range right now for some of the big pieces, so if you're in the fall of '21, you've got all of '22. And then you're putting it together in the -- somewhere in '23, yes.

Okay. And are we envisioning the same sort of capacity that you've got at Friesau or up at Stendal? Or is that going to be smaller in sum?

It'll be a little smaller, and it'll be a slightly different configuration. Won't be a link, no. It will be queues, I think, but probably 800,000 cubic meter input, something of that size.

Okay. And then you guys referenced the Rosenthal power price. It's come off, and now back on market rates. If you could just help me just understand the impact of that.

Well, today, market rates in Germany are -- I think it's around EUR 45 a megawatt hour. And the green rate, the tariff was around -- between 80 and 85, depending on the season. So it's roughly half of what it was. Just right now, low power rates in Germany are really a result of the lower economic activity. Before COVID, I would have said, yes, within a couple of years the market rate would be more or less equal to what the green rate tariffs were, but they've fallen off as a result of the slowdown in all the industrial activity. They'll come back in time. We expect that, as Germany is moving away from all their coal and lignite, the fired boilers. So it's going to be -- the recovery of power prices and will be -- I think is still something to look forward to, but today it's about EUR 6 million or EUR 7 million hit to their P&L at Rosenthal.

Okay. And then you referenced the German government probably bringing back incentives for green energy. Do you expect to get that in the back half of the year? I.e., should we model this as sort of half that rate in the front half and then -- and back to the full rate in the back half?

Yes, I don't think you can model that, John -- Paul. We don't have any clarity on what's going to happen in the back half of the year at this stage.

All right. And then just maybe overall on pulp pricing. I mean, it's been quite a rally here. And I'm definitely totally missed this one. It looks like many of these pulp rallies in the past, but it sounds like you think it's quite durable here. What are you seeing in terms of prices in China for February and March?

Well, prices are going up, it feels like, in China. I think there -- if you were transacting today, you'd be at $850, $870 type of thing. Spot in all the markets is up, in that $800 to $900 net range...

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

Yes, thanks very much. And thanks, everyone, for joining our call today. And as Dave mentioned earlier, if anybody has further questions, please don't hesitate to reach out. And we look forward to speaking with you again in another quarter.

Thanks very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.