Mercer International Inc (MERC) 2007 Q4 法說會逐字稿

Good morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Mercer International Fourth Quarter 2007 Earnings Conference Call. (OPERATOR INSTRUCTIONS).

Thank you. Ms. Tramont, you may begin your conference.

Thank you. Good morning, and welcome to the Mercer International 2007 Fourth Quarter Earnings Conference Call. Management will begin with formal remarks after which we will take your questions.

Please note that in this morning's conference call, Management will make forward-looking-statements that were made in the press release, 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 the press release and in the Company's filings with the Securities and Exchange Commission.

Joining us from Management on today's call are Jimmy Lee, President and Chairman, and David M. Gandossi, Executive Vice President, Chief Financial Officer and Secretary.

I'd like to turn the call over to Jimmy Lee. Jimmy, please go ahead.

Thanks, Alex. And I'd like to welcome everyone to Mercer International's Fourth Quarter and Year-End Earnings Conference Call. As usual, I will begin by making a few prepared remarks regarding our results, followed by a question and answer period.

We're pleased with our operational performance for the year, as all three of our mills exceed annual production records; and two mills also achieved production records in the fourth quarter.

The added production, along with the higher pulp prices, was a significant contributor to our stronger sales in the year.

Revenues in 2007 were up 13% to EUR 704 million, from EUR 624 million in 2006. While we report our financial results in Euros, it's worthy to note that our sales now are nearly $1 billion.

Pulp markets have been strong all year, which is translated into consecutive price increases. However, we're not satisfied with the current NBSK pricing as it has still not kept up with the higher fiber prices and the weakness of the U.S. dollar.

Our fourth quarter operating EBITDA was EUR 37.2 million, which was down EUR 13 million from the same period last year. This was primarily due to the weaker U.S. dollar and higher fiber prices.

For the full year, 2007, our operating EBITDA was EUR 126.2 million, which was down EUR 22.1 million compared to 2006. This was primarily due to higher pulp prices and more than offsets the higher fiber cost and the impact of the weaker U.S. dollar.

For those of you who are interested in the U.S. dollar EBITDA, we achieved an equivalent of approximately $53 million of EBITDA in the fourth quarter and $173 million for the full year.

In the fourth quarter, we reported net income from operations of EUR 7.3 million Euros or EUR 0.20 per share, compared to EUR 28.6 million or EUR 0.85 per share to the same quarter of last year.

For the year, we reported net income from continuing operations of EUR 22.4 million or EUR 0.62 per share, compared to EUR 69.2 million or EUR 2.80 per share last year.

Our earnings in the fourth quarter included a net pre-tax gain of EUR 5.1 million on our derivative instruments and the marked to market value of our foreign denominated debt. This compared to the same quarter in 2006 when we recorded a net pre-tax gain of EUR 38.6 million. For the year, our earnings included a net pre-tax gain of EUR 31.3 million on our derivative instruments and the marked to market value of our foreign denominated debt, compared to a net pre-tax gain of EUR 121.1 million.

Early in the year, we saw fiber prices [decreasing] significantly, due primarily to the deterioration of the U.S. housing market and its impact on the sawmill operations; but they stabilized in the second half of 2007. As a result, our fibers [costs] were higher relative to the prior period.

Looking ahead in the short-term, we believe that the weak housing market will be largely offset by influences of lower residual supply from sawmills, but also lower demand for residuals from other building materials manufacturers, such as [OSG], we believe that this will mean that we will continue to have relatively stable fiber prices in Germany.

In BC, the picture is less clear, due to the bankruptcy proceedings and the potential sale of the two sawmills that supply over 20% of the fiber to our Celgar mills. Currently, it is unclear what impact these proceedings will have on either our (fiber supply) or prices, but it has the potential to increase our fiber costs at Celgar significantly, as there is a significant curtailment at these mills.

We have been planning for this possibility and have increased our sources of fiber from alternative sources, including additional whole log (chipping) and more U.S. (from source chips).

In addition, we believe the U.S. dollar will remain weak for the foreseeable future, but we expect U.S. dollar denominated prices to continue to face considerable upward pressure.

We have been dedicating considerable efforts to an energy optimization. And, in 2007, we were able to generate and sell more energy than ever before. As significant producers and consumers of energy, we are well-positioned to participate in the growth of the green energy supplies and are working on potential projects to advance these objectives at all of our mills. We hope to have more to report in this in the near future.

The market for NBSK pulp continues to be quite strong and we are optimistic that this will continue. Inventory levels for both the producers and consumers remain at historic lows, at a time when higher cost producers are under pressure from fluctuations in currency and fiber costs.

The average list prices for NBSK pulp in Europe increased during the quarter by about $40 per ton from the previous quarter and currently sits at $880 per ton. This compares to $730 per ton one year ago. In addition, we believe that there is enough foreign exchange and cost pressures to support further increases in the next six months.

Although from a U.S. dollar perspective, NBSK cost prices are at historic highs. From the Canadian and European producers' perspective, the prices are still at what would be deeming trough prices. The bulk of the price increases to date have been due to weak U.S. dollar as well as the increase in input costs, such as wood fiber and not really reflecting the supply/demand balance that presently exists. We believe that with continued demand growth, prices will continue to increase.

The fact that recent capacity increases for eucalyptus pulp have not resulted in any significant reduction in the demand for growth for softwood pulp is a clear indicator of our belief in the continued demand growth for NBSK.

Looking forward, our 2008 scheduled maintenance plans call for the majority of our costs to be spread evenly over the last three quarters of the year with only a small impact on Quarter 1.

With the present depressed state of the lumber markets globally, the challenge for 2008 will be our fiber costs as more chips from whole log chipping will be consumed. We remain focused on increasing margins by reducing costs as well as increasing the mill availability at all operations and improving the return on our byproducts, such as excess power.

That concludes my prepared remarks. So that, on this note, I would be pleased to open the call up for questions.

(OPERATOR INSTRUCTIONS) Your first question will be from the line of Mark Bishop with RBC Capital.

Thank you. Good Morning. Jimmy, just a couple of quick questions first, on the Celgar mill. Maybe you could just give us a little bit more color into the nature of your current fiber supply contracts with the Pope and Talbot mills and what, I guess, if those mills shut down, what if any obligations are to the new owner to supply fiber.

Well, as you know, surprisingly there is a stale with these conditional, of course, certain conditions in (finalize) of the two sawmills (through Enterfore). We, of course, under the bankruptcy, Enterfore--as a condition of that acquisition has eventually not--or has proposed not to have any contract essentially assumed under the purchase agreement--we are in discussions with Enterfore in regards to the situation subsequent to their ownership. And, we are hoping that, of course, prior to all of these conditions being realized, and them being the formal owner, that arrangements would be met in regards to the fiber contract. At this time, our expectations are that whatever the outcome is, the reality is the sawmilling activity--whether it's owned by Propentile or Enterfore--at those mills will be quite insignificant, because of the present condition of the lumber industry as a whole.

So, I think the focus is really to increase the amount of whole log chipping that would be available to us from the sawmills. And, of course, that is something which is very outside of the existing type of arrangements; and, therefore, there will be new types of short-term arrangements which would have to be made. So, to a large degree, although we don't really expect any real issues, but clearly because of the state of the lumber industry, the reality is the bulk of the fiber moving forward likely for Celgar will come from whole log chipping.

Okay. That's fair enough. What was the whole log chipping percent of your fiber supply for Celgar in 2007?

David, do you have that number?

No, I don't. I don't have it exactly; but I would say, going back in time, Mark, we were probably 90% sawmill residuals. And, over the course of the last couple of years, that has continued to shift. And really, as Jimmy mentioned, what's happening is more and more of our sawmills are making more chips than they are lumber. And so, that percentage has grown quite a bit. And, we're also ramping up our wood room significantly to fill in where the sawmills can't keep up. So, I don't know the percentage, but it's significant.

So, in 2008, is it fair to assume that we'd be at least half whole log chipping?

Could be, yeah.

Yeah, I would say so.

And, some of your competitors out in that region, I think had suggested that the differentials costs is upwards of $30 a unit. Is that something that would make sense to you?

We are looking at, of course, the strategy in regards to whole log chipping to reduce the cost. The focus is to essentially optimize the production of chips, whether it's on a contracted basis or done by us. So, I wouldn't dispute the type of increase and its potential cost, but I would say that the focus is to try to, of course, bring those cost contains as much as possible.

Okay. Is there any additional capital that you might spend directed to whole log chipping planned for 2008?

No, I think there is going to be some additional increase in maintenance cost to our own wood room, which, of course, has been under-invested before. And, we do have a program in regards to how we can significantly increase the volume available from our own operations at a nominal type of investment. But, it's not going to be that significant.

As you look forward, are you still planning to fully utilize the additional capacity that you've developed at Celgar? Or, what would your expectation be for 2008 production?

Well, I think we are continuing to increase the production volume out of Celgar. And, our expectations are to continue to do that. We think that the fiber cost pressures are not just to us, but clearly it's an industry-wide issue; and, therefore, part if not all of the cost pressures will ultimately have to be translated into prices.

And, of course, at the end of the day, what is available is just a question of what is the price you're going to pay? And, of course, the kind of feeling to that price is the amount that you can have to whole log chip. And, the better we get at that, of course, the less cost pressures we're going to have.

So, there's not an issue in regards to fiber availability, as such. It's really an issue of what is that cost for fiber and does the demand and supply balance as well as the trends in the industry as a whole support for the increases to compensate for those cost pressures. And, we believe it does, because the cost pressures are actually even more acute for some of the other producers on the coast.

Okay, one more question, and I'll turn it over, Jimmy. Just the CapEx project at Rosenthal, if there's been any more progress. We've obviously seen industry commentary on it, but haven't heard much from the Company directly on it.

Yeah, I mean, of course, we have investigated the potential to increase the production volume in Rosenthal. I think those decisions have been deferred for various reasons. I think one of the primary reasons is the fact that our run rate, both at Stendal and Celgar, on a daily maximum type of basis, which continue to break records, indicates that the potential at those two mills is significant with very little investment.

So, just on maximum daily rates, Stendal has potential to get to the 700,000 or more tons. And, Celgar certainly has potential to get to the 600,000 type of tons.

So, I think that if you look at the cost of investment for the additional tons, of course, it's clear that Stendal and Celgar will continue to produce more tonnage with very little money. So, of course, any increase that Rosenthal--because it will require capital--at this time, we felt that this decision should clearly be deferred. Although, from a margin increase perspective and other benefits, certainly it's clear that the payback potential, certainly for Rosenthal, is quite short.

But, I think there are other opportunities for us. And, various factors went into play in looking at what at the right time for those investments really to occur.

Okay. Thanks, Jimmy. I'll get back in the queue.

Your next question will be from Herve Carreau of CIBC World Markets.

Yes, thank you. Just a question on fiber, but in Europe, the Russian tax on logs is expected to increase to 25% in April of this year. And, I was just wondering if you think that this increase is going through; and if yes, do you foresee any additional pressure on fiber prices on that side?

Well, I think because of the political aspects right now in Russia with the presidential elections, etc., it's probably not likely that there will be any kind of change if they announce a tariff regime. So, my expectation clearly is that those tariffs are likely to be implemented.

The fiber situation, certainly in Finland and Sweden is tight for various reasons. It isn't just the Russian tariff issues, but it's also weather related as well as the lumber activity. Fiber is going to be a big issue for them. For us, we've already had the impact.

And, the other activities like OSP certainly is reduced; and they've been our main competitor for round logs. I think that the situation will kind off-balance each other. And, (inaudible) Austria, you know, a storm very recently, so I don't think that the Austrian end users will be as anxious to purchase wood coming out of Southern Germany. So, I think, all in balance, we think that the conditions, certainly in Germany for us in terms of fiber, will remain stable at these type of elevated levels.

Okay. Thank you.

Your next question will be from the line of Steve Chercover of D.A. Davidson & Company.

Thanks for taking my questions. First of all, in the quarter, you produced about 40 thousand tons more than you sold; and, evidently that's not due to scheduled maintenance in the first quarter, so can you discuss that a little bit? Was there any difficulty in shipping, or was that strategic?

I think most of the build up was a result of shipping issues and logistics issues. Some of it was also related to credit issues of our customers. But, let's say the bulk of the issues were related to logistics.

And, more than half of the inventory build-up was at our Celgar mill; and that was really the congestion at the port-- additional type of volumes which were trying to be shipped by containers from producers, which initially did not rely on that, and availability of empties, oddly enough, at that time.

We are working through that. We are looking at alternatives. It's funny, because it was very clear that the bulk carriers were going to withdraw tonnage out of B.C. So, it's surprising that arrangements had not been made by these producers, which would have been impacted much earlier. But, clearly, there was a bit of chaos. And, we've had difficulty in shipping out contracted volumes. And, the congestion certainly resulted in inventory build-up at Celgar.

Negotiations in terms of shipping rates at the end of last year for our Stendal facility to China resulted in us deferring certain amount of contracted volumes, because of the initial type of rate increases that shipping lines were looking for and the balance--a small amount is really kind of--delays in getting the credit approvals on certain customers, because of financial issues clearly at these operations. So, it's really more of a logistics issue rather than anything else.

So, when you characterize the global softwood pulp inventories as type--yours is still reasonably (type 2)--

Yeah. Celgar side is a little bit higher than what we would have wanted, but I would say that we're not producing for inventory; we're producing, and we have contracted arrangements, it's just that getting the shipment to our end customers has been problematic.

Okay. Switching gears a bit, Jimmy, the energy sales opportunity--can you quantify maybe how big it is? And, I know that even Celgar had the opportunity when it was running at full capacity to be more than self-sufficient. So, are you selling anything that's any power into the grid in British Columbia as well?

Yeah, we are presently selling power out of the Celgar operations, because, of course, the production volumes that we presently have. This, of course, was reducing our energy cost, all because we still use natural gas for the kiln.

Our goal ultimately is to actually have a positive contribution from the energy side; and we are looking at both the opportunities coming from B.C.'s announced called for green power as part of that, which means that we're tightening up the steam consumption, so there will be significant amount of excess steam that we will have available for potentially new turbine, as an example. There is other non-investment related type of programs that we see potential for, in terms of our area where we can better sell the power and get a better rate.

If we do get that green power type of rate, clearly, with the new turbine, the opportunities could be quite significant, upwards of--it's an estimate, because at the end of the day, it's dependent on really what the long-term contract will be; but it will be upwards of the 10+ millions--so clearly, significant type of opportunity there.

In our German area, as you know, we do get compensated for carbon credits. Presently, we don't have the allocation yet; but based on the carbon credit prices moving forward, again, it is likely that they will again have some contribution. At the same time, we are looking at additional type of revenue potential from green power type of rates for the future.

So, I think--and again, that could be quite significant in the sense that 10-plus million Euro type of additions. So, I'm just giving you ball-park type of magnitude number here, but certainly quite significant, if we can implement those energy type of programs.

One last question and I'll turn it over. And, this maybe big picture, but how do you think that the (inaudible) Mass acquisition of the Pope & Talbot mills is going to impact just the general dynamic? I suppose, had one or more of those mills just closed, and that's tightening the situation, and that's good; but will this displace any of your pulp into Asia? I assume that they're doing this from an integration strategy.

I wouldn't call it an integration strategy. I would call it really more of guaranteeing fiber supply for the future.

It's very clear that their long-term strategy has integrated much of the pulp production into paper grades. The big focus, in regards to tissue as part of that strategy, they've made it very known that if they continue to expand on the tissue side, their requirement for additional softwood fiber will be somewhere in the range of (3 plus 400 thousand) tons of additional type of requirement. They see that there is really no new capacity coming on, in fact, additional potential for capacity closure.

So, this is really more of a strategic occurrence for them in regards to supply rather than pure integration issues offsetting existing volumes. I think this is really looking forward to what their demands picture looks like, based on their product strategy. And, they feel insecure and, therefore, they wanted to buy a West Coast pulp mill.

What it means is that really you have a buyer which is not strictly there for the economics of selling pulp, but really there to assure fiber availability. And so, clearly, the competitive structure on the coast will change in the sense that they're driven, not because of just the P&L issue, but really driven by fiber security.

And so, that means, clearly, the other producers on the coast have to look at it in a different type of reality, where you really have a competitor who is not looking at it strictly on the earnings type of number.

So, is it one-word answer? Is it a good or a bad thing?

Well, I mean, it would have been a good thing for those old mills to close for everyone. But, at the end of the day, I think the fiber situation and the other cost things will probably mean that it will be capacity closures. It just means that the competition for the fiber on the coast for the other guys has changed, because I think everyone was of the opinion it's likely that [Harmax] was a weak producer.

So, they need to assess whether they want to continue to operate in this business where clearly fiber cost and other costs are going up.

Okay. Thank you.

Your next question will be from the line of Ben Carlin with AG Edwards.

Jimmy?

Yes.

I wanted to--I was wondering if you could address the balance sheet a little bit. I know there has been significant debt pay-down. What is the expected structured debt pay-down in '08 and your interest cost, which came down from 91 million to 71 million '06 to '07? What do you see that interest number declining to in '08?

Most of the reduction in debt was the result of the scheduled principal repayment on the Stendal facility. And, if you look at the interest rates decline, of course, that was a lot more significant than the actual principal reductions. And, the bulk of that decline in interest cost was the result of the unwinding of the currency swaps that we had versus 2006 and 2007. The swaps became more expensive, as you know, because of the increase in interest rates in the U.S. versus the European interest rate--environment. And, that was one of the reasons this year. Although we felt that weakness in the U.S. dollar was still going to be an issue, it was more expensive for us to carry such an insurance. And, that's why we didn't enter into any swap this year.

The interest rates, clearly, are probably going to be similar in '08 as to what they were in '07, because of course the Stendal loan that has been swapped for a long-term fixed interest rate. So, that's not going to change; and our other debts, of course, are all fixed. So, not much change in the interest rates. The principal reduction on the Stendal this year essentially is about 30-something million Euros. So, that's really the only burden.

Thank you.

Your next question will be from the line of Eric Seeve of Golden Tree.

Hi. I have a few questions. First, I was hoping that you could break down those sales volumes and production volumes by mill.

David, do you want to--?

Sure. Okay, do production first. Rosenthal at 85.5, Stendal at 160.1, and Celgar at 123.6--so those are thousands of tons produced in the quarter. And on sales volumes for Rosenthal, 75.5; Stendal, 147.8; Celgar, 99.6.

Great. And, just a quick follow-up on the previous discussion on higher inventory levels--is that an issue that is--are the shipping constraints--is that an issue that has been resolved? And, do you expect that--those levels to come down by the end of the first quarter as some that will last longer? And also, can you elaborate a bit on--you alluded to some customer credit concern issues.

We are making arrangements in regards to the logistics issues so that--and also the availability of empties has improved. So, it's a process which will take time. So, it's not something that all of a sudden we're going to get these massive shipments out of our warehouses so we're going to see a similar dramatic drop. It's a process that will continue through the first half easily before inventory starts to become in line with what we traditionally had run with.

In terms of the credit issues, I wouldn't call it a significant problem. It's just that a lot of the customers are close to the maximum insured limits that we have. And so, until they pay down, of course, we have to defer our shipments. It's a question of timing rather than any expectation that any of our large customers are going to have a problem. It impacts more the smaller type of customers; but at the same time, one or two of the larger ones also have--because of the timing of the payments, sometimes we have to delay shipment.

Thank you. Next question, can you address a-- SG&A expense was a lot higher, both on a consolidated basis and a restricted basis, in the fourth quarter than it had been in third quarter. Is the rate in the fourth quarter, is that more indicative of what we'll see going forward? Or, was it abnormally high for any reason?

Well-- SG&A contains other items. I think David can clarify that for you.

Yeah, Eric. We have reclassified some of our selling expenses that we used to report in cost of sales. So, it's purely an accounting thing. So, the run rate going forward in G&A is, I think, is what you should expect to see. It's a fairly stable thing; it's not a lot of jumpy stuff in there. It's just accounting reclassification.

Thank you. Next question -- I would have thought, based on your commentary on the European fiber markets, given that it sounds like residual chips should be more available than whole log chips, given what we're seeing in the OSB industry. I would have thought it would have boded--it would have implied Rosenthal would have had a strong quarter and Stendal would have had a more challenging quarter. Yet, it seems like the reverse was true. Is that statement fair? And if so, what are the factors that led to that?

No, I don't think that the quarter was more challenging for Rosenthal. In fact, I think it was more challenging for Stendal. Moving forward, we believe that the sawmilling activity, certainly in Germany, will be significantly reduced. And so, availability of chips will be constrained.

So, even Rosenthal, which traditionally ran the bulk of their production through sawmill residuals, will likely have to increase the component of chips produced from whole log. Stendal, which relied more on pulp logs in the past, it had been in competition with OSB manufacturers, because they--in Germany, they produced the OSB primarily from the whole log as the raw material.

And, because they, of course, don't have quite the pricing powers like in the past, we think that pulp log certainly, in terms of prices, probably will start to moderate. And, that's why on balance, we think the net impact will be a stable type of fiber at these type levels.

All right. Thank you very much.

Your next question will be from Aaron Rickles of Oppenheimer.

Good Morning. I have a bunch of probably boring questions. Could you guys just give us the maintenance schedule in a mill by mill basis as well as how many days of down time you expect to take?

David, do you want to--?

Yeah, sure.

Celgar--

Scheduled throughout the year, so it's going to be pretty much consistent, but the actual (INTERPOSING)--So, Celgar is going to do their shut in the second quarter, and it'll be about 11 days. And then, Rosenthal is going to be the third quarter for 10 days; and Stendal will be in the fourth quarter for 9 days.

Great. The CapEx for the fourth quarter at the restricted group--and then if you could talk about CapEx for 2008 on a both consolidated and restricted basis?

Yeah, CapEx in the fourth quarter for Rosenthal was 1.3, for Stendal was 0.2, and for Celgar was 1.5.

And for '08?

For '08, our budget is EUR 20 million, which is 5 at Rosenthal, 10 at Stendal, and 5.7 at Celgar. And, some of that money at Stendal, obviously, is part of the EPC settlement funds that we got last year that we'll be spending on the projects this year.

Okay. I noticed that you booked an (emissions) credit in the fourth quarter. Can you talk about 2008, where your expectations are for that?

Basically, we had sold forward significant amounts of emission credit early on in the year. And, of course, it came for settlement at the end of year. That's why we had a higher level of revenue from the emission credits than one would expect, based on the fact that the credits are trading in pennies or 0.07 or so today. So, we are fortunate there.

We really don't quite know what the allotments will be yet for '08 and forward; but we believe that there will be some contribution, certainly, and more so in terms of our Stendal operations, because of the fact it is a new mill, et cetera, than Rosenthal.

Okay. That's helpful. The balance outstanding on the Celgar credit facility at the end of the year, and Rosenthal, if there was one?

Aaron, it's a C$ 40 million Canadian facility, and it has C$ 22 drawn on it.

And then, anything on Rosenthal or not?

Rosenthal is a EUR 40 million facility, and there's nothing drawn on it.

Okay. Hopefully, that's the end of this, because this is a really boring question. The cost to implement the Celgar Energy Program you talked about, which sounds pretty interesting, do you have a sense of sort of how that would play out over time? How long do you think it would take to sort of achieve that kind of 10 million contribution, rough numbers, and what it would cost you to get there?

Well, it is very much dependent on actually getting a firm understanding of the energy purchase arrangements that the province of BC will have in regards (inaudible) to new renewable green type of power. But, we feel comfortable that we should proceed with the separate projects. So, these type of things are based on equipment delivery issues. And, the most sensitive issues really deter buying. And, deter buying delivery time can be somewhere in the range of 18 months plus.

So, this is not a project that will happen, clearly this year. And, even if it does happen, it will be more like 2010 type of impact, rather than 2009.

Are you--do you have to currently spend in 2008 to prepare for that or put down deposit? What's the sort of expense that we should expect?

Well, we do have certain--let's say, for us to ensure delivery time, etc. There are deposits that we are likely to make. We don't think that it's material in any way. We don't really have to spend any real material amount in regards to the engineering or anything else. So, in that regard, it's not going to have an impact in regards to our costs.

Okay. The other topic--there are two others. But, one--I guess sticking with Celgar, anyway. I think people will start to ask about this, but the ports--it sounds like they were backed up in Q4. Are they currently backed up in a way that you're continuing to build additional inventories at Celgar? Or, is it at least sort of in balance on a run rate basis?

Well, I think what we had was a build up, which built up and it started to thaw out. So, I guess, in the first part of the year, you probably will see inventory build-up higher than what we had at the end of the year. And now, we're starting to eat away at it. And, I think once the Chinese New Year, which is now over, we'll get additional volume, which could accelerate the process of reducing those inventories.

But for Q1, we should probably look for shipments in production at Celgar to be roughly equal, or not so?

Well, I think you had the first part of the year with--we still had this backlog. So, I would say that's--we still would have an imbalance.

Okay. Sure. Last one. It was interesting that you mentioned that you were expecting German sawmilling activity to slow. And, I was wondering what sort of time frame are you referring to? Going back, I think you had talked about and actually several new German sawmills coming online, and potentially over the long run, additional German fiber being available to market. How do those comments sort of jive with the slowdown in terms of-- (inaudible)

There--some mills there basically have continued to implement their capital investments. So, in terms of the capacity, certainly, with the capacities that we had that's a given, in regards to future expansion, has occurred or will conclude, because of course the fact that these projects were put on the drawing board much earlier.

What we're faced with really is at the end of last year, we saw the lumber markets, even in Germany, undergoing weakness; and the ability to export into other non-traditional areas also became weak, because of competition from many suppliers. And, as a result, they had a sudden type of weak market conditions, which resulted in them taking production curtailments. And, this type of activity is likely to continue.

So, although the capacity expansion has occurred, the reality is they're not taking full advantage of those capacities, because of the general market conditions. And, it's not likely until the global housing market conditions stabilize that the sawmilling activity will ratchet up to the levels that they had anticipated.

Okay. That makes sense. Thanks.

Your next question will be from the line of Marcello Luna of Deutsche Bank.

Good Morning, Jimmy. I'm interesting in hearing your comments on what do you see is the outlook for the pulp markets going forward, especially in light of with seeing increasing substitution where paper companies have been increasing consumption of (inaudible) to pulp in detriment of NBSK. And also, I would be interested in hearing your comments on your views in pricing going forward. Thank you.

Yeah, I mean, I wouldn't necessarily say that you had substitution of NBSK by hardwood. I think what you have, of course, is continuing substitution by the paper makers who used the cheaper fibers. So, you're going from NBSK to (Ratiata) type of grades and Ratiata guys going more to the hardwood guys. So, it's not a one-to-one substitution where all of a sudden eucalyptus end users all of a sudden replace it with eucalyptus. It's really a process of, I guess, the less premium type of grade being used full at the same production. If you look at actually the rate of growth, in terms of softwood demand, considering the increase in the gap in prices last year--in fact, there was a reversal in terms of the rate of the [bankrupt]. In fact, the opposite has been occurring in the sense that, although the price gap between soft and hardwood became wider, all of a sudden the consumption rate was increasing. And, I think what is happening, really, is the fact that last year, we had, of course, new capacity in Ratiata, which had to be absorbed. It got absorbed.

We of course had significant closures at the end of '06 and throughout '07. And, I think we will further see that. Oddly enough, the eucalyptus grade is very tight.

And, this is probably the result of several unexpected type of events--he Indonesian wood situation, the (price) in Korea, the probably the fact that everyone who was expecting the prices will drop for eucalyptus, so they reduced the purchasing. So, everybody was running in in anticipation that prices will reduce. So, clearly, inventory levels were very, very low. You also had the issue related to closures of highly-polluting pulp mills in China.

So, I think all these factors played in quite significantly in maintaining the support for eucalyptus pulp demand. And, that's why you're seeing increases in China right now. Actually the price differential between eucalyptus and NBSK is such that it's essentially the same. It's not--eucalyptus may be even slightly higher.

That will mean that there's really more motivation on the part of paper makers to actually buy softwood and NBSK rather than eucalyptus, because clearly it's easier to use more premium fibers than weaker fibers in many of these instances.

So, we don't think moving forward that the present situation is negative for softwood in NBSK. In fact, we think it's a positive development, because the eucalyptus issue was the one which has always been the argument for why softwood prices will have to drop. So, we're seeing that rather than a drop in hardwood price, we're seeing now an increase in hardwood prices and for the reasons I've given. And, I think that this should support clearly further type of strengthening in terms of softwood. I hope that answers your question.

Exactly. In terms of--it seems that last year, for instance, demand for (pulp) year-over-year was growing at maybe above 15%; and the NBSK, apparently flat or declining in that year-over-year basis, would you expect that to continue to happen going forward? Or, you would expect to recover in demand for NBSK in '08 and '09?

I think that basically, if you look at the overall softwood demand growth, it has averaged on a positive. If you look at just NBSK demand growth, then it was flat to possibly a little bit negative. And, that's because clearly the substitution issue in terms of the Ratiata, because of the increase in capacity out of Chile last year accounts for that.

So, if you look at the overall softwood supply and demand balance, it is still quite positive. And, the demand certainly for softwood is continuing to grow at about 1.5% to 2% range. And, this has been kind of like the historic type of growth rate.

And so, we don't really expect that to change. It's a gradual process. In terms of the eucalyptus grade, clearly the demand growth will be probably similar, but at the same time, capacity growth, of course, is significant.

Great. Just a last quick question--in terms of pricing, near-term, you--it also seems that just by--in our conversations with eucalyptus hardwood producers, it seems that there is still a lot of demand companies that have not been able to meet all the incoming pulp orders. And, on the other hand, on the softwood and maybe NBSK side, it seems that the market is a little more balanced now. So, would you expect prices to continue to move up in softwood in NBSK in the near-term? Or, you would agree with the fact that maybe the market now is more balanced, and prices could stay where they are?

Well, I think toward the end of the year, there was, of course, certain issues that took place which kind of has influenced, I think, the perceptions, in regards to spot market availability of softwood, in particular NBSK. If you look at Pope & Talbot's bankruptcy, you know, clearly that results in loss--lot of volume that all of a sudden is going to be available for liquidation. And, that's one.

The second is a certain amount of volume, which was de-integrated in the sense that they were not using it for paper production, so you had swap tonnages to come available. So, I think in the short-term, there are perceptions that there is a more supply than demand. I would say probably in the short-term, there is a slight imbalance because of this issue, but moving forward, the balance still is very positive.

So, we don't think this short-term type of situation will have really an influence in regards to the present price momentum, which continues to be upward, because the cost pressures are acute, whether you talk about fiber or freight.

So, I don't see how softwood prices can all of a sudden drop, because people will lose a hell of a lot of money if prices drop from here. And, that's the reality. So, I don't think that a weakness, per se, for an extended period of time, whether the supply and demand balance is not in balance is likely to occur for a length of time.

Great. This is very helpful. Thanks very much.

Your next question will be from Patrick Wang of SCM Advisors.

Jimmy, a question on the fiber situation in Celgar. What's the current ratio between the chips and the logs on a fiber supply for Celgar?

You mean in terms of the ratio of chips that they use verses pulp logs?

Right.

Well, you know historically, Celgar's operational is 90+% chips; and pulp logs were a very small component of that. But, moving forward, we think that clearly it is going to be a much larger component to our raw material until the sawmilling industry recovers.

Right. So, you mentioned 50-50. You're thinking that's more like a blend for 2008?

Well, it's certainly moving forward into 2008. We don't think that there is going to be a recovery. So, 2008--probably that's the case. 2009 is real--it will depend on when the housing situation starts to turn in the U.S.

Right. And, then the cost inflation of chip verses logs is what, $20 per cubic meter? Or, what's the cost difference?

They're in that type of range. It really does depend on the location of the chip supply, et cetera, the pulp log chip or et cetera, but the magnitude clearly is in those type ranges.

Right. Okay. And, on the accounting treatment of the production, volume verses sales shipment volume--so the production costs will hit you or cost of sales, but if you don't ship it, it stays in inventory, you don't get to recognize the revenue. Is that correct?

Yes.

So, the 34 million (Euros) short fall in the restricted group--if you think 850 per ton sales price--that's potentially 34 million (Euros) that revenue you're missing out on--it didn't get recognized. But, it could be recognized in the second quarter, or the first quarter, rather, if you ship those inventories to China?

Yeah, I mean clearly, there is a build up of potential revenue based on the inventories. But, it won't happen in the first quarter. It will be throughout probably the first half of the year.

Have the recent storms in Southern China disrupt any of the shipments lately?

The shipments really have been influenced by availability of empty containers and port congestion and railcars than anything else.

Right. Have those issues been resolved in any of the shipping rates in the credit approval? Have those been resolved lately as of today?

Well, it's an ongoing issue, because of course we need to get more railcars being allotted. We need to get more empties being released and scheduling the vessels. This is something ongoing. It's not something that all of a sudden, it gets solved. It's a process. We are looking at alternative type of shipments. We're looking at larger (rate) bulk type of shipments rather than individual lot orders that we shipped in the past.

So, there are lots of things happening to address this logistics issue.

The shipping rates--the inflation will be absorbed by Mercer or by the Chinese buyers?

Well, we sell on a net basis. So, clearly, it's a cost item that we need to contain. And, as I said, the combination of much higher--this is an industry problem. It isn't just isolated to Celgar. It's an impact which affects all of the West Coast producers and, therefore, the fiber and the freight issues will translate ultimately into fiber prices in China.

Right. The last question--on the CapEx on the restricted group--it's 1.3 for Rosenthal and then 1.5 for Celgar--so a total of 2.8 for the quarter?

Yes.

Okay. But, that's significantly below your D&A of EUR 7 million. So, what's the guidance for '08 for the restricted group CapEx?

It's EUR 5 million for Rosenthal, and EUR 5.7 for Celgar.

Oh, okay, got you. All right, thank you.

Your next question will be Andrew Shapiro of Lawndale.

Hi.

Good Morning.

I'm trying to put together here, if we can, to understand your balance sheet and cash policies a little bit better going off of (inaudible) earlier questions. You've said the CapEx for 2008 is going to be around EUR 20 million. Your current interest expense, because much of it's fixed, is around EUR 60 million. I want to first off confirm this is Euros or dollars?

Euros

Euros, okay. So, we're on apples to apples. All right. And, you have an EBITDA run rate here that is quite a bit more sizable than all that. So, we're building up cash. Your balance sheet shows it already. This last quarter, it ended with around EUR 85 million, and you also paid down some debt. So, the enterprise value of the Company, given that their stock price has been so much stagnant going down, has declined, and our EBITDA's come up a bit. The Company's stock seems to be an interesting value for which there would be a buy-back--or ought to be a buy-back or the issue of a dividend policy needs to take greater precedence. What is the discussion amongst the Board and the views here of Management regarding the Company's build up of cash balances or pay-down of debt for the coming year and the timing of discussion of a creation of a recurring, but modest dividend?

Clearly, we are looking at what the restrictions are in terms of our Senior notes and the historic type of ratios that we presently have, which would allow the flexibility for us to do the share buy-back distribution, as well as even considering repurchase of the convertible debts, etc. And, because of the fact that the recent ratios were [par averaged] over the 12 month type of periods, the actual availability of discretionary cash under the Senior note covenant, still is not that significant. It's there, but it's not something that we feel that is really of a nature that we can move forward and implement a certain--like a buy-back policy that would have any real meaning, or even a distribution at this time.

Clearly, it is clear and up front in our thinking. And, it's something that we--as we move forward, we have to continue to update the ratios and see what room that we have, because there is availability in the facility, but these are ones which do not give the flexibility for us to reload and should really be there for emergency type of issues.

And so, in a real free cash--right now, because of the 12-month type of history, really that having a significant number. That probably will change; and as we move forward, clearly we will see what type of policy that can be adopted as a result of those ratios.

Well, it sounds like one of the triggers here is a trailing 12-month measure, which as we all know, as one new quarter rolls on, an old quarter or bad quarter rolls off--the picture could change quite sizably, quite quickly regarding, I guess we'll call it that excess measurement.

But, let's just look at the particular debt structure, if you could recall for me here this issue. There are two different items. It sounds like you need to describe the Senior notes. These are the notes that are of what outstanding dollar or Euro balance and what interest rate? These are the high interest rate Senior notes that are the impediment?

Yes.

So, they are already the high-cost paper. What's the size of this traunch, and what are the terms under which the Company could buy, use its excess cash, and buy back or retire that debt piece?

Yes, clearly, that is a lot more flexible in terms of the Senior note repurchases.

That's not cheap paper anyway. That's very costly to the Company already.

It is expensive. And, before this year, in fact, they did trade at parity and even with the sub prime crisis, has traded above the 90-plus type of range for an extended time. It's only recently that we've seen that the markets have deteriorated more to the 80s. And, that's something, clearly we've indicated in the past, is an interesting type of--

You're not precluded from buying those, right?

Yeah. We have no--

You guys--why would you guys be buying those things like eating cereal in the morning?

Well, until recently, as I earlier indicated, the bonds were not at these types of levels. In fact, we did enjoy a reasonable type of pricing. And, it's only recently that we've kind of deteriorated to these types of levels.

Well, in the bond market, you guys could just be the bid. The price won't necessarily deteriorate. Why play games? I mean, just be there at 85 or whatever the price is the Board decides; and the bonds will never go lower. But, at the same time, you're buying every bond that you see.

Clearly, we have built up in cash; but at the same time, we are in a cyclical business, and we have to look at what we have to do in regards to our raw material issues.

Right, but you're generating huge amounts of excess cash flow that you're taking out, Jimmy.

Pardon me?

You're generating sizable and increasing amounts of excess cash flow. And, what you're taking out is debt. I appreciate the concern about the cyclical business and the buying back and retiring of shares.

Yes.

But, when you're taking out debt, you're actually addressing a risk to a cyclical business.

Yeah, I mean, clearly the Senior notes are a very interesting proposition at this time. So, it's something that is just developed, if you look at the last few months. It's only started to deteriorate; and it's something that clearly is of good interest to us. I would never preclude the possibility that we are more active in that market.

I mean I--why wouldn't you just call a special meeting of the Board of Directors, get authorization, and go in there and--now you're on the bid, and yeah, you're getting some bonds here and there; but why wait until after the market deteriorates? You want to be there when the market deteriorates.

Yeah, it's clearly something that we are looking at, and we need to focus in terms of that use of the cash resources.

Okay. I mean, the debt levels of this Company are a continual issue to many equity investors on this call and those who are thinking of investing. And, even though they don't understand the attractive structure, et cetera, that you have--the German government guarantees on your Stendal that low subsidized interest rates and all that--these people don't understand that. You know, you've got high-cost Senior debt that's out there that apparently is being cited as an excuse not to be able to establish a dividend policy of--and is also something that causes risk for the cyclical economies and cyclical--

If you look at our overall debt and what we've been able to do in terms of cash, we continued to reduce our long-term debt. So, I don't think that the Company has not addressed the issue in regards to trying to reduce long-term debt. We have; we continue to pay down the Stendal debt, as you know. We've bought back the convertible notes.

So, it is an issue that the Company clearly is addressing and will continue to (INTERPOSING)--

I know. I guess I get from your vibes here, though, that it's not--I don't feel like it's the action item is either high priority or is aggressively being sought, when it's the dealing of taking out debt in a cyclical economy where there's concern, maybe, of weakness, etc., out there. And the debt levels do get in the way of some analytical attention. And, we see EUR 85 million of cash--cash build-up. Those Senior notes are saying, "Well, we're--opportunity might come; it might not." It just seems like-- there's an opportunity; we're going to have a Board meeting. It really seems like it would be a good use of cash.

Yeah, I think we have to look at the fact that we have a billion-dollar business. We've got significant amount of debt in a cyclical industry. Although, the cash that we've got presently into cash flow, expectations are clearly safe. But, it is important for a company that has a much larger gearing than the equity that we do have to husband our cash resources, because clearly the equity markets are not favorable for us to tap easily. And, we need to conserve the cash resources at a time where the credit markets, as well as the equity markets, clearly may not be easily available for us if there were unexpected issues. And, we need to off-balance the husbanding and the security issue against the attractiveness of buying back high-cost debt.

And so, we're not saying that this is not an issue that is on the table. It is on the table. But, it is one of the issues that we have to see how comfortable are we in regards to the market conditions moving forward.

We only are into February. And, you know it's a Chinese New Year, it's difficult to estimate what the Chinese market conditions are likely to be. It looks positive.

So, all of these factors have to take into consideration before we can really move forward and say, "Okay, this is what we would like to do with the present cash flow and cash resources."

So, we are looking at redoing some of the way we purchase our wood supply, which will require a certain amount of cash. And, this is to reduce cost, and credit is not so easily available to replace some of these type of things.

Well, how big is your Senior notes--this costly Senior note--and what's its interest rate?

Well, the Senior notes is EUR 310 million, and of course, it's 9.25.

Okay. And then, you have--

Today, it's--on the market, it's probably yielding 12%.

12%. Okay. And then you have a convert. Now, this convert, while it's due in 2010, is of what size and it's in the money, and you can call it early in what--October of this year--only six months from now?

Yeah, there is a call provision as long as the stock is trading 20% to the conversion rate for 20-day period. So, the size is about EUR 50 million left.

Okay, 50 million.

50 to 60 or so--between 50 (inaudible).

Okay. And the rate on this thing?

The interest rate--

8.5.

8.5.

Okay, so it's a high-cost convert, and the strike price is 7.75, and you're allowed to call it in October if the stock price is where?

At 20% to the--

20% through it?

The conversion price--it's about--it has to trade in the 9 and something for a 20-day period.

Okay. So, the trade's in the 9s, and you're in October, which is when I think it is--you can call it all of a sudden, $50 million of debt is gone, because we're already counting the fully diluted shares against the Company.

Right.

Because, it's in the money. So, the fully diluted shares are killing us on the EPS side. This would be another good piece of debt to be removed--

Absolutely. That part of the debt would be very important to remove.

And, that's about $4 million--$4.5 million a year of cash interest cost.

Uh-hum.

So now, we talked about your CapEx. We talked about your interest expense, your excess cash flow that you're currently on a run rate, dividend buy-back debt policy. My next question is then, you mentioned potential opportunities that you might have to generate electricity for sale to the grid. Can you give a handle on what you think the capital investment would be and the pay-back periods would be for such an investment? And, is this just solely just a British Columbia Canada? Or, is it also a German project?

Well, I mean, the German situation is not really related to capital, but really is more in regards to the policies of the government in regard to renewable energy type of pricing.

So, depending on the outcome of their legal policies, we may get a break towards 2009, in terms of their renewable energy program, which will have a bump. That means that also at the same time, we will not get carbon credit emission credit. So, it's a positive, but it also takes away a negative, but clearly carbon emission credit is more cyclical--it's better to have something which is more of assurance. So, that would have a more stable type of cash flow. But, that won't happen until after '09. So, it's not going to be this year.

In terms of capital investments at Celgar, as I said, a new turbine--you're talking capital costs, which will be close to the C$50 million type of range. And, this won't happen at least for two years.

Now, a lot of that clearly could be financed through alternative means. We don't need to have a lot of capital, because clearly it's going to be a power sold to utility. And, there are other ways to finance those projects.

Well, if that's the case, then you're actually helping define or refine the issue for us. And, we're now almost a 5% shareholder, which is this Board and the Company needs to aggressively deal with its investment opportunities, which seem to me to be--one of them is a high-cost debt to be more aggressively managed and taken down to the extent anyone fears this economy. And, I'm not fearful about what you guys are doing. I'm happy with what you're doing, but if they're fearful of the economy, then taking out some of this debt that's maturing anyway--not in the too far-distant future, but taking it out early isn't a bad idea.

Yeah, clearly it is a cost that we will address. And, right now, we do have the benefit of the fact that we don't have debts which are going to mature in a very difficult market. So, we do have the luxury of that. And at the same time, based on the present market conditions, that we do have to look at the use of the cash and have some reasonable amounts of stability for unexpected type of events. And, the raw material issue, as I said earlier, is really going to be the main issues moving forward.

What's the cost of drawing on those revolving facilities for you?

The revolvers, certainly in Celgar, are actively used in regards to the receivables, etc. In terms of the Rosenthal, it is low-cost, and we intend to look at that as a key component in terms of our raw materials strategy moving forward.

All right.

So, it is important that, with the changing raw material environment, that we have to rethink the way that we purchase raw materials.

I mean, your debt was put in before Stendal was up and running. You've proven Stendal; it's up and running; you can prove your production capacity at Celgar; Canadian capacity has closed down. I'm at a loss as to why this Company could not restructure or refinance its high-cost debt with a lower-cost package.

You mean the Senior notes package?

Seniors convert to the whole kit and caboodle. Other than you-- (inaudible) Stendal loan, of course.

Yeah, that one will be difficult, but the other clearly is something that, given better credit market, we would certainly probably feel a lot more comfortable that that would occur. I'm not sure whether the present credit market conditions are supportive. It's not something that we would be adverse to. There's no question about that.

But, given the volatility in the credit market, and especially for the type of businesses that we are in, we really don't see the possibility that significant reduction in terms of our present cost would occur. And, that's demonstrated by the fact that our Senior notes are trading in the 80 something--80--you know, clearly, there is an adverse environment right now.

And, this is only started to happen at the end of last year. This was never the issue moving in until we got this whole year finished. And, we are just finishing now the year end. So, I'm not saying that this is not on the table. I think we're moving forward in that direction, but a lot of things have happened; and they've only happened very recently.

You talk about the industry capacity picture--give us an update. (Leslie) talked with you about it--was it last call or even two calls ago or six months ago--about if the pricing in the pulp markets has only really improved commensurate with fiber cost increases that everyone suffers from, or everyone has to use, as well as currency, which everyone is also subject to. Can you give us some insight as to what you're hearing and seeing in terms of additional shuttering of capacity?

We still believe that there is a possibility that over a million tons will likely go out in the near future. Stora Enso has announced the closure, first half of this year, of their NBSK market pulp mill. That's about a 300 (times) a thousand tons. At the same time the possibility that a Chinese-based half--not quite half, but 70% softwood and 30% hardwood may come up this year may come up this year. So, that means that Stora's closure will be offset by a possibility of this capacity coming on. There is, of course, the coastal pulp mills, which have a lot of issues. Certain of the mills in the east and Canada, again, because of fiber issues and fiber costs, has potential for closure.

So, there is still at least about a million tons in our mine that could go down. Of that, about 300 has already been announced for closure. And, possibly another 700 thousand hopefully will be announced.

Thank you.

Your next question will be from Peter [Arat] of AIM Investments.

Hi, good morning. Just--maybe don't want to hear it, but a little bit more going on the same theme from the previous call. The Company's credit ratings are far below investment grade, indicating of course, a very high degree of financial risk. At current prices in the market, yeah, you're close. It's about 12.5% yield on the notes. But, what's interesting there, too, is in terms of how the market perceives the Company, that yield's even higher than the yield on the rest of the high-yield marketplace, meaningfully. Taking debt out, obviously, would save interest; but because you're doing it at a discount, you'd also book earnings.

But, I guess, underneath all this, is just a broader question. And, to put it bluntly, do you plan to be single B-rated forever?

No, that's not our goal. I mean, clearly, that is very high in our objectives in terms of getting a much better credit rating. Of course, we're faced with the reality we have a high gearing, not so much in terms of the restricted group, but as a Company, we do have a much higher gearing than one would expect. But, it's very well controllable, because the Stendal debt is a project-financed base. And, I think in terms of the restricted group debt, we don't think that the debt ratio is that extreme. But, we will be looking towards improving our credit ratings; and that's high in our program.

But, somewhere, there's a pretty big disconnect that I certainly respect that you don't think that the debt metrics are very high; but the rating agencies and then consensus of the market think they're very high.

Yeah, but you know this has only been kind of like a recent type of event in terms of the pricing. If you look at our debt price for most of last year, we traded on par if not higher.

So, just to look at the market at the end of January or going into February and talking about an 80 something type of pricing and say, "Well, why didn't you guys address that?" I think is not necessarily fair. We were dealing with prices which are more in the 90s throughout that period.

Yes, it is an issue that clearly is up front in our mind.

I agree. It is more recent. The bond hasn't traded at par since late spring of '07, of course; but this dip in the 80s--it is only probably a month--month and a half or so old.

Yeah, and above that, it was always in the 90s. So, you know, for us to look at this clearly is something that we--is higher on the agenda. But, it's not--this was events which have occurred in the last couple of months. And, we are now at the year end. We are moving into this year. So, clearly, it's an item that we will look at very seriously. And, that's what I'm saying. I think it's unfair to just say, "Well, you guys should be buying back bonds," when it's only been in the last couple of months that we've had these types of pricing. And, we're now going into the beginning of a new year and just getting all our financials in it and looking at what our plans are for this year and beyond, in terms of both our cash and what our forecasts are going to be.

Okay. Well, I'm not suggesting a course of action. That's for you to decide. I'm just really asking questions around it. But, okay. Well, thanks for the answer.

Your next question will be from Steve Chercover of D.A. Davidson.

I'll be brief. Just on fiber -- in British Columbia where at least lumber prices, or sorry, logs are determined by lumber prices, are you seeing whole log prices go down? Can you take advantage in some small way of the weakness in logs in general?

That's a very complicated question, because of course logs are priced by sawmilling activity; but at the same time, if there's not a lot of sawmilling activity, then there's a lot less harvest. So, one doesn't quite necessarily mean log prices will drop. Yes, log prices have been dropping, because there is still excess availability. But, at some point, you're going to have further curtailment in regards to forest harvesting activity, which will offset that. So, you're going to stop logging if you're not making any money. That's the reality.

Okay.

What we are looking at is that there is different programs which are going to be looked at in BC, because of the whole pine beetle issue, the severity of the down-turn in the sawmilling industry; and so we think that there will be more accessibility and more availability of pulp log moving forward.

And, on that same theme, Jimmy, the storms that ripped through the Pacific Northwest in December did a lot of damage. Weyerhaeuser was talking about it. Is there any salvaged logging in British Columbia that you can access or are you too far inland?

No, we're too far inland to have any kind of impact with the coastal storms, etc. It's really more based on the forestry policies and programs that are going to be adapted by the BC government.

Okay. Last question. I think Mass Financial had sent you 33-odd letters or so. Are they up to 50 yet, or have they slowed down?

No, I mean we get regular letters. But, we haven't increased the rate of receipt of letters--let's say it that way.

Thank you again.

There are no further questions at this time. I will now turn the call over to Management for closing remarks.

Well, I thank everyone for participating in today's call. Hopefully, I was able to answer most of the questions. And, needless to say, I think that we are, of course, very comfortable that the market conditions moving forward seem to be stable. In light of the fact that there is, of course, a lot of weakness as a result of the sub-prime market; but so far, we feel pretty comfortable that the pulp markets are stable and, therefore, looking forward to a reasonable year. We don't expect that we'll have developments which will be significantly different than the year that we just closed. So, on that, I would say thank you again and goodbye.

This concludes today's conference. Thank you for your participation. You may now disconnect.

Thank you.

Thank you.