Mercer International Inc (MERC) 2009 Q3 法說會逐字稿

Good morning. My name is Eva, and I will be your conference operator today. At this time I would like to welcome everyone to the Mercer International third quarter 2009 earnings conference call. All lines have been placed on mute to prevent any background noise. Following the presenters' remarks there will be a question and answer session. (Operator Instructions).

I will now turn our call over to Mr. Eric Boyriven of FD.

Good morning and welcome to the Mercer International 2009 third 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 with 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 Gandossi, Executive Vice President and Chief Financial Officer and Secretary.

I will now turn the call over to David Gandossi.

Welcome everyone to Mercer International's third quarter earnings conference call. As always, I will begin with some prepared comments on the key financial aspects of the quarter and then I will pass the call to Jimmy, who will speak about the particulars of the markets, our operating performance, and some of our strategic initiatives. As always, we will be pleased to answer any questions you may have following our remarks.

Let me begin first with a few comments about our financial performance. As we expected, we experienced a significant improvement in our results, driven primarily by a remarkably tight pulp market. And while we completed two major maintenance shuts in the quarter, after removing the impact of those shuts, Q3 2009 will be recorded as one of our best for productivity. And for what seems to be a never-ending story, the weakening US dollar continues to take away much of the benefits of our otherwise rising revenues.

As you will have seen in our press release, we reported a net loss of EUR14.1 million for the quarter, or EUR0.39 per share, compared to a net loss of EUR17.2 million, or EUR0.47 per share in the same quarter in 2008.

We recorded EBITDA of EUR13 million in the quarter compared to EUR3.9 million in the second quarter. For those of you interested in the US dollar equivalents, this is about $19 million of EBITDA in the current quarter compared to about $5 million in Q2.

The largest contributors to the improvement were improved pulp pricing, higher pulp productivity, and improvements in chemical consumption. These improvements were partially offset by the impact of the maintenance shuts that occurred in the quarter. Improvement is also despite a significantly weaker US dollar, which we estimate had a EUR7 million impact on our EBITDA in the quarter.

If I could switch to cash flow for a moment, we consumed about EUR11 million of cash in the quarter, the draw reflects EUR13 million of cash flow from EBITDA and about EUR7 million of inflows due to reductions in working capital. Offsetting these cash inflows were about EUR4 million of high return capital spending, EUR16 million of interest expense, and EUR14 million of mostly debt repayments including a EUR10 million optional repayment on our Rosenthal revolver. We are generally pleased with our working capital improvements in the quarter, which included significant reductions in pulp inventories due to strong sales.

We currently have cash liquidity of about EUR79 million, which is comprised of approximately EUR53 million for the Restricted Group and EUR26 million at Stendal. Currently we have approximately EUR25 million of undrawn revolvers, primarily at Rosenthal.

As most of you are aware, we received notice two weeks ago that we have been allocated nearly CAD58 million under the Canadian federal government's CAD1 billion Green Transformation Program. The allocation will allow us to quickly complete our Green Energy Project at Celgar and give us the opportunity to complete several other smaller qualifying projects. So while earlier attempts to finance the project were not successful, we are pleased to have this project restarted, and if the funding proceeds the way we expect, completion of the project will only have been delayed by five months.

And as you know, we provided the convertible debenture holders the opportunity to exchange the debentures which expire in October 2010. While our offer was not taken up, we will continue advancing our longer-term objectives of completing our high return projects and reviewing other opportunities to work proactively to address our debt facilities as they come to term.

So with that quick overview of the financials, let me turn the call over to Jimmy to talk about our operational market and strategic developments.

Good morning everyone. As David mentioned, after a pretty discouraging start to the year, we gained some good traction on several fronts. We were generally pleased with the progress in the quarter, particularly in light of the foreign-exchange headwinds and amount of maintenance that we completed. And I'm also particularly satisfied that we have now accessed the construction funds so that we can complete our Celgar Green Energy Project, which as you know is a nice project and is one of our core strategies.

We have grown very confident in the pulp market's ability to return to normal and support price increases, so marketing has returned to the forefront of our focus. And like our marketing efforts, we have remained committed to bringing our high return strategic projects to conclusion. I'll talk more about this in a moment, but let me first comment about the mills.

After some operational upsets earlier in the year, productivity at all of our mills returned to near record levels of 2008. Rosenthal had an above -- had an average quarter despite an important shut to complete annual maintenance and tie in certain equipment related to our wash press project. Celgar had a particularly strong quarter from a productivity perspective, approaching record levels for the quarter. And at Stendal we rebounded from a series of small upsets in the first half of the year with a record quarter. In total we produced about 346,000 tons of pulp compared to 349,000 tons of pulp in Q2 and almost 368,000 tons in the third quarter of 2008, a quarter that had much lighter maintenance programs.

If I could turn to the pulp markets for a moment, I would characterize it as extremely tight at this moment. As you know, September pulp inventory statistics were very positive, with global softwood inventories falling to 22 days for producers, the lowest level in nine years. While there remains some concern about China's ability to continue buying at the rate we have experienced in the past six months, as the global economy improves we believe a sudden collapse of Chinese buying to be less likely.

So on the strength of the low inventories and improved shipments, the industry has implemented $100 per ton of price increases in the third quarter alone, and over $150 from the trough levels in late spring.

Our sales volume returned to more normal levels in the quarter. Sales volume totaled 362,000 tons compared to a record 395,000 tons in the second quarter and 364,000 tons in Q3 2008. Last week we announced a further $40 price increase for Northern Europe and $30 for North America, effective November 1. The price increases by us and certain competitors will take the price to $800 per ton in Northern Europe, $830 per ton in North America.

We believe that the upward pressure on prices will remain and the momentum will increase, particularly since the value of the US dollar continues to erode. The Euro equivalent for US dollars today is approximately of course $1.5, but it has of course come down a little bit to more of the $1.48 levels compared to $1.3 just six months ago.

Let me now take a moment to discuss developments in the wood markets. As we discussed last quarter, markets settled nicely in the first two quarters with downward pressure or prices quite noticeable in our results. In the current quarter the average wood cost was only 2% lower than that of Q2, and we believe that on average it is reaching the bottom.

In Germany, wood prices were flat for both logs and wood residual chips, although our average wood cost remains much lower than the same quarter one year ago. The deterioration of the global housing construction interest rate that has had a dramatic impact on the board producers continues to reduce our competition for fiber. And our ability to consume wood, either in whole log form or as residual chips has meant that we have been able to shift away from less abundant residual chips and focus more heavily on the whole-log supplies that were previously the target of board manufacturers.

But we now are reaching price levels that are low enough to begin restricting supply. In recent months we have noticed reductions in whole log being brought to the market by land owners, who are now holding off for better pricing. In addition, residual chips are now in short supply, as sawmills' productivity in light of the poor new housing market continues to fall.

This is happening at a time when we are beginning to build inventories for the winter, and the result in recent weeks, our purchases have been increasing at increasing costs, and we expect some upward pressure through the winter.

In British Columbia the overall fiber costs tend to be more positive. We've been very successful in developing new supplies of whole log pulpwood for Celgar, and we believe that we have addressed the delivery cost issues that we have been facing with -- when the Arrow Lakes towing operation ceased after Pope and Talbot's bankruptcy.

While sawmill residuals have been harder to come by, our new wood room has been improving its productivity, and so we believe that the downward wood cost trends at Celgar will continue at least for another quarter before settling.

If I can spend a moment to talk about energy, we are pleased to have been allotted approximately CAD58 million from the Canadian federal government's Green Transformation Program. As you know, financing our Green Energy Project has been challenging, and access to this funding will get the project up and running again very quickly. We have been working very closely with our construction partners to ensure that we are able to commence construction within a few weeks. Despite our previous setbacks, if all goes well as planned, we have lost only a few months of energy production from our original schedule.

So to make a few closing observations, we continue to believe that the tightening market that was interrupted by the global economic crisis is returning. We're buoyed with the market strength in recent weeks and expect implementation of further price increases in due course.

We are forging ahead with our various strategic projects so that with the market's return, we are ready to take advantage of the demand for NBSK and energy. We believe that there will be a significant and continuing adjustment in global production capacity for softwood pulp. We also believe that because of the pre-existing inventory levels, the impact of this lost volume is only now becoming apparent. We remain focused on increasing margins by reducing costs as well as in increasing the mill availability in all operations and improving the returns on our bulk products such as excess power.

So with the conclusion of my prepared remarks, perhaps I can turn the call back to the operator where we can open the call up for questions. Thank you.

(Operator Instructions). Bill Hoffmann, RBC Capital Market.

A couple questions. The first one is -- I wonder if you could just talk a little bit more about this wood availability issues. And just curious whether as you look forward, especially as we get into the winter months and the slower lumber season, whether the availability gets to a point of disruption of your production? Or is it just a cost issue at this point? And I'm thinking at mostly Celgar, but I'd also like to hear about Rosenthal.

I think the German situation is such that we are seeing some moderate price increase movement because of course the sawmilling industry as such is still very depressed. And so with residual certainly of course there is a small supply, and of course there is continued competition from the pellet industry and other end users. While on the round log side, of course, because the prices have come down to levels where there [is a] hesitancy on the part of the forest owners really to actively engage in harvesting.

And so what we are seeing is really more of a moderate tend -- trend towards a little bit higher prices going forward. But we do not expect any real shortage to develop. And because of the maintenance plans that we have, of course, the inventory levels are very positive in terms of the raw material supply going in. So we don't have any expectations that we will have any shortage, both in our Canadian as well as our German operations.

On the Canadian side, I think the wood situation, as I said, is much more positive. We have been of course able to access the Arrow Lakes, which has meant that our logistics costs have come down significantly. We have now increased our productivity substantially in our wood rooms, and we of course are much more capable and better educated in regards to purchasing of wood.

In the past as you know Celgar was pretty much 100% reliant on sawmill residuals. So its knowledge and its ability to source wood actively was limited. I think we've gotten over that issue now, and the mill certainly has got the capability to now source wood at very competitive prices. And that is why we are forecasting that wood costs, certainly at Celgar, will continue to come down in the near future.

Thank you. And next could you comment on -- a lot of this -- the pulp demand has been coming mostly out of China. And I guess what we don't have a good sense of is inventory levels over in China and their buying patterns have historically been very volatile. Can you just tell us what you guys are hearing out of the Chinese market right now?

We believe that based on certainly the statistics that we have seen in regards to both wood-based pulp production and non-wood-based pulp production trends in China, clearly indicates over the last few years that there has been a continued capacity closures for various reasons, clearly cost of the fiber as well as environmental related issues. And therefore we do believe that based on the capacity that has been withdrawn in the China market, this sudden increase of imports really is not really significant if you compare it actually to the amount of closures that have taken place over the last few years.

So we think that certainly the imports in our mind is actually being consumed rather than being stored somewhere. We are not aware of any real inventory buildup at the end users end. Certainly in Europe where the markets are much more transparent we know that the consumer level inventories are again at historic lows, which is a very strong positive. So both from a producer and an end-user perspective, unlike in prior years, we are going really into heavy maintenance quarters with very low inventories.

So I don't think the recent down -- let's say -- trend in shipment in China in September indicates really a withdrawal, but China had of course the holidays because of their festivities. And therefore it is only expected that there is no way they could have kept up with the type of import growth that we saw in August. So we are reaching really more levels which are probably normal for China probably moving forward.

So we are not really expecting a sudden downturn in the Chinese market. Of course there's always pushback by the buyers because as you know the Chinese currency is pegged to the dollar and therefore the price increases have been quite significant in their own currency terms. But whether these mothballed facilities will restart, we are reasonably optimistic that the environmental issues are more of a concern rather than really just the cost issues at this time.

Thank you. This last question is for David. Could you just talk a little bit about cash flows in fourth quarter? It looks to me like payables certainly -- you sort of pushed payables up in the third quarter to protect some of your cash position. Could you just talk about the fourth quarter, what you expect cash flow wise, what some of the major moving items would be?

Sure, but without providing specific guidance, directionally what you should expect is we will build some of our raw material inventories a bit -- not significantly, but this is the time we are accumulating as we head into the winter months. As the payables build up you will see a release of that, but primarily with funds from the government grant. So a big chunk of that buildup is more related to getting ready to restart the program.

EBITDA is definitely in our minds going to improve with $100 of price increases we've had throughout this quarter and another one now announced in November and certainly going to have a better quarter next -- fourth quarter.

And sales are steady and strong. So that's really all there is in terms of moving parts.

You paid the bond coupon in the third quarter, right?

That's right.

Could you just talk a little bit about the maintenance downtime in Q4 versus Q3?

So in Q3 the big surprise for us was Rosenthal was expected to have 11 days of downtime and it turned into 21 days. And it's when the guys got into the recovery boiler they found one of the tubes was corroding, and it had to do with the length of the tube, and it was superheating chlorine corrosion. Quite a big deal to repair it, and it's all done, it's complete. But that was the surprise maintenance that was part of our -- the reason we extended the regular maintenance there.

In the fourth quarter it is just Celgar that's got a shut -- seven days, nothing big or unexpected on that. So again, fourth quarter will be much stronger because of all three mills running steady pretty well all quarter.

Great, thank you.

Paul Quinn, RBC Capital Market.

Thanks. RBC tag team here. Could you give us shipments production of pulp by mill? And also energy the same way?

I'll give you the production and the sales, but I want to make a few excuses about energy that has to do with confidentiality with power purchase agreements. But let me give you the production volumes first. In the third quarter Rosenthal was 62.3, Stendal 153.7, and Celgar 129.9. And the sales volumes for Rosenthal were 79.9, Stendal 164.6, and Celgar was 117.1.

Now -- we do -- we did on this quarter put the energy revenues in the back of the release so you can see it by Restricted Group/unrestricted group. But I'm reluctant to break it down any further because we have some confidential power pricing arrangements in place.

All righty. Maybe you can just describe -- we've seen the, I guess Catalyst Paper lost their court battle on property tax. Can you give us an update on your issue?

We don't have a court date set yet. We don't really think that the decision by Catalyst really means a whole lot. If you read that carefully there's a whole bunch of stuff in that decision that points to the need for the provincial government to get engaged because it's just not the kind of thing that an elected counselor or mayor can create any change, and the Class 4 taxpayers in British Columbia just absolutely believe a change needs to happen. So we are pretty resolved that we are going to keep down this path, and we are trying to engage with our municipality at a meaningful level, yet unsuccessfully. And we're just going to keep driving, because this is really important for industry in our province.

So no court date set?

Not yet.

Wow. And I guess just lastly, maybe some color around Celgar's energy project, how that arrangement works with NRCan on the funding? When do you expect to get that money? And when do you actually start to -- what's your expectation on when power is generated?

So the funding is something we're working on right now. We are in a stage with NRCan that we are negotiating what's called a contribution agreement, and that agreement describes all the details around cash flow. We don't have the capacity to pre-fund our capital, and NRCan knows that. So that's the signal to you that we are going to have a satisfactory arrangement on the project financing of what we are doing (technical difficulty).

My expectation is it will be a form of an advance and then every quarter you will submit invoices, you'll get paid for that quarter, and then you'll run through the government's fiscal year, and then at the start of their next fiscal year you'll have a forecast of what the spending for that year will be, get an advance, and roll forward. So we won't really ever be in a position where we have to use liquidity that we don't have to accomplish our goals.

In terms of if everything goes well and we have to complete that negotiation, and we are -- we are being very clear, we're the boilerplate counterparty to NRCan because we're the first that are ready to go because of our situation, so it's really just a matter of getting that contribution agreement boilerplate stuff -- NRCan getting that stuff comfortable, and then it will become the base model for all other contribution agreements for this program. So that's really the only thing that could delay us at all. But having said that, we are expecting to be putting boots on the ground in November, and we expect the generator will be making sparks in July or early August of next year. And then (technical difficulty).

Great. That's all I had, thanks guys.

Peter Ehret, Invesco.

Question's been answered, thanks.

Chris Dechiario, ISI Capital.

Just a couple questions about the capital structure. So the exchange offer with the convert holders, I guess that's past, that's ended. Are you currently in negotiations with them still to come up with another exchange that may work? Or should we read something into the shelf registration that you sort of have a backup plan where you believe you can do something on the capital markets that might enable you to take out the converts? If you can just give a little more detail or update on where you are in that process?

Sure. I'll take that. So we don't have an exchange offer outstanding, so that means we are not in negotiations. And the shelf we filed because we are not clear how we're going to deal with the converts at this stage, and there's quite a few different options. There could be an extension option the convert holders might present to us. There could be an exchange of another convert or all sorts of different things. But there's also other capital markets opportunities.

So we wanted to have the shelf filed so if those other opportunities present themselves, we don't have to go through the waiting period of the review with the SEC and meeting all the NASDAQ requirements. So it's just making sure we've got all the administrative stuff done and we are ready to do move if we see an opportunity.

So there's nothing specifically you have in mind right now, but you're basically leaving your options open?

That's correct.

On the Celgar revolver, is there -- I guess where are you in terms of your thinking on extending that? As well as how much was outstanding at the end of September? It sounded like there wasn't much availability there, but how -- I just wanted to know how much was outstanding.

So where it is, we've drawn CAD22 million of the CAD40 million. And given the lower borrowing base at Celgar at the moment with the working capital management programs we have in place, there really isn't any excess room under that as it exists today. We talked on the last call that we were planning to get the extension going earlier, we were hoping to have it done for the quarter. We didn't get it finished, but I am feeling really good about our lender and the process we're going through, and we might be able to say something in our 10-Q about it by the time it's filed. We did put the revolver in the current column, but I don't think there's any chance we won't get a successful extension.

Okay, thank you.

Andrew Shapiro, Lawndale Capital Management.

So following the line of questioning from the prior holder there, under the Celgar facility, this is the revolver, don't you have pretty much a unilateral option to renew for one year? And is that the process that you're going through with the lender? Or is this independent of your option to renew?

This is independent of an option, so we just opened it up and said, listen, we want to extend it three years, not one year, and let's put it in place. And we asked to improve some of the terms. We wanted to get better coverage on logs, for example. So we have been through that process, and it's -- and there's lots of appetite for these kind of lending facilities right now. We could have moved to other lenders if we felt we were going to struggle at all with our existing lender, but we've got a great relationship with them, and we're very comfortable, and so my signal to you is, don't worry about it, it's going to be fine.

Oh, good. That would be great if you got to three years. So following up then, can you remind us on the Stendal loan requirements surrounding capital infusion requirements in the event that your shelf filing or other financing involves issuing and selling new equity? And how much of the proceeds has to be down-streamed into Stendal in the event you do do an equity financing?

There is no requirement to downstream anything to Stendal. In fact, the indenture protects us from doing that right now.

Well, that's good. How does the October 15 date that has now passed, which makes the convertible sub debt a current liability, how does it show up in the balance sheet for the 10-Q? Is it not at all? Or does SF 165 require some kind of pro forma balance sheet or a subject (multiple speakers).

No it doesn't. It shows up still as long term. It will move into current at December 31 and then there's risk factor disclosure about it.

Not until the December 10-K then?

That's right.

Okay. So then you had in the past postured with the bondholders about worried about a going concern opinion. What are the factors the accountants look at regarding this? And is that a concern that you had talked about in the past, in light of the Celgar grant, the energy grant, in light of the higher pulp pricing, etc., is that concern now greatly reduced or gone away?

I've never publicly discussed going concern issues on these conference calls or with our general market. I think the discussions that executive officers and/or auditors have around going concerns depend upon a whole bunch of factors -- the health of the market of the business that you are in, and how many levers you have to pull, and what your different scenarios would be -- if this, then that -- those kind of discussions. So at this stage -- and you'll see our 10-Q in a few days, it doesn't have any going concern disclosure of that nature in it, but it does have risk factors around our ability to refinance the converts. So I should probably just leave it there for now.

That's outstanding. One more question I'll back into the queue, because I had some energy facility questions. But on the unpaid Celgar property tax amount, what is that amount? And are those amounts accrued before and listed as a liability, current or long-term?

Yes, they are accrued. They sit in payables, and the penalty's accrued, and it's carved out of the borrowing base on the Celgar revolver, so it's all fully accounted for in everything we are doing.

What's the amount?

3.6 million.

Canadian.

Canadian.

Great, thank you very much, I'll back out into the queue, and they'll come back to us if we have more questions.

(Operator Instructions). Dan Goldberg, RBC.

My questions have been asked and answered.

Adam Zirkin, Harbinger Capital.

Congratulations just on the quarter. David, just a quick -- two quick clarification questions for you. Cash liquidity, how much cash did you say there was at the Restricted Group today? I thought there was a number in the prepared remarks, I just didn't quite hear it.

Yes. The 56?

5-6?

Yes.

That number is substantially higher than what's reported in the press release. That's a current number?

Oh, sorry. I'm talking about liquidity, which includes the EUR[62] million for Restricted Group liquidity, which includes borrowing base of (multiple speakers)

Oh, got it. Okay. Perfect. So the cash balance was 25 and change, or 25 approximately at the end of the quarter?

(inaudible - background noise)

And then on the power project, you are still forecasting CAD25 million or so of incremental EBITDA there?

Yes, that's -- yes, the CAD20 million to CAD25 million is the number we provided guidance on in the past, annualized, yes.

And then the remaining budget for the project is approximately CAD40 million, right?

Yes. That's right.

So the allocation from the black liquor program would conceivably over-fund that by CAD17 million, so is there an opportunity to utilize the other CAD17 million that's allocated to you?

Yes, of course. So we're going through all our different ideas and opportunities, but we've got a nice list of very accretive projects, very short paybacks. So we will put that money to work as quickly as we can.

Great, fantastic. Thanks.

Andrew Shapiro, Lawndale Capital Management.

Regarding the Celgar energy facility, is the grant that you're going to get (technical difficulty) [going] to show up on the balance sheet? Or is it remote and drawable for the energy facility only?

When the money comes in, it's -- obviously you start with cash on your balance sheet and you have a liability, or a credit. But when -- the way grant accounting works is essentially as you spend the money and create a fixed asset, the credit sits as a reduction against it. So you'll never really see it on our balance sheet. We basically get an asset paid for us by the federal government, so we don't reflect the asset on our balance sheet. And then over time the benefit of depreciation is offset by the amortization of the grant, and it always stays just a net nothing.

It's just like our German subsidies that we have essentially. They don't show up on the balance sheet.

So at the end of the day then, your energy project that will generate X millions in EBITDA will be on your balance sheet at basically your -- we'll call it your initial down payment upfront cost and that's it; is that right?

Yes.

Yes.

And do you anticipate any of your already funded costs to be able to be paid back via the energy grant? Because you've probably put some money in since the inception date of the transformation program in June.

Yes. It's only -- the only spending that we've made since June 16. And there's not a big deal there, maybe 1 million or something. There is also provision to recover soft costs as defined by NRCan. Unfortunately our soft costs occurred back earlier in 2008, and this program is only eligible -- only expenditures since January 1, 2009 are eligible. So limited opportunity there.

So you don't think that more (technical difficulty) money that's coming back into Mercer for (multiple speakers)?

No, it's from -- for all intents and purposes, there is no liquidity to Mercer coming from the grant. It's just going to build the equipment for us.

At least it will cover the rest of this project. In terms of the project, because you'd first designed it, the project, with your own Mercer liquidity constraint involved and now you have the benefit of the Canadian government wanting to help you build the best and brightest Green Transformation Program, have you made certain redesigns and expansion of the scope of the project (multiple speakers)?

No. And, Andy, as part of the overall surplus, clearly we are looking at additional add-ons to the project itself to increase the potential income stream coming out of the power. So the original scope hasn't been changed for the CAD40 million that we are going to get. But as you know there is an excess CAD17 million or so. And of course in the options with that money there are several projects that could be add-ons to the existing energy project, which will increase the steam availability and ultimately power availability.

We've ordered a 48 megawatt combustion turbine, and that doesn't change. (multiple speakers)

It sounds like [that the] (technical difficulty) [incremental] cash flows that might occur would be later on and after you're up and running?

Yes, clearly.

And the estimated incremental cash flow that, albeit starting a few months later than norm -- than you expected, the estimated annualized cash flow that you are providing to the (technical difficulty) is what amount now?

No, we are basically forecasting the original estimation, which is between CAD20 million and CAD25 million. Of course the additional amount will increase the potential income stream once we finish the other investments based on the extra that the government is going to give us. But at this time we don't really have any real indication as to the size of the additional income.

Just something to remind (technical difficulty) for the call, we've got a [52] meg turbine -- extraction turbine at the mill now. We are adding a 48 megawatt turbine, condensing, and we've signaled before we believe we've got excess pulp capacity at the mill. And we're selling roughly 30 to 35 megawatts of power to BC Hydro. So we've got excess generating capacity, so as we improve our performance and our reliability and do some of these energy projects, energy conservation projects within the mill that Jimmy's talking about, that will produce additional power for sale, so there's lots of upside.

Okay. And lastly I'm a little confused. I thought in your prepared remarks there was some discussion or talk of about seven days of maintenance for Celgar. I wasn't sure if that was for the quarter. And also -- (multiple speakers).

That will be in November.

That will be in November. So there was some discussion or someone said there's going to be a full run on all plants for the whole quarter. That's not consistent. So there's seven days for Celgar that has not yet occurred, so when you get in there it could be longer, or it could be as --.

No, we don't think it will be longer. In terms of the Rosenthal, there clearly was issues related to the recovery boiler. Celgar has already had the recovery boiler inspection earlier on, so we are not expecting that we will have surprises there. So barring clearly an unusual type of event, which of course no one can foresee, our expectation is that the maintenance shutdown would be as per normal schedule.

It is unusual to have a surprise such as we found at Rosenthal (multiple speakers).

And when in November is the Celgar seven days supposed to be done?

I think it starts up sometime in the -- near the end of the first week. (multiple speakers) It starts sometime during the end of the first week, I believe.

Okay. So it's very soon.

Yes.

Yes.

Very good, thank you. I am done.

There are no further questions at this time. Management, do you have any closing remarks?

No. Thank you again for coming to today's conference call. I think we definitely were extremely grateful to the Canadian government in completing this grant program. As you know, we felt very confident that this electricity project (inaudible) at Celgar would be a meaningful contributor to the success ultimately of this mill for the future. It was unfortunate that the crisis early on of this year, of course, created a lot of questions -- answered a lot of questions about Mercer as a result of that, so we are certainly out of that situation now.

So we are looking very optimistically moving forward into the next year through just the combination of the fact that we now have the financing for the project and a much better environment in regards to the pulp market as a whole. So clearly the worst seems to be behind us, and we are now looking confidently to a much better and brighter future in terms of our outlook for next year.

So on that, thank you very much.

This concludes today's Mercer International third quarter 2009 earnings conference call. You may now disconnect.