Mercer International Inc (MERC) 2016 Q3 法說會逐字稿

Good morning and welcome to Mercer International's third-quarter 2016 earnings conference call. On the call today is David Gandossi, President and Chief Executive Officer of Mercer International; and David Ure, Senior Vice President Finance, Chief Financial Officer, and Secretary.

I will now hand the call over to David Ure.

Good morning, everyone. As we typically do, I'll begin by taking a few minutes to speak about the financial highlights of the quarter, and then I'll pass the call to David to discuss the markets, our operational performance, and our outlook into Q4.

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

In Q3, we achieved EBITDA of $47.9 million compared to $34.7 million in Q2. Our Q3 results reflect steady pulp demand, a lighter level of scheduled annual maintenance, and continued progress on fiber costs. Pulp sales were up almost 30,000 tonnes, and electricity sales were up 18,000 megawatt hours relative to Q2. Pulp sales realizations were flat compared to Q2, with marginally higher prices in Europe offsetting a modest price decline in China in the early part of the quarter.

Overall, are our mills ran well, and our production was up roughly 24,000 tonnes which was a major contributor to our higher sales volumes. We reported net income of $11.9 million for the quarter or $0.18 per basic share compared to a net loss of $4.2 million or $0.07 per basic share in Q2.

Our Q3 interest expense was stable at $12.8 million, but down modestly from last year, and reflects benefit of our $23 million repurchase of our 2019 notes in Q1. Income tax expense in the quarter was $5.1 million of which approximately $1.8 million was current. We continue to have significant tax assets to shield cash taxes, but certain tax jurisdictions limit their use which will continue to create a modest current tax expense going forward.

Turning to cash flow, our cash (technical difficulty) balance increased by about $28.8 million in Q3 compared to a reduction in cash during Q2 of $17.2 million. The principal contributors to the sequential change in cash flow in the quarter were stronger operating results and lower demands on working capital, including the timing of interest payments.

In addition, we temporarily drew about $8 million on our Celgar revolver over quarter-end to assist with cash management activities. This balance has since been fully repaid. Capital expenditures drew approximately $9 million during the quarter, the majority of which was spent on high-return projects at the Rosenthal mill. And finally, our cash outflows in the quarter also included our quarterly $7.4 million dividend payment.

Our liquidity remains strong. Our consolidated cash balance was approximately $149 million at September 30, 2016, and we had about $133 million of undrawn revolvers between our three mills. Combined, our total liquidity is up almost $24 million, to $282 million from the prior quarter.

Our $149 million of cash at the end of Q3 includes approximately $8 million of restricted cash. These are funds that have been set aside to act as collateral for our Stendal interest rate swap. The collateral amount is contractually based; and as interest rate swap balance declines, so will the collateral amount, subject to certain minimum requirements.

This balance is down from $10 million at the end of Q1, and the balance will continue to decline when our next scheduled settlement payment is made this month. I'll also note that the interest rate swap matures in October 2017. On a trailing 12 months basis, our net debt is about 2.6 times EBITDA.

And as you will have seen from our press release yesterday, our Board has approved a $0.115 dividend for shareholders of record on December 22, for which payment will be made on January 4, 2017.

In addition, we are pleased that both S&P and Moody's have, in the last two weeks, announced credit rating improvements for Mercer, both raising their ratings by a notch. Both rating agencies have cited our stabilized earnings and liquidity as grounds for their upgrades. The upgrades put our S&P corporate rating at DD- and the Moody's rating at Ba3.

We also recently refreshed our shelf registration statement with the SEC. For those of you that have followed us for any length of time, you will know that we have traditionally maintained a shelf prospectus to allow us to issue bonds or equity quickly, should the need arise.

Our five-year shelf recently expired and we decided to refresh it, and it was subsequently filed at the end of September. The filing doesn't indicate a pending intention to raise capital; only a step to make the registration a little quicker, should we decide to do so in future.

And my final comment today, before I turn the call back to David, is to point out that we intend to change our stock ticker symbol in Canada to MERC.U, an option that was recently made available to us by the TSX to move us from the traditional three-letter ticker so common in Canada to the same four-letter MERC symbol used in the US markets. We are pleased to make this change which will be effective on November 1.

And so that is my overview of the financial results.

And I'll now turn the call over to David Gandossi to discuss market conditions, our operational performance, and strategic activities.

Thanks, Dave, and good morning everyone. Overall, we had good operating results this quarter. Our wood costs continue to trend down, and NBSK demand remains steady through what is traditionally a slow period.

Our results were also positively impacted by us having only 10 days of major maintenance downtime in Q3 compared to 21 in Q2. The quarter-over-quarter EBITDA benefit of fewer maintenance shut days was almost $14 million, and we were also able to increase sales volumes of both pulp and energy relative to Q2.

In terms of the pulp markets, demand has been good, and our order books are full. We expect these balanced conditions to continue for some time. Pulp prices today reflect some creep capacity that has come on, new volumes of Southern softwood in the market, and the impact of the stronger US dollar.

Growth in global NBSK deliveries continues to be steady at 2.6% year to date; and China in particular remains solid, at 4.3% growth, when compared to the same nine-month period in 2015. Currently we expect steady demand in both the European and Chinese markets.

September NBSK producer inventories were at 30 days. This is up two days from the previous quarter, but inventories at this level are still considered to be well-balanced. The quarterly average RISI list price in Europe increased slightly to $810 per tonne from $798 in Q2, while the quarterly average list price in China went down to $595 per tonne from about $617 per tonne in Q2.

Looking forward, the October NBSK list prices in Europe and China are consistent with September. We continue to believe that the global tissue and specialty paper markets growth will remain steady into the foreseeable future.

Moving to operations, overall our Q3 production was much improved over Q2. The improvement of roughly 24,000 tonnes was primarily due to the timing of our scheduled annual maintenance shuts. In Q3, we took 10 days of scheduled downtime at our Rosenthal mill compared to a total of 21 days in Q2 between Celgar and Stendal.

Our only remaining 2016 annual maintenance shut was completed at Stendal during the first 12 days in Q4. The shut went reasonably well; I'm pleased with it; and I'm expecting strong production levels in Q4.

In total, we produced approximately 362,000 tonnes of pulp this quarter compared to approximately 338,000 tonnes in the second quarter and approximately 369,000 tonnes in the third quarter of 2015.

And as you would expect, based on our stronger production, our pulp sales volumes were also up significantly in Q3 and totaled approximately 360,000 tonnes compared to 330,000 tonnes in Q2 and 390,000 tonnes in Q3 of 2015.

Turning to our energy sales, the mills sold approximately 208 gigawatt hours of electricity in the quarter compared to 190 in Q2, and 215 gigawatt hours in Q3 of 2015.

We continued our steady progress on our fiber costs, which were down again this quarter. While we were benefiting from reduced market pressures, we were also beginning to see the impact of several strategic wood cost reduction projects, the most impactful of which has been our import program in Europe.

One of the more exciting projects also for us, at this time, is the commissioning of our new fleet of high-volume log railcars. These railcars are designed to increase the hauling capacity of a train by over 40%. And this obviously reduces our per-unit transportation cost, but also creates strategic benefits by expanding our fiber market reach.

We have also been investing in a new log acceptance area at Rosenthal so we can efficiently unload different assortments of logs. In Europe, we've also recently entered into a wood purchasing joint venture with Mondi that we expect will allow us to access markets that were previously uneconomic.

This new organization, which we call wood2M, is still very new and we'll need some time to ramp up. But we're optimistic it will be a real positive influence on our wood costs.

In British Columbia, our small log harvesting project continues to ramp up. The objective of this program is to increase the volumes of low-grade wood that are taken out of the forest and processed into chips.

So summing up, relative to the second quarter, our German fiber prices were down again, continuing what has been an ongoing trend over the past few quarters. In British Columbia, our Q3 fiber prices were essentially flat this quarter relative to Q2. And we are currently forecasting that Celgar's Canadian dollar fiber prices will come down slightly in Q4.

Deliveries of wood are steady this quarter, and we have healthy inventory levels at all three mills going into the winter. Regarding our CapEx plans, we currently expect to invest about $50 million in our mills in both [2015] and 2017. The focus of our CapEx programs continue to be a balance of maintaining the mills while improving reliability and reducing costs.

With respect to our NAFTA claim, unfortunately I don't have any new information. No updates at this time, but we continue to expect a decision shortly.

So to wrap up, as you know from our press release, we've approved a quarterly cash dividend of $0.115 per share, as David mentioned. We're pleased to be continuing with that program.

So I think I'll stop there, and hand the call back to the operator to take any questions. Thank you.

(Operator Instructions) Hamir Patel, CIBC Capital Markets.

David, could you talk a little bit about what sort of magnitude the various costs fiber saving projects you have in Germany? How meaningful that might be to costs in 2017?

It's difficult to put a number on things. One of the programs is import logistics. So basically what we do is we buy a slightly higher-cost log and we bring it into Germany. And that takes the pressure off the German domestic market, which has the effect of generally lowering the prices.

Harvesters need to move the wood. And if we don't hit their price and bring it in from somewhere else, then quarter over quarter, they just keep ratcheting it down. And it's just sort of been a steady downward pressure we've been putting on the market.

For Rosenthal's log acceptance project that -- we'll be commissioning that in December. So next year, Rosenthal will be able to reach further than it used to for fiber. And so if local traditional suppliers to the mill are not hitting our price, then we can bring the volumes in by alternative means without disrupting the local market.

The railcar, the new fleet, just operationally -- if you run it in a traditional way that we have, it's about a EUR2.5 million cost savings on the transportation component of those logs. But it also has another impact which is that you can go further into Poland, further into the Czech Republic, and buy cheaper logs and bring them into the German market, having that import impact that I was mentioning.

For the Canadian mill, we've had lots of healthy supply of sawmill residuals. We've been a little worried about what happens in those saw mills when the saw milling market is weaker. And for those who have been with us a long time, you'll remember years where if we got behind the eight ball on fiber available from sawmills, we used to run into quite a bit of upward pressure on fiber for that mill.

The small log program is -- it's a strategic program that is intended to mitigate that risk because we can process the harvest logs that the saw millers can't use. We now have access to them, and we bring them out of the forest. And we either get the contractors to bring them to us, or we can go in and get them.

We have mobile shipping plants that we can use to process them into usable fiber for us. So we've eliminated that strategic balance, if you like, in the fiber basket. And it's hard to put a number on that, obviously. But it's one of the very important things that we've been working on for quite some time to maintain a steady upper hand on the fiber costs at that mill.

Fair enough, that's helpful. But appreciate, I guess, it's hard to kind of quantify it, but could you maybe -- any idea when you expect to be capturing all of these on a run rate basis? Is it 12 months, 18 months?

Well, it's a progressive thing, Hamir. I think that you've seen a steady downward movement on our fiber costs. And some of that is market -- the market itself. The demand for fiber in Europe is diminished. A lot of the particle board guys have packed up and moved east. The pellet guys have had -- you know, this is -- they've had two terrible winters; two warm winters, which is terrible for their business. And so there's -- all the pellet storages are full, and people aren't really using their pellet stoves much these days. That's had a positive impact for us.

And, generally, we're expecting things to continue. I guess the only thing on the horizon for next year that's hard to quantify is the softwood lumber dispute. And fortunately, some of the big operators in our area aren't really all that exposed to the US market. So I think Celgar will be fine. But, again, we've got that small log program to mitigate that.

So I can't forecast what fiber costs will be next year, but I'm expecting them to be lower than they are this year.

Fair enough. And then, David, just on the pulp markets, we saw an announcement this week from Suzano delaying capacity. Do you think there's some other big projects out there that we are going to see pushed out, both on the hardwood and softwood side?

I don't know, Hamir. I'm pretty certain Metsa is going to finish their Aanekoski project on time, and that will come into the market. We're trying to do a little more work on that. I think the market might be misunderstanding exactly how much fiber is going to be coming out of that mill and -- softwood, that is. I think there may be some campaigning plans they've got there.

And maybe just the market is miss -- I don't think it's going to be as big as what we think. That's one thing. And I really don't think we're going to see those tonnes in the market in any big way in 2017; maybe some ramp-up off-grade stuff. If they hit their targets of starting to ramp up in Q4, you won't feel any kind of new pressure on the market until 2018. And we don't know what all the others will be thinking about either creep capacity or closures.

Right, okay. And just the final question I had was could we get the mill production numbers for the quarter?

For the quarter?

Yes.

You want to do that, Dave?

Yes, sure. So in thousands of tonnes, in Q3 the Rosenthal mill produced 81.6; Stendal produced 169.1; and Celgar produced 111,100 tonnes.

Okay, great. Thanks, David. That's all I had. I'll turn it over.

Sean Steuart, TD Securities.

Thanks, good morning. A couple questions. David, with the balance sheet improving steadily here, any updated thoughts on potential strategic growth initiatives, either M&A or organic CapEx, discretionary CapEx at the three mills?

Well, the capital plan, I've just outlined that in my notes at the beginning of the call. So we're going to -- we'll spend about $50 million in the three mills next year. It's basically high return, improving our production and reliability; increasing our tonnes; lowering our costs, those kind of initiatives. And I think that's a good, healthy number.

We won't be doing that continually. We don't see a like a big Blue Mill project on the horizon right now. We've really got our mills built out to their potential here in Europe, by and large. And Celgar is the mill where we see 50,000 or 60,000 tonnes of improvement over the course of the next couple of years, which will really make a difference to its earnings capability.

On the M&A front, there's -- being a public company, you can't disclose anything that isn't discloseable. We're always thinking about our future and working on initiatives, but there's nothing to disclose at this point.

Got it. And then just a follow-up question on NBSK markets. The one long-term trend we've seen here is widening discounts in spot markets.

And then China, can you give your thoughts on how you expect spreads between list prices in Europe and transaction prices in China to trend over the midterm?

Yes, so the -- Europe is -- I think the discounts are going to widen probably 2%, 2.5% this year, going into 2017. Those are the signals we're hearing in the market. The discounts all kind of get solidified during London Pulp Week, which is the week after next. So we'll know more then. But that's our general expectation.

And then how list price interplays in that, you have to combine that with currency. Like if the US dollar keeps moving the direction it's going, list price may move but the mill amounts might stay the same or -- but it will be more or less flattish is our -- I mean, from a realization perspective, well, for most of next year is what we're thinking.

And similar for China, the demand is really strong there. Everybody fights over nickels. But everybody -- we've got lots of orders and no challenges moving pulp at these price levels, so I don't see much change there.

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

Andrew Kuske, Credit Suisse.

I guess the question continues along the line of some of the capacity additions in the marketplace. Just David, what are your expectations for changes in the cost curve? From a producer's standpoint, how do you think that will change as new capacity eventually comes online in the market?

Well, one of the things that always attracted the Mercer management and Board to this industry is the steep cost curve. The fourth-quartile mills in this industry are really different than our mills in a lot of ways. They have low pressure boilers so they don't produce much electricity. They have to buy power. They typically don't produce any byproduct chemical revenue. They have large maintenance and safety, non-discretionary maintenance of business capital they need to spend. Their maintenance costs are high.

And they are small, so their per-unit production costs are high. And some of them are located in places where it's challenging to operate, and challenging to get to the market. A lot of these Canadian mills that used to serve the East Coast US are now trying to get all the way over to China. And so, there's some -- and there's some low -- small, low-cost mills in Finland. I've got to believe there's going to be some closures over the course of the next couple years.

No, that's very helpful commentary. And then maybe just more specifically on Germany: there's been a lot of changes in the German power market recently with the large utilities spinning out power arms. And obviously there's some controversies that have gone on for years in the power market there. Do you see any impact to your business from a power sales standpoint in Germany, with just the changes that have gone on in that marketplace?

Yes, well there's -- the EEG legislation is in the process of being sort of renewed, and notifications of the EU are occurring. So our expectation is the prolongation of the EEG, as it relates to us, it will be some diminishment over time. It won't go on forever. But for now, it's business as usual.

Okay. Very helpful, thank you.

Andrew Shapiro, Lawndale Capital Management.

Thank you. A few follow-up points and then one or two questions, if you could. I think in the past you've mentioned about modern, higher volume machine capacity buildouts in China. Or, frankly, maybe in any developing country requiring an increased mix of softwood pulp furnish.

Can you expand a little bit about that, or update us on what you're seeing? Annually, there's the Chinese pollution abatement measures. But I think even on the last call, you mentioned that that is just one factor in the mix, but that there were a variety of factors. And are you seeing some tangible evidence of this increased mix of softwood pulp furnish that's needed?

Hi, Andy; great question. There's first of all in China, there's what we call old China paper industry and new China paper industry. And the first wave was new China built up, but old China kept running. And old China is typically agricultural-based raw material going into make -- it is integrated all the way into the paper products that get produced and sold locally.

And as you mentioned, China has been shutting these facilities down, and it's been a program that's been ongoing. And I think last year was something like 2.5 -- or 2016 was another 2.5 million tonnes, roughly, that was reported to have been closed.

So I think that, although it's difficult to trace specifically, that contributes to more domestic demand on the guys that have the modern machines. And the modern machines need good wood pulp fiber. And that's kind of a -- modern machines around the world is kind of the new theme. The new tissue machines, the specialty grades -- they are all wood pulp.

One of the things that kind of interplays with all of this thing is the recycled fiber market. And as I've discussed in previous calls, we've been seeing an ongoing trend of a real deterioration of the quality of recycled fiber. And what kind of drive this is there is not as many newspapers anymore that used to have some long fiber in them; nowadays, not so much. But there's even -- even at that recycled fiber basket that used to turn over, there's less and less newspaper collection. So there is less of that. There's less magazines.

And the long fiber that we have, a lot of it ends up in grades that just aren't recoverable, like tissue and decor papers and thermal papers, and things like that. So there's -- the proof in the pudding is when you see paper machines or tissue guys in Europe, for example, that used to make tissue out of recycled fiber switching over to virgin fiber. Because they just can't keep going with the diet that they had previously designed their machines to be on.

So this is a long-term sort of a slopey trend thing. But it's continuing, and I think kind of accelerating. And I think that bodes well for us.

All right. And then a follow-up on a few questions [either] your script, and a few questions that were asked on the CapEx. Basically you had stated I think on a recent call, there was still a lot of room for improvement on power generation coming out of, I think, Celgar in particular. And also we had the big maintenance shut-in and then extra work done at Celgar.

Have things now -- here we are through the third quarter, and now the beginning of the fourth quarter. Have you seeing tangible evidence in Celgar's moving forwards towards -- I think it was maybe 500,000 goal? Maybe it was --?

Yes, the mill is running quite well right now. It took a beating in the second quarter, as everybody knows.

Right.

And that was -- just to clarify, as I tried to make the point last quarter, it was a well-executed shut. They did a ton of work. We are really pushing that mill to perform. And we had some very -- when you start up a mill, sometimes you have little things where a contractor didn't button up a flange, or you have leaks or issues that you try to avoid through oversight, supervision, and good programs. But you always have some things. But that mill had just some pretty catastrophic failures, like a big stock pipe that the elbow broke, and things that were difficult to deal with.

The mill is running great now, and doing really well. We've got another chunk of work we are going to do next year. The shut for Celgar next year will be in the second quarter. It will be a little longer than usual. We are planning for about 17 days, about 20,000 tonnes out during that shut.

But that, in my mind, is kind of the final phase of this sort of heavier focus on getting the mill to where it needs to be, to be in that 490,000, 500,000 tonne range. Which really moving from where we've been at the 460,000 for the past couple of years, several years, really lowered its cost structure. And also every tonne of pulp produces an incremental power generation, which is probably what you are referring to.

Yes.

They become very accretive tonnes for us. So we're well on our way, Andy, but still a little bit of work to get into, yes.

And then Rosenthal -- you said Stendal is already done with their maintenance for Q4, I think you said; and Rosenthal was this last quarter.

Yes (multiple speakers) Rosenthal was in the (multiple speakers) quarter.

Which we just completed (multiple speakers).

Yes.

Right. So you probably have a little bit more visibility that the impacts of what you expected to come out of Rosenthal's work. Have you -- it's up and doing fine now?

Yes, both German mills are producing as expected right now.

Excellent, okay. Then I'll move on to -- I have a capacity question here, and that was -- in Canada, what is the status of the anti-dumping countervailing duties for sawmills situation, and the expected timing for -- I guess the dust has settled here to know what kind of costs in particular your Eastern Canadian pulp competitors might have issues with.

Well, I'm in the same camp with -- maybe probably even less informed than a lot of the analysts on this call. But it sounds like there's going to be some duties. And you hear numbers like 20% or 30%. That's catastrophic for a lot of the Eastern guys, I would think.

As I mentioned, I think our Celgar operators are in much better shape because they've diversified away from the US market, in a lot of cases, and are not as exposed. So, it will be interesting to see what happens to the Eastern industry, as you point out. It could be quite challenging for them, both in terms of lumber production but also fiber availability for the pulp guys.

Okay. And then lastly -- and this is more an original question than follow-up on this -- and that was, okay because I've asked this on prior calls. You've now got your credit rating upgrades somewhat behind us. You've got the shelf ready to go for short, quicker refinancing opportunities. On prior calls, I think we identified those 2019 senior notes, which have a fairly high coupon. You are able to -- you bought some back, but your -- those become redeemable pretty soon, or callable pretty soon.

In light of all of those features going on, and an expectation of, we'll call it, stabilized cash flows -- you know your CapEx. I guess where you are seeing me lead to is, do buybacks of your shares -- especially now that you've got your ratings upgrade done -- do buybacks of the shares play a stronger role in your discussions in the Board room now for when we might see -- I don't know if you even can give the window of timing of when this becomes a reality or a possibility.

Let me just clarify your question, Andy. You used the term buy back shares. Did you mean bonds?

No, I actually meant -- I meant that -- it didn't make much sense to do a stock buyback in the face of anticipated credit ratings upgrades. But now that the rating upgrades are in, you've got a shelf ready to go. You have really low -- you have a really conservative leverage situation right now. And our expectations for cash flow are clicking along that at some point, it would seem you have, whether it's 50 a quarter, 25 a quarter -- you have a bunch of money now per quarter that is just being accumulated that are net debt or debt paydown -- is effectively a transference of shareholder value -- is a transference of enterprise value from debt towards the equity holders.

Except us shareholders are not seeing this in the public market price. And if the public market price is not going to reflect this transference of value, that means that discount on our stock prices is ever-increasing. And, thus, it is a higher and higher, or more and more accretive use of incremental cash that you're generating, that this Company is generating, that should start to be dedicated to buying back shares. Make sense?

Yes, that's very interesting. We've had our capital allocation discussions with the Board; and this quarter, we've not announced a share buyback program, Andy. And there's lots of pros and cons on all these things. It's not saying we'll never do it; but, right now, we have not made that decision.

Right. Well leading back to my question was, is the issue, and the -- this as a capital allocation opportunity or option -- is it taking a greater focus now from management and the Board, in light of these other things behind us?

I can't guide. I'm not going to project what might or might not happen, unless it's happened. There's many different elements in a capital allocation discussion like that, including the direction we want to take the Company and all of the different options we have, and being very cognizant that everything we do is for shareholders. I don't think this is the call to have that debate or that -- it's -- we think about it; we talk about it. But for this quarter, we have chosen not to announce a share buyback.

Okay. And do you think your debt -- do you think Mercer's debt is now rated at an appropriate level, or do you think the rating could be moved even higher?

Well, I think the metrics, for sure -- current metrics indicate we should be continuing to move up the scale. They only move you a notch at a time, and they worry about the cyclicality and the single-product nature of the Company. But we are very healthy in the bracket that we are in. And if we keep doing what we're doing, and they continue to see improvement, I think they have signaled that they'll continue to move us up.

And, lastly, what are the plans for investment presentations, non-deal roadshows, et cetera, in the coming months?

Dave, do you want to cover that?

Yes, so we'll be doing a bit of an East Coast road trip in the middle of November. So probably -- we are still working on it -- but probably Baltimore, New York, Boston. And then we'll be attending -- the next conference will be in January, and we'll be attending the CIBC Institutional Conference in Whistler at the end of January.

Great, thank you.

DeForest Hinman, Walthausen & Company.

I'll just build off the last caller's commentary and questions, but we've been talking about the NAFTA claim. It feels like I think almost 2-plus years, we are getting towards a resolution there. Has that been part of the discussions with the banks and the potential changes, either from a monetary inflow perspective, a reset beneficially of the cost structure of Celgar, and that would lead us to be more interested in a capital transaction and refiling the shelf and also building up that cash balance?

There's a number of things in there. I'll try to poke around on it. First of all, Celgar is a mill that's in -- that we are working on. It's steadily improving. And I tried to signal, I think there's quite a bit of upside at that mill. So we are working hard on that.

The shelf is -- it is just good housekeeping. We've always had one. The previous one expired, as Dave mentioned in his comments. It's just good for us to have that done and available to us if we want to react quickly to anything.

We don't know when NAFTA is going to be announced. And we don't know what it's going to be. So you can't really -- I don't think the rating agencies give us much credit for that. From an option value, it's difficult for the market to give you much credit for it. And, frankly, in our planning, we don't bank on it. We know it's out there. We really expect positive results. We are so angry with what British Columbia and Canada did to that Celgar mill that we expect to win.

Well, let's dig into that a little bit more. You have to have some monetary assessment of what you think it's worth; otherwise, you would not have spent the legal costs to pursue the claim over the last two years.

It's a tribunal, and we sued for $250 million. And that was our claim. And we've spent three years building our case with the tribunal, and thousands of pages of paper, and testimony in person, and all of that kind of stuff. And we did it because we know that we have a good case. But if you speak to a lawyer about a case that is decided by human beings, he can say, well, I can give you 50 plus 1 or I can give you 50 minus 1. But you don't get much more. There's no certainty in these things. It is like any --

I understand that. But you had talked -- I think at the last call, you had completed some oral arguments. And now is the case under review for the final decision, and do we have any expectation at all when that will be disclosed? Is it a fourth-quarter item, or is it a first quarter next year, or we don't know at all?

Well, the process, we completed all of our oral -- the oral component of the process was completed in July of last year, 2015. And our expectation was that we would hear within a year. So when the summer came this year, we were waiting to hear, and we didn't. So, we had our lawyers write to the tribunal to ask if there's any information of when we would hear, and we heard nothing back. And we've just, in the last week, asked them to write again.

And it might be that one of the panel members was completely consumed intellectually with a previous case that was just finishing, and they haven't finished ours yet. So we don't know. And they have no obligation to tell us.

Traditionally, our legal team has told us these things usually get settled -- they usually hear within a year. There's no appeal from the decision. More complicated ones may take longer. Or, as I mentioned, if a panel member is consumed on another matter for a while, it may create a delay in allowing the tribunal to do their process that they need to do to make a decision.

So I'm just -- I'm guessing we're going to hear pretty soon, or we are not going to hear until the first quarter. I don't think we'll be hearing over the Christmas season. That's all we know.

Okay. And then also on the capital structure, has there been a discussion with the executive team and the Board about the window for refinancing potentially closing? You seem, to me, to be in a position where you have excess cash. You have some debt that has some call provisions, and those are stepping down to get more attractive as time progresses.

But is it something along the lines of our ratings aren't good enough; that the rate we are seeing potentially on the debt from the banks is not high enough? Because similar to the last caller, it just seems odd to need to have -- it works out you have over $2 a share in cash on a $7.80 stock.

Yes, well, I guess I could answer the question maybe this way -- that we are very aware of what our options are. We do the work continuously. We have assistance from guys who would love to take us out and do a bond issue with us, or a tender at a refi. But, today, the net present value of doing that just isn't in the money yet.

So you have a cost to tender or to bring in the old bonds. And we'll issue the new bonds at a lower coupon, that's for sure. But it's -- you can do a net present value calculation that says is there any meat in this? And that calculation changes quite rapidly as you move through time. And we've just given ourselves a leg up on the rating change. That moving up a notch kind of reduces the cost of money by about 75 basis points, on average. So that helps the calculation.

But today is -- we are not in a place where certainly we would do anything with the 2022s. It would just be too expensive. And on the 2019s, we've got some options around that. And we are -- certainly we work on it, but it's not something that's going to happen this year.

Okay, thank you.

(Operator Instructions). Dan Jacome, Sidoti & Company.

Good to hear from you guys; interesting call so far. I think the buyback idea that Andy had makes a lot of sense. But I also think that you are probably going to have a bunch of holders that want you to hold onto a good chunk of cash, given if the cycle worsens. And that's what I wanted to touch on. Current pulp cycle versus past cycle, with an -- keeping in mind what you guys have touched on regarding shuts in China, or changes in recycled to virgin in Europe.

What would you guys say -- as I'm looking at the current cycle versus the last two, pulp price peaks in the last decade -- what are the one or two largest differences between the current cycle and the past cycle, if you could just remind us again of that?

Well, I guess the last big buildout of capacity was probably the late 1980s, early 1990s in Scandinavia. And in that time frame, they added a full one-third to the global capacity of NBSK. And it was a steep cost curve at the time. And these guys were, I think, arguably first-quartile producers. And it took forever for mills to close, because there -- it was a marginal business most of the time; and every now and then, there'd be one really great year, and then it would be a bunch of normal years.

And it wasn't until 2006 that we had a couple of million tonnes of capacity, and finally said uncle. And then in 2009, that was the big flush-out. That was, on a net basis, probably 3.5 million tonnes of capacity left the market. And we've been very balanced ever since.

Some of the new things in the world is this whole recycled fiber story is evolving fairly rapidly. The changes to the economic living standards of massive, hundreds of millions of people in China, and other countries in the Middle East and the rest of Southeast Asia, and so on. The Internet -- buy your stuff and have it shipped in a box, BooM packaging; labeled products; customer interface media that, like so much, has become -- packaging is becoming such an important element.

So the world is just changing so quickly, Dan. It's almost like it's not even comparable to where we were 10 years ago. It's a fact: we see guys think this is a great business, so guys are building capacity where they can. But the mills that didn't close down in the last cycles are now 10 years older. And as I was saying earlier, I think it's quite an interesting time to watch what some of these real old-timers are going to have to do.

So it's a bit of the Wild West. But for my way of thinking, there's lots of positive indicators here. It's going to be interesting to watch.

Okay, got it.

It will be different than what most people expect, is my view.

Yes, looking forward to it. Okay, thanks a lot.

Frank Duplak, Prudential.

My question have been asked and answered. Thank you.

Wes Swanson, RBC Capital Markets.

Just had a quick one on NBSK mill valuations. I think last quarter, on the conference call, you mentioned that valuations were still on the frothy side. Is that still the case? And if so, do you see them coming down in the future here as new capacity hits the market?

The mill valuations themselves?

Yes.

Do you mean [less]?

Yes.

Well, frothy; I think what I might have been trying to say is that NBSK capacity today, if it's a good mill, will be very expensive. Nobody's going to give up a softwood mill easily, if it's a competitive mill. The replacement cost of these assets is enormous.

To build a modern mill today is well north of EUR1 billion. So, yes, is that answering your question? There's two different kinds of performers out there: there's the good mills, and then there's the junk. And companies like ours wouldn't pay a nickel for the junk. And the chances of somebody selling a really nice mill are pretty slim.

I was just kind of coming at it from the perspective of inorganic growth opportunities. I think you had mentioned that it's something that you might be interested in. But I was under the impression that valuation just sort of weren't there. Things were too expensive. So I just wondered if that has changed at all.

No, that's a true statement. Maybe I was just misunderstanding the way you asked.

Okay, yes.

Yes, the growth potential for us is limited, because we would not see buying an expensive NBSK pulp mill as the right thing to do at this stage for our shareholders. If somebody -- if we could make a fantastic deal, we'd be all over it. But I just don't think there will be a good deal out there for us.

Great. Okay, thanks for that.

There are no further questions in the queue at this time.

I turn the call back over to Mr. David Gandossi.

Okay. Well, thanks, Jody; and thanks, everyone, for all of your questions and your interest. Dave and I are always available off-line for investors' questions. If you have any, don't hesitate to reach out to us. And otherwise, we'll look forward to speaking to you all again on our next call. Bye for now.

This concludes today's conference call. You may now disconnect.