Resolute Forest Products Inc (RFP) 2014 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Resolute Forest Products' Third Quarter 2014 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the presentation, we will conduct a question and answer session. (Operator Instructions). Please note that this call is being recorded today, Thursday October 30th, 2014 at 9 AM Eastern time.

I will now turn the call over to Mr. Remi Lalonde, Vice President for Investor Relations. Please go ahead, Mr. Lalonde.

Thanks, Simon. Good morning, everyone. Welcome to Resolute's third quarter earnings call. Today we'll hear from Richard Garneau, President and Chief Executive Officer, and Jo-Ann Longworth, Senior Vice President and Chief Financial Officer.

You can follow along with the slides for today's presentation by logging on to the webcast using the link in the Presentations and Webcast page under the Investor Relation's section of our website or you can download the slides.

We provide additional financial and statistical information, including a reconciliation of non-GAAP financial measures, in our press release and in the slides.

As always, certain subjects we will cover involve forward-looking information. Our statements are based on our current assumptions, beliefs and expectations, all of which involve a number of business risks and uncertainties and accordingly can change as conditions do.

Richard?

Good morning, everyone, and thank you for joining us this morning. Today we announced another good quarter. Adjusted EBITDA improved both sequentially and compared to the year ago period thanks to our best wood product result in recent history, even better than last quarter and continued strength in the market pulp business.

We generated $112 million of adjusted EBITDA overall. It's $4 million more than the previous quarter and $8 million more than the same period last year.

In market pulp we generated $34 million of adjusted EBITDA, down by only $3 million from the second quarter; $32 million in the wood products, up by $9 million; $22 million in newsprint, down by $13 million and $26 million in specialty papers, up by $7 million.

Again, this quarter we recorded very strong lumber shipments matching the record levels of the second quarter as we benefitted from capacity initiatives like the restart of our Maniwaki sawmills and also the refurbishment of our current sawmills.

This time we also benefitted from a 3% increase in average transaction price leading to our best wood products quarter since the 2007 start of the US housing downturn and also the merger of our predecessor entities.

We've just completed the construction of our Thunder Bay pellet plant which is now in the ramp-up mode. It will produce 45,000 metric tons of pellets annually under the 10-year supply agreement with the Ontario Power generation Atikokan generating station, the largest capacity 100% bio-mass fuel power plant in North America.

This innovative project together with our other initiatives speak to the momentum we're developing in our wood products business. To that end we are nearing the completion of our Ignace sawmill's project which will begin through its ramp-up before year end and we're also on schedule with the construction of our Atikokan sawmill.

The Ignace sawmill will build its production in inventory gradually in the first quarter. Then we'll continue to improve productions efficiency over the course of the year.

Our high capacity planer mill in Atikokan will start to address Ignace's lumber in the first quarter with the ramp-up of its own [sawing] schedule to begin in the second quarter. We expect the sawmills to start generating positive EBITDA as early as the third quarter of next year. This is a great time to be building momentum in the wood product business where we have seen sustained demand despite the slow recovery in the US housing start.

We are also making very good progress on the $100 million upgrade to our Calhoun pulp mill, which include a world-class continuous digester and other wood chip processing equipment. We have started to build a foundation a few months ahead of schedule. When the project is completed in about one year, the mill will have significantly lower costs, 100,000 tons of additional market pulp available and better quality.

There were also positive developments in our other businesses. Although, we'll have some overall pricing as the markets absorbed major new eucalyptus capacity, we significantly improved market pulp shipments compared to the disappointing levels of the first and second quarters.

We also delivered on our commitment from last quarter to reduce finished good inventory in a disciplined manner across all segments, especially in pulp where it's down by 21,000 metric tons. Overall we cut finished goods inventory by 30 million.

Despite taking newsprint down time in the third quarter at some of our domestic focus mills to maintain discipline inventory levels, year-to-date shipments of newsprint and specially papers outperformed industry trends compared to the same period of 2013 which demonstrates the strength of our asset base.

Let's take a moment to review market conditions and segment performance. Total demand for chemical pulp grew by 1% through September led by a 4% increase in China, despite a 1% drop in North American and European demand. Global shipments of softwood pulp were basically unchanged and up by 3% for hardwood rates driven entirely by higher (inaudible) demand.

In North America year-to-date demand for softwood pulp was down by 5%. Hardwood demand rose by 5% evenly divided between North American and eucalyptus grades. Our average realized transaction price slid by $24 per metric tons, off 3% mostly because of lower average price for hardwood and recycled grades as markets absorbed major new eucalyptus capacity.

Overall shipments significantly improved from the disappointing levels of the first two quarters this year. They were up by 29,000 metric tons or 9% compared to the second quarter. Although the pulp market will continue to adjust to the new capacity based on the market's surprising resilience this year, our outlook has turned to cautious optimism.

US housing starts are higher this year raising about 1 million starts on the seasonally adjusted basis in the third quarter and at 16% better than the same quarter last year. Our average transaction price was $10 per thousand board feet higher, reflecting an increase in market prices from both stud and random length lumber grades.

Shipments were unchanged thanks to sustained demand despite a slow recover in US housing starts which is still well below what many analysts see as a normalized level. Further, to a 30% -- 13% reduction in the second quarter, we cut finished good inventory by an additional 19% this quarter.

Last quarter we talked about the growing outbreak of Spruce budworm in Quebec's Boreal Forest. This is not the first outbreak. The previous one started in 1968 and died out in 1992. The latest one started around 2006 and it is spreading somewhat more quickly. Rather than provide incentives to our vast affected forests while the timber is still usable, the provincial government has directed harvesters to areas where the species mix is not as attractive and where the quality of the infested timber has already declined to a level where its impact quality and efficiency at sawmills as well as pulp and paper mills.

The poor timber quality in the affected areas has also resulted in an increase log and fiber costs on top of the cost escalation under the new forest [renewal] in the province. With the rate of the infestation spreading, it is important to know that standing timber losses will be impossible to avoid. Given the escalating wood costs that were already affecting Quebec industry competitiveness, the provincial government should focus on market-based solutions to contain timber losses such as encouraging salvage harvesting in affected areas before the timber dies and allowing its existing option process to set the price.

Total North American newsprint demand was 8% lower through September. Demand from publisher was 11% lower but demand from other users was 3% higher. Global demand was down by 7% through August including a 4% drop in Western Europe, 8% drop also in Latin America and also 8% down in Asia. As a result of industry capacity reductions, the North American shipment capacity ratio was 91% through September, down only 1% from the year-ago period.

Resolute average transaction price in the quarter slipped by less than 1% from the second quarter as a result of continued pricing [deceleration] in certain export markets.

Our year-to-date shipments were unchanged compared to the same period last year. Compared to the second quarter our shipments were 27,000 metric tons or 4% lower mostly because of market down time and wood shortages in our domestic focus mills. Accordingly, our domestic shipments returned to 58% of total shipment volumes compared to 60% in the previous quarter and 56% in all of 2013.

Finished goods inventory fell by 19,000 metric tons in the quarter or 13%.

Recent demand trends are forcing us to withstand with targeted market downtime initiatives particularly at some of our Quebec mills struggling with high wood costs and wood availability issues resulting from the implementation of the Forest tenure system. As a result, we have announced 30 days of down time at our Ignace mill starting on October 31st and a period of extended markets with (inaudible) or two of the three paper machines at our (inaudible) mill starting on November 30th.

Contrary to what some have reported, we are not indefinitely idling the [Baie-Comeau] machines. Again the outage is related to the implementation of the new forest tenure system.

Going forward we are confident that Resolute operating platforms has the scale, financial strength and cost advantage to withstand market challenges. But in the nearer term, we expect that downward pricing pressure could increase.

North American demand for uncoated mechanical paper was down by 3% through September. Demand for supercalender grades, which are 25% of our capacity paper shipments, was [3%] lower. Total standard grades were down by 1% though shipments of super bright and high bright, which are another 25% of our total specialty paper shipments, increased by 5% and 1% respectively.

The industry shipment to capacity ratio for all uncoated mechanical papers was 91% through September, unchanged from the year ago period. Resolute shipments of uncoated mechanical paper in the same period were essentially unchanged.

The demand for coated mechanical papers was down by 7% through September and, as a result of recent closure announcements, the industry shipment to capacity ratio was at 90% although it was 93% in the same period of last year.

Our own shipments of coated mechanical paper, also about 25% of our total specialty paper shipments, were down by 7% year-to-date mostly as a result of weather-related production disruption and also the mechanical failures in Catawba during the first quarter.

Our average transaction price for the segment slipped less than 1% in the quarter which reflects mostly erosion in higher end white papers. Our shipments rose by 2% or 11,000 short tons and the seasonally stronger quarter, especially on the higher end of the grade spectrum.

Finished good inventory rose by 7% to meet the expected continuation in seasonal demand.

The pace of price declines in coated mechanical and supercalender grades is leveling off. We're optimistic that recent industry capacity rationalization announcements will help to ease some of the pressure of the industry experience this year as a result of weak operating rates.

As we announced a few weeks ago, we completed the closure of the Laurentide mill this month which will reduce our annual supercalender grades production capacity by 210,000 short tons.

The future will have its challenges. This is a certainty but I'm very confident that Resolute is in an excellent position to face them. We will continue to develop our lumber and pulp businesses by maximizing the advantages we have today and we will always push ourselves to make our paper business more efficient.

Jo-Ann will now review our financial performance.

Thank you, Richard, and good morning, everyone. Today we reported net income of $17 million for the third quarter or $0.18 per share excluding special items.

GAAP net loss was $116 million. Special items included on a pre-tax basis, $85 million of accelerated depreciation and other closure related costs almost all of which related to the permanent closure of the Laurentide mill.

A $50 million write-down of our investment in Ponderay Newsprint Company, an unconsolidated partnership in which we own a 40% interest and act as managing partner, and $17 million of foreign currency translation losses.

Out of the total $133 million in special items, less than $20 million is expected to require cash outlay, most of it which will be for severance.

Total sales were $1.1 billion in the quarter, up by $5 million from the second quarter thanks to increased shipments offset in part by lower overall pricing.

Market pulp shipments improved significantly from the first two quarters. They were up by 29,000 metric tons or 9% compared to the second quarter. Shipments were also 2% higher in specialty papers, mostly due to seasonality.

They were unchanged in wood products matching the record levels of the second quarter. But shipments slipped by 4% in newsprint largely because of market downtime in our domestic focused mills.

A $10 million unfavorable change in pricing is due mostly to lower average transaction price in market pulp, down by $24 per metric ton mainly in hardwood and recycled grades offset in part by continued strength in the wood products where realizations were up by 3% due to strong pricing for both stud and random length lumber grades.

We said last quarter that we would work to reduce finished goods inventory in a disciplined manner and we have. We cut inventory by 19,000 metric tons in newsprint, 21,000 tons in pulp and 30 million board feet in lumber.

After removing the impact of higher shipments, overall manufacturing costs improved by $5 million, which was due to the favorable effects of the recognition of energy incentives and tax credits, lower labor and steam costs and lower overall maintenance costs in part due to timing; partially offset by lower contributions from our co-gen facilities, particularly Thunder Bay as a result of a longer than expected annual outage, as well as turbine damage and loss production caused by multiple power transmission disruptions to the mill, and finally, higher stores inventory write-downs associated with closures.

The co-generation assets that sell power to third parties helped improve EBITDA by $8 million in the quarter, but was $6 million less than in the second quarter because of the Thunder Bay outage and turbine repairs.

Market pulp delivered cost fell by $7 per metric tons or 1% compared to the second quarter due mostly to the higher volume despite some increases in maintenance costs.

Delivered costs in our wood products segment fell by 4% to $337 per thousand board feet mostly because we recognized additional tax credits in connection with infrastructure investments.

Newsprint delivered cost was 2% higher or 14% -- or $14, excuse me, per metric ton mostly because of the lower co-gen contribution which was partly offset by the recognition of an energy savings incentive in the US Southeast.

The delivered cost in specially papers fell by $23 per short ton from the previous quarter mostly because of maintenance timing.

We incurred $85 million of accelerated depreciation and other closure related costs in the quarter almost all of which were related to the Laurentide mill. This compares to $52 million in the second quarter on the permanent closure of an idle machine at the Catawba mill.

We also wrote down our investment in Ponderay Newsprint Company by $50 million.

Cash and cash equivalents were largely unchanged, up $2 million to $265 million. Balance sheet working capital was $704 million as of September 30th, up $9 million or 1% from the previous quarter. This reflects a $30 million reduction in finished goods inventory offset by a seasonal increase in raw materials inventory and the reclassification to current assets of a $22 million receivable from the 2001 sale of US timber assets.

Net cash provided by operating activities in the quarter was $58 million compared to $63 million in the second quarter. We made $60 million of capital expenditures; $14 million more than the second quarter mostly because of increased spending with the completion of the Thunder Bay pallet plant and the final stages of our Ignace and Atikokan sawmill projects. We're also picking up spending as we're ahead of schedule on the Calhoun pulp digester project.

For all of 2014 we expect to spend approximately $230 million of CapEx including $160 million on value creating projects.

Availability under our ABL Credit facility at the end of the third quarter was $572 million for total liquidity of $837 million.

Our quarter-end net balance sheet pension and postretirement benefit, or OPEB obligations, were $56 million lower than the second quarter reflecting the favorable effect of contributions and foreign exchange translation offset in part by the re-measurement of a pension plan liability in connection with the Laurentide closure.

As usual, we will re-measure balance sheet, pension and OPEB obligations at year end based on the then applicable assumptions including discount rates and higher life expectancy. The prevailing interest rates are now lower than they were as of December 31, 2013. Should they remain at today's level, the change to the balance sheet pension and OPEB liabilities at year end could be significant.

Generally speaking, we expect that for every 50 basis points change in the applicable discount rate will result in an approximately $300 million change to pension and OPEB obligations.

Total pension contributions were $55 million in the quarter, up $14 million from the prior quarter. The increase reflected mostly the timing of the US planned contributions. The associated pension expense was $8 million consistent with each of the first two quarters. For 2014 we expect total pension contributions to be approximately $165 million with an expense of $30 million.

It's worth repeating that this year we modified our US OPEB plans to encourage greater participation in a Medicare exchange program available under the US Affordable Care Act. In addition to securing high quality healthcare for participants, this modification along with similar initiatives undertaken since mid-2013 helped to reduce our US OPEB liability on the balance sheet from $250 million to only $82 million as of September 30, 2014. The annual expense has also dropped by $16 million.

Thanks, Jo-Ann, and thanks, Richard. Simon, let's please open the call for questions.

(Operator Instructions). Your first question comes from the line of Sean Steuart with TD Securities.

A few questions; Jo-Ann, can you quantify the energy savings incentives and tax credits this quarter? How much was that figure?

The energy incentives were $6 million and the construction credits were $3 million.

And how would that have compared to the previous quarter?

The previous quarter included none of those.

Okay and that was all in the newsprint segment.

No the energy incentives were in newsprint while the tax credits were in wood.

Okay. I guess just more generally, Richard, can you speak to the positive cost trend you've seen in the specialty paper segment, especially this quarter, and we were certainly encouraged by it. Can you just go into a little bit more detail on what's driving that and your views on sustainability of the trend?

Well, I think that certainly the Catawba Mill is -- has run better at the end of third quarter and the also at Calhoun we have used high bright, that super high bright, is also running better after the start up so and all Canadian mills, especially (inaudible) on the uncoated [presheet] substitute has had a pretty good quarter. I think that when you look at the next quarter, then the trend, certainly in Quebec there is some chatter just on the wood side but I think that we're going to continue to make progress and to specialty mills like [Mingababo] and Catawba where we continue to see improvement on run ability.

We had quarter two events of equipment failures and metal fatigue and so we have in place a plan, a special maintenance program to bring back the -- make sure that these, that we won't see these failures into the future and I think that now we're starting to see the benefit of it. So I would -- and considering that we're going to see the benefit obviously at always were that also have the orders to continue to run but on this side I think that certainly the announcement of capacity closure is certainly going to help to have a better balance between supply and demand and we should be able to see better operating rates going forward certainly in the fourth quarter.

Okay that's it for me right now. I'll get back in the queue. Thank you.

Bill Hoffmann, RBC Capital Markets.

Yes thanks. Richard, I wonder if you could talk a little bit about your thoughts for 2015, especially in the newsprint business as well as the specialty papers business, just as you see the operating rates currently running we'll call it the 90% range with the expected demand declines next year. How do you think the market will develop and do you see more closures on your front?

Well, it's not an easy question to answer on this one. Let's start with the specialty side. I think that certainly I am a bit more optimistic on this side. You know, what happened, like reported the announcement of two mills that are going to close permanently so I think that certainly it's encouraging on that side. When you look at the segment, high bright and super high bright, so we were up in the third quarter and I think that going forward of uncoated freesheet substituted should continue to benefit so I think that it's a cheaper alternative to uncoated freesheet and I think that's without them and Calhoun that we can certainly we feel optimistic that we're going to be able to basically to serve this segment and we also believe that the demand should continue to operate.

On [SC], on glossy paper, I think that again the segment what we've seen, we've seen the results of this quarter. I think that the fourth quarter should show some positive signs but it's more that I call on that side really to see what's going to happen in 2016 so I think -- in 2015. I think that probably flat to slight declines so it's what we see on this side.

Regarding newsprint, well that's when you look at the trends, especially in North America, that third quarter was down 9.7% and when we also look at exporting what is also down by 6% so we see certainly more pressure on this side. Why is that? We're hopeful. I think that I should not use the work optimistic here. We're hopeful that this slide is going to moderate somewhat but I think that it is certainly a segment where you need to have very competitive mills and the concern that we have, especially at some of the mills in Quebec where we have to take down pine that because of wood that -- wood shortage basically, so with the new stumpage, the new system, the new tenure system, and the operating cost is going up.

But I think that what is more difficult is the planning. The planning now is done by the government and very often we don't have the [plots] already for harvest so it's not in the right location. We are not able to build a road in advance so and we had interruption at one of our sawmills, the Maniwaki.

We had to take down time at Gatineau. Gatineau is a very competitive mill. The same thing happened -- well, the announcement in [Amos]. It's directly related to a wood shortage at all of our [center] sawmills and we had a shortage of chips and they come at also related to the difficulties that we have with the implementation, the application of the new tenure system.

And they come off, just to give you an example, with now at the beginning of the season we were harvesting in the North where predominantly it's black spruce and now the government has directed us to go into the area that are affected by the budworm and with -- and in this area that is south, closer to the mill and the [Congos]. There is a high percentage of balsam and the -- you know, balsam is not a strong fiber when it's green and you can imagine when it's dry and dying that we have difficulties to make newsprint with it so it's the reason why we made this decision and we expect that we're going to be able basically when this wood is -- and it's what we hold that the government is going to come with to basically sell these lots on the option markets and the market is going to determine basically the price of stumping.

So but again, newsprint, the trend is down and likely we're going to see more capacity closure but we feel that we have very competitive, very competitive mill facilities, and if we can find a way with the government to -- with the wood availability issue and also really having a market base approach to deal with the budworm, spruce budworm infestation, I think that certainly all of our overall competitive position is going to be improved.

Thank you, Richard, extremely helpful. Just one other question from a strategic standpoint; we're constantly asked about acquisitions as a strategy to sort of build out call it on the lumber and pulp side of the business. Can you just talk about what you see out there from a pipeline standpoint and your willingness to be aggressive to acquire in those end markets?

Well, we're certainly looking for opportunities. I mentioned that at the last conference call on lumber and pulp so I think that idea, the difficulties is really to find the right one, the one with the synergies, the one that we truly believe that we can have value so we have to focus on lumber and pulp and, as I mentioned also the last call, that we're also looking at a greenfield in the sawmills in the US Southeast. As you know, we have -- we're looking at three potential locations and obviously I think at some mills that is close to a [paper] mills that there are significant synergies that when you are able basically to deal close to the pulp mill so it is still in the process to being analyzed and, as I said, this relocation or we're looking for the best location that would provide the best return and would also where we have plenty of wood where the growth filling ratio is highly positive and where the pulp mill where all the paper mill is going to benefit.

Great, thank you.

(Operator Instructions). Stephen Atkinson, Dundee.

When you look at the pine beetle infestation BC basically started in Tweedsmuir Park, which was a government park and there's a lot of writing about how the government were afraid to or show that they were concerned about harvesting because you'd have the environmental movement getting upset and so that eventually of course we had this massive devastation and then if you look at southeastern BC where like the (inaudible) where whenever they saw a shall we say a tree that was affected, they would harvest it. So, I guess one of my concerns is that with the spruce budworm development do you think that given that you have shall we say Greenpeace showing up at your door quite often, do you think that that would be blocked if you were to try and harvest?

I do not think so. I think that when you look at this infestation here in Quebec, while I -- when -- I am just going to follow up on your lead on BC. I think that BC understood that quite early into the process that the wood didn't have the same values when they decided to bring the stumpage down to $0.25 per cubic meters and that they also understood that you have to harvest it because if you don't harvest the trees, you can imagine that they are all going to die. They are going to issue greenhouse gas and they are going to basically when it's dead they are going to have well, a wind storm and you have all the trees that are going to go on the ground.

There the government is not going to be able to reforest. It's going to take a lot more time to have new trees, to capture a current one again so I think that when you look at it, I don't know what kind of argument the activists would have on this one. I think that it is in the interests of the province. It is of the interest of employees and communities to see this wood, this affected wood, to be harvested first and I think that if we need to have an incentive, this wood because it's affected you have to -- and don't forget this infestation started in 2006.

We are now almost in 2016 and we just realized or there are some people that are just realizing that there is an issue with the dryness of the wood and that the wood is dying. So, I think that government should basically instead of directing where to go and also directing the value of stumpage, that it's the market that should basically set the price because the decision that we made at the [Como] to use this one, where the government put some blocks so that we're affected by the worm on the market. They just refused the offer, but the market offer; then they decided to put it back into a guaranteed volume and with a very high stumpage but that's not with the (inaudible).

It's not market and we are not able to make newsprint with dying bows of fir and white spruce so it's the reason why we had to announce this down time outage at the Como and we just hope that we're going to find a way for the government to buy this wood at market and mean market considering that it has less value, that it's going to have an impact on harvesting costs and I think that you can figure that one out. If you have let's say 10% of the trees that are there, you're going to have to leave them on the blocks and you have less productivities per kilometers of road. You're going to -- it's going to cost more to transport it to the sawmills, going to have more blockage into the sawmills.

The value of the products are going to be degraded and you know, when you get into the paper mill with this lower quality wood and dry wood so you need to spend more on power. You need to have more chips, more tons per ton of finished paper. You need more kilowatt hour per ton and you need to bleach more. So it's a really simple equation that seems to understand but I think that -- and we're trying to make sure that everyone understands the impact of it.

So but I think that there is a solution and manner of toward it quickly and between 2006 and 2016 it's already a long time so normally where -- well, certainly in our business we don't have that much, that long to react and make a decision and act on corrective actions.

Thanks. That's good. Can you talk about currently the rate of replanting and the rotation rate?

Well, the -- what do you mean exactly, the rate of replanting?

Well, the idea being that when you harvest the amount of or another way, what is the rotation based on like is it 100 years?

Well, it depends on the location. It's between 75 and 100 so and obviously if you have had a -- if you have nature, if you -- when you harvest and clean it up and you reforest, you replant so it's a lot faster and I think that if you see also like on the slide you have the kind of practices that we have now there and what is left it's really trees, living trees and they are all just helping to basically with a seed that are just flying when you have a good wind. They are flying and you have net flow regeneration and 70% of the area that's harvested and the other 30% the government reforests and normally it's quick so --

And I think that's certainly one of the strengths of the Boreal forest that the practices are very strong. Government -- government laws and regulation enforcement is also very, very strong and you can see on the right what kind of forest that you have. This one is in very good condition, very healthy. Next quarter we're going to put a picture of what it looks like to have balsam fir and white spruce that is affected by the budworm.

Okay and so in terms of the new lumber mills, what is the timing of the startup?

Well, the Ignace is going to start up in the fourth quarter and the Atikokan is going to be at the end of the second quarter or early into the second quarter of next year. To plan a mill although at Atikokan is going to start up sometime into the first quarter is what I mentioned here but it's what I mentioned. So the -- and what we expect as shipments in 2015 so big news because we're going to start that in the fourth quarter, we should add about 65 million of shipments in 2015. Atikokan is only going to be 47 million. Now I think it's still 150 and Ignace gets us still [115] we're going to have yet in 2016.

Great. Thanks so much.

Paul Quinn, RBC Capital Markets.

Just a couple of questions on wood products, just what is the current mix shift between stud and random length and how is that mix going to change with the startup of Ignace and Atikokan?

Well, Ignace is a stud mill and Atikokan is a random mill so if you have 150 million in Atikokan and 115 million at Ignace so it's not going to change that much, maybe at 1 percentage point or 2, but it's going to remain basically at the same level.

Okay and then anything you can give us on the pellet plant sort of financial contribution from that plant going forward? Is that material at all?

Well, I am going to leave Jo-Ann to answer this question. It is well, as you know, 45,000 tons and the -- I don't remember but --

When it's fully ramped up it should add about $5 million to annualized EBITDA.

Great. That's very helpful and then you guys have got some experience now in some greenfield building of sawmills. We've got other companies that have bought existing sawmills and fixed them up. As you grow in lumber based off your experience, what is the best way to grow that segment going forward?

Well, I think that we're looking at both. Obviously I mentioned that greenfield and that relocation that we are looking at but we are also looking at existing sawmills and their location obviously because we're -- well, we're presently more focused on the integration with better mills and I think that going forward we know that it's a business that we know well and acquiring existing sawmills and improving sawmills over time is also an option that makes sense or that within the process also it's part of the mix of the add emphasis and the opportunity that we are looking at.

Okay and then just on the market pulp side, the $24 quarter-over-quarter price drop was a lot higher than I expected and maybe you can give us an update on your mix between softwood and hardwood there because I thought it was about 80% softwood so I wouldn't have expected that drop and or maybe you can just give us a little bit more detail as to why it dropped so much.

Well, when you look at the [RPC] or recycle, it's about 18% and our hardwood is about 10% so you have really it is this portion at about 30% that we have seen at price decline and it's all related. If you look at [bowed] it's all to the collectors coming on board, if I could use this expression. So, it is this 30% and hardwood also at Calhoun with the restart of paper machine number five on a high bright so where we have lower shipments and also in [RPC].

Okay and just the last question just on the spruce budworm, just what do you expect the overall future impact on your lumber pulp and paper operations in Quebec to be?

Well, the -- fortunately it's affecting mostly balsam fir and white spruce and when you look at the boil in North there's less of it so I think that now the infestation is severe into -- on the North Shore, Quebec North Shore, and there is the area where the government has directed us to go it's about 30% balsam fir and obviously a few -- normally if we always control the mix of [species] to limit the percentage that we put on -- that we sent to the sawmills to have the right mix at the paper mills. And now it's at 30% we just cannot use a newsprint that is strong enough to meet the specifications that are requested by our customers. So, overall I don't think -- I think that it's manageable but you have to go quickly and the area that is infested.

So that late in 2006, as I said, so we have to go and harvest while the trees are still there is some green in the trees. So and you understand that it's an infestation that is completely different from the pine beetle in DC where the beetles basically stays in the bark or under the bark so the spruce budworm basically keyed the leafs of the fir and white spruce and the tree or the trees are dying very, very quickly and lose also quickly their value.

Thanks for that yes. No we've experienced this spruce budworm out there as well. Just 2015 CapEx, do you have any kind of rough idea as to what that will be?

I think it's going to be around 230. It's, Jo-Ann, can you confirm?

We're still working on that but we're expecting this year to be 230 of which 160 is for value creating projects. We haven't completed our plan for 2015 but I don't expect it will be much lower.

Okay thanks very much. Best of luck, guys.

There are no further questions at this time. I turn the presentation back over to our presenters.

All right, well thank you very much, everybody, for joining us today. I think we'll leave it there. Thank you.

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