Corner of Berkshire & Fairfax Message Board

General Category => Investment Ideas => Topic started by: Liberty on May 09, 2011, 06:57:24 AM

Title: FGE.to - Fortress Paper (formerly FTP.to)
Post by: Liberty on May 09, 2011, 06:57:24 AM
We've discussed this company extensively in other threads*, but I think it deserves to have its own topic where we can compile info in an easy-to-find way.

The stock has been going down quite a bit in the past few months, possibly offering a nice entry opportunity.

*Here for example: http://cornerofberkshireandfairfax.ca/forum/index.php?topic=4246.0
Title: Re: FTP - Fortress Paper
Post by: VAL9000 on May 09, 2011, 07:01:30 AM
If you haven't already read this, it's worth the time.  ABC made a killing on FTP last year:

http://www.valueinvestigator.com/en/valuefavourites/ftp.php

VI is where I first came across SSW, too.
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 09, 2011, 07:07:04 AM
Thanks VAL, I hadn't seen that.
Title: Re: FTP - Fortress Paper
Post by: riju_easow on May 09, 2011, 07:44:01 AM
I have attended last 3 ABC quaterly meetings and he is still holding on to FTP (as of April 2011).
Title: Re: FTP - Fortress Paper
Post by: VAL9000 on May 09, 2011, 09:22:20 AM
I have attended last 3 ABC quaterly meetings and he is still holding on to FTP (as of April 2011).
Riju,

Any insights from those meetings on FTP, beyond what's in the above analysis?

Liberty,

Thanks for keeping the ideas coming.  Four more weeks until I write CFA L2, after which I intend to pay back your contribution here with some original ideas of my own!
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 09, 2011, 09:34:01 AM
Liberty,

Thanks for keeping the ideas coming.  Four more weeks until I write CFA L2, after which I intend to pay back your contribution here with some original ideas of my own!

Thanks VAL9k, but no need to thank me. I'm a total beginner compared to most people here. I'm just trying to learn, and so far I've only been filtering other people's idea to see which ones fit with my personal investment criteria.

But when I do find something truly original, I'll make sure to post it here. I've gotten so much value from the insights of people on this board, I want to give back.
Title: Re: FTP - Fortress Paper
Post by: riju_easow on May 10, 2011, 07:57:39 AM
I have attended last 3 ABC quaterly meetings and he is still holding on to FTP (as of April 2011).
Riju,

Any insights from those meetings on FTP, beyond what's in the above analysis?

Irwin did mention that he was forced to sell some FTP shares in 2010 as it had had become more than 20% of his portfolio at one time and that he is now playing with house money (since he has recovered his orginal investment). Aside from that he does speak to Chad on a regular basis.
I remember asking him if he is planning to buy any more FTP (this was back in Feb when FTP issued additional shares at $51.75 per share) and he said he is niether a buyer or seller at this point. I am planning to attend the next quaterly meeting in July 2011 so if you have any specfic questions on FTP I can ask Irwin :)
Title: Re: FTP - Fortress Paper
Post by: henrysalt on May 11, 2011, 09:21:03 AM
Dropping again today - stock is down 35% over the last three months.

Title: Re: FTP - Fortress Paper
Post by: Liberty on May 11, 2011, 10:29:02 AM
Dropping again today - stock is down 35% over the last three months.

What are the main theories on why it's dropping so much? Natural resources in general? China overheating? Random Mr. Market mood? Something material going on with FTP that I haven't heard about?
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 12, 2011, 07:54:22 AM
Got some FTP today. Hard to resist after a 42% drop from their peak. I think they'll do very well over the years..
Title: Re: FTP - Fortress Paper
Post by: biaggio on May 12, 2011, 08:05:15 AM
Got some FTP today. Hard to resist after a 42% drop from their peak. I think they'll do very well over the years..

Liberty,

I would like to like this company. Impressed with CEO. I have read some about this a few months ago (but I have forgot some of the details---)

Concerned that operation is very cyclical (paper industry).

Do you have a couple sentence summary of your investment thesis that you could share with us?

I always like things that are on sale, but I try not to anchor on what it sold for in the past. Any rough idea of what a fair value is for this security?
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 12, 2011, 08:47:40 AM
Hey Biaggio,

I definitely recommend that you do NOT put a lot of weight to what I'm saying, because compared to most people here, I'm a beginner, and I'm still more qualitative than quantitative in a lot of ways.. But with that said, here's what I see with FTP:

-A manager owner of high integrity and talent at capital allocation. What some here call a jockey stock -- it's the only thing I invest in, because I don't think I'm good enough to identify the best ways to allocate capital and make macro calls, so I've been focusing on becoming good enough at identifying good jockeys. I have 8 stocks in my portfolio, and all of them are what I consider high-quality manager-owners.

-I like the strategy. They operate in an industry that has seen better days, allowing them to pick up quality assets at deep value prices and convert them to make high-margin niche products. High-security bank notes selling for something like $45k a tonne shouldn't be compared with making toilet paper... Much higher barrier to entry for competition. The dissolving pulp plant seems to be very well timed to take advantage of the rise of China and India - countries where rayon is better adapted than cotton because it breathes better and it's cheaper - and even at half the current rayon prices, they would still make a profit because they got the asset so cheap and they're going to be a low-cost producer.

-Pretty conservative with debt, reducing the chances of a blowup if the economy goes really bad.

-Like Altius (another of my picks), the value strategy means that if the economy goes down, they might be able to pick up more assets that will provide good value in the next up cycle. I like companies that win when things go well, and win when things go badly with the economy.

-I try not to pay too much for growth, but in this case, it's hard to totally ignore. Chad seems to be constantly looking for new deals - dollars to buy for nickels or dimes - and I wouldn't be surprised if there was 1 or 2 more deals like the Thurso plant over the next year or two. And looking at what they did with Thurso, I trust that they know what they're doing and are only going to pull the trigger if there's a margin of safety. I also think there's a good chance they'll be able to leverage things like the $750k security technology that they purchased from the bank of canada into good value (even if only by widening of the moat of their security banknote business).

-They seem to be dedicated to keeping costs low and squeezing efficiencies from existing assets. No big management team, no expensive offices. And while they're increasing capacity at the banknote plant, they're reducing the number of employees and management on the payroll.

-I don't have all the numbers on hand, but when I looked at the potential earning power of the Thurso plant once the conversion is over, even with the conservative scenario, this made FTP look pretty cheap, with a PE way under 10. Of course, there are risks there: execution, cost overruns, labor disputes, market for dissolving pulp tanks by more than 50%, etc.

So there it is. Not a very fancy analysis, but good enough for me right now. I'd rather be approximately right than exactly wrong :) and I like quality stocks that I should be able to hold for the long term rather than cigar butts that I'd need to time an exit strategy for..
Title: Re: FTP - Fortress Paper
Post by: biaggio on May 12, 2011, 09:08:03 AM
Thanks Liberty!

I agree with your philosophy + am myself trying to slowly convert to high quality owner managers. This learned from this board and has served me well so far.

I am going to delve deeper into FTP.

Thanks again
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 12, 2011, 12:56:40 PM
Old video from Fortress' youtube account:

http://youtu.be/ZFzWBl4caFc
Title: Re: FTP - Fortress Paper
Post by: VAL9000 on May 12, 2011, 02:04:27 PM
Hey guys,

What are your thoughts on the paper money supply and replacement rates?  I find that I'm carrying less and less cash.  Even McDonald's takes Visa or Debit..  The cashless society is almost as storied as the paperless office, but I'm seeing signs.  Worried?

Title: Re: FTP - Fortress Paper
Post by: Liberty on May 12, 2011, 02:31:47 PM
Hey guys,

What are your thoughts on the paper money supply and replacement rates?  I find that I'm carrying less and less cash.  Even McDonald's takes Visa or Debit..  The cashless society is almost as storied as the paperless office, but I'm seeing signs.  Worried?

They ask that question to Chad almost every time, and his answer is that they haven't found a country where cash levels are going down.

This seems counter-intuitive to me too, as I almost never carry cash, but I think in Europe they carry a lot more cash and even in other places, economies are growing and while cash isn't growing as fast as electronic currency (Chad has said that cash grows 3-4%/year), it is still growing.
Title: Re: FTP - Fortress Paper
Post by: biaggio on May 12, 2011, 02:37:33 PM
"What are your thoughts on the paper money supply and replacement rates?  I find that I'm carrying less and less cash.  Even McDonald's takes Visa or Debit..  The cashless society is almost as storied as the paperless office, but I'm seeing signs.  Worried?"

here is maybe a dumb question: what happens when governement adds liquidity or decides to purchase 10 year U.S. bonds? Do they pay with cash? Is it just a digital entry? What do they actually use to purchase them? In other words is there paper document or currency of some sort backing the electronic currency

A little off topic but I was also wondering if anyone believed that U.S. gov't could or would purchase stocks/ETFS or other financial securities in an attempt to support or manipulate/stabilize the financial market???
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 12, 2011, 05:08:46 PM
Another thing I forgot to add is that paper currency wears out and must constantly be replaced (that's why you rarely see a really old bill still in circulation). They probably also periodically retire old bills that are still in good condition but have fewer security features and replace them with new ones.
Title: Re: FTP - Fortress Paper
Post by: biaggio on May 12, 2011, 05:37:21 PM
Val

http://www.youtube.com/watch?v=cOuUF2tf7Hw&NR=1

CEO discusses a printing printing money.

He says the demand is growing 3-4% (kind of counterintuitive?).
Title: Re: FTP - Fortress Paper
Post by: VAL9000 on May 12, 2011, 07:35:35 PM
Thanks Liberty and biaggio for the insightful responses to my questions.  I guess it might make sense that as the population and inflation grow, so too should the currency supply..  maybe, maybe the existence of bigger bills cuts into this?  Just wondering out loud.
Title: Re: FTP - Fortress Paper
Post by: ECCO on May 12, 2011, 09:47:06 PM

Printing money is only one the divisions of FTP, you should not focus only on that.




ECCO
Title: Re: FTP - Fortress Paper
Post by: biaggio on May 13, 2011, 04:29:18 AM
Its funny, every time I try to read quarterly report on FTP my computer locks up. I have tried loading from different sites. I think the market god is trying to tell me something.

FTP-it seems to be expensive on traiing earnings ($26 million EBITDA for a $500 m market cap...)
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 13, 2011, 06:42:08 AM
Its funny, every time I try to read quarterly report on FTP my computer locks up. I have tried loading from different sites. I think the market god is trying to tell me something.

FTP-it seems to be expensive on traiing earnings ($26 million EBITDA for a $500 m market cap...)

Does it really lock up? I just had to disabled my pop up blocker for that site and it works fine.
Title: Re: FTP - Fortress Paper
Post by: ECCO on May 13, 2011, 12:31:26 PM
FTP-it seems to be expensive on traiing earnings ($26 million EBITDA for a $500 m market cap...)

Come on, if you read at least a little information about FTP, you will discover that:

1- the main source of profit will be dissolving pulp that is expected to be in production in october.

2- the company has (for now) 3 different divisions.

3- you really can not base you investing descision on this one by looking at the rear view mirror.


ECCO
Title: Re: FTP - Fortress Paper
Post by: ECCO on May 13, 2011, 01:22:54 PM
You can find a lot of information here: http://www.stockhouse.com/Bullboards/SymbolList.aspx?s=FTP&t=LIST

I write sometimes there and sign:   eddyc.


ECCO
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 13, 2011, 10:56:12 PM
You can find a lot of information here: http://www.stockhouse.com/Bullboards/SymbolList.aspx?s=FTP&t=LIST

I write sometimes there and sign:   eddyc.


ECCO

Thanks for the link, ECCO. That's an interesting site. They also cover Altius, but not some better known companies like WRB, MKL, RLI, etc.

Do you know of other sites that have message boards/mailing lists that cover companies like the aforementioned or other favorites of this board like FTP, ALS, etc?
Title: Re: FTP - Fortress Paper
Post by: ECCO on May 14, 2011, 07:36:19 PM
You can find a lot of information here: http://www.stockhouse.com/Bullboards/SymbolList.aspx?s=FTP&t=LIST

I write sometimes there and sign:   eddyc.


ECCO

Thanks for the link, ECCO. That's an interesting site. They also cover Altius, but not some better known companies like WRB, MKL, RLI, etc.

Do you know of other sites that have message boards/mailing lists that cover companies like the aforementioned or other favorites of this board like FTP, ALS, etc?


I go on stockhouse just for FTP, there is some people there that are quite fast to bring new informations. You will see that some seems to try to pump the stock, but overall there is many good poster on the FTP forum.

If you want to read more about FTP, here is some good place:


http://investlikeanentrepreneur.com/category/fortress-paper/

http://www.valueinvestigator.com/en/valuefavourites/ftp.php

http://www.theglobeandmail.com/globe-investor/fortress-paper-outside-the-box-crazy-like-a-fox/article1685409/

and this one that is very interesting:

http://www.parl.gc.ca/Content/SEN/Committee/403/agri/07eva-e.htm?comm_id=2&Language=E&Parl=40&Ses=3


ECCO


Title: Re: FTP - Fortress Paper
Post by: Liberty on May 24, 2011, 12:21:17 PM
Thanks for the links, ECCO.

FTP is really getting no love lately. Down almost 5% today.
Title: Re: FTP - Fortress Paper
Post by: henrysalt on June 01, 2011, 08:24:59 AM
Thanks for the links, ECCO.

FTP is really getting no love lately. Down almost 5% today.

Where is the bottom? Down another 3.5% today.
Title: Re: FTP - Fortress Paper
Post by: Liberty on June 01, 2011, 09:17:02 AM
Where is the bottom? Down another 3.5% today.

I'm wondering the same thing. It's still up over 50% for the year, but it's losing ground pretty fast. Mr. Market is feeling depressed...
Title: Re: FTP - Fortress Paper
Post by: accutronman on June 01, 2011, 11:28:24 AM
Received my proxy material yesterday. A quick look over found two interesting items: proposing a 3 for 1 stock split, and a $13.5M bonus for Chad.
Title: Re: FTP - Fortress Paper
Post by: biaggio on June 01, 2011, 12:44:38 PM
that sounds good for Chad

what do other shareholders think?

I understand that trailing earnings is not how to look at this company. There are some projects that look like they have great promise. Should we not wait till we actually see results  earning, etc. from these projects. How does he justify the bonus. (I did not read  the proxy info, sorry if this is a stupid  question. $13 million seems like a lot of money relatively to this companies past earnings.)

The share price growth + the old acquisitions are very impressive. How he pays himself would be very important in judging this Co as a  jockey/owner manager type of stock.

Title: Re: FTP - Fortress Paper
Post by: Liberty on June 01, 2011, 06:03:59 PM
More details here:

http://quote.morningstar.com/stock-filing/Proxy-Statement/2011/5/19/t.aspx?t=XTSE:FTP&ft=&d=36e4f3f96f5c2a4d1805ca744f36206a

Quote
The Board and the Chairman and CEO negotiated a new employment agreement for a six year term.  The
contract includes an increase of base salary to $1 million, eligibility for a discretionary annual bonus  and a
special one-time performance bonus consisting of a combination of cash, RSUs and DSUs designed to  reflect
the Chairman and CEO's expanded role due to the successful acquisition of the Fortress Specialty Cellulose Mill
and entrance of the Corporation into the dissolving pulp business.  The annual discretionary bonus for 2010 was
$1.5 million. The special one-time performance bonus in the aggregate amount of $13.5 million consisted of a
$3.5 million cash payment made in relation to the achievement of specific performance goals aligned to the
successful acquisition and integration of the Fortress Specialty Cellulose Mill. These included:
Obtaining the financing to purchase the  Fortress Specialty Cellulose  Mill and required
equipment for the conversion project;

Hiring key management to plan and supervise the conversion of the Fortress Specialty Cellulose
Mill;

Establishing dissolving pulp supply agreements on favourable terms; and
Successfully re-starting the  Fortress Specialty Cellulose  Mill to produce NBHK pulp on an
interim basis pending completion of the conversion project.   

The remaining $10 million of the special one-time performance bonus was granted in various units  under the
Corporation's 2009 Long Term Incentive Plan ("LTIP")  each aligned to the long-term success of the
Corporation generally:

$5 million granted in performance-based RSUs that will vest pro rata in annual tranches for the
five fiscal periods commencing from January 1, 2010 and ending December 31, 2014, based on
a formula that considers the fraction by which the cumulative amount of the consolidated
EBITDA of the Corporation approaches $225 million during this period. This is intended to
reward the CEO for growing the business for shareholders and will be heavily dependent on the
success of the Fortress Specialty Cellulose Mill; and

$5 million was granted in DSUs that will pay out at such time that the Chairman and CEO
leaves the Corporation. This will tie the Chairman and CEO to the long-term performance of the
Fortress Specialty Cellulose Mill and the Corporation through the link to share price.
Title: Re: FTP - Fortress Paper
Post by: Liberty on June 06, 2011, 08:33:03 AM
Picked up some FTP today. It appears undervalued by almost any measure.
Title: Re: FTP - Fortress Paper
Post by: keerthiprasad on June 06, 2011, 09:11:12 AM
i can't believe they are this cheap and will likely have eps of 6-7 next year...the market is crazy.
Title: Re: FTP - Fortress Paper
Post by: biaggio on June 06, 2011, 02:14:15 PM
Its dropping like a rock. Down another 8% today.

Technically it looks bad http://stockcharts.com/freecharts/gallery.html?FTP.TO ( I am not a technical guy but I sometimes use short term for entering + exiting)

There must be significant doubt re earnings (sorry if that is obvious or stupid). As well industries they are in are cyclical.

Approaching 4 x earnings if it can earn $7 per share. Cheap even if it is a commodity/cyclical company.

Still watching.

Title: Re: FTP - Fortress Paper
Post by: finetrader on June 06, 2011, 03:03:00 PM
cotton spot price is going down.
Might be a reason why FTP stock price is not doing well.
Title: Re: FTP - Fortress Paper
Post by: Liberty on June 06, 2011, 03:12:07 PM
cotton spot price is going down.
Might be a reason why FTP stock price is not doing well.

What source do you use for that? I found a couple sites with cotton spot prices, and one of them shows a small decline, but nothing dramatic. Maybe I'm missing something.
Title: Re: FTP - Fortress Paper
Post by: finetrader on June 06, 2011, 08:10:20 PM
What source do you use for that? I found a couple sites with cotton spot prices, and one of them shows a small decline, but nothing dramatic. Maybe I'm missing something.

it's the futures actually (not spot price):

http://www.bloomberg.com/markets/commodities/futures/

http://futures.tradingcharts.com/chart/CT/W

so it went something from 200 to 150, a 25% drop.
Title: Re: FTP - Fortress Paper
Post by: rjstc on June 06, 2011, 10:02:26 PM
What source do you use for that? I found a couple sites with cotton spot prices, and one of them shows a small decline, but nothing dramatic. Maybe I'm missing something.

it's the futures actually (not spot price):

http://www.bloomberg.com/markets/commodities/futures/

http://futures.tradingcharts.com/chart/CT/W

so it went something from 200 to 150, a 25% drop.
I'm trying to study/learn about this stock. One really dumb question I have is the cotton connection. How does it relate to them? Thanks
Title: Re: FTP - Fortress Paper
Post by: nodnub on June 06, 2011, 10:17:29 PM
What source do you use for that? I found a couple sites with cotton spot prices, and one of them shows a small decline, but nothing dramatic. Maybe I'm missing something.

it's the futures actually (not spot price):

http://www.bloomberg.com/markets/commodities/futures/

http://futures.tradingcharts.com/chart/CT/W

so it went something from 200 to 150, a 25% drop.
I'm trying to study/learn about this stock. One really dumb question I have is the cotton connection. How does it relate to them? Thanks

Invert this: http://specialtycellulose.com/weather-causes-cotton-prices-to-soar.htm

I would guess that lower cotton prices may lead to lower prices for rayon (the two can sometimes be substituted), and therefore lower prices for dissolving pulp (used to make rayon).  

I think that Fortress converted some pulp plants to be able to also produce dissolving pulp, since the demand and market price for dissolving pulp was really high at that time. (Still pretty high, I believe)


Title: Re: FTP - Fortress Paper
Post by: Liberty on June 07, 2011, 07:26:34 AM
Interesting. But in practice, cotton prices shouldn't have a big impact on the DP plant they already have, as more than 70% of the production is locked in long term contracts (5 and 10 years, iirc) at prices between 1200 and $1800/ton. Could affect new DP acquisitions if the trend continues, though.
Title: Re: FTP - Fortress Paper
Post by: rjstc on June 07, 2011, 08:47:46 AM
NODNUB; Thanks for that. It will be interesting to see how this plays out.
   I read in one report that new crop sales of cotton for 2011-12 commitments for marketing year beginning Aug 1 is 6.5 times forward sales of one year ago. Production is expected to exceed mill use and world ending stocks are increasing to about 46 mil bales from 39 million.
Title: Re: FTP - Fortress Paper
Post by: Liberty on June 13, 2011, 09:56:50 AM
Quarter results coming tomorrow after market close. Selling at 28.85 right now (410m market cap), seems VERY undervalued based on current info, but we'll see what they say on the conf call on Wed...
Title: Re: FTP - Fortress Paper
Post by: ECCO on June 13, 2011, 08:28:13 PM
Here is some info for those who wanted to know more about FTP:

http://pretoriainvestment.wordpress.com/2011/06/13/fortress-paper-update/

and here (in french) it talks about FTP buying Lebel sur Quevillon Domtar's plan by mid july:

http://lechoabitibien.canoe.ca/webapp/sitepages/printable.asp?paper=lechoabitibien.canoe.ca&contentid=194870&annewspapername=L'%26%23201%3Bcho+Abitibien%2C+le+Citoyen+de+la+Vall%26%23233%3Be+de+l'Or+et+de+l'Harricana++


ECCO
Title: Re: FTP - Fortress Paper
Post by: bathtime on June 14, 2011, 07:12:45 AM
Did anyone here attend the annual meeting yesterday?
Title: Re: FTP - Fortress Paper
Post by: Liberty on June 14, 2011, 06:33:24 PM
Q1 results:


http://www.marketwire.com/press-release/fortress-paper-announces-first-quarter-2011-results-tsx-ftp-1526836.htm

Conference call tomorrow morning.
Title: Re: FTP - Fortress Paper
Post by: Liberty on June 15, 2011, 07:27:50 AM
3 for 1 share split passed.

Looks like they want to do some buybacks:

http://www.theglobeandmail.com/globe-investor/news-sources/?date=20110615&archive=ccnm&slug=201106150705095001

Quote
Fortress Paper Ltd. ("Fortress Paper") announced today that the Toronto Stock Exchange (the "Exchange") has accepted Fortress Paper's notice of intention to make a normal course issuer bid for its common shares through the facilities of the Exchange or any other Canadian public marketplace or alternative trading system. On June 17, 2011, Fortress Paper may commence making purchases, from time to time, of up to a maximum of 427,149 common shares, which represents approximately 3% of its 14,238,331 issued and outstanding common shares as at June 14, 2011, provided that the aggregate purchase price of such common shares does not exceed $10,000,000. Fortress Paper believes that the current market price of the common shares may not fully reflect the value of Fortress Paper's business and its future business prospects and that the normal course issuer bid represents a desirable use of corporate funds. Any shares acquired will be purchased at the market price up to a maximum of 15,289 common shares per day, subject to the block purchase exemption, and will be cancelled following purchase.
Title: Re: FTP - Fortress Paper
Post by: Liberty on June 15, 2011, 10:43:30 AM
I just listened to the Q1 call. DP is on track, exchange rate putting some pressure, but they estimate it at around 650/ton shipped, and 1900/ton as a 'sustainable' price for DP, so that's an excellent margin. They looked at acquisitions for non-woven wallpaper but didn't find anything that had the right equipment, so they're looking at expanding some more within Dresden.

Nothing specific about a new DP acquisition, except that they're still looking, but a quebec paper quoted the mayor of LSQ saying that an announcement could be made bout the Domtar plant there within about a month, and the rumors are that FTP is the potential acquirer. we'll have to wait and see..
Title: Re: FTP - Fortress Paper
Post by: biaggio on June 15, 2011, 05:14:17 PM
http://www.fortresspaper.com/pdf/Fortress_Paper_Powerpoint_(Jan17,2011)website_June_3,_2011.pdf
Title: Re: FTP - Fortress Paper
Post by: Liberty on June 30, 2011, 08:11:10 AM
It's starting to look like the 'fat pitch' days for this business might soon be over. Nobody knows what the stock will do in the short term, but I wouldn't be surprised if it kept going up for a while because: Thurso is getting closer to operations, the company confirmed in the last call that things were on track there, and they've started buybacks (small, but a signal - they issued stock in the 50s a few months ago and now they're buying it back in the 30s right before their earnings are set to explode, that should provide nice returns). There are also persistent rumors about a new acquisition at Lebel-sur-Quevillion in Quebec. The mayor there told a journalist they might be able to make an announcement in the next month. I trust Chad wouldn't do a deal if it wasn't on very good terms, so hopefully this turns out well.

I just feel fortunate to have been able to get a significant stake with an avg cost around 33, because I doubt we'll see those kinds of prices again once Thurso ships and/or if there's a second DP plant in the pipeline, unless Mr. Market goes uber-bear and everything goes down (but if that happens, FTP will have the cash flow for buybacks and more acquisition of distressed assets, so it's win-win).
Title: Re: FTP - Fortress Paper
Post by: DCG on July 06, 2011, 07:16:49 AM
I'm impressed with what I've read about Wasilencoff, but still have a tough time understanding the future of the businesses this company owns. The world is moving away from paper money, and wall paper went out of style in the 80's. I know there's more to FTP than that, but that makes up a good amount of their business.
Title: Re: FTP - Fortress Paper
Post by: Liberty on July 06, 2011, 12:07:55 PM
Don't give up, keep reading about it, DCG. Your questions are answered in various places/interviews/presentations (ie. paper money growing at a few percent a year even in countries where electronic payment is growing fastest, and because bills wear out and need to be replaced, you always need more. Paper money is also growing faster in the developing world, and if you have a technical lead, you can eventually take market away from competitors. As for wallpaper, it's still very popular in parts of Europe and Russia, and the non-woven kind is growing pretty fast, they're selling all they can make and want to increase production, and they're a low-cost producer).

But the real future of FTP is dissolving pulp. I wouldn't be surprised if they made 1-3 acquisitions in next couple years.
Title: Re: FTP - Fortress Paper
Post by: OracleofCarolina on July 06, 2011, 03:01:42 PM
http://www.nytimes.com/2011/07/07/business/07currency.html?_r=1&hp

Story on reduced printing of currency in today's NYT
Title: Re: FTP - Fortress Paper
Post by: Liberty on July 06, 2011, 05:53:15 PM
Interesting.

Quote
In 1970, at the dawn of plastic payment, the value of United States currency in domestic circulation equaled about 5 percent of the nation’s economic activity. Last year, the value of currency in domestic circulation equaled about 2.5 percent of economic activity.

Isn't 2.5 percent of current GDP much bigger than 5% of 1970 GDP? A relative low, but still a lot of bills.
Title: Re: FTP - Fortress Paper
Post by: Liberty on July 07, 2011, 04:42:39 PM
More rumors about FTP in LSQ.. something's going to be announced in "mid-july".

http://www.abitibiexpress.ca/Economie/Ressources-naturelles/2011-07-05/article-2624286/La-renaissance-de-Lebel-sur-Quevillon/1

Not confirmed that it's FTP, though, so a rabbit could be pulled out of the hat and it could be someone else...
Title: Re: FTP - Fortress Paper
Post by: Liberty on July 13, 2011, 07:31:40 AM
Interview with Chad on BNN:

http://www.youtube.com/watch?v=keX98bEQWAM
Title: Re: FTP - Fortress Paper
Post by: Liberty on July 18, 2011, 11:03:55 AM
FTP down a fair bit over the past couple days. Might be one of the last entry points this low before Thurso goes online this fall and/or before a new acquisition is announced (we should soon learn if FTP is the one that bought the LSQ mill)..
Title: Re: FTP - Fortress Paper
Post by: FFHWatcher on July 19, 2011, 09:59:08 AM
How does ftp expect to produce DP for cash costs of about $650/t when Mercer and Fibrek can't produce NBSK for anything close to that?  Is DP production that inexpensive compared to NBSK?
Title: Re: FTP - Fortress Paper
Post by: Liberty on July 20, 2011, 08:13:38 AM
From the FTP Stockhouse board:

Quote
Here's a little discovery I have made.


On june 21, Fortress have register some new company names in Quebec. Those names are:


FORTRESS SAWMILL LTD.

FORTRESS GLOBAL CELLULOSE LTD.

and their french version.

https://www.registreentreprises.gouv.qc.ca/RQAnonymeGR/GR/GR03/GR03A2_19A_PIU_RechEnt_PC/PageResultat.aspx?T1.JetonStatic=7eeeb2c7-7f86-469e-8638-a6306ccdee8f&T1.CodeService=S00436#_ctl0_CPH_K1ZoneContenu1_Cadr_IdSectionResultat__ctl2_K1DetailsRecherche_Ancre


Make your guess, LSQ have a pulp mill and a sawmill. I guess the word "global" in "Fortress Global Cellulose Ltd." mean that this company will include both mills?

Who is this ROGER BOILEAU, CORPORATION'S VICE-PRESIDENT, SPECIAL PROJECTS? He officially start working for Fortress on feb 10, 2011.    
I tried to find informations about this guys, sure we will learn more if we know who he is.

eddyc

Quote
Very nice work, Eddy! I found a Roger Boileau with a Sawmill at La Tuque, which is far, but not THAT far from LSQ:
http://www.manta.com/ic/mt6fkpp/ca/produits-forestiers-la-tuque-inc

"Produits Forestiers La Tuque Inc is a private company categorized under Sawmill Consultants and located in La Tuque, QC, Canada"

Not the smoking gun, but a good sign.
Title: Re: FTP - Fortress Paper
Post by: Liberty on July 28, 2011, 09:30:56 AM
Looks like I was wrong about my previous call about timing, it appears that the debt issue in the US has spooked Mr Market and FTP has good down pretty significantly. Seems like a screaming buy to me right now, with Thurso on track and a very probably new acquisition soon... Heck, Thurso alone would more than justify the current market cap if it can start producing without major delays.
Title: Re: FTP - Fortress Paper
Post by: Liberty on August 08, 2011, 07:23:01 PM
http://www.marketwire.com/press-release/fortress-paper-announces-second-quarter-2011-results-tsx-ftp-1547264.htm

Quote
Fortress Paper Ltd. (TSX:FTP) ("Fortress Paper" or the "Company") reported 2011 second quarter EBITDA of $4.6 million on sales of $90.3 million. For the first quarter of 2011 EBITDA was $1.0 million on sales of $85.5 million and for the three months ended June 30, 2010 EBITDA was $8.3 million on sales of $60.5 million.

Fortress reported adjusted net loss of $1.0 million for the second quarter of 2011 or diluted adjusted loss per share of $0.07. In the first quarter of 2011 the Company reported adjusted net loss of $5.6 million or diluted adjusted loss per share of $0.42. For the second quarter of 2010 the Company reported adjusted net income of $4.5 million or diluted adjusted earnings per share of $0.39.

The Pulp Segment produced operating earnings of $3.3 million in the second quarter of 2011. This result reflects the innovation of our team to tailor a unique specialty product which enabled us to realize significantly higher pricing and a margin that could not have been attained producing traditional NBHK. Not only did this provide improved financial results, but through the extensive development and training that occurred to achieve the tolerances required for this new specialty grade pulp, we are better prepared for the coming transition to dissolving pulp production.

The non-woven wallpaper base segment nearly equaled its record first quarter performance with operating earnings of $6.8 million. Margins remain strong and the order log is healthy. We will complete an additional upgrade to our facility during our annual August maintenance shutdown. This will add approximately 10% additional capacity which is expected to have a positive impact starting in the third quarter of 2011. The waste recycling plant continues to increase the overall efficiency of the mill allowing us to further improve our competitive position.

The security and specialty paper segment experienced another challenging quarter with an operating loss of $6.8 million. The newly converted PM1 to a high security paper-machine is performing to specifications; however, similar to the first quarter of 2011, the Landqart mill second quarter 2011 results were impacted by high raw material costs and industry overcapacity due in part to the postponement of implementation of several major currencies. In addition, the strong Swiss currency continues to have a negative impact on the operational cost structure of the mill. As previously reported, the mill has consolidated production of bank note and security papers into PM1 and has temporarily suspended the commercial operation of the smaller PM2 which will be utilized for trials and sample production until such time as this additional capacity is required.
Title: Re: FTP - Fortress Paper
Post by: bonechip1 on August 14, 2011, 09:11:25 PM
From the recent Rayonier conf call - thought it might be relevant to those who own FTP.  I think Rayonier's positive comments on commodity dissolving pulp market are important because Rayonier is much less biased and conflicted than FTP may be as Rayonier produces specialty cellulose, not commodity dissolving pulp such as FTP:

Michael Roxland – Bank of America/Merrill Lynch

Over the last couple of months, we’ve had a number of dissolving pulp capacity announcements aimed to start not only in China, but here domestically. And obviously, you are well entrenched in the market, but any concern that these proposed capacity additions eventually erode your market share? And practically giving the amount of capacity that’s targeted to come online, I think somewhere in excess of 2 million tons over the next year-and-a-half?

Lee M. Thomas

I think a couple of things, Mike. I think one, our product line is dissimilar from the capacity announcements that have been made. There haven’t really been any capacity announcements in our specialty categories. What I have seen has all been in the commodity viscose area and that’s really unrelated to the demand for our products. The second thing is just as an aside, I’d be surprised if all of that capacity came home. I have seen a lot of the announcements. I have gone to see a little bit about people who postpone the announcements, I mean, postpone the implementation. So I think both of those things, the big one from our point of view is it is not in the product categories that we produce.

Michael Roxland – Bank of America/Merrill Lynch

But in terms of let’s assume, for the sake of argument that you are right and that not all of that capacity comes on, but let’s assume that a certain amount does and just targeting the commodity viscose. Any concerns that as you start to ramp up your C mill in 2013 and start selling initially into commodity viscose that your margins get, I wouldn’t say get crushed, but certainly get impacted by the capacity that’s come on earlier?

Lee M. Thomas

We are really not concerned about that. And we’re not concerned for a couple of reasons. One, the discussion we had about bringing on our Specialty Cellulose as quickly as we can qualify customer orders. But the second reason is as we’ve done our work around commodity viscose and the demand for that, we think there will be strong demand for rayon on fabric for the long-term. We see – and we spend a lot of time looking at the growth and where that’s going, how it relates to cotton and cotton availability, so we actually think that commodity viscose will go through it up-and-down cycles, but throughout the process we think, you are going to have good steady demand for rayon.

Paul G. Boynton

In fact, Mike, if you track the announced expansion for the viscose customers through the same period, you’d see matching if not more planned demand for that other than these 2 million tons you have announced here. Our thought of course is all that’s going to retreat for a little bit and they come back on just as we have seen in the past. So I think history is a good teller here before we had prices of viscose pulp down in the $700 to $800 range, it went up to 13 to 14 at one peak there, a lot of announcements of capacity coming on, and then it dropped back down to $800, $700 a ton. A lot of those announcements went away and those people went away. And then it went back up to 26 and everybody said okay, well, we’re on it again. I think we will see the same thing. A lot of folks kind of change their mind.

And so it’s a very commoditized business. And one thing that we do is we stay focused on our business and our customers know that. And I think they appreciate it. So even the small number of players that can kind of flow in and out on the fringe of our business, our customers recognize that we stay with them even when prices on the commodity side are much higher. They know we don’t chase that and therefore I think that keeps us pretty solid in the marketplace.



http://seekingalpha.com/article/282853-rayonier-ceo-discusses-q2-2011-results-earnings-call-transcript
Title: Re: FTP - Fortress Paper
Post by: Liberty on August 14, 2011, 09:40:46 PM
Thanks for posting that Bonechip, interesting to have another perspective.

What did you think of the last Q and of the current price?

IMHO, a 370m market cap seems crazy for all the assets that they have and all the juicy catalysts on the horizon (even without any acquisitions..).
Title: Re: FTP - Fortress Paper
Post by: FFHWatcher on August 15, 2011, 04:18:04 AM
Thanks for posting that Bonechip, interesting to have another perspective.

What did you think of the last Q and of the current price?

IMHO, a 370m market cap seems crazy for all the assets that they have and all the juicy catalysts on the horizon (even without any acquisitions..).

1/ Myself and many others here own or have owned NBSK pulp producers in the past.  The companies always trade cheaper, usually significantly cheaper than the cost or value of their assets.  Fibrek and Mercer both trade at a fraction of what it cost to buy and/or build their mills.  This same valuation allows investors like Chad to pick up similar assets for pennies on the dollar.  I am perplexed how any pulp company can possibly consider building a new plant when you can buy an existing one for 25 cents or less on the dollar.  Therefore, certainly no investors want to pay for assets that Chad hasn't even purchaed yet.  That just seems a bit crazy.

2/ not only do pulp related companies trade at a discount to their assets but a discount to their earnings too, likely due to their cyclicality.  Since FTP has minimal earnings on their existing assets, and no earnings on their developing assets at Thurso, it doesn't make a lot of sense to pay up for earnings that should be there in the future...and therein exists the opportunity here.  As that timeline shrinks at Thurso so does the risk.  If the share price stays depressed, the market is saying that it wants to see the earnings before it is willing to pay for them.  Same goes for future assets.

I own merc, fbk and i am a more recent ftp shareholder. :(
Title: Re: FTP - Fortress Paper
Post by: Liberty on August 15, 2011, 06:42:26 AM
I can understand that NBHK isn't getting a high multiple, but I thought the market was usually a bit more forward-looking than that. With conversion on track and mostly on budget and a good track record of execution..

Oh well, I'm not complaining. Bought some FTP at 26 this morning :)
Title: Re: FTP - Fortress Paper
Post by: bonechip1 on August 15, 2011, 07:18:54 AM
Liberty,

I am of the same opinion as you - have been adding aggressively below $30.  The recent Q was about what I expected.  I thought the remarks on Landqart's business pipeline were interesting.  They should be able to fill banknote capacity on PM1 and PM2 with recent announcements by ECB and other central banks - should ease competitive pressures.  Dresden is firing on all cylinders as usual - if they can get the other 2 divisions firing on all cylinders, FTP shareholders should do OK.  At some point, I believe that FTP will trade on a multiple of earnings, rather than a discount to asset value.
Title: Re: FTP - Fortress Paper
Post by: T-bone1 on August 16, 2011, 08:47:18 AM
Fortress' last 10k sats there sensitivity to a 1% move in the CHF is only $19k . . . it seems like it had a larger effect in the last quarter though.  Swiss manufacturing is getting killed by the high franc right now, not sure how long this will continue or if anything can be done to mitigate this
Title: Re: FTP - Fortress Paper
Post by: bonechip1 on August 16, 2011, 08:57:10 AM
Strong CHF is certainly a factor, in addition to higher input costs (cotton prices) and lower capacity utilization.  If Landqart can gain some traction in Durasafe banknotes over the next few years, these factors would have much less of an impact on results due to ultra high projected margins on the Durasafe notes. 
Title: Re: FTP - Fortress Paper
Post by: Liberty on August 16, 2011, 10:02:11 AM
High cottons prices are bad for Landqart, but they're good for Thurso, so you lose some, win some..
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on August 29, 2011, 03:29:00 PM
I first picked up FTP stock when the price fell below $6 in December of 2008. When I took my position off the table I was ecstatic and reveled in my good fortune only to be completely humbled when time proved that I took my profits WAY too early.  Over the last couple of trading sessions, I've been able repurchase my entire position without too much of a premium to my earlier exit.

I think this is a $.50 cent dollar.

<IV

Title: Re: FTP - Fortress Paper
Post by: Liberty on August 29, 2011, 04:18:43 PM
I think this is a $.50 cent dollar.

IMHO it's even cheaper than that, but time will tell.

In any case, welcome back to the FTP club! Ejoy the ride  8)
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on August 30, 2011, 09:00:42 AM
Hi Liberty,

I'll share my back of the envelope numbers. I do see the opportunity for this to be a much bigger business however that's dependent on too many variables for me to forecast. The three main ones are;

1) Chad's ability to find another Thurso, or two?
2) Dissolving pulp prices need to remain firm. Demand/Supply seems to support Chad's thesis but that could change over time.
3) Competition is already increasing. Mercer is looking to convert the Celgar/Stendal Mills. Paper Excellence bought Domtar's Prince Albert mill for conversion. Sodra is converting one of its lines. The Gore group bought Weyerhauser's Cosmopolis mill for conversion. Satire and Rayonaire are looking to increase capacity.

At the moment China's appetite and tough conditions in the cotton market seem to be creating demand that exceeds supply.

Anyway, with that in mind I'm just looking at the current opportunity right in front of our nose and I'll follow the other variables over time. I did a little sensitivity table using a range of EV/EBITDA multiples from 5X-6X (which I think is reasonable) together with projected EBITDA outcomes of $140M - $180M.

            2012 EBITDA Estimates ($M)            
                        
         $140    $150    $160    $170    $180    
      5   $700    $750    $800    $850    $900    
      5.5   $770    $825    $880    $935    $990    
EV/EBITDA6   $840    $900    $960    $1,020    $1,080    
      6.5   $910    $975    $1,040    $1,105    $1,170    

If I use the middle ground, I look for an Enterprise Value range between  $880M - $960M.  Net debt is about $24M implying an equity value range of $856M - $936M.

This puts a value of about $60 - $66 per share. 

Bottomline - the downside looks very limited, the upside looks fantastic and you get a fantastic operator in Chad who been outstanding to date . And, this all flows over a very low share count.

Cheers,

<IV
                        
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on September 02, 2011, 08:44:26 AM
Looks like the Dundee Analyst has a $70 target.

http://business.financialpost.com/2011/09/01/fortress-paper-a-top-pick-cheap-too/

Fortress Paper a top pick, cheap too
Don MacKinnon/National Post

Don MacKinnon/National Post

Chad Wasilenkoff, CEO, of Fortress Papers, poses for photographs with some of the currency his company produces in North Vancouver, B.C.

   
Eric Lam  Sep 1, 2011 – 9:53 AM ET | Last Updated: Sep 1, 2011 10:43 AM ET

If there’s anything more exciting than paper, we don’t want to know about it.

And the most exciting paper company at the moment is Fortress Paper Ltd., a top pick in the small-cap tree space from Richard Kelertas with Dundee Capital Markets.

“Fortress is moving ahead aggressively on all fronts in terms of expansions, upgrades, and profit acceleration,” he said in a morning update.

Fortress shares have been under “considerable pressure,” dropping 56% since touching a 52 week-high of $63.15 a share in February.

“We strongly advise investors to use this weakness to buy Fortress shares on the cheap ahead of upcoming positive catalysts,” Mr. Kelertas said.

These include the start-up of dissolving pulp production at its Thurso mill in Quebec by early October, possible new banknote paper contracts by the fourth quarter, and even another pulp mill acquisition.

Heading into the fourth quarter of 2011 and beyond, Mr. Kelertas expects performance in all the company’s divisions to improve substantially.

He maintains a “Buy” rating for Fortress and a target price of $70 a share.
Title: Re: FTP - Fortress Paper
Post by: Liberty on September 02, 2011, 09:07:19 PM
Small delay at Thurso:

http://www.marketwatch.com/story/fortress-paper-provides-update-on-dissolving-pulp-conversion-project-2011-09-02

I don't mind too much. I'd rather they take their time and get it right, and if it's partly because of the "rescheduling of the delivery and installation of specialized equipment", it might be out of their control anyway.
Title: Re: FTP - Fortress Paper
Post by: Liberty on September 05, 2011, 06:15:39 PM
Just rumors at this point, but hopefully turns out to be true:

http://www.finextra.com/news/fullstory.aspx?newsitemid=22919
Title: Re: FTP - Fortress Paper
Post by: motownsf on September 07, 2011, 01:01:10 PM
Looks like NewPage is going bk and put their Nova Scotia mill up for sale:

http://www.foliomag.com/2011/paper-manufacturer-newpage-files-chapter-11


Title: Re: FTP - Fortress Paper
Post by: Liberty on September 07, 2011, 01:08:34 PM
Looks like NewPage is going bk and put their Nova Scotia mill up for sale:

http://www.foliomag.com/2011/paper-manufacturer-newpage-files-chapter-11

Any idea if it's the right kind of mill for DP?
Title: Re: FTP - Fortress Paper
Post by: Liberty on September 15, 2011, 12:22:49 PM
http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/55886

Recent VIC writeup.

Update: Up 11.8% right now. Guess a big fish read that writeup :)
Title: Re: FTP - Fortress Paper
Post by: Liberty on September 16, 2011, 12:14:37 PM
Second day in a row of pretty high buying volume and big price movements on seemingly no news... Hmm, did info about a new acquisition leak out somewhere? It could be something else or just random, but I'm thinking there's a probability that we'll see an announcement in the coming days. Just a guess though, I've been wrong a lot about this kind of stuff in the past - I do it more for sport than for any serious purpose :)
Title: Re: FTP - Fortress Paper
Post by: Myth465 on September 16, 2011, 12:43:40 PM
This sucks. I was just beginning my deep dive here. I looked at it for all of 5 seconds and didnt like the cash flow yield. I didnt realize they had 100 - 150 million in cash flow coming online for 2012....

I am hoping for a selloff but will buy under 35.
Title: Re: FTP - Fortress Paper
Post by: Liberty on September 16, 2011, 12:45:55 PM
This sucks. I was just beginning my deep dive here. I looked at it for all of 5 seconds and didnt like the cash flow yield. I didnt realize they had 100 - 150 million in cash flow coming online for 2012....

I am hoping for a selloff but will buy under 35.

Welcome to the club!

Whatever you do, do it before Thurso starts shipping because I doubt it'll stay anywhere near 30 after that catalyst finally arrives.
Title: Re: FTP - Fortress Paper
Post by: Myth465 on September 16, 2011, 12:54:35 PM
I made a bit of coin on Fibrek and have been kicking the tires on MERC, but what impressed me here was the forward sales and the lack of / low debt. We get all of the FCF with none of the multi years of deleveraging. It also gives a skilled Management team room to play...
Title: Re: FTP - Fortress Paper
Post by: Liberty on September 16, 2011, 01:06:32 PM
Do Fibrek and MERC make any kind of niche/specialty products? It was my impression that they were much more commodity players than FTP, though I haven't really researched them much (I took one quick look at the financials in Google finance and I knew they were not my kind of company - small margins, lots of debt...). That's one big advantage that FTP has over other companies that it too often gets lumped in with...
Title: Re: FTP - Fortress Paper
Post by: Myth465 on September 16, 2011, 01:49:13 PM
They are basically deleveraging commodity plays. I dont mind commodity and dont mind debt, but will avoid it if I can find something else thats equally as nicely priced.
Title: Re: FTP - Fortress Paper
Post by: Liberty on September 18, 2011, 05:44:25 PM
http://www.lenzing.com/fileadmin/template/pdf/konzern/lenzinger_berichte/ausgabe_89_2011/LB_2011_2_Haemmerle.pdf
Title: Re: FTP - Fortress Paper
Post by: Liberty on September 21, 2011, 09:26:59 PM
FTP on BBC:

http://www.bbc.co.uk/news/business-14989019

Video shows Landqart. Very cool, very high tech.

The last part shows how Chad operates:

Quote
The large amount of output is thanks to the modernising efforts of Mr Wasilenkoff.

"It's a multi-decade project that requires a lot of capital," he says.

As a "contrarian type of investor", Mr Wasilenkoff bought the Landquart Mill at a time when the forestry industry was struggling to perform and failing to attract investors.

The mill had been making thousands of different commodity products from one very small machine - so simply was not able to compete globally.

Fortress streamlined production so the mill focused solely on security paper for passports and visas, as well as bank notes.

It went from producing less than 1,000 tonnes of paper per year to 10,000 per year.

Mr Wasilenkoff says that by investing in research and development, Landquart is able now stay ahead of its competitors.

"We have the latest, the greatest and the most state-of-the-art machinery," he says.

So after buying an asset at a deep value price, he went from lots of commodity products to one high-margin niche product with a moat, and from 1,000 tons/year to 10,000 tons/year capacity, all of that more efficiently because of fewer workers and better machinery. I'd say he's pulling the right levers :)
Title: Re: FTP - Fortress Paper
Post by: Liberty on September 22, 2011, 07:03:40 AM
This sucks. I was just beginning my deep dive here. I looked at it for all of 5 seconds and didnt like the cash flow yield. I didnt realize they had 100 - 150 million in cash flow coming online for 2012....

I am hoping for a selloff but will buy under 35.

Looks like you got your wish, Myth. Down to 30 right now.
Title: Re: FTP - Fortress Paper
Post by: Myth465 on September 22, 2011, 09:13:09 AM
Yep I waited, the question is now what does one do?
Title: Re: FTP - Fortress Paper
Post by: alertmeipp on September 22, 2011, 07:15:52 PM
I haven't done any work on this. Anyone nice enough to post their thesis?
Title: Re: FTP - Fortress Paper
Post by: Liberty on September 22, 2011, 08:15:59 PM
I haven't done any work on this. Anyone nice enough to post their thesis?

Have you read this whole thread and what's linked from it? That would be a good starting point, and should point you to many external sources.

After that if you have specific questions I'll do my best to help.

Or if you just want the very quickest overview, check out the writeup on the VIC, it's pretty good.
Title: Re: FTP - Fortress Paper
Post by: Myth465 on September 22, 2011, 08:31:35 PM
Yes the VIC writeup is quite good. That plus this thread, and the Value Investigator site should bring you up to date. Basically they have at least $100 million in CF (likely more) coming online in 2012 with little pricing risk. The major risk is execution and cost containment. The market isnt pricing that in or is worried about something or another.

You get free call options on the turnaround of a plant which earns nothing, and also get a call option on Management buying something in this distressed market. Basically its an upgraded FBK with better product, no / low debt, and better management.....

I want to buy 4% but like my cash, will be an owner just not sure when. Would be much easier at 24......
Title: Re: FTP - Fortress Paper
Post by: alertmeipp on September 22, 2011, 09:10:07 PM
Thanks L & M. I will have a look later.

>> Basically its an upgraded FBK with better product, no / low debt, and better management.....

upgraded FBK.. that doesn't give me a good feeling. u can't upgrade a loser to a winner.  :o

Title: Re: FTP - Fortress Paper
Post by: Myth465 on September 22, 2011, 10:39:41 PM
Thanks L & M. I will have a look later.

>> Basically its an upgraded FBK with better product, no / low debt, and better management.....

upgraded FBK.. that doesn't give me a good feeling. u can't upgrade a loser to a winner.  :o

LOL, I made a small bit of coin on FBK. Perhaps a larger fortune here.....
Title: Re: FTP - Fortress Paper
Post by: Liberty on September 23, 2011, 06:48:22 AM
upgraded FBK.. that doesn't give me a good feeling. u can't upgrade a loser to a winner.  :o

Personally, I don't even consider FBK and FTP to be in the same business, and I don't really see what they have in common other than trees, but I guess there's more than one way to look at it ;)
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on September 23, 2011, 08:57:38 AM
Thanks L & M. I will have a look later.

>> Basically its an upgraded FBK with better product, no / low debt, and better management.....

upgraded FBK.. that doesn't give me a good feeling. u can't upgrade a loser to a winner.  :o

If you PM me your email address I'll pass along the investment thesis. Gone til Monday though.
Title: Re: FTP - Fortress Paper
Post by: Liberty on September 30, 2011, 11:33:17 AM
http://lechoabitibien.canoe.ca/webapp/sitepages/content.asp?contentid=208251&id=1645&classif=En%20manchettes

This seems to say that after some delays caused by bureaucrats being on vacation, FTP is on the verge of acquiring another plant which will be converted to DP production like Thurso. Even a high ranking provincial minister says the deal is almost done.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on September 30, 2011, 03:34:58 PM
Liberty,

That mill has not been operated since 2005. It employed about 425 people and had annual production capabilities of 300,000 MT of softwood kraft.

Wouldn't that be something if Chad could pull off another Thurso? As it stands today, completely ignoring this article and its implications, I figure Chad has successfully taken about $15M in 2006 and turned that into a business worth close to $1B.

It's even more impressive when one understand's the overall credit market conditions he worked through in the 2008/2009 period.

In terms of capital allocation decisions, Chad is one of the best that I can recall.

1) The $15M decision to acquire the assets in the private market
2) The $46M IPO
3) The upgrades of paper machine & capacity
4) The unbelieveable deal he struck for the Thurso asset. Bought asset for $1.2M out of bankruptcy. Negotiates a $102M loan at around 5.5% or so from Investissement Québec. Gets another $15 million from Fonds de solidarité FTQ.
5) Uses capital to convert to DP mill and the EBITDA will now likely jump from the $30M range currently to the $160M range in 2012

All I can say is wow! The emergence of this business is one of the best that I've seen. And to think ... perhaps he can pull another Rabbit out of his hat. I wouldn't bet against him at this point.

Much Respect for Chad,

Disclosure: Long FTP
Title: Re: FTP - Fortress Paper
Post by: Liberty on September 30, 2011, 09:18:36 PM
Agreed! And he mentioned in some interview that (from memory) he'd like to do at least 2-3 other deals like Thurso, so hopefully within a few years there are 3 DP plants generating 100m+ a year (each eventually getting upgraded with cogen and a biorefinery, if it makes financial sense, for even more cashflow).
Title: Re: FTP - Fortress Paper
Post by: Liberty on October 03, 2011, 09:57:38 AM
Another article where the mayor of LSQ says there should be a sale announced within 'weeks'.

http://www.abitibiexpress.ca/Economie/Ressources-naturelles/2011-10-03/article-2765352/%26laquo%3BCe-n%26rsquo%3Best-pas-une-%26lt%3Bem%26gt%3Bballoune%26lt%3B-em%26gt%3B!%26raquo%3B/1
Title: Re: FTP - Fortress Paper
Post by: Liberty on October 03, 2011, 04:51:28 PM
Another bit of news found via the SH board:

http://www.risiinfo.com/blogs/New-trends-of-the-paper-industry-in-China.html

Quote
A new grade that producers have been looking at is dissolving pulp (DP). With high expectations of soaring prices, paper mills were accelerating the pace of building DP, or modifying their existing lines to grasp a share of the hot market in the past year.

Last year, poor cotton harvests and a subsequent shortage pushed prices up for DP, a grade that can be made into viscose fiber, which can be used as a substitute for cotton. High DP demand soon triggered an investment spree in China, according to our PPI Asia newsletter.

However, the hot investment may not roll out for long. Shandong Chenming Paper Holdings, one of China's largest producers, is reportedly reconsidering its plans to start DP production on a new 700,000 tonne/yr beached hardwood kraft (BHK) pulp line at its site in Zhanjiang city, Guangdong province.

Shandong Chenming's reported hesitation could be due to declining DP prices in the Chinese market, according to the recent Asian newsletter. The latest estimates for world cotton production in 2011 show a record year, at nearly 27 million tonnes, or nearly 5 million tonnes above the low point reached in 2009, says RISI's World Dissolving Pulp Monitor.

Oversupply and weakening demand are a double whammy for the current market.
Title: Re: FTP - Fortress Paper
Post by: Myth465 on October 04, 2011, 07:22:10 PM
Got a buy order for tomorrow on the pink sheet shares. It probably wont be filled.
Title: Re: FTP - Fortress Paper
Post by: Liberty on October 04, 2011, 07:44:02 PM
Got a buy order for tomorrow on the pink sheet shares. It probably wont be filled.

At what price, if I may ask?
Title: Re: FTP - Fortress Paper
Post by: Liberty on October 05, 2011, 12:23:26 PM
Did you get your order filled, Myth? Up 9.33% right now  :P

Update: Well, I sure hope you did because it's almost up 20% over the past 2 days.
Title: Re: FTP - Fortress Paper
Post by: Myth465 on October 06, 2011, 04:43:01 PM
Of course not  :). I put in a buy at 27.5, should have went 29. Today is even worse lol.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on October 06, 2011, 05:02:58 PM
Invert.

You missed it at $29.
Does it still represent good value at $36?

 :)
Title: Re: FTP - Fortress Paper
Post by: biaggio on October 06, 2011, 05:19:57 PM
Of course not  :). I put in a buy at 27.5, should have went 29. Today is even worse lol.

hind sight is 20/20

has happened to me a lot but have also had it where order gets filled only to drop further on price

at end of day have confidence in your valuation + just buy it if it is good value

I have been trying to average in i.e dollar cost avg... buy a 1/4 or 1/2 of a position + feel better when it goes down as you can buy more.

we re all value investors yet we all want to buy at the low-

if you think FTP is worth $60 then $27 or $29 or $30 what does it really matter(if its only worth $32 then forget about it)
Title: Re: FTP - Fortress Paper
Post by: Myth465 on October 06, 2011, 06:09:38 PM
I think 70 isnt a bad bet for IV. I have about 10% cash and am trying to spend it wisely. I think we are in for a hell of a few quarters, and am trying to get the best value. ATSG was down to 2.5 times free cash flow and has solid growth prospects. I am severly overwieght there but, I am looking for similar ideas. I will get my FTP one way or another but prefer under 30.....
Title: Re: FTP - Fortress Paper
Post by: Liberty on October 06, 2011, 06:23:17 PM
I will get my FTP one way or another but prefer under 30.....

I know trying to time things in the short term is always dangerous, but if you really want to get in, keep in mind two short-term catalysts: Thurso starting to ship DP and a new acquisition, most likely at Level-sur-Quevillon. When either of those happen, it would be very surprising to see the stock not go up a fair amount, because any of those two things would remove a lot of uncertainty about either the capacity of Thurso to ship DP or about the capacity of management to repeat the great deal that they got on Thurso.

Latest news are that DP should start shipping in "early November", and most of the signals out of LSQ are that a deal could be announced in the "coming weeks". Who knows what will actually happen, though...
Title: Re: FTP - Fortress Paper
Post by: Myth465 on October 06, 2011, 06:43:11 PM
One thing 2008 - Now has taught me is there is never one that got away. This girl will be out and ready to flirt sooner or later. I will be waiting with cash, if she gets taken off the market permanently there are plenty of fish in the sea....
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on October 06, 2011, 08:02:24 PM
I agree it's wise to study all your opportunities. However, upon reflection I've no doubt missed  the forest for the trees on many an occasion. My personal experience is one where I've lost as many good entries as I've created by executing patience when buying stocks. And over the long run the opportunity cost of being incorrect has probably cost me about the same as what I've generated by earning higher profits when correct.

You may or may not agree with me, but I feel the value in Fortress Paper is about as clear as it gets and this happens to be one of those rare situations where a very short term catalyst exists to surface that value. If I think FTP is worth $65/share then buying at $30 or $36 will both make perfect sense in time. It's true that patience may offer you a better entry price but that right to buy in cheaper isn't for free. You must account for the opportunity cost of being wrong.

Interesting topic and one that I've struggled with over the years.

<IV
Title: Re: FTP - Fortress Paper
Post by: Liberty on October 06, 2011, 08:35:13 PM
Very good post, <IV.

That's why I make big efforts not to anchor too much on a single 'ideal' price. Buffett has said that he used to be too price sensitive - holding prayer meetings before raising the bid by 1/8 - and that it made him lose billions on things like Wal Mart.

I try to be a long-term investor, and there are very few businesses that pass my criteria checklist. So when one of those is selling much below what I think is IV, I try to remember that in 5 years it might not matter that much whether my average cost was 30 or 33, what will matter is if I decided to make a big enough move when I saw that value was available.

This might be less of a problem for someone with a different criteria checklist and more businesses that they are willing to invest in.. But my top tier list is awfully short.
Title: Re: FTP - Fortress Paper
Post by: Myth465 on October 06, 2011, 09:24:56 PM
You may or may not agree with me, but I feel the value in Fortress Paper is about as clear as it gets and this happens to be one of those rare situations where a very short term catalyst exists to surface that value. If I think FTP is worth $65/share then buying at $30 or $36 will both make perfect sense in time. It's true that patience may offer you a better entry price but that right to buy in cheaper isn't for free. You must account for the opportunity cost of being wrong.

Interesting topic and one that I've struggled with over the years.

<IV

I completely agree with you oddly enough. My rule however is capital must earn a higher return as it gets lower and lower. At 10% cash with Europe tethering and many large catalysts that will send all stocks regardless of IV down. I have choosen to wait for my pricepoints. I am 90% invested on companies which are undervalued by 2x or 3x or 4x. If this gets away due to a move up. I will do just fine. If it comes down with everything else then the cash is there.

Plenty of doubles out there in this market. I can think of 10 - 15 no brainer situations right now. Plenty.....

I see where you guys are coming from, but you could have easily have paid 40 or 50 with that attitude. Also catalysts are very interesting with small caps, they often lead to nothing at all if Mr. Market is in show me the money mood, I hope FTP doubles in a market rebound and dont mind missing it as long as most other things rebound as well......

---

LOL on the Buffett. Isnt that the same guy who set a price on a stock and wouldnt buy no matter what until it hit that price. Same guy who missed the boat on Walmart or Costco due to anchoring. Who didnt sell US Airways because it never hit his sale price, and he ended up making all his money back. Buffett says and does alot of things, often they go against each other. More often they have to do with circumstances. I am sure his stickler for price has hurt him and helped him about the same when you add it all up. He also has billions coming in every month from 70 operating companies, and has a huge cash horde. If I were in his position I would feel a bit less sensitive lol. One has to think for himself at some point. With 90% cash I am buying a 5% or 10% stack in FTP tommorrow at under $40. At 7% - 10% cash with the leaders of the largest economy in the world asleep at the switch during a massive credit / debt crisis, I am waiting for the whites in their eyes cause I am low on bullets....
Title: Re: FTP - Fortress Paper
Post by: Liberty on October 06, 2011, 10:21:12 PM
All I'm saying is that it's possible that FTP was undervalued at 50, but that because it went to 25 or whatever and became ridiculously cheap, that anything much above that now feels expensive because we've anchored on the new low price.

http://en.wikipedia.org/wiki/Anchoring

Personally, I think Chad makes FTP a potential very long-term holding, not just a cigar butt that I'll dump when it reaches close to whatever the current IV is (I don't really invest in cigar butts anyway). This is a case where I'm mostly interested because of the owner-manager, and the same assets with a run-of-the-mill CEO wouldn't get a second look from me. There are many other factors, but this is an important one...
Title: Re: FTP - Fortress Paper
Post by: Myth465 on October 06, 2011, 10:23:28 PM
I agree on the anchoring and am a frequent victim, and also really agree on the Manager. I think he will do something interesting should the downturn persist, also love the balance sheet. I have become a huge fan of hedging / forward contract sales and believe it shows how prudent he is. Should things get better and I have cash, I will just pay up a bit. Perhaps selling some of my stocks once they recovered to buy here.
Title: Re: FTP - Fortress Paper
Post by: AZ_Value on October 11, 2011, 04:10:31 PM

http://watch.bnn.ca/#clip547542 (http://watch.bnn.ca/#clip547542)

CEO interview.
Title: Re: FTP - Fortress Paper
Post by: Liberty on October 11, 2011, 04:41:13 PM
Thanks for posting!

Great interview. November 7 is target date for Thurso, so less than a month. Still low 600s/ton on the production side, so very promising. Looking for a couple more acquisitions in the next 6-9 months, which would also be great if the conditions are anything as good as Thurso.

But above all else, one more data point that tells me that Chad is very smart and knows his stuff.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on October 11, 2011, 08:14:05 PM
Summary of Video:

1) Thurso shutdown for conversion to DP. Should begin November 7th.
2) Spot prices are currently $1650 - $1700 for DP and rising.
3) All in cost delivered to Shanghai is in the low $600's once the Cogen facility is built out.
4) At current prices that produces about $1000 EBITDA/ton.
5) Capacity is 200,000 tons => therefore runrate EBITDA of $200M from Thurso
6) Only a handful of mills are actually suited for conversion, worldwide.
7) Intending to conclude a couple more acquisitions in the next 6-9 months.
______________________________

So, just for shits and giggles:

Dresden should do about $26M EBITDA in 2012 and I'll assign a 5.5X multiple to this business
Landquart should do about $13M EBITDA in 2012 and I'll assign a 8.5X multiple to this business
As per above if conditions hold, Thurso will produce normalized EBITDA of $200M. But the co gen isn't up and running yet and there is bound to be some hiccups getting to capacity. So, accounting for a ramp up of production and higher expenses due to no co gen facility I'll knock off 10% and suggest a annual 2012 EBITDA target of $180M. I'll assign a 6X multiple for this business.

Sum of the parts using 14.292M shares

Dresden: Value of $10/share
Landquart: Value of $7.75/share
Thurso: Value of $75/share

Sum = $92.75

___________________________________

A more conservative model would be to use the floor price of $1200/ton in your projections instead of using the spot price. The value of Thurso would become closer to $45 and reduce the sum to about $62.75.

This is how I did my original work but I believe I may be too conservative. The exodus of future oncoming supply has seemingly put a bottom in play at around $1600.

Then, if you take Chad's comment from today that he is "intending on concluding" a couple more deals in the next 6-9months ... the value may be substantially understated should he be successful.  Normally, I wouldn't value "intents to conclude" but Chad has proven to be one of the best capital allocators that I've seen. Just review the progression of this business. I believe that Chad is close to closing on at least one more mill based on current newspaper items highlighted on this board.

This is as good of an opportunity as I've seen since 2009.



Title: Re: FTP - Fortress Paper
Post by: Myth465 on October 12, 2011, 06:56:55 AM
I caved and bought a small starter pack. Enough to where if it goes up I feel good, but can buy more should all hell break lose.... That means we will likely trade down.
Title: Re: FTP - Fortress Paper
Post by: Liberty on October 12, 2011, 03:44:13 PM
A more official release:

http://www.marketwatch.com/story/fortress-paper-announces-the-commencement-of-the-final-phase-of-the-dissolving-pulp-conversion-project-and-the-signing-of-new-banknote-paper-orders-2011-10-12

Quote
Thurso Quebec:

The Fortress Specialty Cellulose Mill was purchased by Fortress in early 2010 with the plan to convert the NBHK mill to a dissolving pulp producer commencing in May 2011. Moreover, the construction of a cogeneration facility to provide 18.8 megawatts per annum of green power to Hydro Quebec for a 15 year term has also recently broken ground, and is scheduled for completion in the second half of 2012.

Peter Vinall, Chief Executive Officer of Fortress Specialty Cellulose, commented: "The Thurso mill conversion has entered the final shutdown phase which represents the ending of NBHK production at the mill. We have mobilized a workforce of over 800 workers on site to assist with final mill connections and de-bottlenecking work. When the mill is restarted in early November it will be a low cost, high quality dissolving pulp producer with an annual production capacity of approximately 200,000 tonnes."

Landqart Switzerland:

Fortress Paper's Lanqart Mill reports the signing of new banknote paper contracts for 2012, which represent a significant portion of the mill's annual banknote production capacity.

Chad Wasilenkoff, Chief Executive Officer of Fortress Paper, commented: "Our Landqart Mill was among the winning bids for a number of banknote contracts. Bidding on contracts of this volume would not have been possible prior to our recent PM1 banknote machine upgrade, which increased our overall annual production capacity from 2,500 to 10,000 tonnes."
Title: Re: FTP - Fortress Paper
Post by: Liberty on October 14, 2011, 07:12:01 AM
I know it's just Mr. Market and it doesn't mean much in the short term, but it's nice to see FTP back over 40. In fact, it was at 42 not long ago. That's up over 70% from the low it hit recently... Talk about volatility.
Title: Re: FTP - Fortress Paper
Post by: Myth465 on October 16, 2011, 08:08:18 PM
Yep its quite nice, I am glad I finally took you all's advice...  :)
Bought a bit of MERC too.
Title: Re: FTP - Fortress Paper
Post by: Liberty on October 18, 2011, 07:15:27 AM
Short video interviews with Chad in the G&M:

1.

http://www.theglobeandmail.com/report-on-business/small-business/sb-growth/success-stories/video-printing-and-protecting-money-big-business-for-fortress-paper/article2203819/

2.

http://www.theglobeandmail.com/report-on-business/small-business/sb-growth/success-stories/video-fortress-paper-chief-turns-tired-mill-into-multimillion-dollar-venture/article2203818/

3.

http://www.theglobeandmail.com/report-on-business/small-business/sb-growth/success-stories/video-entrepreneurial-paper-chief-explains-contrarian-investing-strategy/article2203820/
Title: Re: FTP - Fortress Paper
Post by: Myth465 on October 18, 2011, 08:28:33 AM
This guy is going to make investors some serious money...
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on October 18, 2011, 12:47:13 PM
He already has.
 ;)

 ::)

Title: Re: FTP - Fortress Paper
Post by: Liberty on October 19, 2011, 10:59:50 AM
FTP hit a 52wk low 2 months ago. Since then it is up 87.8%. Not a bad rebound!
Title: Re: FTP - Fortress Paper
Post by: Liberty on October 24, 2011, 07:23:27 AM
Looks like some construction worked union stuff will probably slow down production at Thurso (construction all over the province is being affected):

http://www.radio-canada.ca/nouvelles/societe/2011/10/21/003-chantiers-construction-debrayage.shtml

http://www.radio-canada.ca/nouvelles/societe/2011/10/24/001-debrayage-construction-syndicats.shtml

Hopefully it won't last too long...
Title: Re: FTP - Fortress Paper
Post by: Liberty on October 25, 2011, 08:49:37 AM
Here's the company release:

http://www.marketwire.com/press-release/fortress-paper-announces-temporary-work-delay-tsx-ftp-1577312.htm

Quote
VANCOUVER, BRITISH COLUMBIA--(Marketwire - Oct. 25, 2011) - Fortress Paper Ltd. ("Fortress Paper" or the "Company") (TSX:FTP) announced that an unexpected walkout by unionized employees of the contractors engaged by the Company on the dissolving pulp conversion and cogeneration projects has resulted in the temporary suspension of construction activities at its Fortress Specialty Cellulose Mill in Thurso, Quebec. Although the construction unions have not issued an official statement, Fortress Paper understands that the walkout is a result of the opposition to a bill proposed by the Quebec Government and not as a result of disputes with the Company or their employers. The walkout is affecting construction projects across the Province of Quebec. Fortress Paper is exploring available options to resume construction work at the Fortress Specialty Cellulose Mill, and is in discussions with its contractors and government representatives with a view to resolving this situation as soon as practicable.

Management remains hopeful that the issues relating to this walkout can be resolved shortly, with the result that the re-start of the Fortress Specialty Cellulose Mill and the commencement of dissolving pulp production that was planned for early November 2011 would only experience a minor delay. However, as the duration or outcome of the walkout is out of management's control and cannot be reasonably predicted, a further delay remains a possibility. Fortress Paper will provide updated guidance in this regard following the resumption of construction work at the mill.
Title: Re: FTP - Fortress Paper
Post by: AZ_Value on October 25, 2011, 10:16:54 AM
Here's the company release:

http://www.marketwire.com/press-release/fortress-paper-announces-temporary-work-delay-tsx-ftp-1577312.htm

Quote
VANCOUVER, BRITISH COLUMBIA--(Marketwire - Oct. 25, 2011) - Fortress Paper Ltd. ("Fortress Paper" or the "Company") (TSX:FTP) announced that an unexpected walkout by unionized employees of the contractors engaged by the Company on the dissolving pulp conversion and cogeneration projects has resulted in the temporary suspension of construction activities at its Fortress Specialty Cellulose Mill in Thurso, Quebec. Although the construction unions have not issued an official statement, Fortress Paper understands that the walkout is a result of the opposition to a bill proposed by the Quebec Government and not as a result of disputes with the Company or their employers. The walkout is affecting construction projects across the Province of Quebec. Fortress Paper is exploring available options to resume construction work at the Fortress Specialty Cellulose Mill, and is in discussions with its contractors and government representatives with a view to resolving this situation as soon as practicable.

Management remains hopeful that the issues relating to this walkout can be resolved shortly, with the result that the re-start of the Fortress Specialty Cellulose Mill and the commencement of dissolving pulp production that was planned for early November 2011 would only experience a minor delay. However, as the duration or outcome of the walkout is out of management's control and cannot be reasonably predicted, a further delay remains a possibility. Fortress Paper will provide updated guidance in this regard following the resumption of construction work at the mill.

Thanks for posting.

Maybe this will give us late comers an opportunity to buy in below $30. Sometimes it's better to be lucky than good  :D
Title: Re: FTP - Fortress Paper
Post by: alertmeipp on October 25, 2011, 04:38:01 PM
Hope not!
Title: Re: FTP - Fortress Paper
Post by: Liberty on October 26, 2011, 01:10:02 PM
http://www.theglobeandmail.com/news/politics/wildcat-construction-strikes-in-quebec-continue-for-second-day/article2213729/

Quote
The wildcat strikes were taking a toll on the bottom line of several companies and seriously undermining the province’s reputation. In Thurso, a town in the Outaouais region, the strike shut down work by contractors at a project by Vancouver-based entrepreneur Chad Wasilenkoff. He is transforming a hardwood pulp mill into a facility that makes a key ingredient in the manufacture of rayon.

The company, Fortress Paper Inc., has only a few weeks in which to convert the mill, and the strike has blown a big hole in that tight schedule.

Mr. Wasilenkoff figures the lost time adds up to between $500,000 and $600,000 per day in foregone profits, based on today’s commodity prices.

“From our perspective, it’s very challenging and frustrating,” Mr. Wasilenkoff said in an interview Tuesday, the second full day of wildcat strikes that have cost companies tens of millions of dollars per day.

That's a lot of money, especially if they run the mill 7 days a week!
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on October 27, 2011, 07:26:41 AM
Fortress Paper resumes construction at Thurso mill

2011-10-27 09:58 ET - News Release

Mr. Chadwick Wasilenkoff reports

FORTRESS PAPER RESUMES CONSTRUCTION ACTIVITIES

Fortress Paper Ltd. has resumed construction activities at its Fortress specialty cellulose mill in Thurso, Que., after all employees of contractors engaged by the company reported to the construction site today.

The Fortress specialty cellulose mill began experiencing instances of construction worker absenteeism in the evening of Thursday, Oct. 20, 2011, with certain trade workers failing to report, in increasing numbers, to the construction site the following day and throughout the weekend. While at the time the company did not consider that these actions were likely to materially impact the timing of the conversion project at the mill, the unexpected full walkout by the construction workers on Monday, Oct. 24, 2011, has impacted the critical path of the project. The company expects construction activity to reach normalized levels once the construction work force is fully remobilized and construction activities are fully ramped up. However, it is possible that labour relations could change as a result of continuing opposition to proposed government legislation.

The company is actively seeking to mitigate any delays, and assuming the construction work force continues to be fully engaged in the project going forward, the company expects that dissolving pulp production will commence no later than in mid-November, 2011.

We seek Safe Harbor.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on November 01, 2011, 07:57:08 AM
http://albertaventure.com/2011/11/here%E2%80%99s-why-fortress-paper-can-make-some-money-for-you/

(I can't believe I'm quoting an article by Fabrice Taylor. And he is a fellow shareholder. I feel so dirty.)



Here’s why Fortress Paper can make some money for you

Paper Gains

November 01, 2011 Smart Investor    Fortress Paper
Subscribe Email This Post Print This Post

by Fabrice Taylor

Like so many stocks in recent months, Fortress Paper Ltd.’s stock has fallen out of favour. Yet the company’s story is intact, the impressive growth prospects haven’t disappeared and management has an excellent track record of acquiring assets on the cheap.

Fortress makes money – both literally and figuratively. Its Landqart mill in Switzerland is the sole provider of bank note paper for that country’s franc, and it’s also one of only nine suppliers for the euro, which it produces for 10 countries. The mill also produces currencies for other countries in Europe and Africa, as well as a variety of security papers, such as those used in passports.

That’s not all. Fortress Optical Features, the assets of which were acquired in January, produces security threads used in banknotes. The company’s Dresden mill in Germany is one of the biggest producers of non-woven wallpaper base in the world. Finally, and most important to the investment thesis, is the company’s pulp mill in Thurso, Quebec. Pulp may seem an unlikely source of growing income but, in this case, it is.

Acquired early last year for all of $3 million, the Thurso mill currently makes northern bleached hardwood kraft pulp (NBHK) – a sunset industry. But the mill is being converted to make dissolving pulp (DP), which is used primarily in rayon, a cotton substitute (and at the higher end of the spectrum, a source material for cigarette filters and even bombs). Prices for dissolving pulp are very high, thanks in part to a cotton crop failure that drove up the price of cotton and hence the demand for rayon.

The specialty papers and banknote business has been hampered somewhat by the inefficiency of the Landqart mill. There are two lines, one of which has recently been refurbished for more throughput. It will operate as needed while the other will essentially be shut down.

There is a lot of excess capacity in this business. The strong Swiss franc has been a problem, although the peg instigated by the Swiss central bank will help. Delays in launching anticipated new currencies have also hurt, as have high material costs. The outlook for this segment of the business isn’t exactly brilliant, although the company clearly sees it as attractive, since it continues to invest in innovation and research.

Meanwhile, the wallpaper base business is performing well, with healthy profit margins and growing market share. Management anticipates that share to reach almost 60 per cent, more than twice what it was in 2006. Demand for wallpaper is growing thanks to changing fashions and some customer-friendly innovations, such as papers that can be more easily removed and an increase in their insulating characteristics.

The outlook for dissolving pulp is also good, although it can be easy to overlook the risks. Cotton is cheaper, and while it’s vulnerable to crop failures it grows in just two years, so it doesn’t take long to increase supply. High prices resulting from a shortage are an excellent incentive. That’s not to say Fortress won’t benefit from current high spot prices, which are near US$1,500 per tonne. And given that the Thurso plant will have top-notch equipment, it will be a relatively low-cost producer.

Unfortunately, Fortress recently announced a three-week delay to the transition of the plant from NBHK to dissolving pulp, which took the wind out of the stock. I should stress that CEO Chad Wasilenkoff has put together a very experienced team to manage this transition, which is by no means a simple process. I spoke to him recently and he reports that everything is going rather well. Also, the pulp that the plant currently produces is a specialized variety, which sells for better prices than standard NBHK pulp, so the lost opportunity will be somewhat offset.

Longer term, the supply of cotton will likely fall, as it requires a lot of land to grow, land that will probably be directed towards the production of food and other higher-yield agricultural products in the future. Another valuable asset in the Fortress stable is its top-notch management. Fortress went public in 2006. That it paid only $3 million for the Thurso plant, which was subsequently written up by $45 million, testifies to Wasilenkoff’s abilities. This also bodes well for the long-term investor. But I think there’s also a short-term opportunity in the stock given the depressed valuation. Fortress’s value is highly leveraged to DP. The three-week delay reduces fourth quarter profits by between 30 and 40 per cent.

But I think the transition will go relatively smoothly. Assuming it does, and that DP prices stay healthy, Fortress has lots of upside.

A stock with both a short-term catalyst and long-term upside is rare. From where I sit, this one looks like a solid investment.

Fabrice Taylor, CFA, is an award-winning financial journalist and analyst. He is also the author of the market beating President’s Club Newsletter. He can be reached at his email.

Alberta Venture assumes no responsibility for the accuracy of any stock recommendations.

DISCLOSURE

Fortress Paper Ltd. (TSX:FTP)

STOCK HOLDING
Author Position yes

November 2011 Contents
Title: Re: FTP - Fortress Paper
Post by: Liberty on November 01, 2011, 04:10:38 PM
http://fortresspaperblog.com/fortress-paper-release-quarter-2011-earnings-3.htm
Title: Re: FTP - Fortress Paper
Post by: Liberty on November 01, 2011, 08:36:23 PM
Found this via the SH board:

http://www.tappi.org/content/events/11diss/fortin.pdf
Title: Re: FTP - Fortress Paper
Post by: Liberty on November 07, 2011, 09:23:45 PM
http://www.marketwire.com/press-release/fortress-paper-announces-third-quarter-2011-results-tsx-ftp-1583337.htm

Title: Re: FTP - Fortress Paper
Post by: Kiltacular on November 10, 2011, 01:01:59 PM
Hey guys,

Anyone know if FTP held a conference call after the latest Q? 

I don't see one on their website.

Title: Re: FTP - Fortress Paper
Post by: Liberty on November 10, 2011, 01:31:26 PM
Hey guys,

Anyone know if FTP held a conference call after the latest Q? 

I don't see one on their website.

They did, I listened in. Not sure how long it usually takes for them to show up on the website, though..
Title: Re: FTP - Fortress Paper
Post by: Kiltacular on November 10, 2011, 01:49:25 PM
Thanks Liberty...that prompted me to take a second look at the press release for Q3 and the replay is still avaiable.

As an FYI, I also just called Fortress and it appears that they don't put the calls up as webcasts.
Title: Re: FTP - Fortress Paper
Post by: alertmeipp on November 10, 2011, 02:52:45 PM
Anyone know what's the DP pricing now?
Title: Re: FTP - Fortress Paper
Post by: Liberty on November 10, 2011, 06:43:58 PM
Thanks Liberty...that prompted me to take a second look at the press release for Q3 and the replay is still avaiable.

As an FYI, I also just called Fortress and it appears that they don't put the calls up as webcasts.

Ah, yes, I should have thought of that. The replay information was right next to the dialing info. Sorry, it slipped my mind.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on November 15, 2011, 09:30:42 AM
More comments from Chad this morning. As posted earlier, using a price of $1200/mt, I think the value of the Thurso mill is around the $45/share mark. I doubt that Chad can put another deal together that's as good as Thurso because the market dynamics have changed but I do believe the opportunity to add more capacity in a profitable manner exists ... and based on the comments today (as well as other's he's made) it appears talks are in the works for two potential acquisitions. The Thurso mill is going contribute to 90% of the companies 2012 profitability. So, it will be interesting to see if Chad can close these deals and what the economics would look like. Another successful project has the potential to add significant value and it waterfalls over a very low shareholder base.

Hopefully the company issues a press release confirming the Thurso plant is up and running in the short term.

<IV
___________________________________________________

http://business.financialpost.com/2011/11/14/contrarian-investing/

Contrarian investing

Dan Bradbury/National Post
Chad Wasilenkoff, CEO, Fortress Paper.
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inShare
   
Special to Financial Post  Nov 14, 2011 – 8:48 AM ET | Last Updated: Nov 14, 2011 3:22 PM ET

Chad Wasilenkoff is no ordinary investor. When others are investing in popular stocks and commodities, the chief executive of Vancouver-based Fortress Paper Ltd. is investing in businesses that would – and do – make bankers run in the opposite direction. Most recently, he invested in a paper mill in Thurso, Que., stumping up money after banks refused to back him. He is banking on that mill to transform his business and prove the naysayers wrong. The key to his process is dissolving pulp, using a new method of production that enables mills to produce higher-margin materials that form the basis for viscose fabric products – in particular, rayon, which he sees as a burgeoning market. The following is an edited transcript of his interview with Danny Bradbury.


Q How did you start out?

A It all dates back to when I was a young child, buying and selling things in the paper, always looking for a deal. Negotiating, and not wanting to overpay. I was looking for deep discount investments.

After school, I went to university and got involved in the stock market, selling a few shares. I got caught up in the technology and the dot-com boom. I found some very good valuations, but they were compared with overvalued companies. I realized that wasn’t the way I wanted to go, and became more of a contrarian investor.

Q What does contrarian investing mean?

A I look at the media for areas that are going through tough times. Very challenged, and very depressed, with no blue sky whatsoever, and where people aren’t looking for investment opportunities. That’s how I started building several of my previous companies, investing in gold mines when gold was $2.75 an ounce. I bought and sold oil and gas properties, copper deposits, and uranium, which we got when it was $8 a pound. That’s what led me to the forestry sector.

Forestry is heavily depressed in North America and Europe, with lots of layoffs. Mills are being dismantled. These are mills that in the past couple of decades took hundreds of millions of dollars in retrofitting just to try to remain globally competitive.

My view is that you just have to find the right product mix. That’s what we do, looking at it from outside the box, and coming at it from entry points that are so attractive we can still afford to put some growth capital in. Even if we can only use 80% to 90% of the equipment, it still becomes very beneficial.

Q You bought a mill in Thurso, Que. Why?

A The commodity business is very challenging, and it’s not a place where we want to operate. A lot of companies are talking about moving up the value chain, but very few are doing it. We’re in a better position coming in new, because we’re not burdened with all of these debts. We’re going after specialty markets from Day One.

The Thurso mill was already bankrupt because it had not been competitive with its commodity product. We have been converting it to make a specialized product with much higher profit margins, and a significant barrier to entry, and good long-term prospects for its underlying product, which is rayon. It is a cheaper and better alternative to cotton. Most of that will be sold to China. It’s the largest and fastest-growing market.

Q This is all good strategy, but how do you handle operations?

A Management is critical to everything I do. I’m not an expert in pulp, any more than I was in gold, uranium, or oil and gas. So I need those particular experts in the industries that I’m focusing on.

If you’re looking at industries that are out of favour, it’s easier to attract world-class management teams. Other people are laying people off on a regular basis, closing down mills and concentrating on cost-cutting. We bring more of an entrepreneurial flair, with growth initiatives, and we give people a lot of free reign. We manage our side of the process, but we rely on these industry experts as partners. After all, who am I to tell a guy how to run a mill? It’s the same story on the sales side.

We’re really a holding company. We’re the rainmakers. We find an asset in a downed industry, and put together those assets to work well together.

Q How difficult is it to raise money as a contrarian investor?

A It’s always difficult. We get a forestry asset, and no matter how good the deal is, people look at forestry, and assume nobody makes money there, and they say “I’m out.” So the business can be solid, the people can be solid, and the reputation can be solid, and it’s still difficult. The cost of capital is always at the wrong end of the curve.

But take the Thurso mill. We paid $1.2-million. The insurance replacement value alone was $851-million. The scrap value is worth more than that. It came with 320 hectares of land on the Ottawa river. Again, the land is worth more than that. People say it’s risky. We don’t think so.

Q How else are you innovating with the mill?

A One aspect of it is taking the biomass and burning it to produce sustainable electricity long term. It helps our overall productivity. When we make paper product at that mill, you end up with heavy cellulose as a by-product, which is essentially sugar. With our new product, we extract these sugars. By putting in this cogeneration facility, we burn them, getting rid of our by-product, and also helping the environment. We eliminate the smells, greenhouses gases and landfill. We signed an agreement with Hydro Quebec for it to buy the power.

Q Analysts said that this would generate half your profit in 2011. Was that accurate at the time?

A It would have been approximately half our profitability this year. That’s with generating only in November and December. Depending on the delays, we’ll see. Fast forwarding to 2012, we think the mill will generate around 90% of our profitability.

Q What about the future? What’s next?

A We anticipate acquiring at least two more dissolving pulp mills in the next few months. We’re looking globally, typically at politically stable countries – Western Europe and North America. We’re looking at South America, which would be bigger, and larger capital investments. They will be lower on our list of priorities, though.

Posted in: Entrepreneur  Tags: Chad Wasilenkoff, Danny Bradbury, Forestry And Logging Industries, Fortress Paper Ltd., Hydro-Quebec Inc., Manufacturing Sector, Paper And Paper Products Manufacturing, Quebec, Vancouver
Title: Re: FTP - Fortress Paper
Post by: Liberty on November 22, 2011, 09:51:03 AM
Some interviews with Chad W.:

http://business.financialpost.com/2011/11/21/c-suite-paper-profit/

http://innovators.financialpost.com/2011/11/14/contrarian-investing/
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on December 01, 2011, 08:39:58 AM
http://www.bloomberg.com/news/2011-12-01/record-cotton-crop-spurs-goldman-to-predict-declining-prices-commodities.html

Title: Re: FTP - Fortress Paper
Post by: Liberty on December 01, 2011, 09:05:32 AM
http://www.bloomberg.com/news/2011-12-01/record-cotton-crop-spurs-goldman-to-predict-declining-prices-commodities.html

I kind of like that. With some luck, it'll mean that a few more DP projects will be cancelled, and this will be good for FTP in the long-term. They're only interested in being low-cost producers and they pre-sell/hedge a lot (70%+) of their DP production, so while their margins could be pressurized by low cotton prices, they should be able to come through on the other side of this cycle in a stronger position.

In fact, if they make 1-2 other DP acquisitions, they might be able to find the equipment to do the conversions cheaper if fewer players are scouring the world trying to buy DP stuff.. But that's just my guess.

Also, Landquart uses a lot of cotton to make banknotes, so lower cotton prices will be good for it.
Title: Re: FTP - Fortress Paper
Post by: bathtime on December 02, 2011, 09:36:34 AM
Anyone have access to TD research? FTP update today is on the home page:

https://www.tdsresearch.com/equities/welcome.action

Visible excerpt begins:

-----
(FTP-T) Thurso Conversion is Imminent; DP Prices Under Pressure 12/02/2011   
Sean Steuart

Yesterday, Fortress Paper hosted sell-side analysts and investors for management presentations and a tour of the company's Thurso, Quebec pulp mill. The tour and presentations give us no reason to question previous assumptions regarding the expected...
-----

I also believe they reduced the price target from $40 to $37.
Title: Re: FTP - Fortress Paper
Post by: Liberty on December 02, 2011, 10:30:20 AM
Personally, I think this is a major overreaction. If all went to hell, FTP could probably earn at least $5/share in 2012.
Title: Re: FTP - Fortress Paper
Post by: bathtime on December 02, 2011, 11:23:44 AM
I don't think this has been posted here yet. Chad presents at an investment forum in October:

http://standrewsclubav.ca/login.php

Username and password are both "tpc". Chad speaks at around the 35 minute mark.
Title: Re: FTP - Fortress Paper
Post by: Liberty on December 02, 2011, 11:26:01 AM
Thanks! I had seen that, but didn't have the login/pass.
Title: Re: FTP - Fortress Paper
Post by: AZ_Value on December 02, 2011, 12:59:59 PM
I don't think this has been posted here yet. Chad presents at an investment forum in October:

http://standrewsclubav.ca/login.php

Username and password are both "tpc". Chad speaks at around the 35 minute mark.

Thanks a lot for posting this.
Title: Re: FTP - Fortress Paper
Post by: Liberty on December 02, 2011, 01:01:59 PM
I don't think this has been posted here yet. Chad presents at an investment forum in October:

http://standrewsclubav.ca/login.php

Username and password are both "tpc". Chad speaks at around the 35 minute mark.

Thanks a lot for posting this.

I've just finished watching it, and I'm more impressed with Chad W. than ever before, and I was already a big fan.
Title: Re: FTP - Fortress Paper
Post by: Liberty on December 02, 2011, 01:21:30 PM
I found this posted on another board. Sorry if the formatting is all weird:

http://www.stockhouse.com/Bullboards/MessageDetail.aspx?p=0&m=30425693&l=0&r=0&s=FTP&t=LIST
Title: Re: FTP - Fortress Paper
Post by: alertmeipp on December 03, 2011, 08:59:29 AM
DP doesn't look at all short term, the cotton price is dropping ~50% since May.
I thought their full production cost is $600?
Title: Re: FTP - Fortress Paper
Post by: Liberty on December 03, 2011, 11:04:55 AM
I've watched the St-Andrews presentation a second time yesterday, and here's a few things that stood out for me:

The Bank of Canada assets they picked up for 750k include two machines with replacement costs of $15m each + all the IP and patents developed over years at the cost of millions. This division helps make Landquart more competitive.

Chad mentioned that he's looking at 5-6 mills that could be converted to DP, and he's including two of them in 2013 predictions of the competitive landscape (has enough confidence that he'll close those deals to put it out there).

These two new mills are both even lower-cost than Thurso (at least in the estimates), and one of them seems to have a little more production (the bar is wider on the graph) while the other is smaller.

He says that one of the mills he's confident he'll get has had 600-700m of investments in the past decade and he expects to get it for one dollar.

FTP is the first new entrant in DP in the past 40 years. Only a handful of conversions have ever been made, and FTP has hired most of the key players that worked on those conversions.

Asian mills use the more modern continuous process, which makes them lower cost for pulp, but means they can't be converted to DP (which requires the batch process). Also, one of te big China player doesn't have easy access to lots of fiber; they have to import 7 tons of fiber to make 1 ton of DP, and that makes them a high-cost producer.

Cotton prices can go down in the short-term, but I think there's a secular trend pressuring prices up. Even if China's economy slows down, clothes isn't the first place people will cut, and competition from food and tightening environmental regulations will mean that cotton acreage won't grow too much, or might even decline.

Since Rayon sells at a premium to cotton because of its better characteristics but costs less to produce, even if cotton goes down a lot, there should still be some margins for the low cost producers, allowing them to survive the down cycle without too much red ink.

Thurso's fiber supply includes the fiber from two other mills that have been shut down. Should be very safe.

I also love it every time to hear the stories of how he picked up the Mercer and Thurso mills. Great deep value investing, paying pennies on the dollar for assets making niche products with high barriers to entry and good margins, and then improving their productivity and focusing them on the highest margin products to get a double-whammy.
Title: Re: FTP - Fortress Paper
Post by: alertmeipp on December 03, 2011, 12:04:24 PM
don't you think the fact that he does so many "shows" these days is concerning? shouldn't be just keep quiet and buy? I assume there are not many other assets out there to at cents on a dollar. If there are, u got to wonder whether they are cigar butt.
Title: Re: FTP - Fortress Paper
Post by: bathtime on December 03, 2011, 02:08:13 PM
don't you think the fact that he does so many "shows" these days is concerning? shouldn't be just keep quiet and buy? I assume there are not many other assets out there to at cents on a dollar. If there are, u got to wonder whether they are cigar butt.

Great question, why talk about a deal if it can tip off your competitors?

I'm impressed by Chad, but looking back on it, he's been somewhat promotional in interviews. He's over-promised and under delivered with timelines for new acquisitions and gives a consistently optimistic view on DP pricing. In the past he has talked about 2012 EBITDA of $200 million from Thurso, more recently he has said $100-120 million, but based on the latest TD analysis it doesn't look like the latter will be achieved.
Title: Re: FTP - Fortress Paper
Post by: Liberty on December 03, 2011, 02:16:26 PM
I think some of it - like the St-Andrews thing - is just that with success comes more invitations to speak at conferences, and he probably expected only a few people to ever see it (we FTP stalkers aren't exactly average invetors), and some of it - newspaper interviews - is probably to pressure politicians. If he has a higher public profile, it's easier to get the kinds of deals that he got for Thurso, which require government action to get the fiber rights, advantageous loans, union deals, etc.

As for over-promising and under-delivering, I think it's still too early to tell. He's sometimes said "at today's prices, it would generate $X in EBIDTA", so it's normal that at lower prices - and more disadvantageous exchange rates - those numbers would be lower. But most of the problems of FTP have been from things that were out of management's control (market prices, union delays, equipment delivery delays, etc), so I'm not holding it against him.

I really appreciate the more negative view on FTP, and I'm always afraid of becoming biased about any of the companies that I follow, but I also don't want to take the opposite view just for the sake of it.. It's a delicate balance.

In any case, I think there are some interesting insights here about the TD report and DP prices/inventories:

http://www.stockhouse.com/Bullboards/MessageDetail.aspx?p=0&m=30426827&l=0&r=0&s=ftp&t=LIST
Title: Re: FTP - Fortress Paper
Post by: bathtime on December 05, 2011, 05:32:51 AM
Thank you for your thoughtful and balanced response, Liberty. I do believe Chad is taking a long term view on these projects and patience will likely be rewarded.
Title: Re: FTP - Fortress Paper
Post by: Liberty on December 05, 2011, 08:59:48 AM
Via SH, from a Canacord report:


Quote
Tour guide…On Thursday, Fortress management presented analysts with an update on its operating segments followed by a tour of its optical thread facility and its newly constructed dissolving pulp mill that was in its final testing phases, with production to start imminently. Following the tour, Canaccord Genuity Forest Products Analyst Neal Gilmer reiterated that he continues to believe investors should overweight the shares of Fortress Paper on the expectation of share price appreciation following the conversion to dissolving pulp. While the company has announced that it has begun start-up phase that included the final phases of water testing, he expects a certain overhang once the company has announced that pulp production has commenced with some consistent production results thereafter. The shares have declined recently following a slight delay to the production start up and slightly lower commodity dissolving pulp prices. However, after completing the tour, Gilmer said he is confident that production is within a matter of hours/days from beginning and that we will hear more in the coming weeks on the status of production. He also acknowledged that lower dissolving pulp prices have lowered potential near-term but maintains that margins remain at attractive levels. Further, he has recently seen announcements that a few of the high cost mills in China have stopped producing dissolving pulp, that should help stabilize the current supply/demand situation. Gilmer does not anticipate substantially lower prices, but near-term risk remains. The stock is now trading at 3.1x EV/2012E EBITDA, below what we believe a typical multiple of 5.5-6.0x should be. Gilmer believes that even with materially lower dissolving pulp prices in 2012, the shares remain attractive and below a typical multiple for the markets it operates in.
Title: Re: FTP - Fortress Paper
Post by: Liberty on December 05, 2011, 03:15:16 PM
Looks like production at Thurso has started:

http://www.marketwatch.com/story/fortress-paper-commences-dissolving-pulp-production-and-provides-corporate-update-2011-12-05-1631130

Quote
VANCOUVER, BRITISH COLUMBIA, Dec 05, 2011 (MARKETWIRE via COMTEX) -- Fortress Paper Ltd. ("Fortress Paper" or the "Company") announced today that it has commenced dissolving pulp production at its Fortress Specialty Cellulose Mill in Thurso, Quebec. The centerpiece of the project, a new state of the art pre-hydrolized kraft cooking plant, came on line successfully on Sunday. The commencement of dissolving pulp production signifies the successful completion of the conversion of the Fortress Specialty Cellulose Mill into a dissolving pulp operation.

Chad Wasilenkoff, Chairman and Chief Executive Officer of Fortress Paper, commented: "This is a momentous day in the history of Fortress Paper and a culmination of our work at the Fortress Specialty Cellulose Mill since acquiring the mill in April 2010. We are very proud to join the limited group of dissolving pulp producers in the world and look forward to completing our first shipments. We would like to thank all those involved in helping bring this project on line."

Dresden Mill

The Dresden Mill continues to lead the non-woven wallpaper base market globally. The order book remains strong and its recent upgrades to improve speed and capacity have been successfully implemented. During the past few months, Fortress Paper in its normal course has been reviewing each of its business divisions and assessing all options as part of its strategy to enhance shareholder value. As part of this ongoing evaluation, management identified a potential divestiture opportunity relating to its non-woven wallpaper base division. Given the financial uncertainties and lack of financial confidence in the Euro zone, Fortress Paper management decided not to pursue any divestiture option for the Dresden Mill. With the support of its management team in Germany, Fortress Paper intends to continue to grow this business division organically and potentially through strategic acquisitions.

Landqart Mill

The Landqart Mill has continued to experience challenges throughout the fourth quarter as a result of a strong Swiss franc, high raw material costs, and less than optimal production efficiency on its paper machines. The company expects that these issues will continue to materially impact results of operations in the fourth quarter. The Company anticipates that it will overcome many of these challenges with the new banknote paper orders that have recently been placed at the mill and which represent a significant portion of the mill's 2012 banknote capacity.
Title: Re: FTP - Fortress Paper
Post by: AZ_Value on December 05, 2011, 04:11:53 PM
Looks like production at Thurso has started:

http://www.marketwatch.com/story/fortress-paper-commences-dissolving-pulp-production-and-provides-corporate-update-2011-12-05-1631130

Quote
VANCOUVER, BRITISH COLUMBIA, Dec 05, 2011 (MARKETWIRE via COMTEX) -- Fortress Paper Ltd. ("Fortress Paper" or the "Company") announced today that it has commenced dissolving pulp production at its Fortress Specialty Cellulose Mill in Thurso, Quebec. The centerpiece of the project, a new state of the art pre-hydrolized kraft cooking plant, came on line successfully on Sunday. The commencement of dissolving pulp production signifies the successful completion of the conversion of the Fortress Specialty Cellulose Mill into a dissolving pulp operation.

Chad Wasilenkoff, Chairman and Chief Executive Officer of Fortress Paper, commented: "This is a momentous day in the history of Fortress Paper and a culmination of our work at the Fortress Specialty Cellulose Mill since acquiring the mill in April 2010. We are very proud to join the limited group of dissolving pulp producers in the world and look forward to completing our first shipments. We would like to thank all those involved in helping bring this project on line."

This is very good news. Let's see if operations going forward go as planned and Thurso doesn't encounter any more hiccups.

Liberty, you seem to be the resident expert on FTP so I'll address my question to you:
I heard Chad mention in one of the videos, maybe it was the investor presentation, that he had flown to China and secured contracts that set the price for some 70%+ of their expected production in the near future. I think he talked about a collar between 1,200 and 1,500 (I'm probably off on the numbers as I don't remember them exactly)
Do you know if there's any public record out there that would allow us to get more info on this? Other than Chad saying it? Info like who are the Chinese companies the contracts are with for instance. I'm just trying to look into who exactly will be the major customers the moment the dissolving pulp mill gets going.
Title: Re: FTP - Fortress Paper
Post by: Liberty on December 05, 2011, 04:28:12 PM
Hi AZ,

The collar for the biggest chunk of production is set between 1200 and 1600, and there's also a smaller fraction of the production that has been sold at viscose spot prices less 1000, which usually ends up being about 200 more than the DP spot price (this is from memory, so double-check anything I say).

I'm not aware of any public record other than what has been disclosed by the company. If they exist, they are probably somewhere in China...

On a conference call, someone asked Chad about these contracts and wondered how confident he was that they would be honored. Chad said that when looking for partners, it was a priority for him to make sure that whoever he made a deal with was a solid and trustworthy player. This is all from memory, but I remember getting the impression that he was very aware of that danger and that he might have left some money on the table just to make sure his deals with Chinese parties would be as dependable as possible. It does fit with his pattern of covering the downside before looking at the upside.

Let me know if any of this isn't clear. As I said, it's from memory, but with more time I could dig up the exact details in my notes.
Title: Re: FTP - Fortress Paper
Post by: AZ_Value on December 05, 2011, 04:57:23 PM

On a conference call, someone asked Chad about these contracts and wondered how confident he was that they would be honored. Chad said that when looking for partners, it was a priority for him to make sure that whoever he made a deal with was a solid and trustworthy player. This is all from memory, but I remember getting the impression that he was very aware of that danger and that he might have left some money on the table just to make sure his deals with Chinese parties would be as dependable as possible. It does fit with his pattern of covering the downside before looking at the upside.


Yeah... This is what I was kind of wondering if I could get a peak into who he's been signing contracts with.
Thanks for the answer.
Title: Re: FTP - Fortress Paper
Post by: Liberty on December 06, 2011, 07:24:20 AM
Mr Market sure is acting strange today. The company announces that they're done with the conversion of a plant that's worth more than the market cap of the whole company, and the stock's down 10%. Oh well, I bought more.. We'll see where it is in a few years.

I was expecting some people to sell for tax loss reasons (I bet a bunch bought it when it was 50-60), but this whole company having a market cap of 360m makes no sense.
Title: Re: FTP - Fortress Paper
Post by: T-bone1 on December 06, 2011, 07:51:51 AM
Fortress was cut to "sector perform" at RBC Capital this morning, I don't have the report or know why though . . .
Title: Re: FTP - Fortress Paper
Post by: bathtime on December 06, 2011, 07:57:43 AM
Here's the number:

• Fortress Paper Ltd (FTP) price target cut to C$33 from C$43 at RBC
Title: Re: FTP - Fortress Paper
Post by: Liberty on December 06, 2011, 07:59:49 AM
Here's the number:

• Fortress Paper Ltd (FTP) price target cut to C$33 from C$43 at RBC

I'd be really curious to know how they get that number.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on December 06, 2011, 08:07:20 AM
Its got me stumped this morning. I expected to see a positive reaction to yesterday's confirmation. The delay and ramp up phase will lower the EBITDA production in 2012 and therefore I think its expected we'll see some downward revisions to targets but any way I slice it  my valuation comes in much higher than $25/share. I originally did my valuation work and came to around $63. I would suggest a lower target now due to lower Q4 EBITDA production and extending the ramp up further into 2012 on weakening prices.

I poured the numbers into my model last night and came up $58/share.  Significantly different than the market!

Title: Re: FTP - Fortress Paper
Post by: Liberty on December 06, 2011, 08:22:42 AM
I also have trouble coming with a valuation of less than 60 with just the current divisions, unless there's a huge fire-sale at the worst possible time, but I doubt that would happen as their balance sheet is solid.

But I also have a fairly high degree of confidence that they can pull off 1, maybe 2, other highly accretive DP acquisitions in the next year. That could bring things to the next level and we're definitely not paying for it at these prices.

Based on comments by the Mayor of LSQ, we might have some news about an acquisition there this month. But then again, we were supposed to have news last summer, so who knows... Even if it doesn't pan out, I expect the 4 divisions to be profitable and Chad's capital allocations skills to stay intact; once cashflow from Thurso comes, if he can't make acquisitions and the stock price remains depressed, I would expect significant buybacks. There are many levers that can be pulled.
Title: Re: FTP - Fortress Paper
Post by: bathtime on December 06, 2011, 08:34:47 AM
The VIC writeup on FTP in August mentioned regarding Dresden, "There are no public comps, but the company has reportedly received overtures at 7.0x EBITDA for this asset." Anyone have any thoughts on what would be considered a normalized EBITDA for Dresden in a sale?

The VIC writeup comes up with midpoint EBITDA of $30m at a discounted 5x EBITDA equaling $9.98/share.

Title: Re: FTP - Fortress Paper
Post by: lessthaniv on December 06, 2011, 09:18:22 AM
Looks like production at Thurso has started:

http://www.marketwatch.com/story/fortress-paper-commences-dissolving-pulp-production-and-provides-corporate-update-2011-12-05-1631130

Quote
VANCOUVER, BRITISH COLUMBIA, Dec 05, 2011 (MARKETWIRE via COMTEX) -- Fortress Paper Ltd. ("Fortress Paper" or the "Company") announced today that it has commenced dissolving pulp production at its Fortress Specialty Cellulose Mill in Thurso, Quebec. The centerpiece of the project, a new state of the art pre-hydrolized kraft cooking plant, came on line successfully on Sunday. The commencement of dissolving pulp production signifies the successful completion of the conversion of the Fortress Specialty Cellulose Mill into a dissolving pulp operation.

Chad Wasilenkoff, Chairman and Chief Executive Officer of Fortress Paper, commented: "This is a momentous day in the history of Fortress Paper and a culmination of our work at the Fortress Specialty Cellulose Mill since acquiring the mill in April 2010. We are very proud to join the limited group of dissolving pulp producers in the world and look forward to completing our first shipments. We would like to thank all those involved in helping bring this project on line."

This is very good news. Let's see if operations going forward go as planned and Thurso doesn't encounter any more hiccups.

Liberty, you seem to be the resident expert on FTP so I'll address my question to you:
I heard Chad mention in one of the videos, maybe it was the investor presentation, that he had flown to China and secured contracts that set the price for some 70%+ of their expected production in the near future. I think he talked about a collar between 1,200 and 1,500 (I'm probably off on the numbers as I don't remember them exactly)
Do you know if there's any public record out there that would allow us to get more info on this? Other than Chad saying it? Info like who are the Chinese companies the contracts are with for instance. I'm just trying to look into who exactly will be the major customers the moment the dissolving pulp mill gets going.

AZ,

Here is some helpful info for you :

(http://i728.photobucket.com/albums/ww289/MikeNCathy/Thurso.jpg)

Notes:

Data: US$/MT with $1US = $.95 CAD

Pre Cogen Facility:

      Cash Cost       =   $620
      Shipping      =   $100
      ____________________________
      Total Cost      =   $720

Post Cogen Facility:

      Cash Cost       =   $620
      Cogen Benefit      =   ($88)
      Shipping      =   $100
      ____________________________
      Total Cost      =   $632

Contracts are in place to sell 78% of Thurso’s output. Those contracts are structured as follows:

2 Contracts are 5yr deals at the spot price with a US$1200/mt Floor and a US$1600/mt Ceiling. These two contracts represent 42% of the output.

1 Contract is a 10yr contract and is based on the Rayon price. Rayon generally trades at a premium to cotton. The formula is (Rayon Price – US$1000). Historically, this formula has provided a $200/mt premium to the spot price used in the other contracts. This contract represents 36% of the output.

The remaining 22% would likely be sold at spot prices.
Title: Re: FTP - Fortress Paper
Post by: Liberty on December 06, 2011, 09:39:24 AM
The remaining 22% would likely be sold at spot prices.

Mostly likely, yes. But there's always the possibility that they'll enter another long-term contract for it the next time prices are at a level that they like. Could it be that they didn't include it in the long-term contracts because they kept a margin of safety on the mill's DP production? Once it's up and running, confirming that they have 200mt/y, maybe they'll take a second look. Just a guess, though.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on December 06, 2011, 10:10:06 AM
[/quote]
Mostly likely, yes. But there's always the possibility that they'll enter another long-term contract for it the next time prices are at a level that they like. Could it be that they didn't include it in the long-term contracts because they kept a margin of safety on the mill's DP production? Once it's up and running, confirming that they have 200mt/y, maybe they'll take a second look. Just a guess, though.
[/quote]


Yes, I would agree that its a buffer.

If you look at the cash cost side in comparison to their global competitor landscape, they definitely appear to be a lower cost producer. It's been a rough market over the last couple of months. The global supply has increased north of 20% causing the commodity price to fall north of 30%. A rebalancing is necessary. As the commodity price slides the higher cost producers will curtail production rebalancing the market and stabilizing prices. It remains to be seen whether Fortresses counter-parties will honour the previously established floor price contracts should the spot price remain below the floor for an extended period of time. (Porter's 5 Forces - Who has the bargaining power?).

What gives me some added confidence is the contracts are with Chinese Rayon producers. (I can't believe I just said that in this market). Point being ... the Chinese DP producers are among the highest cost producers. This is because they need to import huge amounts of chips as they don't have enough trees locally which impacts their cost structure.

The cotton production yields in China have increased quite significantly over the years. However, this is due to weak environmental rules. In other words, China is growing more cotton on the same amount of land but its causing significant environmental damage. If Chinese yields fall back in line with global yields, the cotton supply tightens.

So, I think there is ample motivation for the Chinese Rayon producers to secure and honour a contract with a potential long term supplier. The proof will be in the pudding. Perhaps the market will gain confidence as orders are filled at the agreed upon price.

Title: Re: FTP - Fortress Paper
Post by: Liberty on December 06, 2011, 10:18:55 AM
If there is actually a secular movement toward more demand for Rayon/DP and for Cotton, and if there are really pressures that keep cotton production from expanding rapidly to meet that demand in the future, I would expect Chinese rayon producers to be very aware of that and not wanting to screw a potential long-term supplier to save a few bucks in the short term when prices are depressed.

In other words, let's say that DP prices remain low for 6 months or a year. Will Chinese producers want to break their long-term contracts to save a few hundred $/ton for a few months and then take the risk of having to find supply for the remaining 9 years at potentially higher prices? Maybe, but it seems like quite a gamble..

If they were willing to sign 5-10 year contracts in the first place, it seems to be a sign that safety of supply is quite important to them.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on December 06, 2011, 10:30:55 AM
If there is actually a secular movement toward more demand for Rayon/DP and for Cotton, and if there are really pressures that keep cotton production from expanding rapidly to meet that demand in the future, I would expect Chinese rayon producers to be very aware of that and not wanting to screw a potential long-term supplier to save a few bucks in the short term when prices are depressed.

In other words, let's say that DP prices remain low for 6 months or a year. Will Chinese producers want to break their long-term contracts to save a few hundred $/ton for a few months and then take the risk of having to find supply for the remaining 9 years at potentially higher prices? Maybe, but it seems like quite a gamble..

If they were willing to sign 5-10 year contracts in the first place, it seems to be a sign that safety of supply is quite important to them.

Exactly.
Title: Re: FTP - Fortress Paper
Post by: AZ_Value on December 06, 2011, 10:31:39 AM
Here's the number:

• Fortress Paper Ltd (FTP) price target cut to C$33 from C$43 at RBC

I'd be really curious to know how they get that number.

The timing for the downgrade has got to be just coincidence and they've been thinking about this for a while, because why in the world would RBC wait for Thurso to finally go live and then cut their target.
Title: Re: FTP - Fortress Paper
Post by: Liberty on December 06, 2011, 10:44:18 AM
The timing for the downgrade has got to be just coincidence and they've been thinking about this for a while, because why in the world would RBC wait for Thurso to finally go live and then cut their target.

I'm pretty sure their analyst was at the analyst day visit of Thurso last week. Doubt it's random.

If I was a conspiracy theory type, I'd say that they were trying to depress the price to allow some other party to load up... But who knows? Occam's razor says that it's probably just an analyst who sincerely believes that FTP is worth 33 based on some model. All I can do is disagree with it and buy more :)
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on December 06, 2011, 10:55:12 AM
The timing for the downgrade has got to be just coincidence and they've been thinking about this for a while, because why in the world would RBC wait for Thurso to finally go live and then cut their target.

I'm pretty sure their analyst was at the analyst day visit of Thurso last week. Doubt it's random.

If I was a conspiracy theory type, I'd say that they were trying to depress the price to allow some other party to load up... But who knows? Occam's razor says that it's probably just an analyst who sincerely believes that FTP is worth 33 based on some model. All I can do is disagree with it and buy more :)

For the record, Neil Gilmer (sp?) updated his analysis today too. Target reduced to $55/share.
(Canaccord Genuity)
Title: Re: FTP - Fortress Paper
Post by: AZ_Value on December 06, 2011, 10:57:21 AM



AZ,

Here is some helpful info for you :

(http://i728.photobucket.com/albums/ww289/MikeNCathy/Thurso.jpg)

Notes:

Data: US$/MT with $1US = $.95 CAD

Pre Cogen Facility:

      Cash Cost       =   $620
      Shipping      =   $100
      ____________________________
      Total Cost      =   $720

Post Cogen Facility:

      Cash Cost       =   $620
      Cogen Benefit      =   ($88)
      Shipping      =   $100
      ____________________________
      Total Cost      =   $632

Contracts are in place to sell 78% of Thurso’s output. Those contracts are structured as follows:

2 Contracts are 5yr deals at the spot price with a US$1200/mt Floor and a US$1600/mt Ceiling. These two contracts represent 42% of the output.

1 Contract is a 10yr contract and is based on the Rayon price. Rayon generally trades at a premium to cotton. The formula is (Rayon Price – US$1000). Historically, this formula has provided a $200/mt premium to the spot price used in the other contracts. This contract represents 36% of the output.

The remaining 22% would likely be sold at spot prices.

Thanks IV.


Quote
It remains to be seen whether Fortresses counter-parties will honour the previously established floor price contracts should the spot price remain below the floor for an extended period of time. (Porter's 5 Forces - Who has the bargaining power?).

Ya. This is exactly what I was hoping would be clarified a bit more in the near future.
All the points you guys are making make perfect sense and the fact that they were willing to sign such long term contracts with a mill that isn't yet functional speaks volumes but I don't know the industry well enough yet to know if for some reason the tables might get turned around and the buyers have enough bargaining power to force producers to accept spot prices all of the sudden.


Title: Re: FTP - Fortress Paper
Post by: lessthaniv on December 06, 2011, 01:38:11 PM
The VIC writeup on FTP in August mentioned regarding Dresden, "There are no public comps, but the company has reportedly received overtures at 7.0x EBITDA for this asset." Anyone have any thoughts on what would be considered a normalized EBITDA for Dresden in a sale?  The VIC writeup comes up with midpoint EBITDA of $30m at a discounted 5x EBITDA equaling $9.98/share.
[/i]

I'm thinking 5x EBITDA is too cheap, personally. Here is what I've learned from my own analysis and what I've read from several industry analysts:

Dresden is a great little niche business. The total market for non-woven wall paper is currently around 80,000 MT/yr. The total wall paper base market is around 300,000 MT/yr. If you analyze the 10yr trend, you'll conclude that worldwide demand for non-woven wallpaper is steadily increasing at the expense of "old school" wall paper base. The overall market is relatively steady, however more and more consumers are shifting to non-woven wall paper due to the much improved value proposition it offers.

The Dresden mill has north of 50% market share in this niche arena. The mill is sold to capacity even with recent capacity improvements. According the company, more than 50,000 MT/yr of excess demand remains unfilled at this point and its estimated that by 2015/2016 the demand for non-woven will increase to 150,000 MT/yr. (They are not suggesting that the overall market will increase, just a continued move of existing demand to non-woven). They finished 2010 with C$19.5 of operating income. (Note 16 of 2010AR). Having a look at third quarter results we see they've done around $20M to date. (Note 14 of Q32011). So, I would suggest an estimate of around $25M. At your multipe of 5X the Dresden mill would provide about $8.75/share in value. But, I'm not so sure a 5X multiple is appropriate for a company in a growing niche market with greater than 50% market share and a very strong value proposition? Especially, considering the very low level of attributable debt. This business would be a great LBO candidate. Relatively stable EBITDA production with a fairly clear growth path and virtually no debt. I would suggest that a purchaser using an LBO structure could easily consider a higher multiple of 6X or 7X and still make a satisfactory return.

I suspect that the opportunity to find a LBO partner willing to pay a premium for a European business has spiralled down the drain for the time being. Hence, today's announcement in regards to Dresden didn't surprise me. They can continue to operate that segment profitably, grow the market share and perhaps revisit a sale down the road when better conditions prevail.

In terms of valuations perhaps taking the middle ground is justified for the time being.

Title: Re: FTP - Fortress Paper
Post by: bathtime on December 06, 2011, 02:38:09 PM
Thanks so much lessthaniv, that was a great analysis. Interesting point about an LBO.

The PR mention that a Dresden sale had been considered was a big positive for me. Indicates that Chad is willing to be creative in extracting value for the company. Proceeds from a Dresden sale may have facilitated financing for more DP mills, so perhaps the lack of a Dresden sale is a factor in more DP deals not having been completed.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on December 06, 2011, 02:59:08 PM
I wonder how much the last financing allocations have to do with the various analyst opinions?

Raymond James Ltd. 40%
Dundee Securities Corporation 20%
RBC Dominion Securities Inc. 15%
Cormark Securities Inc. 10%
TD Securities Inc.: 10%
Acumen Capital Finance Partners
Limited 5%

Canaccord Analyst didn't partake in the last syndicate and has a target of $55.

RBC/TD seems to have lower expectations and there involvement in the last financing was minimal. On the other hand Raymond/Dundee seem to carry higher valuations but are both making higher fees ....

Not that I'm cynical or anything?
Title: Re: FTP - Fortress Paper
Post by: Liberty on December 06, 2011, 03:42:11 PM
Thanks so much lessthaniv, that was a great analysis. Interesting point about an LBO.

The PR mention that a Dresden sale had been considered was a big positive for me. Indicates that Chad is willing to be creative in extracting value for the company. Proceeds from a Dresden sale may have facilitated financing for more DP mills, so perhaps the lack of a Dresden sale is a factor in more DP deals not having been completed.

I can't remember where I saw/heard that, but I think it was Chad who said it... I'm paraphrasing, but it basically amounted to: all of FTP's assets are always for sale at the right price. I don't think they're too sentimental about what they own. If someone is willing to overpay, they'll probably make a deal.

What I'm wondering, though, is what they would do if, say, in a few years they sold the whole DP division (let's say 3 DP mills) at a cyclical high for a couple billions. Would they try to invest it back into forestry? Would they turn into Fortress Holdings and look at other industries for deep value opportunities? Would they do a huge special dividend? Liquidate completely?

It's not an immediate concern, and it's pointless to count your chickens before they have hatched, but it's something I've been wondering about for a while.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on December 06, 2011, 04:01:58 PM
Thanks so much lessthaniv, that was a great analysis. Interesting point about an LBO.

The PR mention that a Dresden sale had been considered was a big positive for me. Indicates that Chad is willing to be creative in extracting value for the company. Proceeds from a Dresden sale may have facilitated financing for more DP mills, so perhaps the lack of a Dresden sale is a factor in more DP deals not having been completed.

I can't remember where I saw/heard that, but I think it was Chad who said it... I'm paraphrasing, but it basically amounted to: all of FTP's assets are always for sale at the right price. I don't think they're too sentimental about what they own. If someone is willing to overpay, they'll probably make a deal.

What I'm wondering, though, is what they would do if, say, in a few years they sold the whole DP division (let's say 3 DP mills) at a cyclical high for a couple billions. Would they try to invest it back into forestry? Would they turn into Fortress Holdings and look at other industries for deep value opportunities? Would they do a huge special dividend? Liquidate completely?

It's not an immediate concern, and it's pointless to count your chickens before they have hatched, but it's something I've been wondering about for a while.

Actually, I think that's very important. It's one of the things that draws me to this company. Given Chad's history of moving to and from various opportunities across multiple industries, I'd have a hard time believing that his long term goal is to end up a disolving pulp producer. The segments provide a great opportunity to surface shareholder value. I expected that Dresden/Landquart would be sold opportunistically to provide cash to invest into DP Production with the end goal of selling the DP producer to a Chinese Rayon producer. It appears for the time being that Dresden is not likely to be opportunistically sold. But, it could be spun out on its own. As could Landquart. By doing so, the opperations can be isolated and perhaps the value becomes clearer to a potential buyer? Lot's of options.
Title: Re: FTP - Fortress Paper
Post by: Liberty on December 07, 2011, 09:57:58 AM
I totally agree it's very important. What I meant is that I'm always careful not to fall into what some in the startup world call the 'maserati problem'.

ie. Two guys in an apartment start a business and they start by wondering where they're going to park the maseratis.

Best make the money first and then have these high-class problems :)

Personally, I expect Chad to stick around FTP for 4-6 years. It's going to take a few years to do all the acquisitions that he wants to do, and then convert them to DP, maybe build cogen, de-bottleneck, bio-refineries for even more added value, etc.. Then add to that a random amount of time for the world economy to get back in high gear and for DP demand to be high, for valuations to be high, etc.. And then at that point, when he's acquired all that he wants, everything is firing on all cylinders, and demand is in the upcycle, he'll probably sell and move on to an undervalued sector or wait for a bear market to buy into something else.

I'd love it if he did it with a public investment vehicle.. Maybe turning FTP into a kind of Leucadia. Sell everything, pay a huge special dividend but keep enough capital to start a new hunt, maybe change the name to Fortress Holdings, and then start again!
Title: Re: FTP - Fortress Paper
Post by: bathtime on December 07, 2011, 01:33:12 PM
FORTRESS PAPER ANNOUNCES $30 MILLION PUBLIC OFFERING OF CONVERTIBLE DEBENTURES

Fortress Paper Ltd. has entered into an agreement with a syndicate of underwriters led by Raymond James Ltd. and including Canaccord Genuity Corp., Dundee Securities Ltd., RBC Capital Markets, Scotia Capital Inc., TD Securities Inc., Cormark Securities Inc. and Acumen Capital Finance Partners Ltd. pursuant to which the underwriters will purchase $30 million principal amount of convertible unsecured subordinated debentures at a price of $1,000 per debenture. Fortress Paper has also granted the underwriters an over-allotment option to purchase up to an additional $4.5 million aggregate principal amount of debentures for a period of 30 days following closing to cover over-allotments.

The convertible debentures will mature on December 31, 2016 and will accrue interest at the rate of 6.50% per annum payable on a semi-annual basis. At the holder's option, the convertible debentures may be converted into common shares in the capital of Fortress Paper at any time up to the maturity date. The conversion price will be $37.50 for each common share, subject to adjustment in certain circumstances.

The convertible debentures will be direct, unsecured obligations of Fortress Paper, subordinated to other indebtedness of the Company for borrowed money and ranking equally with all other unsecured subordinated indebtedness.

The convertible debentures will not be redeemable before December 31, 2014. From December 31, 2014 through to maturity date, Fortress Paper may, at its option, redeem the convertible debentures, in whole or in part, at par plus accrued and unpaid interest provided that the volume weighted average trading price of the common shares of the Company on the Toronto Stock Exchange during a specified period prior to redemption is not less than 125% of the conversion price.

Subject to specified conditions, Fortress Paper will have the right to repay the outstanding principal amount of the convertible debentures, on maturity or redemption, through the issuance of common shares of the Company. Fortress Paper also has the option to satisfy its obligation to pay interest through the issuance and sale of additional common shares of the Company.

The net proceeds of the financing will be used for repayment of debt, the funding of capital expenditures relating to the Fortress Specialty Cellulose Mill, working capital and general corporate purposes.

The offering is scheduled to close on or about December 22, 2011 and is subject to certain conditions including, but not limited to, the receipt of all necessary approvals including the approval of the Toronto Stock Exchange.

A preliminary short-form prospectus will be filed with securities regulatory authorities in all provinces of Canada.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on December 07, 2011, 03:27:44 PM
Monday's press release:

During the past few months, Fortress Paper in its normal course has been reviewing each of its business divisions and assessing all options as part of its strategy to enhance shareholder value. As part of this continuing evaluation, management identified a potential divestiture opportunity relating to its non-woven wallpaper base division. Given the financial uncertainties and lack of financial confidence in the euro zone, Fortress Paper management decided not to pursue any divestiture option for the Dresden mill.

Wednesday's press release:

FORTRESS PAPER ANNOUNCES $30 MILLION PUBLIC OFFERING OF CONVERTIBLE DEBENTURES


This makes me wonder if FTP is getting closer to closing on one/two of the mills they've been talking about? They couldn't get a good enough price on the Dresden business because of the European markets and so they've decided to finance with the convertible?

When FFH issued their 2019 bond it was tighter credit markets but it was at 7.5%. Fortress is getting 6.5% with a convertible option. But the conversion price is a 42% premium. That bodes well for the syndicates aggregate view of intrinsic value.

But, if in fact these funds are to going to new acquisitions ... that output will have to valued and added to the picture.


Title: Re: FTP - Fortress Paper
Post by: alertmeipp on December 07, 2011, 04:37:52 PM
I am interested to buy the bond.. this is at 40 bucks not long ago.
Title: Re: FTP - Fortress Paper
Post by: Liberty on December 07, 2011, 08:53:15 PM
The government loans + grants + equity they sold a few months ago seemed to be quite enough for Thurso's DP conversion + cogen, so I wouldn't be surprised at all if this is the first sign of an acquisition. My first guess would be LSQ, as the mayor has said that 'a deal was almost done' for his city's mill and that he would probably have news before the end of December.

I think there's a small chance that they'll be announcing two acquisitions at the same time too, if they were looking at two mills in the same governmental jurisdiction and negotiated both in parallel.
Title: Re: FTP - Fortress Paper
Post by: Liberty on December 08, 2011, 06:55:22 AM
From 30 to 35m:

http://www.marketwire.com/press-release/fortress-paper-announces-increase-previously-announced-public-offering-convertible-debentures-tsx-ftp-1596271.htm
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on December 08, 2011, 10:08:15 AM
Here is a link to see some pictures of LSQ:

http://francisvachon.photoshelter.com/gallery/Lebel-Sur-Quevillon-Quebec/G00007x7JgjjHvEs/P0000WRwaJVxqPHo

A comment on one of the pictures suggested that Domtar's Mill accounted for 70% of the jobs in LSQ. You can see by the topographic picture the entire town was built around the mill.

With 70% of the town's employment tied to this mill the mayor is obviously motivated. Hope that bodes well for FTP and it would be a great Christmas present for the town knowing the mill will be reopened.

Also, here is an old article from 1997. Domtar sunk $245M into the mill (which only ran for 8 years). Looks like some nice assets to be had. (Boiler, generator).

http://findarticles.com/p/articles/mi_m0EIN/is_1997_Sept_9/ai_19749164/

From Domtar's latest AR:

As of November 2005, our Lebel-sur-Quévillon pulp mill had an annual
production capacity of approximately 300,000 metric tons and employed approximately 425 employees. In addition, we announced the permanent closure of
our Lebel-sur-Quévillon sawmill, which had been indefinitely idled since 2006, at which time it employed approximately 140 employees.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on December 13, 2011, 05:56:38 AM
Interesting company. Thanks for all the posts guys, extraordinary compilation of information. Haven't read everything yet but I'm trying to catch up.

Some things already popped out that I'd like to see answered if possible:

- I've read that Chad has negotiated contracts for the DP division for most of the production the next 5-10 years. But what about the cash cost? What does it consist of? Has it the possibility of inflating a lot? I doubt he hedged the material costs?
- Knowing the above, the uncertainty about the reliability of counterparties in the contracts, ... How can you get comfortable with projected cash flows?
- The Landqart mill transformed and expanded significantly this year. It is supposed to be in a niche market with high margins, yet it gets killed by currency price developments, commodity prices, lower demand and significant competition (for the Euro). How do you rhyme this? Seems like it is almost as lousy as any no-moat business. :x
- Also, the 10-Q report repeatedly speaks of a lot of 'new orders for 2012' for Landqart. Does anyone have specifics on this?
- How can it be that they supply more than half of total production in non-woven wallpaper? Seems like it has no barriers to entry and very nice profit margins atm. How can this last?
- I'm véry impressed by the capital allocations skills by Chad. But why in the world is doing all those presentations and interviews, acting like a salesman? Also, his compensation against market cap is somewhat excessive. He owns 17% of the shares, why would he need all those extra incentives? Just seems a bit much.
Title: Re: FTP - Fortress Paper
Post by: Liberty on December 13, 2011, 07:44:42 AM
Hey Tom,

I think a few of the answers you are looking for are elsewhere in this thread, but I'll do my best to answer your questions below.


Quote
- I've read that Chad has negotiated contracts for the DP division for most of the production the next 5-10 years. But what about the cash cost? What does it consist of? Has it the possibility of inflating a lot? I doubt he hedged the material costs?

I think the main cost is fiber, and supply came with the plant deal. They not only have access to the CAAF that Thurso had access to, but also to the CAAFs of two other closed down mills. Supply should be very secure and low cost. Apart from that, the cost of labour could go up, but the current union deal seems pretty good (15% below usual union rates, no past pensions liabilities, and new pension is defined contribution, not define benefits). Chemical costs could also go up, but I think that would impact other DP competitors too and wouldn't represent that big a % of total costs, though I can't say I know exactly what that % would be. Another potential problem is exchange rate, but that can go both ways...

Quote
- Knowing the above, the uncertainty about the reliability of counterparties in the contracts, ... How can you get comfortable with projected cash flows?

There are no guarantees for sure, but personally I've reached a pretty good level of confidence based on past track record and on how everything is structured. I think there's a pretty good margin of safety, so that helps, but a lot of the value in this company is management, so it all depends on how you feel about them.

Quote
- The Landqart mill transformed and expanded significantly this year. It is supposed to be in a niche market with high margins, yet it gets killed by currency price developments, commodity prices, lower demand and significant competition (for the Euro). How do you rhyme this? Seems like it is almost as lousy as any no-moat business. :x

I think the main problem this year was that many currencies delayed big printing jobs and that while the PM was being upgraded they missed some deals (Chad mentioned in passing that they weren't in the race for the new Canadian bills because of the machine rebuilding). That sucks, but the upside with delays is that what you lose now you still get later, and now that Landquart has been upgraded, margins should be better and they should be able to bid on bigger deals. Also, cotton prices are bad for landquart, but good for Thurso, so there's a kind of hedge there, and the Swiss Franc will probably come down once the EU crisis ends at some point.

Quote
- Also, the 10-Q report repeatedly speaks of a lot of 'new orders for 2012' for Landqart. Does anyone have specifics on this?

No, but it's a very secretive industry so we might never get much info about exactly what they are printing...

Quote
- How can it be that they supply more than half of total production in non-woven wallpaper? Seems like it has no barriers to entry and very nice profit margins atm. How can this last?

That's a good question. I'm not entirely sure, but that might explain why they tried to sell it. Buy an asset for peanuts, focus it on the highest margin product it can make, make multiple upgrades to gain economies of scale and become a low-cost producer, and when you've squeezed just about all the value out of the asset that you can, sell it. That seems to be the plan, but the EU troubles prevented a sale as per a recent press release.

I think structural problems in the industry are helping FTP keep its margins. I mean, Mercer owned those two plants and they could have done exactly what FTP did, but instead they produced all kinds of low margin products at both mills (robbing each of economies of scale), the papermachines weren't upgraded, etc. I think FTP's competitors are probably like that; lacking in capital allocation skills, and hesitant to make capex in businesses that are at cyclical lows.

Quote
- I'm véry impressed by the capital allocations skills by Chad. But why in the world is doing all those presentations and interviews, acting like a salesman?

As I said elsewhere in this thread:

I think some of it - like the password-protected St-Andrews thing - is just that with success comes more invitations to speak at conferences, and he probably expected only a few people to ever see it (we FTP stalkers aren't exactly average investors), and some of it - newspaper interviews - is probably to pressure politicians. If he has a higher public profile, it's easier to get the kinds of deals that he got for Thurso, which require government action to get the fiber rights, advantageous loans and grants, union deals, etc.

I also think that journalists probably like his story because he provides that unexpected twist that sells; he's a relatively young guy making money in a sector that everybody know is going badly, he's re-opening a mill and creating jobs in the forestry sector, etc..


Quote
Also, his compensation against market cap is somewhat excessive. He owns 17% of the shares, why would he need all those extra incentives? Just seems a bit much.

I agree that it's high against current market cap (though earlier this year the mkt cap was more than twice as big), but it is a multi-year deal, and after a few quarters of Thurso and maybe an acquisition or two, it might not seem nearly as big against mkt cap or cash flow. But we'll have to wait and see.

Personally, I don't mind too much as long as he keeps delivering. Exceptional management is worth paying extra.
Title: Re: FTP - Fortress Paper
Post by: bathtime on December 13, 2011, 09:48:47 AM
Thanks for the thoughtful analysis, tombgrt and Liberty.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on December 13, 2011, 11:36:30 AM
Hey Tom,

I think a few of the answers you are looking for are elsewhere in this thread, but I'll do my best to answer your questions below.


Thanks for the reply Liberty, helped a lot in understanding FTP a little better. Seems like there is a serious margin of safety here and great potential. Wouldn't be suprised to see this turning out to be a great investment over time even when bought at IV at this point. Of course, that is no risk anyone should ever take.

I'm very curious as to what Chad's plans are for the long term, like 10 years from today. He has mentioned starting from scratch again at some point but I wouldn't mind him sticking with this one and creating a little Leucadia. He's 39 years old, a true contrarian, has great capital allocation skills, great work ethic (from what I can tell), ... 

Thanks for the thoughtful analysis, tombgrt and Liberty.

All praise to Liberty please, I just provided some questions I thought were relevant. Liberty is the brains here. ;)
Title: Re: FTP - Fortress Paper
Post by: tombgrt on December 14, 2011, 02:22:34 AM
Quote
Wasilenkoff may have worn suits in high school, but today he rarely wears a tie, even to his own board meetings; more likely, he sports Converse sneakers. His favourite toy is a Ferrari 360, but otherwise his instinct is bare bones, a beer-and-wings guy. The Fortress head office in North Vancouver sits atop a McDonald's and houses a mere five people (three of them accountants).

http://www.globeinvestor.com/servlet/story/GAM.20110325.ROBMAG_APRIL2011_P32_33_34_35_37/GIStory/currencies/

Quote
Q This is all good strategy, but how do you handle operations?

A Management is critical to everything I do. I’m not an expert in pulp, any more than I was in gold, uranium, or oil and gas. So I need those particular experts in the industries that I’m focusing on.

If you’re looking at industries that are out of favour, it’s easier to attract world-class management teams. Other people are laying people off on a regular basis, closing down mills and concentrating on cost-cutting. We bring more of an entrepreneurial flair, with growth initiatives, and we give people a lot of free reign. We manage our side of the process, but we rely on these industry experts as partners. After all, who am I to tell a guy how to run a mill? It’s the same story on the sales side.

We’re really a holding company. We’re the rainmakers. We find an asset in a downed industry, and put together those assets to work well together.

http://business.financialpost.com/2011/11/14/contrarian-investing/


I'm starting to like this guy.  8)
Title: Re: FTP - Fortress Paper
Post by: Liberty on December 14, 2011, 01:00:39 PM
- How can it be that they supply more than half of total production in non-woven wallpaper? Seems like it has no barriers to entry and very nice profit margins atm. How can this last?

I was re-listening to the St-andrews presentation (for like the 4th time) and noticed a few things that could explain Dresden's position:

According to Chad, their machine is 33% wider than that of their closest competitor, it is running twice as fast as the closest competitor (they've upgraded it 5 times since he acquired it), and they coat the paper online, while none of their competitors can do that.

If you add all of that together, it seems to add up to a pretty significant cost advantage. They even seem to have some pricing power, as Chad mentioned that they increased prices by 10% and they still have to turn orders away.

On top of that, they seem to have decent R&D, as they developed a thermally insulating wallpaper that might be hard to replicate by competitors.

And if you also add back in what I said previously (competitors might not be focusing on just one product, might not be willing to invest the required capital to upgrade, etc), I think there's a pretty decent competitive position, though I'm not sure I would call it a moat.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on December 14, 2011, 04:06:23 PM
- How can it be that they supply more than half of total production in non-woven wallpaper? Seems like it has no barriers to entry and very nice profit margins atm. How can this last?

I was re-listening to the St-andrews presentation (for like the 4th time) and noticed a few things that could explain Dresden's position:

According to Chad, their machine is 33% wider than that of their closest competitor, it is running twice as fast as the closest competitor (they've upgraded it 5 times since he acquired it), and they coat the paper online, while none of their competitors can do that.

If you add all of that together, it seems to add up to a pretty significant cost advantage.

On top of that, they seem to have decent R&D, as they developed a thermally insulating wallpaper that might be hard to replicate by competitors.

And if you also add back in what I said previously (competitors might not be focusing on just one product, might not be willing to invest the required capital to upgrade, etc), I think there's a pretty decent competitive position, though I'm not sure I would call it a moat.

Just running out the door but I'll comment later. Done some looking into this exact question.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on December 14, 2011, 04:32:01 PM
- How can it be that they supply more than half of total production in non-woven wallpaper? Seems like it has no barriers to entry and very nice profit margins atm. How can this last?

I was re-listening to the St-andrews presentation (for like the 4th time) and noticed a few things that could explain Dresden's position:

According to Chad, their machine is 33% wider than that of their closest competitor, it is running twice as fast as the closest competitor (they've upgraded it 5 times since he acquired it), and they coat the paper online, while none of their competitors can do that.

If you add all of that together, it seems to add up to a pretty significant cost advantage.

On top of that, they seem to have decent R&D, as they developed a thermally insulating wallpaper that might be hard to replicate by competitors.

And if you also add back in what I said previously (competitors might not be focusing on just one product, might not be willing to invest the required capital to upgrade, etc), I think there's a pretty decent competitive position, though I'm not sure I would call it a moat.

Yes, you're right. I watched that presentation to and heard something about the wider machine and its speed but I guess I just didn't make the connection. ;x

I bought a small position today. If mr. market is stupid enough to sell me more at $24 or below, it will be hard to resist the temptation to load up the truck.

Just running out the door but I'll comment later. Done some looking into this exact question.

Great. Looking forward to it.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on December 14, 2011, 08:50:38 PM
Hi tombgrt,

RE: Competition for Dresden given the monopolistic market share;

Here is what I've learned about Dresden...

The global market for wallpaper base is about 300,000MT/annum. About 85,000 MT/annum currently comes in the form of non-woven wall paper base. I believe Dresden actually has north of 50% of this market (non-woven). The retail price tag of non-woven is about 2.5X the cost of traditional wallpaper base. Over the last ten years or so, it doesn't appear that the overall global market has grown however their is a clear shift occurring. The value proposition of non-woven (the fact you can peel it off vs. scrappers and heat guns) justifies the higher price point to consumers and is driving this long term transition trend.

The growth for Dresden in my mind will come from this continued transition. Some estimates that I've read suggest the 50% of the overall market will become non-woven by 2015/2016. Fortress is also implementing technology with their non-woven base to insulate walls by reflect heat back into a room. So, the value proposition is getting even stronger as they sell their product in  the colder climates of Eastern Europe.

If you analyse the Dresden Mill's output you'll note that in 2003 Dresden produced > 90% paper base and <10% non-woven. Dresden has been steadily transitioning their output to meet market demand. As of 2011 the mill is essentially 100% non-woven. So, as demand has increased it's been Dresden that's been quietly increasing supply to meet that demand.

Circling back to your question about competition. If we assume that over time 100% of old school wallpaper base will be replace by non-woven then we can conclude the non-woven segment will be 300,000 MT/annum. At the moment, that means that 220,000 MT/annum will be up for grabs. But the transition isn't occurring over night. More like 25,000MT/annum... So, any new entrant into this market has significant capital expenditures and only stands to gain a limited portion of a relatively small niche market. What's worse is they will only have that vest in pieces over time.  The economics of this type of project are ugly and hence it's just not worth it!

Hell, as Chad says their is 50,000MT of current excess demand that is currently not being served. The fact that this still exists tells you something about what the competition thinks about the project economics.

You can look at Ahlstrom Corp of Finland as an comp. This company is trying to break into the non-woven market. After several years and significant investments made to convert their assets to produce non-woven ... They really haven't had much success 

So, let's say the market for non-woven increases by 65,000 MT between now and 2015 to get to the 150,000MT target. That's about 20,000MT/annum on average. I don't think that's a big enough carrot to justify the cost and risk especially since the total market is likely limited to around 300,000MT longer term.

Dresden is in a sweet spot. I think Chad was perhaps trying to flog the business with the idea of encouraging an LBO. Dresden has low debt, stable cash flows, the ability to double in size. It would make a great business for an LBO structure. But, with the  weak credit markets in Europe perhaps now is not the time to entertain that possibility. So, you pull the business off the market and look to invest to capture some of that unserved demand and then look to flog it again down the road when the market conditions better support the LBO structure.

Hope that make sense. (Sorry for typos ... limited time today to hammer out this post).

Cheers,

<IV

Title: Re: FTP - Fortress Paper
Post by: Liberty on December 14, 2011, 09:23:24 PM
Thanks LessthanIV. Your findings are compatible with mine, which I take to be a good sign ;)
Title: Re: FTP - Fortress Paper
Post by: tombgrt on December 15, 2011, 02:07:51 AM
Thank you lessthaniv, great analysis. I like your reasoning.

This economic moat where it is unprofitable for competition to enter reminds me of companies like WD-40. Very intriguing.

I've seen Chad mentioning 15%-20% growth for the non-woven wallpaper as it is replacing the old stuff. This is unlikely to slow down as market share increases because it will only get more known and demand will rise. I for one had never heard of such wallpaper but find it very interesting. Why would any customer want to bother with all the trouble of the older technology? At that growth rate the market could be almost 100% converted to non-woven by 2020. Impressive.

Let's hope the economic barriers to entry and technology lead on competition remain as production explodes and as long as Chad doesn't sell the mill. Anyway,  I'm far more comfortable with this part of the business than I was before. Thanks again Liberty and lessthanIV for the great insight. ;)

Title: Re: FTP - Fortress Paper
Post by: Liberty on December 16, 2011, 08:47:18 AM
http://watch.bnn.ca/the-close/december-2011/the-close-december-13-2011/#clip585199

Chad speaking about currency in EU.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on December 20, 2011, 02:07:50 PM
Current Sales Structure;
1)   Capacity sold under 5 yr contracts @ floor of $1200 MT =      84,000MT
2)   Capacity sold under 10 yr contracts @ (Rayon - $1000US) =      72,000MT
3)   Capacity currently open for additional sales =         44,000MT
4)   Current total production capacity =            200,000MT

Now let’s make some assumptions based on company presented data and other info;
1)   Dissolving Pulp prices drop to $950/MT
2)   Current Excess capacity is sold at spot rates
3)   Rayon contract gives us a $200/MT premium to spot
4)   Pre-Cogen cash cost delivered to Shanghai =         $720/MT
5)   Post-Cogen cash cost delivered to Shanghai =         $632/MT
6)   Commission =                  2% list price

Weighted Sales/MT
42% @  $1200 =                             $504
36% @   $1150 =               $414
22% @   $950 =               $209
Weighted Average Sales Price/MT =                       $1127/MT

Pre-Cogen Cost :

            Volume (MT) =            200,000MT
            Average Weighted Price ($)         $1,127/MT
            Commission (2%)             ($22.54)/MT
            Sales Price net of commission         $1,104.46/MT
                                                Pre-Cogen EBITDA Contribution        $81,400,000.00
            Post-Cogen EBITDA Contribution      $94,500,000.00


A simple question to ask ; Can dissolving pulp prices last at this level for long?  To answer this question we need to understand the cost structure of the overall dissolving pulp market. Fortunately, this information was provided in the recent corporate presentation.  Chad gave us a snapshot into the 2013 marketplace including known expansion projects, anticipated expansions and greenfield projects.  It’s important to note Fortress’s placement on this chart as a low cost producer. The chart shows us that market is anticipated to produce north of 6.7M MT/yr. However, of that total, 2.4M MT/yr has a cost structure that would exceed the spot price of $950. In other words, 38% of the entire global supply chain would be losing money. The market participants with the highest cost structure are: Cotton linters (1.4M MT/yr with a cost structure above $1200MT); Older Chinese mills and Chinese greenfield projects (1.0M MT/yr with a cost structure ranging from around $990/MT to $1150/MT.

(http://i728.photobucket.com/albums/ww289/MikeNCathy/Fortress.jpg)

Theoretically, if the dissolving pulp prices stayed low for a long time it would force the high cost producers to shut their doors. The supply of dissolving pulp would be curtailed and dissolving pulp prices should move higher on the lost supply. As  prices rose back up new supply will come on stream to allow the market to move towards equilibrium. But that new supply will likely come from the newer low costs mills forcing these high cost producers out of the market for good. The long term demand forecasts that I’ve read seems to suggest that demand will outpace supply. If that’s the case then the market could not afford the loss of that much supply. Prices would adjust upward but they must be in excess of these higher cost producers to keep them operational.

This gives me piece of mind for two reasons:

1)   Obviously, the higher the price of dissolving pulp  the better we do.
2)   Makes me understand better where the $1200/MT floor price likely came from.
3)   Makes me understand better why the Chinese rayon producers want to lock in dissolving pulp supply from the low cost producers with long term contracts. In this light,  I believe Fortress Paper retains the bargaining power and consequently I’m less worried about counterparties reneging on these contracts. In fact, I believe this actually bodes well for Fortress moving forward. I would think Chinese Rayon producers would naturally want to lock up supply with the most cost efficient producers to ensure they don’t loose their supply down the road.

As long as Fortress and ensure that whatever deals the make reside in the bottom quartile of the cost curve, they are in great shape!
Title: Re: FTP - Fortress Paper
Post by: Liberty on December 20, 2011, 07:35:28 PM
Great analysis. The margin of safety indeed comes from being a low-cost producer and from working hard at keeping that advantage (co-gen is a step to further reduce costs, the way the plant was built to allow more of the huge stainless-steel tanks to be installed for de-bottlenecking will also help down the road, and the fact that the other plants they are looking at seem to be even lower on the cost curve is very promising).

As long as DP/Rayon is considered to be superior to cotton yet it costs less than cotton to produce it, there will be some margin to be had somewhere. If FTP stays a low-cost producer, it should do just fine at capturing some of that margin.

Another thing in favor of FTP: They have a long time horizon. They aren't just looking at the next quarter. Some other companies will cancel DP plans just because of a few quarters of low spot prices and bad economic conditions (less competition will be good for FTP, obviously), but FTP will just take advantage of that to try to pick up assets even more cheaply because they understand the dynamic of the DP price that you've outlined and they're deep value contrarian investors.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on December 21, 2011, 08:18:44 AM
Liberty,

You might like to read through this paper I found from asiapapermarkets.com

The article is about a year old but the core message remains in tact.

https://doc-0s-94-docsviewer.googleusercontent.com/viewer/securedownload/dsn1aovipa7l846lsfcf94nedj8q2p4u/m8pnhvg66pvbu6it3m32u0aschvqud0r/1324483200000/Ymw=/AGZ5hq8BgbJY1gwaOYx83cPOdNw6/QURHRUVTakwzWFB6MW9RUGVmMzh2U0lXNUhvbkt4Ylk3RFNONUx2TE9TdVppa04xWFdtNUY1SDdRYlpmMFF4WUYzamZVTi1zQjF6MjlDT2VOZFpRbjhYaS1vTG1CZ21YWmo5dWZVMVdoYUlqZ0lQMWttbWFpeU9abHdiUGJLOGJfQWM0eHhPa3RkSWk=?docid=11713431b0625f0d4be439c390691ef9&chan=EQAAAE0fuz0QJDwx/G9cdersNNPSwmkYEVNd9SrNBPnFb8lA&sec=AHSqidaptaZaymzAMNHCkGF4CxYKdFa7BYBSX0sYJVM2OUeh9GkgBTzmOLTeoEISC5qcuWUuFgeb&a=gp&filename=Dissolving_Pulp.pdf&nonce=p1p2a4vonun06&user=AGZ5hq8BgbJY1gwaOYx83cPOdNw6&hash=r8nek699rc85548p5289id3759e56me4

Title: Re: FTP - Fortress Paper
Post by: Liberty on December 21, 2011, 08:29:06 AM
I'm afraid that the link doesn't work for me. Can you repost, or attach a file? Thanks.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on December 21, 2011, 08:52:29 AM
Try this:

https://docs.google.com/viewer?a=v&q=cache:_f-jVP-LJ_EJ:www.asiapapermarkets.com:8080/apm/apm/common/Dissolving_Pulp.pdf+cotton+linter+dissolving+pulp&hl=en&pid=bl&srcid=ADGEESjL3XPz1oQPef38vSIW5HonKxbY7DSN5LvLOSuZikN1XWm5F5H7QbZf0QxYF3jfUN-sB1z29COeNdZQn8Xi-oLmBgmXZj9ufU1WhaIjgIP1kmmaiyOZlwbPbK8b_Ac4xxOktdIi&sig=AHIEtbQYQvfcx1OXfeWBI9j07SoUap_rmQ

Also Credit Suisse on Sateri:
Some good info on Chinese demand ...

https://doc.research-and-analytics.csfb.com/docView?language=ENG&source=ulg&format=PDF&document_id=868415111&serialid=RlW61pjP9ociuBYHuruLbq1cyvloQeGJbyddNySNO4U%3D

Title: Re: FTP - Fortress Paper
Post by: Liberty on December 21, 2011, 09:37:28 AM
Thanks! I already had the first one, but not the CS report.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on December 21, 2011, 09:54:18 AM
Great analysis lessthaniv, especially on the reliability of the contracts. I did the same calculation but really basic, just with an average guessed selling price of $1100 and average 2012 cash cost of $680. Seems like I wasn't that far off.

It's good to see Chad is focusing on acquiring the 'green' and 'grey' DP producers from the chart but he seems a bit to optimistic in his EBITDA projections (also in general?) for 2013 with an ebitda estimate of $500m. I would be véry happy with half that.


Also thanks for the link from asianpapermarkets, added to my bookmarks to read it later.
Title: Re: FTP - Fortress Paper
Post by: Liberty on December 22, 2011, 07:42:00 AM
http://www.marketwire.com/press-release/fortress-paper-announces-4025-million-closing-of-bought-deal-offering-tsx-ftp-1601428.htm

Quote
Fortress Paper Ltd. ("Fortress Paper" or the "Company") (TSX:FTP) is pleased to announce that it has completed its previously announced bought deal offering (the "Offering") of 6.50% convertible unsecured subordinated debentures (the "Debentures"), including the exercise in full of the underwriters' over-allotment option, resulting in aggregate gross proceeds of $40,250,000. The Offering was conducted by way of a short form prospectus dated December 19, 2011 through a syndicate of underwriters led by Raymond James Ltd. and included Canaccord Genuity Corp., Dundee Securities Ltd., RBC Dominion Securities Inc., Scotia Capital Inc., TD Securities Inc., Cormark Securities Inc. and Acumen Capital Finance Partners Limited, who purchased a total of 40,250 Debentures at a price of $1,000 per Debenture.

Fortress Paper intends to use the net proceeds of the Offering to reduce outstanding indebtedness, to fund costs arising from its Fortress Specialty Cellulose project and for working capital and general corporate purposes.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on December 22, 2011, 08:13:21 AM
:) I'm expecting a neat acquistion somewhere in the next few months.

I love how the stock is staying down. Hope to increase my holding if it drops further or if I can sell other holdings with a decent profit but that is really just wishful thinking.
Title: Re: FTP - Fortress Paper
Post by: Liberty on December 22, 2011, 08:42:40 AM
At these levels I'm kind of wishing they would use their 10m authorization for buybacks. But I don't know if they've set things up so they have an extra 10m for that or if they'd rather hold on to all their cash for future acquisitions and capex.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on December 22, 2011, 11:48:10 AM
Yes, that would be great. We'll see what happens.

I just bought more after checking the numbers again. It's a sizeable position now. I couldn't resist, and figured that if it dropped substantially that I would find money from another stock anyway. I would be sorry if it rose to $30+ again without buying more, but would be happy when the stock tanked even after buying now, so it was an easy decision.
Title: Re: FTP - Fortress Paper
Post by: Liberty on December 23, 2011, 07:23:16 AM
TDW apparently lowering target. Found this on some other message board:

Quote
Fortress Paper Ltd.
(FTP-T) C$26.46
Resuming Coverage Following Convert Offering
Event
We are resuming coverage of Fortress Paper following the completion of
a $40.25 million convertible debenture offering (December 31, 2016
maturity with a 6.5% coupon and conversion price of $37.50 per share).
Net proceeds of $38.6 million will be used to 1) repay short-term debt, 2)
fund remaining capex at the Thurso pulp mill (mostly for the cogeneration
facility) and 3) for general corporate purposes. Recent discussions with
management indicate that the Thurso dissolving pulp (DP) ramp-up is
progressing well, but we are lowering our earnings estimates to reflect lower
DP price realizations through 2013 (given ongoing pressure in spot markets),
a slower earnings recovery at the Landqart security paper mill, and slight
earnings dilution related to this financing.
Impact
NEGATIVE – Management has been transparent that this financing was put
in place to bridge lower-than-expected short-term cash flows from Thurso
(lower DP price realizations/start-up delays) and Landqart (slow progress
towards filling out the banknote order book). Given the use of proceeds, we
are surprised that there has not been more share price pressure since the
financing was announced. We have lowered our estimates to reflect
several assumption changes (noted above) and are also trimming our 12-
month target price to $30.00 from $37.00. Our HOLD recommendation
is unchanged. We suggest that investors wait for downward revisions to
consensus 2012 and 2013 earnings estimates and evidence that Thurso is
ramping up on schedule, with the targeted cost structure, before buying
shares.
Details
DP production at Thurso has been underway since December 5.
Conversations with management indicate that the startup has proceeded
according to plan after a three-month delay in completing the conversion to
DP from commodity paper grade hardwood pulp. There have been typical
bottlenecks associated with a project of this scale, but pulp quality has been
good. Management has targeted DP production of 700 tonnes per day by
December end, which would imply a 70% operating rate. This ramp-up
would be ahead of initial guidance of a 50% operating rate by the end of the first month; we are inclined to
wait for evidence that this objective has been met before giving management the benefit of the doubt. The
company is sticking with guidance that the pulp mill will effectively be close to full capacity three months
after startup and that the 25-MW cogen plant is on schedule for a Q3/12 startup. Management suggested that
the entire Thurso project will come in “substantially” on target, which it suggests could be +/- 10% around the
$178 million budget ($101 million spent through early November).
Fortress management has a delivered cash cost objective of $660 per tonne (including $100 per tonne in cogen
cost savings starting mid-2012), which would place the mill at the low end of the global cost curve.
Approximately one-third of cash costs are fixed (i.e., this portion is subject to higher per-unit figures at lower
operating rates). With a steep startup curve planned and more conservative cost estimates than management’s
guidance, we expect Thurso’s DP-delivered cash costs to start at ~$975 per tonne by the end of the first month,
dropping gradually to $800 per tonne as the mill approaches full capacity.
Spot DP prices have crashed and are below the floor price for some of Fortress’s contracts. DP prices to
viscose staple manufacturers are under pressure as a result of significant capacity growth, slowing demand
from China, and lower costs for cotton (the other side of the textile market). Current DP spot prices in China
are reportedly around US$1,000 per tonne – down 60%+ from the all-time peak price in March. Prices
are approaching the long-term average of $900 per tonne and momentum remains negative for the time being.
As a reminder, 42% of Fortress Paper’s pro forma DP capacity is contracted with a cap-and-collar structure
ranging between US$1,600 and US$1,200 per tonne. With spot prices now below the low end of this range, it
is fair to question the security of these contracts, all of which are with buyers in China. Management has
suggested that recent discussions with contracted buyers indicate that they are prepared to honour the floor
price terms.
Exhibit 1. Dissolving Pulp Price Trends
$200
From Q4/11 through the end of 2012, aggregate DP capacity additions (only projects selling into the
viscose rayon market) are 1.4 million tonnes – representing growth of >40% from capacity at the end of
2010. Many producers announced conversion projects when prices were at the Q1/11 peak and some have
since been abandoned (more project cancellations are expected in the coming months). Even with a less
daunting list of projects, we expect the market to struggle to absorb this much supply so quickly.
Management’s internal forecast calls for industry operating rates to fall to 95% in 2013 from 97% in 2011. We
have lowered our 2012 average DP price expectation (Fortress Paper’s weighted average price
forecast falls more modestly to US$1,150 per tonne from US$1,200 per tonne.
Outlook
Thurso is Fortress’s main earnings driver, but it is worth noting that turning around margins at Landqart
(EBITDA-negative for four consecutive quarters) is also an important objective. In early December,
management noted that high input costs and poor productivity are expected to weigh on this mill’s Q4/11
margins. Our earnings estimates through 2013 are well below consensus forecasts, but we still expect strong
earnings growth over our forecast horizon given compelling economics at Thurso, much improved margins at
Landqart as that mill’s order backlog is filled, and steady results at Dresden. While management has further
growth aspirations, with Dresden no longer for sale and the shares well below peaks, we suspect that
management will keep its powder dry for the time being.
Valuation
Based on our 2012 estimates, Fortress trades at 6.8x TEV/EBITDA versus the broader peer group average of
6.2x. In our view, Fortress shares are fairly valued at these levels.
Justification of Target Price
Our 12-month target price of $30.00 per share is based on a multiple of 4.2x applied to our mid-cycle EBITDA
estimate (EV is adjusted for free cash flow forecasts through the end of 2013, which include discretionary
capex earmarked for the Thurso projects).
Key Risks to Target Price
The primary risks to our target price include: 1) sensitivity to changing exchange rates; 2) rising input costs; 3)
dependence on major customers; 4) discretionary capital spending execution risk; 5) retention of senior
management; 6) risks associated with a three-mill operating structure; 7) competitive pressures in the
nonwoven wallpaper industry; 8) competition from non-cash payment methods; and 9) legal filings against the
company.
Investment Conclusion
Thurso is expected to be a major contributor to Fortress’s long-term earnings, but given the scale of the
project, management’s arguably ambitious cost objectives, and ongoing DP price pressure, we would wait for
evidence that the mill is ramping up on target before stepping in.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on December 23, 2011, 09:05:43 AM
Is it just me or does TDW adjust their forecasts to match the stock?
That's not much help when it comes to investing.

To me, this is all about the Cotton markets at the moment. I'll try to expand on that when a I get a few minutes to record my thoughts.

Thanks for sharing that though. I do appreciate the different perspective.
Title: Re: FTP - Fortress Paper
Post by: Liberty on December 23, 2011, 09:08:28 AM
I never pay attention to analyst forecasts and targets. The only thing that I look for in these reports are facts like "is this mill running well" "how's the quality of the product" "any new orders?" etc.

A lot of these reports are hedged anyway; if stock price goes down, they can say they were right because of the negative stuff in the report, and if it goes up, they can point to the positive stuff, or even say that they were conservative if their target price turns out to be low. Meh.
Title: Re: FTP - Fortress Paper
Post by: alertmeipp on December 23, 2011, 09:12:59 AM
probably some shorting going to hedge the coming convert.. should see some upside after
Title: Re: FTP - Fortress Paper
Post by: bonechip1 on December 23, 2011, 09:29:09 AM
Has anyone seen the global cost curve for cotton producers?  I have not had any luck trying to find it.
Title: Re: FTP - Fortress Paper
Post by: Liberty on December 23, 2011, 09:49:40 AM
probably some shorting going to hedge the coming convert.. should see some upside after

Could you elaborate on this? I'm not quite sure I get what you're saying. Thanks.
Title: Re: FTP - Fortress Paper
Post by: alertmeipp on December 23, 2011, 01:04:31 PM
Some investors like to shorts the underlying stocks after/before they purchased the convert to hedge out the risk.

For example: Imagine one shorted the stocks at 40 bucks, now they bot the convert, they don't need worry about cover as they will get shares from the convert, etc...

As well, some may prefer to own the convert rather than stocks and sell out stocks to subscribe to the convert. Thus, caused the weakness.
Title: Re: FTP - Fortress Paper
Post by: Liberty on December 23, 2011, 02:02:47 PM
Makes sense. Thanks!
Title: Re: FTP - Fortress Paper
Post by: tombgrt on January 05, 2012, 08:20:08 AM
Lib, I just read the weird discussion on Stockhouse with that mad man "Shortdawg". What the hell is wrong with that guy?  :o It goes to show that not everyone has the stomach to handle market volatility and remain rational.

For those interested, it starts here and has some good posts: http://www.stockhouse.com/Bullboards/MessageDetail.aspx?p=0&m=30506028&l=0&r=0&s=FTP&t=LIST

(edit: Oh and it seems that I missed the colorful posts of Azorean.. )


I also think this post of onxy1 applies to FTP:

Resist the urge to buy in early; the market often offers attractive entry points when information is lacking between quarterly earnings releases.
Title: Re: FTP - Fortress Paper
Post by: Liberty on January 05, 2012, 08:59:57 AM
My best judgement told me not to reply to these people, but sometimes they write things that are so outrageous that I can't help myself. It's certainly not the most constructive use of time since these people rarely discuss fundamentals, and when they do its usually to misrepresent them.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on January 11, 2012, 11:02:58 AM
My best judgement told me not to reply to these people, but sometimes they write things that are so outrageous that I can't help myself. It's certainly not the most constructive use of time since these people rarely discuss fundamentals, and when they do its usually to misrepresent them.

it's awfully quiet on that forum today. Why would that be?  ;) I would just ignore them, also literary with the forum option. Nothing but a waste of time.

FTP up on much higher volume. Strange how all losers of 2011 are fiercly going up lately. Maybe the 'tax selling effect' isn't really dead yet? Fingers crossed that the stock stays under $30-35 for a bit, I'd like to add even more.
Title: Re: FTP - Fortress Paper
Post by: Liberty on January 11, 2012, 11:08:53 AM
On days like this I always wonder if it's Mr. Market acting randomly or if info is leaking about an acquisition. These things are hard to keep secret forever, especially the way that Chad likes to do them (when you have everything buttoned up from the start, you reduce risk, but you also let in more people on the potential deal).
Title: Re: FTP - Fortress Paper
Post by: tombgrt on January 11, 2012, 01:18:45 PM
http://business.financialpost.com/2012/01/11/stabilizing-pulp-prices-boosts-fortress-paper/

Seems like an analyst upgraded them to 'strong buy'.
Title: Re: FTP - Fortress Paper
Post by: Liberty on January 11, 2012, 01:24:35 PM
http://business.financialpost.com/2012/01/11/stabilizing-pulp-prices-boosts-fortress-paper/

Seems like an analyst upgraded them to 'strong buy'.

I'm always surprised by how big an impact these reports have, and how many people just follow analysts blindly. They say "jump" and people go "how high?".

Oh well, I guess it means more opportunities for independent thinkers.
Title: Re: FTP - Fortress Paper
Post by: FFHWatcher on January 11, 2012, 01:29:36 PM
On days like this I always wonder if it's Mr. Market acting randomly or if info is leaking about an acquisition. These things are hard to keep secret forever, especially the way that Chad likes to do them (when you have everything buttoned up from the start, you reduce risk, but you also let in more people on the potential deal).

How is it that an acquisition would immediately add to the current market value of a stock?  It may end be highly accretive like Thurso hopefully becomes but they bought Thurso almost 2 years ago (March 2010) and it still hasn't added a dollar of revenue to the coffers, just expenses and risk (so far).  Also, when Thurso was announced, FTP was trading at about $15-16, it quickly moved up to about $20. and then in the next month or so, it moved up to $26., which is where it was this week (maybe even earlier today!!)...almost 2 years later. 
Title: Re: FTP - Fortress Paper
Post by: ECCO on January 11, 2012, 01:30:47 PM
"are optimistic the paper manufacturer can improve its performance"

Another proof that it's better to make your own research.
Title: Re: FTP - Fortress Paper
Post by: Liberty on January 11, 2012, 03:50:41 PM
How is it that an acquisition would immediately add to the current market value of a stock?  It may end be highly accretive like Thurso hopefully becomes but they bought Thurso almost 2 years ago (March 2010) and it still hasn't added a dollar of revenue to the coffers, just expenses and risk (so far).  Also, when Thurso was announced, FTP was trading at about $15-16, it quickly moved up to about $20. and then in the next month or so, it moved up to $26., which is where it was this week (maybe even earlier today!!)...almost 2 years later.

There's a big difference between the share price and the business's earning power, IV, and the value of the assets if they were sold.

Management has shown with Thurso that they can execute - which wasn't a given since there's been no new entrant to the DP industry in like 30-40 years, and only a handful of mills were ever converted to DP - so I expect that the announcement of a new acquisition would have a bigger impact than the first one. Plus they can use cashflow from Thurso to finance conversion...
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on January 11, 2012, 08:04:20 PM
While I do think there is obvious reasons to believe an acquisition is coming, I think the recent fall and subsequent plateauing are more correlated to the cotton markets. I mentioned this before Christmas but just didn't find the time to put my thoughts together. In 2010 the cotton markets were affected by increased demand and a tight supply. Cotton prices rose to north of $2.20/pound in the spring of 2011 during a time when farmers are looking to plant new crops. The high prices attracted farmers to plant more acreage and the result is supply in the 2011-2012 market will exceed demand due to record production of 124M bales. Cotton prices fell from their spring highs back to a more normalized level. With talks of slowing Chinese demand and movement away from the risk trades due to Europe in recent months... the purchasers of cotton have sat on their hands and not replenished their inventories as they don't wont to own a falling commodity. That can only happen for so long though ...

The overall movement in cotton seems to be exacerbated by speculators in the market due to hedge funds, commodity ETF etc ... The highs have been higher and lows have been lower. I recently read an article that suggests 61% of cotton futures trading is currently from speculators.

  http://www.pittsburghlive.com/x/pittsburghtrib/business/s_770293.html (http://www.pittsburghlive.com/x/pittsburghtrib/business/s_770293.html)

Recently, Asian governments stepped in and started buying for sovereign inventories at predetermined prices - a way to protect the small farmer. It would appear that this has stabilized cotton prices and over the last few trading sessions (from mid Dec). I follow the IPATH DJ-AIG Cotton ETN as a proxy for cotton trends. "BAL".

But here is the question: Are cotton prices likely to stay low over the long term or increase? I think this article from Barrons does a nice job of articulating this:

http://online.barrons.com/article/commodities_corner.html (http://online.barrons.com/article/commodities_corner.html)

If you look at the current landscape both India and China are driving forces in setting cotton prices. Most analysts that I've read suggest that in the not to distant future India's demand for cotton will exceed supply and they will begin competing in the marketplace with China for imports. Food inflation seems to be driving farmers to move from cotton crops to take advantage of higher priced crops in the food channel. (Increased demand + Lower supply). The following article does a good job of explaining these dynamics:

http://www.topcommodities.net/2011/07/india-and-china-cotton-production-and.html (http://www.topcommodities.net/2011/07/india-and-china-cotton-production-and.html)

So, it appears to my eye that we are suffering from a hangover.  We got loaded in spring and now we are paying for. But, it would appear to me that the correction has stabilized somewhat. (See BAL.ny). On the short term the lower cotton prices likely mean less of a need for substitutes like Rayon and therefore lower Rayon prices due to falling demand. But remember this happened at a time when Rayon supply was being increased. A double whammy. As cotton prices rise again in the future more demand will be created for substitutes like Rayon and I believe the trend will reverse.

These are very hard markets to fully understand and I'm certainly not the expert on Cotton markets. But it would appear to me it is having an effect on the DP producers....

Good news - I think the low prices and excess supply of cotton in the 2011-2012 year will likely push farmers to other crops this coming spring reversing what occurred last year. Hopefully the 2012-2013 season rebalances the market. 

Any combination of increasing Chinese buying or unfavourable weather reports (drought) should assist.

Stabilization in Europe would likely bring back the risk trade too.

FTP Chart vs BAL:

http://bigcharts.marketwatch.com/advchart/frames/frames.asp?show=&insttype=Stock&symb=ftp&time=8&startdate=1%2F4%2F1999&enddate=1%2F11%2F2012&freq=1&compidx=aaaaa%3A0&comptemptext=bal&comp=bal&ma=0&maval=9&uf=0&lf=1&lf2=0&lf3=0&type=2&style=320&size=2&x=49&y=17&timeFrameToggle=false&compareToToggle=false&indicatorsToggle=false&chartStyleToggle=false&state=12 (http://bigcharts.marketwatch.com/advchart/frames/frames.asp?show=&insttype=Stock&symb=ftp&time=8&startdate=1%2F4%2F1999&enddate=1%2F11%2F2012&freq=1&compidx=aaaaa%3A0&comptemptext=bal&comp=bal&ma=0&maval=9&uf=0&lf=1&lf2=0&lf3=0&type=2&style=320&size=2&x=49&y=17&timeFrameToggle=false&compareToToggle=false&indicatorsToggle=false&chartStyleToggle=false&state=12)



Title: Re: FTP - Fortress Paper
Post by: FFHWatcher on January 11, 2012, 08:46:03 PM
IV - interesting insight. Thank you. 
Liberty - if a second acquisition has a bigger impact than the first, i guess my only comment has been that the first acquisition has only added risk to the stock, no cash flow yet.  I hear what you're saying regarding a businesses earnings power but the reality is, that tap is just starting to flow (i hope) almost two years later and no one truely knows how big the tap is going to be.  Often there is a big difference between projections and reality and right now we just have projections.  As far as an acquisition goes, if a company can simply buy an asset for $5M, sign a few contracts, convert a mill to DP over the next 2 years and instantly create shareholder value via future earnings power, why isn't there any competition for those assets?  Why isn't Fibrek, Or even better Abitibi, or Mercer or Canfor buying up similar mills and converting them, instantly adding hundreds of millions of dollar for shareholders?

To me, it just seems that simply doing a second acquisition and expecting somewhat immediate value creation is unlikely and unjust especially before the first one can really be called an official success.  We are both thinking that FTP is worth more than it is currently trading at.  I am eager to see how Thurso turns out in reality before I am willing to call this strategy a success but things are mostly on track except for DP pricing and it is hard to blame that on Chad.
Title: Re: FTP - Fortress Paper
Post by: Liberty on January 11, 2012, 09:50:22 PM
FFHwatcher,

I totally agree, this is definitely a company that if you get into, you have to look forward and have a certain amount of trust in management based on their track record and their way of looking at things. No doubt. But on the other hand, if the cash flow was already there, it wouldn't be selling at this price.

But your skepticism based on "well, if it's that easy why don't others do it?" elicits a few things: 1) it isn't that easy. Only a few mills worldwide can be converted, few people know how (FTP hired a team that did a couple of the only handful of conversions ever), and even fewer are even looking because 2) this is a contrarian play. Few people are looking at the forestry sector, and most of those that are in it have shown over the years that their capital allocation skills aren't that great (otherwise they might not be in this mess). Basically, your question begs the larger question: Take any business doing something good anywhere and ask "why isn't the competition doing the same?" A lot of the time when you find out that they aren't, it's because it's not as easy as it first looks and requires intangibles like the ability to find value where others don't see it and to have a long-term strategic vision when others are only trying to get through the short-term and are thinking more about cutting costs than in investing for something that will pay off in 18-24 months. The world would be a very different place if everybody had those skills.

I think the proof's in the pudding. No new entrants in DP for the past 3-4 decades, only a handful of conversions ever and most mills aren't the right kind to be converted, Asian mills are at the top of the cost curve, and many new DP announcements seem to be delayed or unraveling. Once we have a few quarters of Thurso running we'll be able to confirm the cash flow, but everything I've seen so far makes me think that it should be in the ballpark of what management is predicting (and even a lower, more conservative number, would still be pretty good).

But we can't be sure until it happens, so we'll see.
Title: Re: FTP - Fortress Paper
Post by: Liberty on January 12, 2012, 08:15:45 AM
Up about 18% in two days. Crazy volatility.
Title: Re: FTP - Fortress Paper
Post by: OptsyEagle on January 12, 2012, 08:18:21 AM
Up about 18% in two days. Crazy volatility.

Yes.  That kind of move can be a real "dawg" killer. lol.
Title: Re: FTP - Fortress Paper
Post by: OptsyEagle on January 13, 2012, 09:45:31 AM
It does seem like something is afoot.  Those investors buying today seem willing to pay almost any price for the stock as evidenced by it being up on a very ugly day.  One would think they must know something about the future since on a day like today, I would let the stock come to me ...but of course I am very rarely privy to any undistributed information.
Title: Re: FTP - Fortress Paper
Post by: Liberty on January 13, 2012, 10:14:55 AM
It does seem like something is afoot.  Those investors buying today seem willing to pay almost any price for the stock as evidenced by it being up on a very ugly day.  One would think they must know something about the future since on a day like today, I would let the stock come to me ...but of course I am very rarely privy to any undestributed information.

It does seem a little strange to me too when the only new public information that I could find was that analyst upgrade.

Some of it could also be people who sold for tax loss reasons coming back in. But trying to explain short-term moves in share price is usually futile, so we'll just have to wait and see if anything is announced soon...

btw, welcome to the board!
Title: Re: FTP - Fortress Paper
Post by: Quebec on January 13, 2012, 11:00:07 AM
fwiw, TBC stock behaves much like FTP this week, i.e. solid upward push
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on January 16, 2012, 08:00:28 AM

Fortress Paper Ltd
Symbol   C : FTP
Shares Issued   14,300,086
Close 2012-01-13   C$ 31.87
Recent Sedar Documents

View Original Document
Fortress Paper raises mill production to 60% of target


2012-01-16 09:13 ET - News Release


Mr. Chadwick Wasilenkoff reports

FORTRESS PAPER UPDATES STATUS OF DISSOLVING PULP PRODUCTION

Fortress Paper Ltd. has ramped up production of dissolving pulp at its Fortress specialty cellulose mill to approximately 60 per cent of final targeted capacity since it announced production of dissolving pulp had commenced on Dec. 5, 2011. The ramp-up of production continues substantially as planned, and the company expects meaningful improvements in the short term followed by smaller productivity gains as it approaches its targeted production capacity. The company's dissolving pulp is meeting customer specifications, and, after totalling inventory, customer shipments commenced in the final week of December.

Chad Wasilenkoff, chief executive officer of Fortress Paper, commented: "We are extremely pleased with the speed at which the ramp-up of dissolving production is proceeding at our Fortress specialty cellulose mill, and are focused on achieving our planned production capacity as soon as possible. With the shipment of our first orders, we have demonstrated our ability to successfully produce dissolving pulp that meets the stringent specifications of our customers."

We seek Safe Harbor.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on January 18, 2012, 07:21:36 AM
http://lechoabitibien.canoe.ca/webapp/sitepages/content.asp?contentid=222771&id=296&classif=En+manchettes

Translated by Google:

Domtar to sell LQS: Lawyers seek to agree

GUY CHAMPOUX
General - Posted January 17, 2012 at 19:42
In the summer of 2011, the sale of Domtar facilities on Quevillon Lebel slow to materialize.

The Company Fortress Paper Vancouver still intends to produce rayon with older paper machines, but the legal quibbling ensure that nothing is settled. Lemoyne positive Mayor Lebel-sur-Quevillon, Gérald Lemoyne retains its poise when he talks about this issue, which he hopes an early conclusion. "At this time he n is unnecessary to worry as the file progresses. But we would like to advance it a little faster. No external intervention Last summer Prime Minister Jean Charest had mixed the record in order to clear the advance. However this time the chief magistrate does not believe that outside intervention is necessary. "We are at the stage of discussions between lawyers for both parties. They must agree on all terms of sale over the counter. But it takes time to decide where we will place the periods and commas in the process of drafting the contract. " sensitive points The Gordian knot is in talks around the issue of responsibility of each entity. "The parties have to First complete the record of the plant as such. She has been in operation for 40 years and has left its mark. " It seems to be difficult to break the deadlock on two subjects, despite the willingness of both parties to agree. "One thorny issue is the environmental liabilities . It's pretty complicated. The other issue is the subject of intense negotiations is the division of land owned by Domtar to add Gérald Lemoyne. Closed three years Domtar announced the permanent closure of its plant in Lebel-sur-Quevillon on 18 December 2008 citing poor market conditions. A labor dispute involving employees in the factory had endured since November 2005. At its peak the mill in Lebel-sur-Quevillon produced 300,000 tons of kraft pulp and employed 425 people. The mill had stopped production in 2006 and employed 140 workers.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on January 18, 2012, 10:58:00 AM
Interesting.

I redid some basic valuation work today and I just can't find where I could be wrong. Anyone with a bear case?

22% of portfolio now and if we drop again I might add some, just scared of being baised now. Must add that I still have a very small portfolio and can take the concentration risk at this point. Not sure why anyone would sell now (see stockhouse..). In one year, FTP is probably worth anywhere between $55-90 imo if I just look at my basic math.

Maybe I am not giving enough negative value to current macro risks, reliability of the contracts' counterparties, trend in DP, ...
Title: Re: FTP - Fortress Paper
Post by: Myth465 on January 18, 2012, 02:23:57 PM
I believe the main risk is execution risk.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on January 18, 2012, 04:39:23 PM
Agreed. But I think a lot of execution risk has already vanished. It's still one of the biggest risks but it was a lot higher 1 year ago and even 2 months ago. Seeing how they already reached 60% of targeted capacity and sent out the first shipment that met customer expectations, I think the biggest risks are gone.

In that way I find it amazing that the stock traded at $60 in February, all on expectations that everything would go as planned. Now it trades at half that. Sure DP prices were much higher and the economic outlook was a bit better, but where was the MoS? I wouldn't have jumped on the stock at $30 in 2010 but now the story is completely different.

Mr Market's madness...
Title: Re: FTP - Fortress Paper
Post by: Liberty on January 18, 2012, 04:56:33 PM
I second what Tom said. Mr. Market got too greedy about this stock in the past, but now it's too afraid, and that's an opportunity.
Title: Re: FTP - Fortress Paper
Post by: FFHWatcher on January 18, 2012, 05:49:41 PM
I vote for EBITDA.  Even if execution is very good, if EBITDA doesn't show up as Chad has projected (ie. costs are way higher than projected and/or realized price is way lower or a combo of the two), than the stock really can't justify going much higher.  The co-gen facility seems to be a large or the largest factor in driving the overall net costs down.  At this point, we can really just sit back and wait for the team to do their job and hope that the macro events and DP spot prices stabilize and recover a bit.
Title: Re: FTP - Fortress Paper
Post by: Liberty on January 18, 2012, 06:42:47 PM
I vote for EBITDA.  Even if execution is very good, if EBITDA doesn't show up as Chad has projected (ie. costs are way higher than projected and/or realized price is way lower or a combo of the two), than the stock really can't justify going much higher.  The co-gen facility seems to be a large or the largest factor in driving the overall net costs down.  At this point, we can really just sit back and wait for the team to do their job and hope that the macro events and DP spot prices stabilize and recover a bit.

I think that there are two scenarios there, though. 1) Cash doesn't show up for temporary reasons, but the underlying secular trend in cotton/DP supply-demand is still there or 2) the trend changes for some reason or other and doesn't reappear any time soon.

#2 would be a big disappointment, but #1 could still lead to a very good outcome if one is patient, and the temporary low could allow FTP to deploy more capital at bargain prices and position itself even better for the up-cycle, so it might not be wasted time.
Title: Re: FTP - Fortress Paper
Post by: Liberty on January 20, 2012, 08:56:05 PM
http://webcasts.welcome2theshow.com/whistler2012

Audio recording of a panel with Chad.

(I haven't listened to it yet, but it should be interesting)

Free reg. required.
Title: Re: FTP - Fortress Paper
Post by: Liberty on January 20, 2012, 11:13:59 PM
Ok, had a chance to listen. Some highlights for me:

-Not even started tweaking process and they are already hitting 96-97% alpha DP, highest quality in the world.
-Ramp up to 80%+ should be very quick, few weeks, it's the last few percents that could take longer.
-High quality DP means they'll want to get certified for high-grade specialty DP that can sell for a few hundred $ more /ton.
-Chinese DP mills = high cost producers. It just doesn't sound like a very good place to produce DP because of the types of mills and of fiber supply.
-Their collared contracts with the chinese are set to "prevailing market prices" and not spot prices, so if their DP is higher quality, they'll get the ~$100/ton extra that it is worth on the market, not the lower spot price for average alpha DP.
-Been working on 5-6 acquisitions simultaneously for 2 years, saying that some are very advanced, mentions one where papers have been shuffled for 18 months and made mention again of picking up a billion dollars asset for $1 (LSQ?).
-Building relationships with speciality DP buyers (pharmaceuticals, electronics, etc) for later transition.
-Very promising words on Landquart, seems like 2012 will be a good year with full order books. Two more upgrades planned for Dresden over the next two annual shutdowns.
-Loved how he talked about the capital structure and worries about dilution.

Overall, two thumbs up for strategic vision.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on January 21, 2012, 02:19:27 AM
Great find Liberty. Thanks!

Listening now.
Title: Re: FTP - Fortress Paper
Post by: jjsto on January 22, 2012, 10:26:26 AM
Yeah, great find.  Just to add a little commentary to Liberty's:

-It was very interesting how control over the input wood seems to be an important component in achieving the highest grade specialty pulp.  This should give them an advantage over other mills forced to buy their inputs on the spot market.

-Is it just me, or does producing the first batch of product after making the dp conversion, and reaching 97% alpha in the first couple of weeks seem kind of amazing?  I mean he actually said the pulp they were producing was too high a quality and they were going to tone it down a bit.  Probably the only mill in the world with that "problem." 

-Given the higher quality they are producing, it made me feel a lot better in terms of being able to hold their hedges.  I also liked how he talked about their counterparties in terms of "partners" rather than just some random mills.

-I too like the part where he discussed capital structure and dilution.   He seems very motivated not to dilute his percentage.  I had sports on in the background and kind of missed the part where he was talking about being "blacked out"?  Did that mean with the ongoing negotiations he is not able to purchase more shares for himself right now? (I dont want to re-download the whole thing just to find that part.)

-On Landquart it certainly seemed like there is a light at the end of the tunnel with a full order book, and a reduction in the strengthening of the Swiss Franc.

-When the other guest started talking about some of the problems they faced when they considered a dp conversion, and when Chad was talking about working on 5-6 acquisitions for 2+ years, it shed some additional light on why it is not so "easy" to run out and make these conversions. 

-I wish he would have talked a little more about Dresden.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on January 22, 2012, 10:50:02 AM
Thanks for posting.

My favourite piece of irony...

Mercer spent a few minutes talking about how cheap they bought some mills and yet ...
Guess who Chad (sitting next to him) bought the original assets from in a fire sale.

Delicious.
Title: Re: FTP - Fortress Paper
Post by: FFHWatcher on January 22, 2012, 11:32:00 AM
Thanks for posting.

My favourite piece of irony...

Mercer spent a few minutes talking about how cheap they bought some mills and yet ...
Guess who Chad (sitting next to him) bought the original assets from in a fire sale.

Delicious.

Come on, Fortress paid 15 times more for the Mercer assets than they paid for Thurso plus Fortress accepted the environmental/employment liabilities of the Mercer mills.  You don't need to look up the absolute dollar amt, just accept that Mercer got way more money from FTP when they sold their mills to FTP.  (long both)
Title: Re: FTP - Fortress Paper
Post by: Liberty on January 22, 2012, 01:13:56 PM
FTP got a good deal from Mercer only because they knew how they wanted to improve the assets and get a lot more cashflow out of them. If they had kept running them as Mercer did, it would have been a bad deal. It was win-win, but a bigger win for FTP, IMO.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on January 23, 2012, 09:15:13 AM
Listened twice and must agree with the comments of jjsto and lib, really impressed with the progress. Also seems like chad has more reasonable expectations of the future now. Also curious what landqart will do this year. Seems unlikely it will lose more than Dresden wil earn. :)
Title: Re: FTP - Fortress Paper
Post by: Liberty on January 24, 2012, 05:42:02 PM
Updated presentation:

http://www.fortresspaper.com/pdf/Fortress_Paper_Investor_Presentation_Aug_2011.pdf
Title: Re: FTP - Fortress Paper
Post by: Liberty on January 26, 2012, 11:09:32 AM
http://www.euwid-paper.com/news/singlenews/archive/2012/january/Artikel/soedra-commences-dissolving-pulp-production-at-moerrum.html

Quote
Södra commences dissolving pulp production at Mörrum

26 Jan 2012 −
Pulp line no. 1 at Södra’s Mörrum plant in southern Sweden is back online and under full operation after a substantial rebuild. The pulp line is expected to churn out 170,000 tpy of dissolving pulp based on hardwood fibre. Södra is anticipating a strong market development for textile pulp as it is renewable and will replace oil-based and cotton fibres. Since the investment decision was made in 2010, the company has reorganized its markets for the new customers.
The second pulp line in Mörrum produces 300,000 tpy of softwood pulp.
Södra is also mulling over a second textile pulp line at one of the company’s mills. A definitive decision will be made in 2012.
Title: Re: FTP - Fortress Paper
Post by: PatOfThePig on January 30, 2012, 09:04:33 AM
The purchase of Lebel sur quevillion mill  by Fortress will be announce january 31:

http://communiques.gouv.qc.ca/gouvqc/communiques/GPQF/Janvier2012/30/c7629.html

Title: Re: FTP - Fortress Paper
Post by: Liberty on January 30, 2012, 09:14:38 AM
The purchase of Lebel sur quevillion mill  by Fortress will be announce january 31:

http://communiques.gouv.qc.ca/gouvqc/communiques/GPQF/Janvier2012/30/c7629.html

I was just about to post that. Should be great news unless Chad has relaxed his standards (which would surprise me).  :D
Title: Re: FTP - Fortress Paper
Post by: tombgrt on January 30, 2012, 10:21:40 AM
Isn't this a big clue for the market? Shouldn't they announce this after market close even if it doesn't explicitly say anything?

I bought more a couple of days ago with profits from elsewhere. If this stock pops I'll have to sell some just out of risk control. Let's hope FTP stays down for a very long time.  :)
Title: Re: FTP - Fortress Paper
Post by: Liberty on January 30, 2012, 10:27:28 AM
Isn't this a big clue for the market? Shouldn't they announce this after market close even if it doesn't explicitly say anything?

I bought more a couple of days ago with profits from elsewhere. If this stock pops I'll have to sell some just out of risk control. Let's hope FTP stays down for a very long time.  :)

Yeah, it's strange to announce this in the middle of the day like that. But considering the low volume, it looks like the big players haven't figured it out yet. Might not be on the types of newswires that are monitored by Bloomberg terminals or whatever..
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on January 30, 2012, 11:40:43 AM
I wonder if the "youth issue" is an important part of this?

Perhaps FTP is doing some type of youth based community sponsorship within LSQ. Building up their image.
Nevertheless, if in fact that is the case ... they would only be doing that for 1 reason.

<IV
Title: Re: FTP - Fortress Paper
Post by: ECCO on January 30, 2012, 12:12:16 PM
http://www.cfem.ca/articles/20120130113913/exclusivite_rnc_media_domtar_vendu.html

Le 30 janvier 2012 - 11:39 | ghamel@rncmedia.ca

RNC Media a appris en exclusivité la vente officielle de l'ancienne usine de pâtes Domtar de Lebel-sur-Quévillon.
 
La compagnie Fortress Paper s'en porte acquéreur avec la participation financière du gouvernement du Québec.
 
Le bâtiment, fermé définitivement par Domtar en novembre 2005 avait placé 700 travailleurs au chômage.
 
Une catastrophe dans une municipalité mono-industrielle qui a conduit des centaines de citoyens au découragement et des centaines d'autres à déménager.
 
Toutefois, selon nos sources, la relance de la municipalité serait assurée.
 
Fortress Paper est un producteur de pâte cellulose servant à la fabrication de papier et de certains tissus synthétiques.
 
L'entreprise, dont le siège social est situé à North Vancouver en Colombie-Britannique, possède trois usines.
 
Une en Suisse et l'autre en Allemagne. Sa plus récente acquisition, le moulin à papier situé de la ville de Thurso ,près de Gatineau, a été payé 3 millions de dollars en mars 2010.
 
La compagnie reconverti l'usine grâce à un investissement de 153 millions de dollars.

 
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on January 30, 2012, 12:34:37 PM
Above article translated to English by google:

On January 30, 2012 - 15:08 | ghamel@rncmedia.ca

 RNC Media has learned exclusively the official sale of the former Domtar pulp mill in Lebel-sur-Quevillon.

 Fortress Paper Company purchased it with the financial participation of the Government of Quebec.

 The building, by Domtar permanently closed in November 2005 had placed 700 unemployed workers.

 A disaster in a one-industry town that has led hundreds of people to despair and hundreds of others to move.

 However, according to our sources, the revival of the city would be assured.

 Fortress Paper is a producer of cellulose pulp for the manufacture of paper and some synthetic fabrics.

 The company, whose headquarters is located in North Vancouver, British Columbia, has three factories.

 One in Switzerland and one in Germany. His most recent acquisition, the paper mill located in the town of Thurso, near Gatineau, was paid $ 3 million in March 2010.

 The company converted the factory with an investment of $ 153 million
Title: Re: FTP - Fortress Paper
Post by: Liberty on January 30, 2012, 06:52:22 PM
So I'm just thinking out loud here...

I think that the sale from Domtar to FTP shows that FTP has a kind of moat when it comes to DP, and that's the expertise required to convert a mill and the relationships with buyers.

It could be argued that with Thurso, Fraser looked at FTP's plans and thought "hmm, that probably won't work". But with LSQ, Domtar can look at Thurso and see what it's possible to do with the mill. Yet they'd rather sell it to FTP for (probably) peanuts than try to do what FTP is going to do. Why? Because this is a lot harder than it looks, and it's a good sign. FTP is the first new entrant in DP in like 30-40 years, and I don't think we'll see tons of them even if prices stay solid. We'll see more new plants from existing players and maybe a few others try their hand at conversions, but there definitely seems to be a barrier to entry that is higher than might seem at first glance.

Deep expertise is hard to find. FTP has hired the team that did some of the only conversions ever (there's only been a handful), and we know that Chad has been thinking about the DP business at least for 5 years (that's a lot for a smart workaholic who doesn't sleep much - he said in the recent CIBC talk that he's studied dozens and dozens of plants around the world). He's also been to China a lot, has hired a Chinese business coach and learned the customs over there, made relationships, etc. It's not just any forestry manager who can wake up one morning and decide to do a DP conversion and end up with a working plant on time and on budget that is a low-cost producer.
Title: Re: FTP - Fortress Paper
Post by: Myth465 on January 30, 2012, 07:39:19 PM
FTP is looking like a great long term hold and forget type stock. I own in my Roth and dont plan on selling for a while.
Title: Re: FTP - Fortress Paper
Post by: Liberty on January 31, 2012, 06:50:43 AM
Some french news reporting the sale ahead of the press conference:

http://tvanouvelles.ca/lcn/economie/archives/2012/01/20120131-082602.html

http://www.radio-canada.ca/regions/abitibi/2012/01/30/003-relance-usine-domtar.shtml

http://www.cyberpresse.ca/le-soleil/affaires/actualite-economique/201201/30/01-4490917-plan-nord-lusine-de-lebel-sur-quevillon-renaiitra.php

Stock up 11.32% right now.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on January 31, 2012, 06:53:10 AM
Hindsight bias is à bitch. Yesterday seemed like an obvious buy but it is already a 30% position so i didnt as i have no spare cash.. ;o
Title: Re: FTP - Fortress Paper
Post by: Liberty on January 31, 2012, 07:19:46 AM
Hindsight bias is à bitch. Yesterday seemed like an obvious buy but it is already a 30% position so i didnt as i have no spare cash.. ;o

I bought a bunch yesterday :)

Trading has just been halted.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on January 31, 2012, 07:45:28 AM
me too.
 ;)
Title: Re: FTP - Fortress Paper
Post by: Liberty on January 31, 2012, 08:23:00 AM
http://business.financialpost.com/2012/01/31/fortress-paper-surges-on-domtar-pulp-mill-relaunch/

Quote
Domtar announced the suspension of production at the facility in December 2008 following a 3-year labour conflict. The decision affected 700 workers.

It has kept the mill in good shape since and has a large electricity co-generation facility in place that should produce 49 megawatts of energy, Mr. Kelertas said. That should allow Fortress to substantially lower its production costs and boost operating margins.

The facility currently has 300,000 tonnes of annual pulp-making capacity to manufacture commodity fine paper. Fortress is expected to convert the mill to be able to produce high alpha viscose pulp for rayon-making. Financial assistance from the Quebec government is expected to help fund the conversion.

49MW of cogen already in place!
Title: Re: FTP - Fortress Paper
Post by: jjsto on January 31, 2012, 09:18:36 AM
I only bought a little yesterday :(  I had some limit orders set this morning that didnt even come close to getting filled.  Are the details of the deal available anywhere yet?
Title: Re: FTP - Fortress Paper
Post by: jjsto on January 31, 2012, 10:43:02 AM
Official statement with the terms has been released:

http://www.marketwatch.com/story/fortress-paper-announces-acquisition-of-lebel-sur-quevillon-pulp-mill-assets-2012-01-31?reflink=MW_news_stmp
Title: Re: FTP - Fortress Paper
Post by: Liberty on January 31, 2012, 10:55:05 AM
There will be a conference call after market close.

Teleconference Date: Tuesday, January 31, 2012
 
Time: 1:30pm (PST) / 4:30pm (EST)
Dial In Numbers:                               604-681-8564 Vancouver
403-532-5601 Calgary or International
780-429-5820 Edmonton 3
416-623-0333 Toronto
613-212-0171 Ottawa
514-687-4017 Montreal
 
Toll Free Dial In Number: 1-855-353-9183 from Canada and USA
Participant Pass Code: _____ 98030 ______#
Confirmation Number: _____ 764917 _____
Title: Re: FTP - Fortress Paper
Post by: tombgrt on January 31, 2012, 10:56:48 AM
Quote
The LSQ Mill is planned to have an annual production capacity of approximately 236,000 air dried metric tonnes (ADMT) and is expected to be completed in late 2013. The LSQ Mill would significantly increase Fortress Paper's annual dissolving pulp production capacity to over 437,000 ADMT, initially targeting viscose fibre (rayon) products.

Guys I'm doing some basic math here... If things work out as they are doing with Thurso... Lets just say there is some decent upside here.

Title: Re: FTP - Fortress Paper
Post by: Liberty on January 31, 2012, 11:08:07 AM
The yearly tonnage is lower than I expected, and they're still going to have to upgrade the cogen, but overall I'm very happy.

If during the next year they acquire the other smaller mill that they were very confident about, and they have similar terms, I'll be sending flowers to Chad.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on January 31, 2012, 11:25:50 AM
Did you expect a higher tonnage? Chad spoke of 500.000 T for Thurso plus the two likely acquisitions. Add the small green bar from the St Andrews presentation and it's +- 500.000 T.

Seems like they are diluting quite a bit with those 750.000 warrants but I can live with it given the prospects.
Title: Re: FTP - Fortress Paper
Post by: Liberty on January 31, 2012, 11:29:53 AM
I might be misremembering, but I thought that LSQ was 350k NHSK and that this would give close to 300k for DP. But 236k is fine.

Hopefully once the cash starts flowing they'll consider doing opportunistic buybacks if the price drops below IV (unless they have so many new acquisitions and upgrades to do that they can actually put all that cash to good use internally with high ROI). This could take care of the dilution.
Title: Re: FTP - Fortress Paper
Post by: OptsyEagle on January 31, 2012, 11:33:26 AM
I think I read that LSQ had a capacity of 300,000 tonnes and when it is converted to dissolving pulp there is about a 10% loss of yield, which would put it at 270,000 tonnes.  My guess is Chad is hedging a little here.  Subtract about 10% off the real number to give himself some room to exceed expectations.

I am sure he is aware that with the stock so undervalued right now, the difference between 236,000 tonnes and 270,000 tonnes will make very little difference over the next few months of trading, but come production time it might be a nice boosting surprise.  Anyway, it doesn't make much difference right now.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on January 31, 2012, 11:39:21 AM
My mistake.

Wise remarks OptsyEagle.  :)


This story from start to present is rather amazing. If you think about the market cap in 2007 and what it could be in 2014-2015 (unspeakable numbers!). Insane.
Title: Re: FTP - Fortress Paper
Post by: Liberty on January 31, 2012, 11:52:39 AM
Good theory, Optsy.

Seems like trading has resumed. Up 12.46% right now.
Title: Re: FTP - Fortress Paper
Post by: jjsto on January 31, 2012, 12:17:50 PM
Seems like they are diluting quite a bit with those 750.000 warrants but I can live with it given the prospects.

For me, it depends on the terms of the warrants.  According to the release, the convertible debentures have a conversion price "equal to the volume weighted average price of the common shares of the Corporation on the Toronto Stock Exchange (the "TSX") for the five trading days immediately preceding the closing of the APA plus a premium equal to 50% of such trading price."  Then, if these current prices hold up, that would be a conversion price of around $57 for the debentures.

So, (just eyeballing the numbers) the warrants represent around a 5% dilution for an asset that will be generating around 40%(?) of the earnings.  If the strike price is anywhere near the conversion price of the debentures that wouldnt seem too onerous at all. 
Title: Re: FTP - Fortress Paper
Post by: Liberty on January 31, 2012, 12:52:24 PM
New documents for the environmental permitting:

http://alderonironore.com/projects/environmentalassessment/
Title: Re: FTP - Fortress Paper
Post by: Liberty on January 31, 2012, 01:15:45 PM
I think I read that LSQ had a capacity of 300,000 tonnes and when it is converted to dissolving pulp there is about a 10% loss of yield, which would put it at 270,000 tonnes.  My guess is Chad is hedging a little here.  Subtract about 10% off the real number to give himself some room to exceed expectations.

I am sure he is aware that with the stock so undervalued right now, the difference between 236,000 tonnes and 270,000 tonnes will make very little difference over the next few months of trading, but come production time it might be a nice boosting surprise.  Anyway, it doesn't make much difference right now.

I went back to the Thurso announcement and they said 200k tonnes from the start.

http://www.treehugger.com/clean-water/graphene-perfect-water-filter.html

Doesn't mean they wouldn't underpromise now, though.
Title: Re: FTP - Fortress Paper
Post by: Liberty on January 31, 2012, 01:31:34 PM
Reminder: the call is starting any minute.

http://specialtycellulose.com/wp-content/uploads/2012/01/LSQ_Announcement_Jan_31_2012.pdf
Title: Re: FTP - Fortress Paper
Post by: Liberty on January 31, 2012, 02:17:36 PM
Interesting. DP made from softwood could command a premium because softwood has better characteristics than hardwood. (and LSQ has softwood supply)
Title: Re: FTP - Fortress Paper
Post by: keerthiprasad on January 31, 2012, 02:47:09 PM
I love this company.

Did anyone have any notes or other interesting facts from the call?   Unfortunately, I was unable to listen in at work.

thanks.
Title: Re: FTP - Fortress Paper
Post by: OptsyEagle on January 31, 2012, 05:16:48 PM
I love this company.

Did anyone have any notes or other interesting facts from the call?   Unfortunately, I was unable to listen in at work.

Conference Call went well.

1) LSQ will be in lowest quartile of costs.  Slightly less then Thurso.

2) Equipment in great shape.  Nitrogen lined ensuring no rust.  Many large investments have been already made by the previous owner that would cost over $500 million today to replace.

3) Costs will be $538 per tonne, after Co-gen expansion, about $600 per tonne before that.

4) Total cost for both mill and co-gen $222M.  $20 to $25 million in 2012 and the rest in 2013.

5) Will evaluate if they will produce NBSK before conversion.  Will know in a few months.

6) 236,000 tonnes production estimate before de-bottlenecking.  May improve a little once they get into it.

7) Mill will not suffer a loss of productivity if they want to go up on the quality scale towards specialty pulp.  Specialty pulp sells at a much higher price.

8) Warrants will be priced at the market when they are issued.  Should have 2 year exercise date.

9) Will not be utilizing the sawmill, except to store and chip wood.  Will provide a lower cost from this. Mill has an integrated chemical plant that will also lower costs.

10) Current DP prices around $1160 per tonne.  What they see is when prices get below $1,200 per tonne, capicity just shuts down.  Chinese capacity is all over $1,100 per tonne in cost and not a concern.

11) All environment risk is obsorbed by the Quebec government except for a requirement to invest $7.5 Million over 5 years into a remediation fund, by FTP.

12) Should be eligible for other Federal grants.

13) $222 million investment = $40 million for Co-gen and $182 Million for mill.

14) Preliminary discussions with their existing customers has shown a very high interest in the production from the LSQ mill.  Management felt confident that they would make this acquisition so they kept the other 22% of Thurso's production which is not covered by contracts available for negotiation.  Basically, if their customers want the remaining production at Thurso then management would like them to put contracts in place for the LSQ production capacity.

That's about it.  About a 100% return on investment, annually.  WOW.


Title: Re: FTP - Fortress Paper
Post by: keerthiprasad on January 31, 2012, 05:48:38 PM
Wow.  Sounds awesome...can't say im surprised at all though lol.

Thanks for the info, I really appreciate it.
Title: Re: FTP - Fortress Paper
Post by: Myth465 on January 31, 2012, 07:33:30 PM
Looks like my buys around $35 are proving worth while. I wish I had bought more below $30. This and LRE are shaping up to be my most head ache free investments, just need 7-10 more companies like this....
Title: Re: FTP - Fortress Paper
Post by: Liberty on January 31, 2012, 09:09:50 PM
just need 7-10 more companies like this....

Let me know if you find them :)
Title: Re: FTP - Fortress Paper
Post by: Myth465 on January 31, 2012, 11:14:26 PM
Whats your portfolio Liberty you seem to be better at finding these gems than I am lol.

Relooking at my portfolio I would say the ones below are pretty headache free. They feature cheap companies (some assets most FCF) which dont have too much debt, and are growing earnings each quarter or are fairly consistent.

ATSG - Aircraft Leasing
LRE - Insurance
Fortress Paper
ALS - Resources, and Assets based, under water but it should work out fine.
Title: Re: FTP - Fortress Paper
Post by: jjsto on February 01, 2012, 06:42:17 AM
I too am interested in the portfolio of others who are invested in FTP.  Not that anyone cares, but my portfolio looks something like this:

ALS 24% basis 12
Cash 20%
CRESY 14% basis 8 (potential value trap)
WFC 14% basis 21
FTP 12% basis 27
FFH 6% basis 325
Others 10%

I would love to find more companies like ALS and FTP to diversify a little and deploy some cash.  Unfortunately, I cant seem to find anything that has similar risk/reward and margin of safety.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on February 01, 2012, 06:51:50 AM
Because you're interested:

FTP 31,5% (average 27.9)
C 24,3% (average 26.9)
BAC 21,1% (average 5.95)
LUK 16,5% (average 21.85)
FFH 6,1% (average 385)

I'm kinda a believer in betting big, adjusted kelly formula and all that. Must say I have at least 5 stocks (LRE is one. WFC I sold for a 30% to buy more C after last earnings) that would qualify if I wanted to diversify more. I will but not at current prices. I'll also diversify more as my portfolio grows, no need for that now.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on February 01, 2012, 07:52:15 AM
Oh and I have like 0.1% cash.

I don't have an account on stockbroker so let me reply here:

Quote from: OptsyEagle
I can't seem to cut and paste the report but suffice to say, he increased his price target from $30 to $36 and since the stock has already blown past that, he downgraded the stock to reduce.
Let's see.  The company gets $500Million of prestine equipment for $1, makes an investment financed with cheap money from the Quebec government, that will provide close to a 100% return on investment, annually and he increases his target by $6 ... or $96 million (when multiplied by 16 million shares).
Is he nuts.  Even with his low target for DP prices the company will earn over $12 per share, starting next year and he thinks the stock should trade for $36.  And they pay him for that.  Anyway, I disagree.

Obviously we all disagree with such targets. But I think it's a good thing they write such silly reports. FTP down 4% today on a green day, probably partly because of the report. For all I care we go to $20 because of those wackjobs, more to grab for us!
Title: Re: FTP - Fortress Paper
Post by: OptsyEagle on February 01, 2012, 10:02:10 AM
I think the TD analyst and quite a few others are perhaps misguided about the opportunity we are seeing here.  I think the investment community is looking at Fortress Paper as just another company working in a historically bad industry that will be subjected to the boom and bust cycle, like most other commodity producing companies.  Hence, they want to assign a much lower multiple of the earnings to that business.


The basic opportunity here can all be found on pages 7 and 8 of this presentation:

http://specialtycellulose.com/wp-content/uploads/2012/01/LSQ_Announcement_Jan_31_2012.pdf

Many companies in the forestry sector have found that it was very difficult to complete globally, from Canada.  Because of this, they ended up in the top quartile of costs and since commodity pricing will usually gravitate to a price equal to the higher cost producers, they struggled.  This price gravitates to this level, because when higher, new capacity usually comes along, itseverely hurts the higher cost producers.  Now this is key.

In slide 7, we can see that this is not the case in this particular instance.  Fortress Paper has ensured their cost structure is in the lowest quartile of costs.  This is because, for dissolving pulp, Canada has a distinct advantage.  Large supply of good fibre (trees), excellent transportation systems, and plentiful, educated labour.  Since labour is one of the lowest costs in the production of dissolving pulp (FTP will generate about $1,000,000 of revenue per employee making wage differences immaterial).

I believe the TD analysts main concern is from the additional capacity that is currently coming on line.  Although, there is reason to believe the demand for DP will be able to absorb all this new capacity, the most important point is ... it doesn't really matter.  A question was asked on the conference call about whether the market could absorb another 236,000 tonnes of capacity.  The answer is again... it doesn't matter.  If it can, then the DP prices will be very high and profitability will far exceed even Fortress Paper's estimates.  If it cannot, some other company on the upper end of the cost curve, seen on page 7 of the presentation, will start to have some financial difficulties.

Since the production of dissolving pulp's costs are mostly variable, for instance, the tree fibre, I believe, makes up about 50% of the costs, with power being next in line, then chemicals and finally labour, which is a very small component.  If prices decline below a companies cost level, they will see very quickly that it makes more sense to shut down their capacity, then to keep producing.  We have already seen this in the current cycle we are in.  That being said, if you review page 7 of the presentation you will see that in order for DP prices to get down to the level of FTPs costs, it would take a reduction in about 70% of world capacity.  That is very unlikely to happen.

So in a nutshell, what Fortress Paper is finding, is that Canada has a considerable number of mills that cannot compete globally in the traditional pulp market, due to their higher cost structure, but converted to producing DP, they transform into a low cost producer.  With that in mind, as long as they don't bring on more then about 4.2 million tonnes more of DP (70% of world capacity), they will simply be able to displace a higher cost producer, with their new supply and the prices of DP should not fall much below the $1,200 floor we have seen.  Since the mills available are fixated on the previous business experience, they can be picked up very, very cheaply, as we have seen.

I hope that makes sense.  The currency issue is also in play here.  Since DP is priced in $US dollars, but most of the producers and customers are not from the US, any decline in the $US, should simply result in a higher nominal sale price of DP.  Keep in mind, the most important currency for dissolving pulp is the Chinese yuon and it has been rising lately and expected to continue to do so.

All that being said, I would suspect, that as the investment community starts to realize this considerable difference, a much larger PE multiple will get assigned to this company.  It may take them a while, but they will get there.

Title: Re: FTP - Fortress Paper
Post by: ECCO on February 01, 2012, 10:36:28 AM
About p7 and p8, I wonder where are these plan that produce at lower cost than Thurso and LSQ?  There is about 1.3M tons at a cost of 450$ or lower. How can they acheived that and can other plants being built or converted there?

The other question I tried to find info about but dont get the answer is: where is the other plan that Chad is talking about that they expect to close the transaction. That plan would produce 100M tons so that should be a plan that NBSK capacity is around 130M tons. 
Title: Re: FTP - Fortress Paper
Post by: OptsyEagle on February 01, 2012, 10:41:37 AM
I can't tell you where the next acquisition is and I kind of hope it doesn't happen for at least 6 months.  Peter Vinall and Chad have enough on their plate for at least that long with LSQ.

As for the low cost producers, I think the big ones are in Brazil.  There is a plant there that I think pumps out over 700,000 tonnes of DP.  They also have a good fibre supply and their plants are fairly new.  They are the ones to watch, not the Chinese.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on February 01, 2012, 10:44:04 AM
I believe the TD analysts main concern is from the additional capacity that is currently coming on line.  Although, there is reason to believe the demand for DP will be able to absorb all this new capacity, the most important point is ... it doesn't really matter.  A question was asked on the conference call about whether the market could absorb another 236,000 tonnes of capacity.  The answer is again... it doesn't matter.  If it can, then the DP prices will be very high and profitability will far exceed even Fortress Paper's estimates.  If it cannot, some other company on the upper end of the cost curve, seen on page 7 of the presentation, will start to have some financial difficulties.
[/i]

OptsyEagle,

If 4M MT of supply came on board tomorrow with a cost structure equal to FTP's then what do you suppose would happen?

Sure the high cost producers would lose out. They'd shut their doors and the market loses 4M MT of supply to come back to equilibrium. But the result is not good for FTP. They no longer reside in the bottom quartile of producers. DP prices have the ability to be cannibalised and could definitely fall significantly.

My point being - it's to FTP's advantage to bring on supply at a measured pace. They want the high cost producers in the market. That is where their moat and competitive advantage is coming from. By doing so they get their high margins for a long period of time vs. high margins for a short time (followed by low margins for long time).

So, I believe that supply matters. I want to see FTP bring on supply at a rate that is perhaps slightly ahead of demand.
Title: Re: FTP - Fortress Paper
Post by: OptsyEagle on February 01, 2012, 11:23:22 AM
I did say that, without any change in demand, if Fortress Paper brought on 4 million tonnes of DP they would still be profitable.  I didn't say they would be very profitable.  The point I was making in my analysis is that, as this new supply comes on the market, the price of DP will decline.  As it declines, the higher cost producers would exit from the market.  With 4 million tonnes from Fortress Paper, I would expect the price of DP to floor out at their costs, since all the higher cost producers would be gone and they would then become the high cost producer.  So to answer the question, I would expect the price of DP to level off at around $650 to $700 per tonne, knocking out all the higher cost producers and meeting the current global demand for DP.

Obviously they are not going to do this and they have no choice but to bring on their supply at a measured pace, since it takes a couple of years to convert a mill and it can take quite a long time just to acquire one.

So not to worry here.  My point wasn't that anyone was going to bring on this much DP, but to point out that the only supply we need to worry about is the supply that comes on with a cost below ours and even then if it in an amount that knocks out the higher cost producers and puts us up at the top of this curve.

I hope that makes sense.
Title: Re: FTP - Fortress Paper
Post by: Liberty on February 01, 2012, 02:14:00 PM
From a purely probabilistic point of view, LSQ closing increases the chances of the 3rd mill also happening, if only because it's one more data point showing us that when management says publicly that they are "very confident" something will happen, it usually does happen.

I also wonder where that 3rd mill is located. Maybe we'll have a surprise and it won't be in Canada or Europe but somewhere in the US or South America? We'll have to wait and see.
Title: Re: FTP - Fortress Paper
Post by: ECCO on February 01, 2012, 03:54:59 PM
I have find that:

http://www.pwc.com/en_GX/gx/forest-paper-packaging/pdf/lee_j_presentation.pdf

On page 6 we can see that there is only one canadian mill that produce something around 140000 tons of NBSK per year.  If the next one is canadian (might be US, but I think we will stay in canada) then it should be that mill than will produce 100000tons/years after conversion.

I guess that this mill is at a place where there is a lot of softwood as it make better quality dp.

Still searching, but have not find yet where is this mill.
Title: Re: FTP - Fortress Paper
Post by: Liberty on February 01, 2012, 04:11:21 PM
I have find that:

http://www.pwc.com/en_GX/gx/forest-paper-packaging/pdf/lee_j_presentation.pdf

On page 6 we can see that there is only one canadian mill that produce something around 140000 tons of NBSK per year.  If the next one is canadian (might be US, but I think we will stay in canada) then it should be that mill than will produce 100000tons/years after conversion.

I guess that this mill is at a place where there is a lot of softwood as it make better quality dp.

Still searching, but have not find yet where is this mill.

Nice find. Too bad those bars in the graph aren't labelled. I wonder if Mercer's investor relations would tell us what that mill is if asked...

http://www.mercerint.com/s/ContactUs.asp
Title: Re: FTP - Fortress Paper
Post by: Liberty on February 01, 2012, 04:18:37 PM
Could be good for FTP:

http://www.winnipegfreepress.com/business/breakingnews/ottawa-may-extend-programs-to-help-transformation-of-forestry-industry-minister-138505529.html
Title: Re: FTP - Fortress Paper
Post by: ECCO on February 01, 2012, 04:41:14 PM
I find that... interresting:

http://www.tappi.org/Hide/The-Dissolving-Pulp-Gold-Rush.aspx
Title: Re: FTP - Fortress Paper
Post by: Liberty on February 01, 2012, 06:54:16 PM
I find that... interresting:

http://www.tappi.org/Hide/The-Dissolving-Pulp-Gold-Rush.aspx

Thanks. I like the part about the Chinese 5-year plan including a shift of 2 million tons per year of fiber from cotton to rayon.
Title: Re: FTP - Fortress Paper
Post by: OptsyEagle on February 03, 2012, 06:50:02 AM
You guys might find this presentation interesting.  I noticed a link at the bottom of page 9 on Fortress Paper's presentation for the LSQ acquisition.  I clicked it and came to this business consultant's website.  I think this is where Fortress Paper has got some of their macro information on the textile industry and where it is going.  Anyway, this guy gives a pretty good arguement wlhy the demand for man made cellulose fibres (rayon) will have no choice but to rise over the next 5, 10, and 20 years and why petroleum based textiles will also not be able to fill the gap.

http://www.fmhaemmerle.com/documents/Presentation_Sept_2011.pdf

A little long but might make some good reading over the weekend.  Have a good one.
Title: Re: FTP - Fortress Paper
Post by: ECCO on February 05, 2012, 06:41:52 PM
I can't tell you where the next acquisition is and I kind of hope it doesn't happen for at least 6 months.  Peter Vinall and Chad have enough on their plate for at least that long with LSQ.

As for the low cost producers, I think the big ones are in Brazil.  There is a plant there that I think pumps out over 700,000 tonnes of DP.  They also have a good fibre supply and their plants are fairly new.  They are the ones to watch, not the Chinese.

I find it, the biggets dissolving pulp plan is not in Brazil, its in South Africa.

Sappi Chemical Cellulose's Saiccor Mill has the capacity to produce approximately 800,000 tons of Elemental Chlorine Free (ECF) chemical cellulose (dissolving pulp) per annum - the world's largest manufacturer.

Interresting presentation here:
http://www.sappi.com/Investors/Documents/2011_03_01VisittoSaiccor.pdf

The question you should ask is: can Brazil or South Africa bring another of these low cost mill of 800000 tons. If so, that can push FTP out of first quartile.
Title: Re: FTP - Fortress Paper
Post by: Liberty on February 05, 2012, 07:15:27 PM
Nice find. I've only skimmed part of it (no time tonight), but the thing I'll be looking for is if they mention the DP's purity anywhere.
Title: Re: FTP - Fortress Paper
Post by: OptsyEagle on February 06, 2012, 08:50:55 AM
Thanks for that.  I knew it was some big mill that had good access to eucalyptus trees.

As for them building another one.  The only barrier to that, I would imagine, would be the cost.  Probably in the $1.5 B to $2 Billion dollar range.  Now with today's DP prices, the return on that investment would be quite satisfactory, but if you try to get into the minds of the people that would make that investment, I suspect you would be very concerned about where the price of DP would be in 2 years, when that plant starts producing and I would imagine a little caution might prevail.  Swing plants from DP to NBSK are even more costly to build.

In Fortress Paper's case, they seem to be able to take a mill where most of the investment has already been made by others and they simply add a little more to make it operational and cost competitive.  Certainly a lot less risk in doing it that way.
Title: Re: FTP - Fortress Paper
Post by: Liberty on February 06, 2012, 09:55:13 AM
In Fortress Paper's case, they seem to be able to take a mill where most of the investment has already been made by others and they simply add a little more to make it operational and cost competitive.  Certainly a lot less risk in doing it that way.

Indeed, this is something that Chad said at the CIBC conference. I'm paraphrasing:

"This is a capital intensive business, and we like that. Well, we like it when it's someone else's capital."

Meaning that the high capital costs are a barrier to entry for the industry. But since FTP tends to let others make the big capital investments and then buy the fruits of their labor for peanuts, it isn't as problematic for them.
Title: Re: FTP - Fortress Paper
Post by: OptsyEagle on February 06, 2012, 10:09:34 AM
I posted my earnings estimates for Fortress Paper on another site, that you guys may find interesting or useful.  I have to give Fortress Paper credit for how open they are, giving an investor the ability to do this.  1st some background details and assumptions:

1) Outstanding shares.  Currently 15.275 M, fully diluted (Q3),  add 1.073 M from recent CV debenture offering.  0.45M for new $25M loan from Quebec FI adding 0.45 M shares and 0.715M warrants.  That adds up to:

15.275 + 1.073 + 0.45 + 0.715 = 17.5 Million shares fully diluted.

2) Debt: Quebec Gov't Thurso  Loan + $102.4M @ 5% = $5.12M interest payments, QG LSQ loan $132.4M @ 5% = $6.62M interest, $40.25 recent CV deb. offering @ 6.25% = $2.5M interest and $25M loan for LSQ @ 7% = $1.75M interest.

So final annual interest payments = $5.12+$6.62+$2.5M+$1.75M = $16Million in annual interest payments.

Depreciation in Q3-11 was indicating an annual rate of $14M, so since some would have depreciated in 2 years and then we add the LSQ investments, I used $30 million for depreciation expense.  Please not that this is a non-cash charge.  More of an accounting entry then an expense.

I used $30 million EBITDA for Dresden, which is Chad's estimate before the capacity upgrade in 2012 and probably another in 2013.   Note the Euro has dropped about 5% since Chad gave that estimate but the reduction would also effect taxes and depreciation and would amount to less then $1M of loss, so I ignored it.  Since I am estimating $0 EBITDA for Landqart, the decrease in the Swiss Franc was also ignored but it should be noted that this will significantly help their EBITDA move higher then $0.

I assumed about $10 million  from Thurso's Co-gen that kicks in in the 3rd quarter of this year.


Two Scenerios all taken from the two respective presentation for Dissolving pulp prices.

1) Dissolving Pulp  Price $1,200 per MT

EBITDA:

Thurso = $122.2M

LSQ = $125.0M

Dresden = $30M

Landqart = $ 0M

Thurso Co-Gen = $10M

EBITDA = $287.2 M

Minus $16M interest, $30M in depreciation, $10M in corp. expenses = $231.2M pre-tax profit

minus 30% tax =

$161.8M after tax profit.  Divide by 17.5million shares = EPS of $9.25 per share.



2) Dissolving Pulp Price $1,600 per MT

EBITDA:

Thurso = $205.2M

LSQ = $217.0M

Dresden = $30M

Landqart = $ 0M

Thurso Co-Gen = $10M

EBITDA = $462.2 M

Minus $16M interest, $30M in depreciation, $10M in corp. expenses = $406.2M pre-tax profit

minus 30% tax =

$284.3M after tax profit. Divide by 17.5million shares = EPS of $16.25 per share.



Note Above:  No value or benefit was given for the exercise of 715,000 warrants that would provide FTP with about $40 million of new capital, when exercised.  The warrants were used, however, in the calculation of fully diluted shares.
Title: Re: FTP - Fortress Paper
Post by: Liberty on February 07, 2012, 07:24:22 AM
http://www.fibre2fashion.com/news/textile-news/newsdetails.aspx?news_id=107820

Quote
Price of dissolving pulp increased at a constant rate in the week and shot up sharply in the range of RMB 9250/ton to RMB 9500/ton in Chinese domestic market. Price of imported dissolving wood pulp was in the range of US$ 1250/ton to US$ 1280/ton.

Don't forget that Thurso should be getting above spot because of it's very high alpha.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on February 07, 2012, 12:11:32 PM
http://www.fibre2fashion.com/news/textile-news/newsdetails.aspx?news_id=107820

Quote
Price of dissolving pulp increased at a constant rate in the week and shot up sharply in the range of RMB 9250/ton to RMB 9500/ton in Chinese domestic market. Price of imported dissolving wood pulp was in the range of US$ 1250/ton to US$ 1280/ton.

Don't forget that Thurso should be getting above spot because of it's very high alpha.

Liberty, correct me if I'm wrong but I think that FTP must first get certified. I seem to recall reading or hearing this but can't find the information at the moment. I'll dig around my file later.
Title: Re: FTP - Fortress Paper
Post by: Liberty on February 07, 2012, 12:16:13 PM
Liberty, correct me if I'm wrong but I think that FTP must first get certified. I seem to recall reading or hearing this but can't find the information at the moment. I'll dig around my file later.

They must be certified as a specialty DP provider to sell to certain companies, but they don't have to be certified to still get some premium for high-alpha DP since rayon producers still prefer it to low alpha DP.

But if they want to sell to a pharmaceutical company or whatever, they'll definitely need to be certified.

That's how I understand it. I could be wrong.
Title: Re: FTP - Fortress Paper
Post by: shoeless on February 12, 2012, 11:21:18 AM

Interresting presentation here:
http://www.sappi.com/Investors/Documents/2011_03_01VisittoSaiccor.pdf

The question you should ask is: can Brazil or South Africa bring another of these low cost mill of 800000 tons. If so, that can push FTP out of first quartile.

Thanks ECCO for pointing out Sappi. Seems that they are bringing on another 500000 tons online in 2013. The wording isn't clear but seems to indicate the converted mills will be "lowest quartile cost structure". From Sappi's 2011 "Integrated Report":

  "We have announced two investments that will increase our chemical cellulose capacity by
  540,000 tons to over 1.3 million tons a year. These investments will cost approximately
  US$500 million and comprise the conversion of the Ngodwana Mill's pulp mill in South
  Africa to produce 210,000 tons of chemical cellulose and the Cloquet Mill's pulp mill in
  Minnesota, USA to produce 330,000 tons of chemical cellulose a year. These projects are
  progressing well and are set to start up in early 2013. The projects take advantage of our
  leading market position and lowest quartile cost structure. We have customer
  commitments for a significant part of the increased capacity."

The cost of the conversions are to be $170m for the US mill and $340mill for the other one.

press releases about the conversions:
http://www.sappi.com/regions/eu/service/News/Pages/Ngodwana-Mill-increases-chemical-cellulose-capacity.aspx
http://www.sappi.com/regions/eu/service/News/Pages/Sappi-Limited-announces-major-investment-in-North-American-operations.aspx

btw, regarding the Saicor mill:
"Sappi Chemical Cellulose can supply a range from 91% alpha to 96% alpha, depending on customer requirements."
  http://www.sappi.com/regions/is/Products/Chemicalcellulose/Pages/Saiccor-Mill.aspx

This is my first post here after lurking for a couple of years  - thanks everybody for making this board what it is, I've learned a ton

Title: Re: FTP - Fortress Paper
Post by: Liberty on February 14, 2012, 09:37:48 AM
http://lechoabitibien.canoe.ca/webapp/sitepages/content.asp?contentid=226228&id=296&classif=En+manchettes

About the heavy metal decontamination at LSQ. FTP's only on the hook for the 7.5m in the deal, which seems like a very good thing because who knows how much it'll actually end up costing (they say 13m, but we'll see).
Title: Re: FTP - Fortress Paper
Post by: Liberty on February 14, 2012, 12:01:19 PM
FTP was mentioned on BNN today, which could explain the volume this afternoon:

http://watch.bnn.ca/#clip618929
Title: Re: FTP - Fortress Paper
Post by: Liberty on February 17, 2012, 07:01:59 AM
Fortress Paper Ltd. (“Fortress Paper” or the “Corporation”) (TSX:FTP) announced today that it intends to release its fourth quarter financial results for the period ended December 31st, 2011 after the close of the market on Monday, March 5th, 2012. In connection with the release of its results, Fortress Paper Ltd. will host a conference call Tuesday, March 6th, 2012 at 9:30 a.m. (PST) to discuss the financial results and the Corporation’s operations. Mr. Chadwick Wasilenkoff, Chief Executive Officer, Alfonso Ciotola, President, Kurt Loewen, Chief Financial Officer and Peter Vinall, President and Chief Executive Officer of Fortress Specialty Cellulose Inc. will host the call.

To participate in the conference call, please dial one of the following numbers:

Dial In Numbers:   604-681-8564   Vancouver
403-532-5601   Calgary or International
780-429-5820   Edmonton
416-623-0333   Toronto
613-212-0171   Ottawa
514-687-4017   Montreal
Toll Free Dial In Number:   1-855-353-9183 from Canada and USA
Participant Pass Code:   15086#
Conference Reference Number:   765945
A replay of the conference call will be available for 7 days. To access the replay, listeners may dial 1-855-201-2300 from Canada & the USA. The conference reference number is 765945 # and the participant pass code to access the replay is 15086 #.
Title: Re: FTP - Fortress Paper
Post by: colinwalt on February 18, 2012, 07:01:10 AM

Interesting presentation here:
http://www.sappi.com/Investors/Documents/2011_03_01VisittoSaiccor.pdf

The question you should ask is: can Brazil or South Africa bring another of these low cost mill of 800000 tons. If so, that can push FTP out of first quartile.

Thanks ECCO for pointing out Sappi. Seems that they are bringing on another 500000 tons online in 2013. The wording isn't clear but seems to indicate the converted mills will be "lowest quartile cost structure". From Sappi's 2011 "Integrated Report":

  "We have announced two investments that will increase our chemical cellulose capacity by
  540,000 tons to over 1.3 million tons a year. These investments will cost approximately
  US$500 million and comprise the conversion of the Ngodwana Mill's pulp mill in South
  Africa to produce 210,000 tons of chemical cellulose and the Cloquet Mill's pulp mill in
  Minnesota, USA to produce 330,000 tons of chemical cellulose a year. These projects are
  progressing well and are set to start up in early 2013. The projects take advantage of our
  leading market position and lowest quartile cost structure. We have customer
  commitments for a significant part of the increased capacity."

 

I tried to figure out SPP’s cost per ton from their F-20 – they provide variable costs per ton, but not fixed costs – I think I got the conversion of overall fixed costs to "per ton" costs correct – apologies if I screwed up.  This is what I’ve calculated:

South Africa total variable costs: 798 (from the F-20)
South Africa variable cost per ton: 305 (from the F-20)

South Africa total fixed costs: 645 (from the F-20), so fixed cost per ton is as follows:
•   645 (fixed costs) is 80% of 798 (variable costs)
•   So fixed per ton are: 305*.8 = 244
•   So Total costs per ton are: 305 (variable) + 244 (fixed) = 550

++++++++++++++++++++++++++++++++++++++++++++

North America Total variable costs: 757 (from the F-20)
North America variable cost per to:  527 (from the F-20)

North America Total fixed costs: 482 (from the F-20)
•   482 (fixed costs) is 63.5% of 757 (variable costs)
•   So fixed per ton are: 527*.635 = 335
•   So total costs per ton are: 527 (variable) + 335 (fixed) = 862

With capacity for 330,000 tons in North America and a little over 1 million in South Africa, average costs are:
•   330K * 862 = 284.460
•   1,000K * 550 = 550.000
•   Total cost for about 1.4M tons is about 834.460

So overall average cost (834.460 / 1.4) = about 596 dollars per ton

FTP say their costs are about 650 per ton, so about 8.3% more than SPP’s overall average but about 18% more than SPP’s South African costs – I don’t have enough information to figure out why SPP’s costs in South Africa are so much lower although I did read somewhere that part of it is due to the fast growth (due to the climate) of the trees used as raw material.

In addition, I don’t have details of everything that SSP and FTP use to calculate cost per ton, so this is probably not comparing apples-to-apples, but none-the-less useful I hope.
Title: Re: FTP - Fortress Paper
Post by: Liberty on February 18, 2012, 08:21:37 AM
That's assuming that their new capacity comes on time and on budget. We know that FTP can execute, but do we have evidence that they can?

Of course, it's more conservative to assume that they can, but knowing how frequent cost overruns are, I still have to wonder.
Title: Re: FTP - Fortress Paper
Post by: colinwalt on February 18, 2012, 12:10:26 PM
Yeah, there's a bunch of unknowns here - in fact I've extrapolated their current cost-per-ton without trying to adjust for the new capacity - I've no idea if the new capacity will come on-line at the existing cost-per ton or not - in theory, fixed costs per ton should fall.... but who knows.

FWIW, it does seem strange that they are also increasing American capacity with its far higher cost per ton structure - I can only guess at the logic here, for example, subsidize other operations in America so that they can continue to run marginal parts of the business? Maybe they need the EBITDA to avoid violating debt covenants - again, who knows....
Title: Re: FTP - Fortress Paper
Post by: Liberty on March 05, 2012, 07:56:24 PM
Q4 is out:

http://www.fortresspaper.com/files/FTP_NR_Q4_2011_FINAL.pdf

http://www.fortresspaper.com/files/Combined_Q4_Consilidated_Financials__MDA.pdf

Title: Re: FTP - Fortress Paper
Post by: Liberty on March 06, 2012, 09:26:27 AM
Conf call is beginning in 5 minutes

Quote
A conference call to discuss the financial results for the fourth quarter  2011 will be held on
March 6, 2012 at 9:30 a.m. (PST). To attend the conference call, please dial one of the following
numbers:
North America: 1-855-353-9183
International: 1-403-532-5601
Participant pass code: 15086#
Conference Reference Number: 765945
A replay of the conference call will be available for 7 days. To access the replay, listeners may
dial  1-855-201-2300  from North America or 403-255-0697 International.  The conference
reference number is 765945 # and the participant pass code to access the replay is 15086 #.
Title: Re: FTP - Fortress Paper
Post by: shoeless on March 06, 2012, 12:28:46 PM
I was surprised to hear Chad say that in the 3-5 years they would like to have 50% of capacity (including LSQ) be speciality cellulose. Was that really the number he said (my line was bad)?
I was expecting something more inline with Sappi and Sateri where around 20% of capacity is SC.

Anyway incase its of interests here is a Rayonier investor presentation with some slides about the speciality
cellulose market and how it differs from the DP market (slide 29 onwards)
http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDU0NzM2fENoaWxkSUQ9NDgwOTA0fFR5cGU9MQ==&t=1
Title: Re: FTP - Fortress Paper
Post by: Liberty on March 06, 2012, 12:31:20 PM
I was surprised to hear Chad say that in the 3-5 years they would like to have 50% of capacity (including LSQ) be speciality cellulose. Was that really the number he said (my line was bad)?
I was expecting something more inline with Sappi and Sateri where around 20% of capacity is SC

That's what he said. About 25% of which would come from Thurso and 75% from LSQ, where softwood helps for specialty DP.
Title: Re: FTP - Fortress Paper
Post by: shoeless on March 06, 2012, 12:52:58 PM
Thanks Liberty
added: Sappi/Sateri I think are all hardwood. Perhaps speciality cellulose is more attractive for softwood?
Sounds like the SC market can help provide some financial stability (though demand is projected to grow slower than DP) compared to the volatile prices and fragmented and possibly financialy less secure DP customer base.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on March 07, 2012, 07:03:31 AM
To bad the SP division has some problems and the extra costs for cogen (yikes...) but DP does what it has to do. Outlook for the next few years still the same. Would still be happy to buy more under $400m market cap.  :)
Title: Re: FTP - Fortress Paper
Post by: Liberty on March 07, 2012, 08:23:23 AM
Mr. Market didn't like Q4 apparently  :o

These bumps in the road suck, but they are to be expected. What matters most is that the big value creators are still on track, and I'm pretty sure that in 5 years I won't even remember that cogen hiccup...
Title: Re: FTP - Fortress Paper
Post by: OptsyEagle on March 07, 2012, 09:42:38 AM
The TD analyst came out and downgraded his target price from $36 to $32.  No surprise there.

From the conference call it would appear that we can expect another small loss for Q1.  We have Landqart still bleeding cash and Thurso at a little over break even.  I doubt Dresden can cover the shortfall but if it does, it will be by very little, in my opinion.  I hope I am wrong, but I doubt it.

The TD analyst also cited a capital shortfall for 2012 build out.  It will be interesting to see how FTP deals with it.  An asset sale would certainly perk things up a little, especially if it was Landqart.

In any event by July, after we get past Q2, I think the analyst will start counting the money and Fortress stock will start to get the recognition a cash producing machine should get.  Right now the machine is eating oil but in about 4 months it will should be pumping money horse power.
Title: Re: FTP - Fortress Paper
Post by: colinwalt on March 08, 2012, 08:43:11 AM
Here are some rough notes from the CC – I only listened to it once, so there are probably a number of errors in what follows.  One thing I liked was that they seemed to be pretty open about issues and challenges – and also were fine saying “we don’t know yet.”

Many investors may not like this - they seem to expect management to have the ability to predict the future with 100% accuracy and if management doesn’t give this impression, then they are considered incompetent.

Personally I tend to be wary of management that seem to have slick, perfectly confident answers, about what is an inherently unpredictable world – so I found this willingness to say “we don’t know” refreshing.

Call notes follow – Prepared statements (I don’t have much here as most of it matched the Press Release, which I’m not bothering to repeat):

Thurso: 415 tons per day now – 72%
•   Daily peaks over 500
•   By end of Q2 should be at full capacity.
•   All customers have approved quality.
•   Co-gen on time – but remaining spend is 64 Million – about 20 Million more than planned.
•   DP production costs still above plan due to ramp-up costs and higher energy costs.
•   Longer term, moving to more specialty dissolving products (more on this below)
•   Will add more capacity if right deals come along.
•   Chad will not get any annual bonus due to results.

Q&A Session:

Q: Total CapEx requirement has gone from 180 to 200M?
A: Correct – management now focusing on Co-gen now that the DP conversion is in place.
•   Believe it will be OK now that they are able to focus on it.

Q: Maint CapEX?
A: Dresden – 2-3M Euro (Plus 2.5 for expansion)
•   Landqart 2-3M Swiss
•   Thurso: Don’t now yet – guess about 5-10M

Q: Deadline on Co-gen + penalties
A: Dec 1 2012 start date, so penalties start after this date.
•   Penalties: 75,000 per day – Capped at about 1.8 Million
•   But currently don’t plan on missing the target date.

Q: DP Production costs per ton?
A: Not stable yet, energy costs and start-up chemical costs still high – better than break-even already, but still don’t want to give a number until all is stable.

Q: Cost overrun due to Co-gen – what liquidity is available to meet this?
A: Landquart – order on hold – still consuming cash.
•   Co-gen extra costs due to inaccurate estimation by contractor – 18M increase in costs:
•   Funding:
o   15M from tax credits – should get this year.
o   Once at stable full production of DP, obviously will be cash flow positive.
o   10 million Euro debt + 10 Million Swiss Francs debt capacity (CW: using already?) – looking to increase.
o   Switzerland – have a hydro asset worth 20M (CW: Swiss francs? Not sure I got this right)
o   Farmland – another 10M dollars.
o   Once Thurso fully running by June, if needed, could take on another 100M in debt at least.
o   Will avoid diluting shareholders at all costs if possible.

Q: Landquart – what capacity has been filled for 2012
A: Big order (new customer) delayed – 50 to 55% of capacity.
•   Quality OK’d by customer, but still waiting for final OK – very bureaucratic approval process with a new customer.
•   Don’t now if will be EBITDA positive in 2012 – depends on when this order is approved.

Q: Cotton prices in China appear to be high, but DP pricing doesn’t seem to reflect this.
•   Significant new DP supply in 2011, think that will be absorbed in 2012 as economies recover (CW: not sure I got this right).

Q: (CW: Again on liquidity) 64M still to spend at Thurso?  But 23M cash and 23 undrawn + 8M ARs.  So have about 54M cash, but possible shortfall depending on cash generation / cash needs over the next few months?
A: Tax credit of 16M expected in 2012 + Dresden is cash-flow positive + Thurso will begin to generate cash. Also, non-core sales discussed earlier (Mar / April hope for an asset sale)
Will spend 1/3rd of the cap-ex between now and Jun (+/- 20M) and 2/3rds from then to Dec 1.

Q: Specialty DP market – capacity + costs for upgrading.
A: Right now, focus is on getting standard DP to full capacity by June (570 tons a day) and then 2 months on quality tweaks. 
•   Will then begin working on specialty recipes – takes about 6 months for easier ones to get approval, more complex can take 18 months. 
•   Longer term (3-5 years) would like to have 50% in specialty.  25% from Thurso (due to viscose contracts need the remaining capacity for regular DP + hardwood supply is less amenable for specialty)
•   Plan is for LSQ to be at about 75% specialty - softwoods better for that. 
•   Not sure yet how much Cap Ex will be required to get to this level of specialty capacity (CW: Based on the next comment, I got the feeling they don’t expect it to be significant).
•   Will not be able to produce more complex specialty products (e.g. acetate) w/o quite a bit more Cap-Ex (not planned for now). 

Q: Issues with securing fiber supply as part of closing LSQ?
A: Making good progress on contracts (have about 40% secured (CW: I think))
•   Need to get idled saw-mills started up for this.
•   Would also consider purchasing their own mill to secure supply given the current depressed prices for shuttered mills.
Title: Re: FTP - Fortress Paper
Post by: Liberty on March 08, 2012, 08:58:30 AM
Mr. Market's reaction to Q4 results is quite interesting. If I didn't own so much already, I'd take this as a nice buying opportunity. Cost overruns and possible delays with the cogen are bad, and Landquart's performance is still disappointing, but for an investor planning to hold for years, that's just small bumps in the road. The earning power is still there, and with India now banning the export of cotton, things could get interesting on the DP market (especially since management seems to have a pretty aggressive timetable to get 50% of Thurso and LSQ's production certified on the specialty cellulose market, bringing higher margins).

I'm also intrigued by the sawmill(s) idea. I've never studied the economics of these, so I don't know how profitable they can be when the US housing market is going well. I guess it depends how cheaply you can get your hands on them...And we know Chad would only operate a sawmill if it was a high quality low-cost operator.
Title: Re: FTP - Fortress Paper
Post by: Liberty on March 08, 2012, 10:15:11 AM
Chad on BNN:

http://watch.bnn.ca/#clip634083

Nothing groundbreaking, but he restates his intention to acquire 1-2 other DP mills. Maybe it's just me, but in other recent interviews he mentioned just 1 other mill. I wonder if this means that there's now a second deal that is making some progress...
Title: Re: FTP - Fortress Paper
Post by: tombgrt on March 14, 2012, 01:19:10 PM
Mr Market is in a bad mood, I like it. Added to position today (increased position by +- 15% in size). Rest of portfolio doing very well so I felt that I could go ahead. This will either turn out to be a major hit or a big disappointment, but my estimated expected value for FTP is so high that I have to go for it. We'll see how it turns out!

Only buying more under $25 now.
Title: Re: FTP - Fortress Paper
Post by: Liberty on March 14, 2012, 01:36:11 PM
Mr Market is in a bad mood, I like it. Added to position today (increased position by +- 15% in size). Rest of portfolio doing very well so I felt that I could go ahead. This will either turn out to be a major hit or a big disappointment, but my estimated expected value for FTP is so high that I have to go for it. We'll see how it turns out!

Only buying more under $25 now.

I would like to buy more too, but I probably won't be able to because I'm currently looking at allocating capital to something else.. Wish I could add a bunch, though!
Title: Re: FTP - Fortress Paper
Post by: OptsyEagle on March 14, 2012, 01:46:40 PM
No matter how pessimistic I try to make a scenerio, I can't get my valuation down to $28 a share.  I mean Dresden would be worth over $10.  Even DP dropping to $800 puts Fortress Cellulose upwards of $25 and we would see a couple million tonnes of world supply shut down at those prices.  Then we have the co-gen plants and I would assume Landqart is worth something even if it never turned around.

I guess today's investor just has a lack of patience ... or math skills.
Title: Re: FTP - Fortress Paper
Post by: Liberty on March 14, 2012, 02:20:42 PM
I guess today's investor just has a lack of patience ... or math skills.

Seeing how much analyst reports move the price of FTP, I'm guessing that few people actually do their homework, they just do whatever the analysts tell them to.
Title: Re: FTP - Fortress Paper
Post by: bathtime on March 14, 2012, 07:23:09 PM
Sappi has an analyst's day presentation from 2/9/12:

http://www.sappi.com/Investors/Documents/Presentation.pdf

(http://www.sappi.com/Investors/Pages/Presentations.aspx)

Page 34 shows a list of the current producer's of DP/chemical cellulose.

Page 35 shows an additional 3 million tons of announced capacity (not including LSQ) scheduled to come online 2012-14.

I've owned FTP off and on, have been buying it lately, and see it as a potentially a great value investment. Presuming company-provided estimates on profitability hold up. But I lack clarity on the supply/demand estimates on which those estimates are based. The 3 million additional tons mentioned in the Sappi presentation is a lot for an existing 5.1 million ton global market! While we know that FTP projects to land in the lower 25% quartile on cost structure based on current global producers, do we know where FTP will land if/when 3mt of supply comes on by the time LSQ reaches full production?

In the Tapi article from October 2011 (http://www.tappi.org/Hide/The-Dissolving-Pulp-Gold-Rush.aspx), it reports:

-------
On the supply side, RISI further reports that nearly 3 million metric tons of new dissolving pulp capacity has been announced for 2011-13 in a market that was just under 5 million metric tpy last year. This means that world demand would have to grow some 20% annually over the three years to soak up that much announced new capacity, says Rod Young, chief economic advisor at RISI.

It’s currently unclear whether capacity will outstrip demand and dampen the dissolving pulp renaissance going forward, but one factor weighing in favor of keeping the dance going is the new Chinese Five Year Plan, Young points out, which “envisions shifting 2 million metric tpy of fiber production from cotton to rayon in an effort to cut back on cotton output in the country due to environmental concerns.”....

However, Mouyal notes, production and technology-wise, it’s going to take a while for China and other Asian countries to catch up with the West in the dissolving pulp production race. “Although they plan to bring some significant new capacity online in the fairly near future, we believe this will likely occur further down the line. We just don’t think they will able to move as fast as currently planned, which means they probably will continue purchasing dissolving pulps made in the U.S. and Canada for at least several more years. Beginning around 2013-14, I expect that China will no longer be purchasing dissolving pulp from the West.”

Sandel sees the dissolving pulp gold rush continuing worldwide for at least the next five years. “I think that at some point in time, with all of this additional capacity coming online, output will exceed demand. What we are seeing now—announced and rumored expansion plans—is probably about it for new capac- ity going forward. There might be a few other announcements, but I believe that what’s happening now and what’s on the books is basically all we will see.”
------

This commentary from Dave Hillman (https://www.gplus.com/timber-and-forest-products/insight/is-the-party-over-for-dissolving-pulp-producers-54909) mentions, "DP was selling for as low as $650/admt c.i.f. South China ports in 2005/06 and one wonders if these levels will ever be seen again."

I'm impressed by Chad's story and accomplishments, but he also sells a great story, and I'm getting stuck on these unknowns around the future pricing dynamics of the DP/chemical cellulose market. Do I have to rely on Chad's projections over industry analysts? Since the end market is somewhat opaque to me, it's difficult to feel like I have a margin of safety.

Thanks for any comments!


Title: Re: FTP - Fortress Paper
Post by: keerthiprasad on March 14, 2012, 08:43:35 PM
Bought a bunch more of this today!
Title: Re: FTP - Fortress Paper
Post by: tombgrt on March 15, 2012, 04:17:15 AM

I'm impressed by Chad's story and accomplishments, but he also sells a great story, and I'm getting stuck on these unknowns around the future pricing dynamics of the DP/chemical cellulose market. Do I have to rely on Chad's projections over industry analysts? Since the end market is somewhat opaque to me, it's difficult to feel like I have a margin of safety.


He definitely sells a great story, that was one of my main concerns as well.  :D

You are correct to worry about the impact of new supply but I think it will be fine after everything I have read about it. You should also not forget:

- Chad has price contracts (min. $1200/ton) for 78% of Thurso's capacity;
- Thurso's DP is of better quality than average and LSQ's will probably be in the same league. This means they will get a better price and/or they can convert to speciality cellulose;
- N-America and S-Africa are the best places for DP. In effect, China has a much higher cost/ton which makes them less competitive. I don't see how they won't be buying from the West anymore anytime soon;

The uncertainty is, as always, the driver of the current low price. Most people can't deal with the fact that profits for FTP could be anywhere from $3 to $15 in 2015. Dresden and Landqart are possibly worth the current market cap, especially when looking out a few years. In a way we are getting the DP division for free.
Title: Re: FTP - Fortress Paper
Post by: OptsyEagle on March 15, 2012, 06:26:48 AM
I'm impressed by Chad's story and accomplishments, but he also sells a great story, and I'm getting stuck on these unknowns around the future pricing dynamics of the DP/chemical cellulose market. Do I have to rely on Chad's projections over industry analysts? Since the end market is somewhat opaque to me, it's difficult to feel like I have a margin of safety.

Thanks for any comments!

You seem to have a good handle on the situation and the story.  Since most of the story is about the future, one cannot put aside the issues you stated with any concrete information.  All will be subjective to a degree.

I own the stock and like you, ponder and sometimes worry about the issues going forward.  3 million tonnes is a lot of new capacity, although most of it is scheduled for 2013 and beyond.

The points that keep me invested are really as follows and probably in this order:

1) I do believe the "cellulose gap" part of the story.  It makes sense that the demand for cotton will outstrip its supply abilities and I believe, in turn, the world will turn to dissolving pulp, as it has already started to.

Recently, I found it interesting reading about India.  They put a ban on their cotton exports and then due to world outcry, agreed to lift it.  The question I ask is "why would India do this ?".  The only answer I can come up with is that they see a severe shortage of cotton supply going forward and want to maintain their competitive textiles industry with a lower cost cotton, then the rest of the world would need to use (certainly doesn't help their cotton farmers, but would propell their cotton textiles).  This certainly bodes very well for DP demand going forward and helps reaffirm the cellulose gap story.

There are other such indicators of this lessening of cotton supply, going forword, that keeps the story of a longer term increasing demand picture for dissolving pulp, strong in my mind.

2) Fortress Cellulose cost structure.  All of this, I take from the presentations given to the public by FTP and I can only hope they are correct.  From other presentations of competitors I have noticed that they are very close if not completely accurate.

In any event, if they are in 1st quartile of industry costs to produce DP, that would leave 75% of supply at a higher cost.  Since most of the costs of producing DP are variable (wood fibre, energy, chemicals) it would make little sense for a company to produce any DP at all, if the price was below their costs.  So in a 5 million ton market, 3.75 million tons would shut down before the price of DP started to produce losses at Fortress Paper.  This should stabilize the price, somewhat. If FTP can switch over some production to specialty pulp, which it looks like they can, then this gives them another avenue to ensure profitability, going forward.


3)  Fortress Paper's long term contracts.  These put a nice, profitable floor in the price that FTP receives for their pulp.  I am hoping, that since a lot of the capacity you mentioned is not coming on until 2013 and 2014, that Fortress Paper can, again, lock in long term contracts of their future LSQ production by using Thurso's extra production, that is online now, as a sweetener.  A contract there would go a long way in reassuring investors.

4) Chad.  I like the guy.  He owns way more stock then I do, has way more at risk, and seems to know what he wants, and for the most part, how to go about getting it.  He understands business, labour, government, enviro regulations and most importantly, investors.  He is not my number 1 reason for holding this stock, but in the back of my mind, something keeps telling me that he is going to succeed.  He seems to want to do it with Fortress Paper and anyone can decide to join him, any day of the work week between the hours of 9:30 and 4:00pm (stock market trading hours).

5) FTP share price.  If this stock was trading for $60 or higher, most of the concerns you mentioned would start keeping me a lot more awake at night, then it does.  With the price at $28, it is not difficult to see that the margin of safety in this company, is quite high.  You can run your numbers on worst case DP prices, various earning scenerios, or even liquidation value and it's very difficult to come up with a price for this company, below $28.


That's about how I see the story.
Title: Re: FTP - Fortress Paper
Post by: bathtime on March 15, 2012, 12:55:54 PM
tombgrt and OptsyEagle, thank you very much for your thoughtful replies.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on March 29, 2012, 09:07:56 AM
Call me crazy but I collected some 85%+ gain from $BAC (1/5th of position) yesterday and bought some more $FTP with it at $27.4. I'm in for a huge chunck percentage wise. Operational risks are still there but are diminishing quickly. Q2 results will be exiting, hopefully in a good way.

Great post btw OptsyEagle.
Title: Re: FTP - Fortress Paper
Post by: biaggio on March 29, 2012, 09:37:16 AM
Call me crazy but I collected some 85%+ gain from $BAC (1/5th of position) yesterday and bought some more $FTP with it at $37.4. I'm in for a huge chuck percentage wise. Operational risks are still there but are diminishing quickly. Q2 results will be exiting, hopefully in a good way.

Great post btw OptsyEagle.

did you mean $27.40
Title: Re: FTP - Fortress Paper
Post by: tombgrt on March 29, 2012, 09:56:23 AM
Woeps. Of course!  :D
Title: Re: FTP - Fortress Paper
Post by: Liberty on March 29, 2012, 10:23:11 AM
Call me crazy but I collected some 85%+ gain from $BAC (1/5th of position) yesterday and bought some more $FTP with it at $37.4. I'm in for a huge chuck percentage wise. Operational risks are still there but are diminishing quickly. Q2 results will be exiting, hopefully in a good way.

Great post btw OptsyEagle.

Sounds like a good move. I wish I could do the same  right now :)
Title: Re: FTP - Fortress Paper
Post by: tombgrt on March 29, 2012, 11:01:25 AM
Call me crazy but I collected some 85%+ gain from $BAC (1/5th of position) yesterday and bought some more $FTP with it at $37.4. I'm in for a huge chuck percentage wise. Operational risks are still there but are diminishing quickly. Q2 results will be exiting, hopefully in a good way.

Great post btw OptsyEagle.

Sounds like a good move. I wish I could do the same  right now :)

Having a small circle of competence, small asset base (and concentrated portfolio) has its advantages.  :-X

We'll see how it turns out. I love how this stock is bouncing around regardless of intrinsic value or any news. I guess uncertainty is a patient investor's friend;
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on March 30, 2012, 01:45:33 PM
March 30, 2012
Fortress Paper Announces New EUR25 Million Credit Facility and Executive Management Changes
VANCOUVER, BRITISH COLUMBIA--(Marketwire - March 30, 2012) - Fortress Paper Ltd. ("Fortress Paper" or the "Company") (TSX:FTP) announced that its wholly owned subsidiary, Dresden Papier GmbH ("Dresden"), has entered into a new EUR25 million credit facility with Commerzbank. The new facility expires on June 30, 2017 and will be primarily used to repay the balance of an existing loan agreement between Dresden and GE Capital Bank AG of EUR22.15 million that was used to finance the rebuild of papermachine no.1 at the Landqart Mill.

Chadwick Wasilenkoff, Chief Executive Officer of Fortress Paper, commented: "The terms of the new facility are more competitive than our prior loan agreement, and provides enhanced financial flexibility at a lower overall cost to our business."

The Company also announces that Alfonso Ciotola has resigned as President of the Company and Mr. Wasilenkoff has consolidated such position with his role as Chief Executive Officer. Mr. Ciotola will remain with the Company as Chief Executive Officer of Landqart AG and Managing Director of Dresden. In addition, Erich Sulser, Chief Operating Officer of the Company and Chief Financial Officer of Landqart AG, is no longer with the Company. His duties will be assumed by other officers at this time.

About Fortress Paper

Fortress Paper operates internationally in three distinct business segments: dissolving pulp, specialty papers and security paper products. The Company operates its dissolving pulp business at the Fortress Specialty Cellulose Mill located in Canada which is also in the process of expanding into the renewable energy generation sector with the construction of a cogeneration facility. The Company operates its specialty papers business at the Dresden Mill located in Germany, where it is a leading international producer of specialty non-woven wallpaper base products. The Company operates its security paper products business at the Landqart Mill located in Switzerland, where it produces banknote, passport, visa and other brand protection and security papers, and at its Fortress Optical Facility located in Canada, where it manufacturers optically variable thin film material.

CONTACT INFORMATION:
Fortress Paper Ltd.
Chadwick Wasilenkoff
604-904-2328
info@fortresspaper.com
www.fortresspaper.com

INDUSTRY: Manufacturing and Production - Forest and Paper Products

Title: Re: FTP - Fortress Paper
Post by: Liberty on March 30, 2012, 02:34:53 PM
Quote
The Company also announces that Alfonso Ciotola has resigned as President of the Company and Mr. Wasilenkoff has consolidated such position with his role as Chief Executive Officer. Mr. Ciotola will remain with the Company as Chief Executive Officer of Landqart AG and Managing Director of Dresden.

Setting up for a spin-off?
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on March 30, 2012, 03:43:42 PM
Quote
The Company also announces that Alfonso Ciotola has resigned as President of the Company and Mr. Wasilenkoff has consolidated such position with his role as Chief Executive Officer. Mr. Ciotola will remain with the Company as Chief Executive Officer of Landqart AG and Managing Director of Dresden.

Setting up for a spin-off?

Possibly?
Title: Re: FTP - Fortress Paper
Post by: Liberty on April 11, 2012, 02:41:20 PM
http://fr-ca.actualites.yahoo.com/industrie-forestière-fortress-paper-le-travail-commence-à-192707392.html

Work starting at LSQ.

The company has also registered these names on April 5:


SOCIÉTÉ DE BOIS D’ŒUVRE FORTRESS

FORTRESS LUMBER CORP.

It could mean they've made a decision on the LSQ sawmill.
Title: Re: FTP - Fortress Paper
Post by: roundball100 on April 11, 2012, 04:07:50 PM
Here is the press release in English (via Google Translate):

=================

The first employees of the pulp mill at Lebel Fortress Paper-sur-Quevillon start work Monday.

The approximately 20 workers, all of Lebel-sur-Quevillon, will prepare the plant for the restore operation. The company Domtar had closed in 2008 due to a labor dispute. Fortress Paper acquired the plant several months ago to make rayon from wood fiber.

The work to be performed are numerous: the plant must be replenished with water and electricity, fire protection system must be replaced and the roof must be repaired in several places.

"Each time a block is ready, the number of employees on the site will gradually increase," says Chief Operating Officer of Fortress Paper, Marco Veilleux.


The dream becomes reality

The mayor of Lebel-sur-Quevillon, Gérald Lemoyne, is pleased to see the project materialize Fortress Paper: "There were still some skeptics who said it was almost too good to be true. But from the moment that there are employees who start work, people say it's really true. "

The hiring process will be spread over a period of 24 months. The revival of the factory should create 300 direct jobs.

================
Title: Re: FTP - Fortress Paper
Post by: prunes on April 12, 2012, 11:07:54 AM
Anyone have advice for buying this as a US investor? I've never bought international securities before. Does it make more sense to buy this through the pink sheets or the TSE? There doesn't seem to be a market maker for FTPLF. Would love to get filled at the current price...
Title: Re: FTP - Fortress Paper
Post by: keerthiprasad on April 12, 2012, 11:23:06 AM
Anyone have advice for buying this as a US investor? I've never bought international securities before. Does it make more sense to buy this through the pink sheets or the TSE? There doesn't seem to be a market maker for FTPLF. Would love to get filled at the current price...

We've been buying the OTC to keep it simple.  Its definitely not the most liquid and on several occasions we have been 90% of the daily volume lol.    I'm OK with that though and just place limits and wait.
Title: Re: FTP - Fortress Paper
Post by: rkbabang on April 12, 2012, 11:37:40 AM
Anyone have advice for buying this as a US investor? I've never bought international securities before. Does it make more sense to buy this through the pink sheets or the TSE? There doesn't seem to be a market maker for FTPLF. Would love to get filled at the current price...

I bought FTPLF (the pink sheet) yesterday using Fidelity.  I set the limit to what the current ask price was and the trade went though almost immediately.
Title: Re: FTP - Fortress Paper
Post by: roundball100 on April 13, 2012, 06:11:30 PM
Is there any more news on future plans for the Dresden Mill (specialty non-woven wallpaper) or the Swiss Landqart Mill (security paper for banknotes, passports)?  Having read through this very informative trail of notes from board members, and a few quite positive  feature articles about the CEO (some of the stories seem too good to be true), the best I can gather is that the market is waiting for the earnings to show up on the table before the full story is believed. I am wondering if in the meantime, the European assets will be viewed as a distraction from the dissolving pulp mainline that appears close to taking over.
Title: Re: FTP - Fortress Paper
Post by: ClientNine on April 17, 2012, 02:01:16 AM
Here is a story about another shuttered mill in Canada that may be sold to buyers who intend to convert it to DP production.

http://www.chroniclejournal.com/content/news/local/2012/04/17/terrace-bay-mill%E2%80%99s-future-may-be-rayon
Title: Re: FTP - Fortress Paper
Post by: tombgrt on April 17, 2012, 04:01:44 AM
I'd rather like Chad to focus on operational excellence at Thurso and securing some price contracts for LSQ, but I doubt he is planning the latter (and not at current spot prices). He's prone to becoming overconfident if things go well, I don't want this thing to blow up in his face given the macro economic situation.

Btw, this company must be one of the most followed on this board; 9 different posters in the last 10 posts!
Title: Re: FTP - Fortress Paper
Post by: prunes on April 18, 2012, 06:33:17 PM
Apologies for the share price weakness guys, I opened a position the other day.
Title: Re: FTP - Fortress Paper
Post by: Liberty on April 18, 2012, 06:53:27 PM
Apologies for the share price weakness guys, I opened a position the other day.

So now we know what happened.  ;)
Title: Re: FTP - Fortress Paper
Post by: roundball100 on April 18, 2012, 07:29:28 PM
Similarly, I plead guilty as charged.
Title: Re: FTP - Fortress Paper
Post by: bathtime on April 18, 2012, 07:38:33 PM
Blast from the past from June 2005, Chad's price predictions on uranium were accurate (http://www.uxc.com/review/uxc_PriceChart.aspx?chart=spot-u3o8-full):

http://www.firestoneventures.com/i/pdf/2005-06-18_DSN.pdf

---
"Uranium prices recently rose to about $29 per pound from single-digit lows, said Chad Wasilenkoff, chief executive officer of British Columbia-based Titan Uranium Exploration and a private enterprise, Fortress Financial, that is looking for uranium projects to fund in the United States. “I feel fairly confident we’ll see $50 within the next 12 months,” Wasilenkoff said. In two years, he said, the price of uranium could reach $100 per pound.

“Demand is increasing exponentially, and supply is decreasing, especially with high-grade (uranium ore),” he said. More than 30 nuclear power plants are in the planning or construction stage in China and India, Wasilenkoff said, and more nuclear plants are in store for other parts of the world — including the United States — as the demand for energy increases."
---
Title: Re: FTP - Fortress Paper
Post by: bathtime on April 18, 2012, 07:46:26 PM
Came across these Quebec government records on Thurso cogeneration approval:

http://www.bape.gouv.qc.ca/sections/mandats/Cogeneration-Thurso/documents/liste_documents.htm#CR

Unfortunately, they're in French, but it gives an idea of the extensive work involved in getting support for the project.
Title: Re: FTP - Fortress Paper
Post by: keerthiprasad on April 18, 2012, 08:37:16 PM
I too have been buying...and I am now looking for more cash!  These prices are insane...
Title: Re: FTP - Fortress Paper
Post by: tombgrt on April 19, 2012, 04:24:44 AM
Lol I bought more yesterday at $25.60 too. Mad prices indeed.  8)
Title: Re: FTP - Fortress Paper
Post by: tombgrt on April 19, 2012, 06:50:06 AM
http://www.marketwatch.com/story/fortress-paper-provides-update-on-acquisition-of-pulp-mill-at-lebel-sur-quevillon-2012-04-19-83130?reflink=MW_news_stmp

Quote
VANCOUVER, BRITISH COLUMBIA, Apr 19, 2012 (MARKETWIRE via COMTEX) -- Fortress Paper Ltd. ("Fortress Paper" or the "Corporation") CA:FTP -0.63% announces that the parties to the purchase agreement for the previously announced acquisition of the non-operating pulp mill located at Lebel-sur-Quevillon, Quebec from Domtar Inc. have agreed to an extension to the closing date. Fortress Paper continues to work diligently with the other parties to satisfy all the conditions precedent to closing, and the transaction is expected to be completed in the normal course as soon as practicable.

Funny how the stock is dropping on this news while no one in their right mind can believe that the current stock price reflects any of the future earnings from LSQ. Well, better for us!
Title: Re: FTP - Fortress Paper
Post by: Liberty on April 19, 2012, 06:52:48 AM
These prices are indeed ridiculous, and I'm thinking about buying some for my girlfriend's account.
Title: Re: FTP - Fortress Paper
Post by: keerthiprasad on April 19, 2012, 07:52:41 AM
I've been buying OTC in the US and the volume is so low that Im constantly surprised when the orders fill. I cannot understand who is selling me these shares at such a low price.  I'm not complaining or anything though lol.

I'm pretty impatient, but these short-term non-issues are really providing a great buying op.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on April 19, 2012, 08:45:12 AM
For the heck of it I mapped my buying points for FTP. Looks like I'm quite impatient as well. But I do prefer to buy small bits instead of big blocks, giving me a reasonable average price. The bigger the dot, the larger the amount I bought for. In March and April I basically moved away from profit elsewhere.

Looks like a christmas tree!

http://www.pictourl.com/clean/5357d7fb
Title: Re: FTP - Fortress Paper
Post by: keerthiprasad on April 19, 2012, 09:02:15 AM
Cool personal analysis.  I would do the same, but tend to buy much less frequently and in bigger blocks. It leaves less cash sitting around, but is just easier for me as I have a relatively unpredictable work schedule.

For the heck of it I mapped my buying points for FTP. Looks like I'm quite impatient as well. But I do prefer to buy small bits instead of big blocks, giving me a reasonable average price. The bigger the dot, the larger the amount I bought for. In March and April I basically moved away from profit elsewhere.

Looks like a christmas tree!

http://www.pictourl.com/clean/5357d7fb
Title: Re: FTP - Fortress Paper
Post by: bathtime on April 20, 2012, 09:36:39 AM
Older video of Chad accepting the 2010 Entrepreneur of the Year award:

http://www.bcbusinessonline.ca/bcb/top-stories/2010/09/30/video-chad-wasilenkoff-acceptance-speech

I like that he calls the accomplishment a team effort. Having Chad at the helm is the key factor for my investment in FTP. While he is a good salesman, I also perceive a humble quality in him. When the company faces challenges, I think that his hard work and entrepreneurial imagination can allow him to excel where other management might not.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on April 23, 2012, 06:54:09 AM
Quote
Fortress Paper Announces New Appointments

VANCOUVER, BRITISH COLUMBIA, Apr 23, 2012 (MARKETWIRE via COMTEX) -- Fortress Paper Ltd. CA:FTP -1.17%  ('Fortress Paper" or the "Corporation") announces the appointment of Andre Boucher as Chief Operating Officer of Fortress Specialty Cellulose Inc., a wholly-owned operating subsidiary which produces dissolving pulp.

Mr. Boucher has over 30 years of industry experience in the specialty cellulose sector including 24 years at Tembec Inc. where he was the General Manager of the Temiscaming dissolving pulp mill. Mr. Boucher was responsible for overall mill optimization and development of specialty products, including a full range of acetate and other specialty pulps. Most recently, Mr. Boucher was General Manager of Ethanol Operations for Suncor Energy Inc. where he developed the facility from concept to an efficient operating mill.

Chadwick Wasilenkoff, Chief Executive Officer of Fortress Paper, commented: "Andre brings a wealth of experience and technical talent to Fortress Paper at a time when we are growing our dissolving pulp business. We feel his mill optimization and unique experience in transitioning a viscose-grade dissolving pulp mill to a specialty-grade dissolving pulp mill will further enhance our already strong specialty cellulose team. Andre's addition provides us with more flexibility as we balance our key personnel between Thurso and our other strategic projects."

In addition, Fortress Paper is pleased to announce that Marco Veilleux has been promoted to Vice-President, Business Development and Strategic Projects of Fortress Paper from his former role as Chief Operating Officer of Fortress Specialty Cellulose Inc. Mr. Veilleux was an important member of the executive team which managed the successful staffing, startup and conversion to dissolving pulp at the Fortress Specialty Cellulose Mill. Mr. Veilleux will focus on special and strategic projects, manage risk and compliance matters and will assume other key corporate responsibilities within Fortress Paper.

http://www.marketwatch.com/story/fortress-paper-announces-new-appointments-2012-04-23-831140
Title: Re: FTP - Fortress Paper
Post by: keerthiprasad on April 23, 2012, 07:20:21 AM
This is good news. I think the biggest sources of uncertainty in this situation are their ability to execute on the new business (which I think is essentially a non-issue) and the future price of dissolving pulp (especially with new production coming online in many places).  Hopefully, the specialty business should help move them into an area with a bigger moat.   
Title: Decline In Cotton Production is Expected for 2012
Post by: OptsyEagle on April 23, 2012, 08:09:47 AM

http://www.chinatexnet.com/textile-news/2012-04-23/395336.html


http://www.chinatexnet.com/textile-news/2012-04-23/395334.html


http://usda01.library.cornell.edu/usda/current/ProsPlan/ProsPlan-03-30-2012.pdf

------------------------

Should bouy dissolving pulp prices quite nicely.

Title: Re: FTP - Fortress Paper
Post by: tombgrt on April 23, 2012, 08:28:20 AM
Thank you OptsyEagle. Let us see if 'The Cellulose Gap' story becomes truth over the next few years. (I assume you have read it: http://www.lenzing.com/fileadmin/template/pdf/konzern/lenzinger_berichte/ausgabe_89_2011/LB_2011_2_Haemmerle.pdf & http://www.fmhaemmerle.com/documents/Presentation_Sept_2011.pdf)
Title: Re: FTP - Fortress Paper
Post by: OptsyEagle on April 23, 2012, 11:48:44 AM
I did read that and found it quite interesting.  The thing about this story that many of the analyst get confused about is the new dissolving pulp capacity coming online in 2013 and beyond.  They take this announced capacity and compare it to the existing DP capacity and think that it will swamp the dissolving pulp market. What they need to do is understand that the cottom market and the rayon market are getting more and more interlinked, with the cotton market over 10 times the size of the DP market.

When you combine both markets you will find that the dissolving pulp additions will have a tough time making up for the reductions in cotton supply in 2013 and beyond.  Even if cotton supply went sideways the additional DP supply would only add a few percent to the combined cotton/DP market and would still have a tough time keeping up with normal growth.

Lastly, I do not believe the growth will be normal. As the developing market gets even the slightest bit wealthier, they are going to want a second pair of pants, perhaps a shirt without a rip in it and a pair of shoes would certainly be nice.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on April 23, 2012, 01:49:12 PM
Agreed OptsyEagle. I'm only vaguely aware of the market economics compared to the experts out there but what I have read confirms my trust (mainly stems from his impressive track record) in Chad's vision. There is no reason to expect prices below $1000-1200 and if we add in the contracts and reported DP quality we can conservatively take the $1200 level as a bare minimum over the longer term.

It's funny to see that cotton is now trading higher than in mid 2010 when FTP's stock price was about the same as today. This while earnings of Thurso where still far away and when there were plenty of operational risks to consider. Sure, Landqart was doing better then but on the other hand Dresden has much higher EBITDA now. And let's not forget that LSQ wasn't announced yet.
Title: Re: FTP - Fortress Paper
Post by: motownsf on April 23, 2012, 03:11:01 PM
Quote
Fortress Paper Announces New Appointments

VANCOUVER, BRITISH COLUMBIA, Apr 23, 2012 (MARKETWIRE via COMTEX) -- Fortress Paper Ltd. CA:FTP -1.17%  ('Fortress Paper" or the "Corporation") announces the appointment of Andre Boucher as Chief Operating Officer of Fortress Specialty Cellulose Inc., a wholly-owned operating subsidiary which produces dissolving pulp.

Mr. Boucher has over 30 years of industry experience in the specialty cellulose sector including 24 years at Tembec Inc. where he was the General Manager of the Temiscaming dissolving pulp mill. Mr. Boucher was responsible for overall mill optimization and development of specialty products, including a full range of acetate and other specialty pulps. Most recently, Mr. Boucher was General Manager of Ethanol Operations for Suncor Energy Inc. where he developed the facility from concept to an efficient operating mill.

Chadwick Wasilenkoff, Chief Executive Officer of Fortress Paper, commented: "Andre brings a wealth of experience and technical talent to Fortress Paper at a time when we are growing our dissolving pulp business. We feel his mill optimization and unique experience in transitioning a viscose-grade dissolving pulp mill to a specialty-grade dissolving pulp mill will further enhance our already strong specialty cellulose team. Andre's addition provides us with more flexibility as we balance our key personnel between Thurso and our other strategic projects."

In addition, Fortress Paper is pleased to announce that Marco Veilleux has been promoted to Vice-President, Business Development and Strategic Projects of Fortress Paper from his former role as Chief Operating Officer of Fortress Specialty Cellulose Inc. Mr. Veilleux was an important member of the executive team which managed the successful staffing, startup and conversion to dissolving pulp at the Fortress Specialty Cellulose Mill. Mr. Veilleux will focus on special and strategic projects, manage risk and compliance matters and will assume other key corporate responsibilities within Fortress Paper.

http://www.marketwatch.com/story/fortress-paper-announces-new-appointments-2012-04-23-831140

Seems to me like a spinout of the European paper businesses is likely and that Fortress will be a pure play dissolving pulp company...The organizational restructuring sure is pointing us in that direction.
Title: Re: FTP - Fortress Paper
Post by: Liberty on April 23, 2012, 06:53:38 PM
http://www.pulpandpapercanada.com/news/the-man-behind-the-mill-andr-boucher-of-the-specialty-cellulose-division-of-tembec-inc/1000149916/

Old, but relevant to new hire.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on April 24, 2012, 06:30:52 AM
Just saw that Fortress has updated its website. Seems to work properly now. ;)

http://www.fortresspaper.com/
Title: Re: FTP - Fortress Paper
Post by: valueInv on April 25, 2012, 08:23:11 AM
Falling 3.5% today. Anyone know why?
Title: Re: FTP - Fortress Paper
Post by: tombgrt on April 25, 2012, 08:49:34 AM
I just bought more at $23.50 (yes, so far the year low. but for how long?  8)). Madness as I just bought more last week but it's not that big of an increase in my overall position. Luckily I have low commision costs and no taxes to pay.  :D
Title: Re: FTP - Fortress Paper
Post by: Liberty on April 25, 2012, 08:54:15 AM
Falling 3.5% today. Anyone know why?

I think it's just that Mr. Market loves to test the resolve of value investors  :D

I bought a little bit more today. Wish I could back up the truck, but there are other things I'm working on.
Title: Re: FTP - Fortress Paper
Post by: keerthiprasad on April 25, 2012, 09:17:17 AM
I have already bought too much this week and last week!  Wish I had more cash.
Title: Re: FTP - Fortress Paper
Post by: Liberty on April 25, 2012, 11:15:26 AM
A recent report on FTP mentions that about half of the planned DP capacity additions around the world have been postponed or cancelled (and they expect more to be cancelled or postponed), and that the recent DP cost of around 1.2k isn't high enough to allow most of these capital-intensive projects to go forward (they were announced when DP was above 2k).

Good news for FTP, and shows the importance of being the low cost producer.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on April 25, 2012, 11:51:42 AM
Exactly Liberty. Even if the DP mill only gets $200 EBITDA/produced ton then the current market cap is still cheap.

I'm very confident about the long term prospects of this company. It's now over twice the size of my second position and I only have four positions.
Title: Re: FTP - Fortress Paper
Post by: Liberty on April 25, 2012, 12:07:39 PM
I'm very confident about the long term prospects of this company. It's now over twice the size of my second position and I only have four positions.

Wow, you and I have at least 2 things in common :) (though FTP isn't my biggest position)
Title: Re: FTP - Fortress Paper
Post by: tombgrt on April 25, 2012, 12:14:50 PM
Hehe. I'm also looking at ALS but haven't really got the time atm to dig in deep. I like the story and margin of safety with no debt, cash position and catalysts. Will be for later!
Title: Re: FTP - Fortress Paper
Post by: keerthiprasad on April 25, 2012, 12:38:49 PM
Exactly Liberty. Even if the DP mill only gets $200 EBITDA/produced ton then the current market cap is still cheap.

I'm very confident about the long term prospects of this company. It's now over twice the size of my second position and I only have four positions.

I'm holding at about 50%.  4 positions total too haha.

I like the margin of safety as well.
Title: Re: FTP - Fortress Paper
Post by: jeffmori7 on April 25, 2012, 01:49:08 PM
Liberty and Tom, I was wondering what is your actual position in FTP? Personnally, FTP is my 4th largest position with around 7% of my actual portfolio, and still lowering!

 And congratulations to keep such a concentrate portfolio, you're showing a lot of discipline. FOr me, I can always think of new business that I would like to own..limiting myself to my 4 best ideas would be very difficult.
Title: Re: FTP - Fortress Paper
Post by: shalab on April 25, 2012, 02:17:12 PM
What is your IV estimate for ftp?
Title: Re: FTP - Fortress Paper
Post by: tombgrt on April 25, 2012, 02:59:55 PM
Liberty and Tom, I was wondering what is your actual position in FTP? Personnally, FTP is my 4th largest position with around 7% of my actual portfolio, and still lowering!

 And congratulations to keep such a concentrate portfolio, you're showing a lot of discipline. FOr me, I can always think of new business that I would like to own..limiting myself to my 4 best ideas would be very difficult.

48% in FTP, other positions are approx. 22%, 18% and 12%.

I don't think you can extrapolate my portfolio to the average here. I have only a 5-number portfolio so my largest position is still very small for a lot of guys here. I won't be crippled for life losing half my savings if I turn out to be wrong. My position sizing is somewhat based on Kelly but it's no exact math.
Plenty of things on my watchlist that seem good value but it doesn't make any sense to me to put something like $5k in my 6th, 7th, ... best idea. I want to put a lot in my 4-5 best ideas and dig deep into them. It's very manageable with such a low capital base.
Title: Re: FTP - Fortress Paper
Post by: alertmeipp on April 25, 2012, 03:39:54 PM
How big is DP's market?
Can FTP sell futures on it?
Title: Re: FTP - Fortress Paper
Post by: jeffmori7 on April 25, 2012, 04:18:47 PM
Shalab, without LSQ, I would say FTP already worths above 60$ if it can delivers around 100M EBITDA at Thurso, and that is conservatively valuing Dresden and Landquart.
Title: Re: FTP - Fortress Paper
Post by: PlanMaestro on April 25, 2012, 06:08:47 PM
Thank you all for a very informative thread. Has anyone gone to the DP plants?
Title: Re: FTP - Fortress Paper
Post by: PlanMaestro on April 25, 2012, 07:33:39 PM
AskThe Builder.com on why non-woven wallpaper is so cool. I did not even know what it was.

http://www.youtube.com/watch?v=p3JxOww61JI
Title: Re: FTP - Fortress Paper
Post by: OptsyEagle on April 26, 2012, 07:01:14 AM
AskThe Builder.com on why non-woven wallpaper is so cool. I did not even know what it was.

http://www.youtube.com/watch?v=p3JxOww61JI

I would say that guy gives it a big thumbs up.  It does sound like a much better product then the traditional wallpaper was.  I can see why it's growing so much market share.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on April 26, 2012, 07:14:58 AM
I think we can expect the non-woven wallpaper to take over the whole segment in the next 10 years. The question is whether Dresden will be able to expand even further than the current 55000 ton and maintain it's current market share and increase it's EBITDA. Chad is projecting "only" 10% growth for Dresden in the next 2 years so it doesn't seem likely. Wouldn't be suprised if he sold it and later Landqart.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on April 27, 2012, 06:32:52 PM
http://fortresspaperblog.com/fortress-paper-release-quarter-2012-earnings.htm

Quote
Fortress Paper to Release First Quarter 2012 Earnings
Fortress Paper Ltd. (TSX:FTP) (“Fortress Paper” or the “Corporation”) announced today that it intends to release its first quarter financial results for the period ended March 31st, 2012 after the close of the market on Monday, May 14th, 2012. In connection with the release of its results, Fortress Paper will host a conference call Tuesday, May 15th, 2012 at 9:30 a.m. (PST) to discuss the financial results and the Corporation’s operations. Mr. Chadwick Wasilenkoff, President & Chief Executive Officer, Kurt Loewen, Chief Financial Officer and Peter Vinall, President and Chief Executive Officer of Fortress Specialty Cellulose Inc. will host the call.

To participate in the conference call, please dial one of the following numbers:

Dial In Numbers:   604-681-8564 Vancouver
403-532-5601 Calgary or International
780-429-5820 Edmonton
416-623-0333 Toronto
613-212-0171 Ottawa
514-687-4017 Montreal
Toll Free Dial in Number:   1-855-353-9183 from Canada and USA
Participant Pass Code:      15086#
Conference Reference Number:      770462
A replay of the conference call will be available for 7 days. To access the replay, listeners may dial 1-855-201-2300 from Canada & the USA. The conference reference number is 770462 # and the participant pass code to access the replay is 15086 #.

Could someone take notes of CC on Tuesday? I won't be able to listen in or access the replay. TIA.  :)
Title: Re: FTP - Fortress Paper
Post by: bathtime on April 27, 2012, 07:46:46 PM
tombgrt, I may be able to get you a recording of the call, get in touch with me afterwards. If anyone has a recording of the LSQ conference call, please message me.
Title: Re: FTP - Fortress Paper
Post by: bathtime on April 29, 2012, 03:43:08 PM
Kuppy on FTP (http://adventuresincapitalism.com/askkuppy.aspx 4/27/12):

----
Hi Kuppy,
Thanks for your wonderful site! Very useful and thought-provoking!
I was wondering if you had ever looked at fortress paper (tsx:ftp) and if so what you think of it? Thanks.


Fortress has one of the greatest finance minds behind it. He's kobbled together all these assets for almost nothing. That said, I'm not a huge fan of disolving paper at this point. It's a small niche market and a lot of capacity is coming. I'd guess that the era of peak margins is now behind the company and you'll go back to more normalized margins. I'd much rather bet on something like MERC which is just about to start seeing margins expand materially.
----
Title: Re: FTP - Fortress Paper
Post by: Liberty on April 30, 2012, 07:13:46 AM
Not surprisingly, the workers at LSQ have voted in favor of the mill. It was a unanimous vote:

http://lapresseaffaires.cyberpresse.ca/economie/energie-et-ressources/201204/29/01-4520088-lebel-sur-quevillon-fortress-paper-a-lappui-des-travailleurs.php
Title: Re: FTP - Fortress Paper
Post by: keerthiprasad on April 30, 2012, 08:18:37 AM
http://online.wsj.com/article/SB10001424052702303990604577370442448361770.html (http://online.wsj.com/article/SB10001424052702303990604577370442448361770.html)

An article regarding China's reserving of cotton and short term price impact.
Title: Re: FTP - Fortress Paper
Post by: Liberty on April 30, 2012, 09:26:48 AM
Interesting.

Quote
A recent survey by the China Cotton Association said farmers likely will reduce their planting areas by almost 17% this year because costs for labor, fertilizer and seeds are rising while domestic prices, though high, have eased from last year.
Title: Re: FTP - Fortress Paper
Post by: keerthiprasad on April 30, 2012, 09:35:13 AM
Interesting.

Quote
A recent survey by the China Cotton Association said farmers likely will reduce their planting areas by almost 17% this year because costs for labor, fertilizer and seeds are rising while domestic prices, though high, have eased from last year.

Indeed.  I wonder if this will continue.  I'm not sure if the Chinese government offers (or will offer) any incentives to these farmers besides buying some capacity.  Although it seems that their long term goal is to reduce cotton dependency.
Title: Re: FTP - Fortress Paper
Post by: Liberty on April 30, 2012, 10:10:22 AM
Indeed.  I wonder if this will continue.  I'm not sure if the Chinese government offers (or will offer) any incentives to these farmers besides buying some capacity.  Although it seems that their long term goal is to reduce cotton dependency.

Another thing to consider: Part of Chad's thesis is that in the long-term, China's cotton yield will converge with the average yield in the rest of the world because China's won't be able to keep using so much pesticides and fertilizer because of social and environmental problems.
Title: Re: FTP - Fortress Paper
Post by: keerthiprasad on April 30, 2012, 12:37:07 PM
Another thing to consider: Part of Chad's thesis is that in the long-term, China's cotton yield will converge with the average yield in the rest of the world because China's won't be able to keep using so much pesticides and fertilizer because of social and environmental problems.

I tend to share this view.  One way or another the yields will come down.
Title: Re: FTP - Fortress Paper
Post by: OptsyEagle on May 01, 2012, 04:32:54 PM
I read this write up again. 

http://pretoriainvestment.com/2012/01/31/fortress-paper-plan-nord-is-a-deal/

Sometimes we forget what is really going on here.  That LSQ deal really was amazing.  With where the stock is trading these days I find that in almost every valuation scenerio one tends to just leave it off completely since it is easy to make the case for FTPs value, even without it.  But it really was sweet.
Title: Re: FTP - Fortress Paper
Post by: roundball100 on May 03, 2012, 05:14:25 AM
Higher cotton costs ("Gildan profit hit by cotton costs"):

http://business.financialpost.com/2012/05/03/gildan-profit-hit-by-cotton-costs/
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 04, 2012, 11:21:50 AM
Bought some FTP today for my wife's RSP account. Thank you Mr. Market!
Title: Re: FTP - Fortress Paper
Post by: tombgrt on May 04, 2012, 11:32:06 AM
Gratz Liberty. ;)

Concerning cotton prices, where are you guys looking for the spot price? I have been following this: http://finance.yahoo.com/echarts?s=BAL+Interactive#chart1:symbol=bal;range=1y;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined Is it worth anything? =x
Title: Re: FTP - Fortress Paper
Post by: keerthiprasad on May 04, 2012, 12:17:33 PM
Bought some FTP today for my wife's RSP account. Thank you Mr. Market!

I remember a few months ago thinking the price could never get this low again.  I wish I had more cash!
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 04, 2012, 12:24:23 PM
I remember a few months ago thinking the price could never get this low again.  I wish I had more cash!

Same for me. I guess it shows just how misunderstood this company is. It reminds me of what Chad said in an interview, about how when he was first raising money for the company, investors wouldn't even let him get to the second slide of his presentation because of the word "paper" in the name. Too many will paint everything in the forestry sector with the same brush..
Title: Re: FTP - Fortress Paper
Post by: alertmeipp on May 04, 2012, 02:32:27 PM
What would happen if DP tanks?
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 05, 2012, 12:21:55 AM
What would happen if DP tanks?

High cost producers shut down, putting a floor on DP price. Meanwhile, FTP should get at least 1200 as per their long term contracts.
Title: Re: FTP - Fortress Paper
Post by: alertmeipp on May 05, 2012, 07:00:34 AM
I've asked this before. anyone know a place where I can check DP price?

Title: Re: FTP - Fortress Paper
Post by: Liberty on May 05, 2012, 01:03:58 PM
I've asked this before. anyone know a place where I can check DP price?

In my experience it can be hard to find. I mostly just hear about it on FTP conference calls... I think most DP is traded on long term contracts and the quality of the DP means price varies from one source to the other.

Probably easier to keep track of cotton prices.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on May 05, 2012, 01:24:04 PM
Liberty, what source do you use for cotton prices? I've noticed some aren't that accurate.

Concerning DP spot price it's what Lib said: hard to find, very illiquid market because most of capacity is with LT contracts. Price varies depending on quality and also origin.
Title: Re: FTP - Fortress Paper
Post by: roundball100 on May 05, 2012, 01:44:28 PM
What would happen if DP tanks?

High cost producers shut down, putting a floor on DP price. Meanwhile, FTP should get at least 1200 as per their long term contracts.
It would be great if 1200 was indeed a floor for FTP (and that would be great for those of us long), and we certainly hope FTP would be better off than all the higher-cost producers, but as with everything else, the contract(s) are only as good as the parties behind them.   Nonetheless, having long-term contracts are better than not. 
Title: Re: FTP - Fortress Paper
Post by: tombgrt on May 05, 2012, 01:59:37 PM
It would probably take prices below $850-900/ton for long periods to become worrisome. Or of course much higher than projected cash costs/ton. We will maybe get any idea of the latter on the 15th or the CC, although I "fear" that analysts will project the current higher cash costs into the future. Costs will be lower after full capacity and operational improvement when everything settles down. The market couldn't handle prices under $1000/ton very long unless we get a very big mess in China that crushes demand. I also like how the debt is arranged for Thurso and LSQ, very hard to make this a big zero when all is said and done IMO.

We can only accept the basic facts and projections and make an assessment of margin of safety after sensitivity analysis. For me the downside is taken care of, the upside unspoken...
Title: Re: FTP - Fortress Paper
Post by: tnp20 on May 05, 2012, 03:41:47 PM
>>> FTP should get at least 1200 as per their long term contracts.

Long term contracts don't mean a thing if its the Chinese. Remember those iron ore contracts the chinese signed, when the ore prices dropped, they didn't honour them.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on May 05, 2012, 04:53:42 PM
What would happen if DP tanks?

High cost producers shut down, putting a floor on DP price. Meanwhile, FTP should get at least 1200 as per their long term contracts.
It would be great if 1200 was indeed a floor for FTP (and that would be great for those of us long), and we certainly hope FTP would be better off than all the higher-cost producers, but as with everything else, the contract(s) are only as good as the parties behind them.   Nonetheless, having long-term contracts are better than not.

Don't forget the motivation Chinese Rayon producers have to deal with the long term, stable suppliers. I heard the very same thing when I invested in Seaspan in the fall of 2008.
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 05, 2012, 06:48:23 PM
>>> FTP should get at least 1200 as per their long term contracts.

Long term contracts don't mean a thing if its the Chinese. Remember those iron ore contracts the chinese signed, when the ore prices dropped, they didn't honour them.

Chad has mentioned that this was a huge priority for him and that he could probably could have gotten better prices, but he would rather make as sure as possible that his counter parties were trustworthy. Hard to be certain, but I tend to trust his due diligence.
Title: Re: FTP - Fortress Paper
Post by: alertmeipp on May 05, 2012, 07:52:56 PM
>>> FTP should get at least 1200 as per their long term contracts.

Long term contracts don't mean a thing if its the Chinese. Remember those iron ore contracts the chinese signed, when the ore prices dropped, they didn't honour them.

What you said is racism and show your ignorance. There are many trustworthy Chinese companies and people.
And there are companies in NA that won't honor underwater contracts.
Title: Re: FTP - Fortress Paper
Post by: FFHWatcher on May 06, 2012, 04:15:44 AM
>>> FTP should get at least 1200 as per their long term contracts.

Long term contracts don't mean a thing if its the Chinese. Remember those iron ore contracts the chinese signed, when the ore prices dropped, they didn't honour them.

What you said is racism and show your ignorance. There are many trustworthy Chinese companies and people.
And there are companies in NA that won't honor underwater contracts.

In North America you have legal options to pursue someone who breaches a contract.  Can a North American company be successful with legal remedies in China?  If so, I am unaware of this.  I don't believe the writer was being racist or ignorant.  I think he was stating that when there are virtually no consequences due to the inability of  our legal system in reaching across the Chinese border, than the party on the other side of a contract is much more likely to default versus a similar party in North America.  It has nothing to do with them being chinese or that Chinese people/companies are untrustworthy. It has to do with living within the Chinese border and operating within their legal system and not North America's.

I for one, got burned on a chinese fraud.  Company is still active, has great operations but the executive transferred all the shares to himself and others.  Shareholders seem to have no recourse in China.  Hundreds of millions were lost and the value is still there.  How can we use our legal system to seize property in China?  Are non-chinese allowed to use the chinese legal system? 

What court does Chad file papers in if they default?  Have any North American investors/compaies been successful at litigation within the chinese borders against a chinese company?
Title: Re: FTP - Fortress Paper
Post by: DCG on May 06, 2012, 05:17:28 AM
>>> FTP should get at least 1200 as per their long term contracts.

Long term contracts don't mean a thing if its the Chinese. Remember those iron ore contracts the chinese signed, when the ore prices dropped, they didn't honour them.

What you said is racism and show your ignorance. There are many trustworthy Chinese companies and people.
And there are companies in NA that won't honor underwater contracts.

I'm not racist, but there are very few Chinese companies that I trust. The country's govt is so concerned with filtering out information to it's citizens, yet has very little regulation in place for businesses.
Title: Re: FTP - Fortress Paper
Post by: alertmeipp on May 06, 2012, 07:16:09 AM
>>> FTP should get at least 1200 as per their long term contracts.

Long term contracts don't mean a thing if its the Chinese. Remember those iron ore contracts the chinese signed, when the ore prices dropped, they didn't honour them.

What you said is racism and show your ignorance. There are many trustworthy Chinese companies and people.
And there are companies in NA that won't honor underwater contracts.

I'm not racist, but there are very few Chinese companies that I trust. The country's govt is so concerned with filtering out information to it's citizens, yet has very little regulation in place for businesses.

I agree, we will have more frauds in Chinese companies than in US. NA's legal system is more advanced and such. Hey, I got burned by Sino-forest as well. But to say "Long term contracts don't mean a thing if its the Chinese." is a generalized statement across Chinese.

Li Ka Shing is Chinese too and so is BYD's boss.

Title: Re: FTP - Fortress Paper
Post by: alertmeipp on May 06, 2012, 07:17:50 AM
>>> FTP should get at least 1200 as per their long term contracts.

Long term contracts don't mean a thing if its the Chinese. Remember those iron ore contracts the chinese signed, when the ore prices dropped, they didn't honour them.

What you said is racism and show your ignorance. There are many trustworthy Chinese companies and people.
And there are companies in NA that won't honor underwater contracts.

In North America you have legal options to pursue someone who breaches a contract.  Can a North American company be successful with legal remedies in China?  If so, I am unaware of this.  I don't believe the writer was being racist or ignorant.  I think he was stating that when there are virtually no consequences due to the inability of  our legal system in reaching across the Chinese border, than the party on the other side of a contract is much more likely to default versus a similar party in North America.  It has nothing to do with them being chinese or that Chinese people/companies are untrustworthy. It has to do with living within the Chinese border and operating within their legal system and not North America's.

I for one, got burned on a chinese fraud.  Company is still active, has great operations but the executive transferred all the shares to himself and others.  Shareholders seem to have no recourse in China.  Hundreds of millions were lost and the value is still there.  How can we use our legal system to seize property in China?  Are non-chinese allowed to use the chinese legal system? 

What court does Chad file papers in if they default?  Have any North American investors/compaies been successful at litigation within the chinese borders against a chinese company?

Me too. That's why I don't want to go heavy into FTP. Otherwise, those long term contracts alone make FTP market cap looks very cheap.
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 06, 2012, 10:56:22 AM
Worse case scenario, It's not like DP is something exotic with few potential buyers. They can sell to others, including eventually in the specialty market.

But if you believe the overall thesis that cotton production is pressured and that most people in emerging countries are going to start buying more clothes as they get a bit richer, and that FTP can achieve low cost production, then any drop much below 1200 can only be temporary, and FTP's chinese counterparties probably will be more attached to the long term contracts than even FTP itself...
Title: Re: FTP - Fortress Paper
Post by: FFHWatcher on May 06, 2012, 11:49:30 PM
Worse case scenario, It's not like DP is something exotic with few potential buyers. They can sell to others, including eventually in the specialty market.

But if you believe the overall thesis that cotton production is pressured and that most people in emerging countries are going to start buying more clothes as they get a bit richer, and that FTP can achieve low cost production, then any drop much below 1200 can only be temporary, and FTP's chinese counterparties probably will be more attached to the long term contracts than even FTP itself...

I agree on the basic thesis of emerging economies buying more clothes.  As far as FTP as a low cost producer goes, that is still just words on a powerpoint slide at this point.  Show investors the numbers on a financial statement and shareholders will see their valuation estimates for FTP come to fruition. 

Frankly, I wish we would all just stop talking and writing about it and wait to see how this pans out in a year or so, maybe even less if all goes well.  More if you want to include potential value in  LSQ.  For many years there will just be the drag of expenses at LSQ similar to building a mine and waiting for production and revenue to start.  It can feel like an eternity to (most) investors.
Title: Re: FTP - Fortress Paper
Post by: augustabound on May 07, 2012, 03:12:06 AM
I'm just curious, what industry papers/websites if any, have you read to understand FTP's business? Or has it been mostly from their annual reports and the handful of industry presentations they show on their website?

I can see the capital allocations made by Chad, but I'm wondering about some of the aspects of their business in general.
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 07, 2012, 07:11:19 AM
I agree on the basic thesis of emerging economies buying more clothes.  As far as FTP as a low cost producer goes, that is still just words on a powerpoint slide at this point.  Show investors the numbers on a financial statement and shareholders will see their valuation estimates for FTP come to fruition. 

Frankly, I wish we would all just stop talking and writing about it and wait to see how this pans out in a year or so, maybe even less if all goes well.  More if you want to include potential value in  LSQ.  For many years there will just be the drag of expenses at LSQ similar to building a mine and waiting for production and revenue to start.  It can feel like an eternity to (most) investors.

I agree, though if the low cost status was already confirmed, FTP probably wouldn't be an opportunity for value investors. A lot of it is looking at this team's track record and having trust in Chad, which is inherently not guaranteed, unfortunately.

Personally, I'm also just waiting and watching.. We should know a bit more next week, but it'll really be after co-gen is done at Thurso that we'll know what is what.
Title: Re: FTP - Fortress Paper
Post by: roundball100 on May 07, 2012, 04:19:18 PM
"Fortress Paper Announces Sale of Non-Core Assets at Landqart Mill"

http://finance.yahoo.com/news/fortress-paper-announces-sale-non-231157234.html
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 07, 2012, 04:52:01 PM
"Fortress Paper Announces Sale of Non-Core Assets at Landqart Mill"

http://finance.yahoo.com/news/fortress-paper-announces-sale-non-231157234.html

As long as they get a decent price on the electricity, seems like a winner. It'll help them fund the rest of Thurso's co-gen, which was the biggest challenge on the short-term.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on May 08, 2012, 04:51:07 PM
http://www.andrewjohns.ca/sites/default/files/u17/Forestry_20120410%20Forest%20Products%201Q12%20Preview%3B%20Downgrading%20the%20Lumber%20Names.pdf

Have a look on pages 6 & 7 for discussion on dissolving pulp.

Dissolving Pulp – Currently at US$1,050/mt, dissolving pulp prices are down 16% from
Apr-2012 highs of US$1,250/mt (see Exhibit 6). We believe the current pressure on DP
pricing is the result of falling rayon prices which are now currently at US$2,510/mt down
11% from an early Feb-2012 high of US$2,825/mt. We understand with rayon prices in
this range producers of the textile are experiencing substantial margin pressure –
something we believe portends poorly for the near term dissolving pulp outlook. 
Nevertheless, we estimate marginal DP  producers delivered cash costs exceed
US$1,250/mt – which we expect to prevent spot prolonged periods of pricing below this
level. Hence, we maintain  our US$1,100/mt and US$1,150/mt DP price forecasts for
2012 and 2013 respectively.


Raymond James target:  $52/share
Title: Re: FTP - Fortress Paper
Post by: tombgrt on May 09, 2012, 06:47:03 AM
Great find lessthaniv.

--

Fortress Paper Provides Dresden Operational Update

VANCOUVER, BRITISH COLUMBIA, May 09, 2012 (MARKETWIRE via COMTEX) -- Fortress Paper Ltd. ("Fortress Paper" or the "Corporation") CA:FTP -1.32%  , is pleased to announce that its wholly-owned subsidiary, Dresden Papier GmbH, a leading manufacturer of wallpaper base, has operated 24 hours per day (100% utilization) without stoppage for 20 consecutive days compared to an annual average utilization rate of 93% in 2011. As a result, waste has been reduced to approximately 5% from an annual average waste rate of 9.35% in 2011.

"We are delighted with Dresden's operating consistency and efficiency. We believe that these production milestones will provide a meaningful impact to our financial results in the second quarter", said Chadwick Wasilenkoff, Chairman, Chief Executive Officer and President of Fortress Paper.

http://www.marketwatch.com/story/fortress-paper-provides-dresden-operational-update-2012-05-09-92420

Once again increased operational efficiency.

Btw, doesn't look like that asset sale is anything of importance. Just some spare cash and less to worry about?
Title: Re: FTP - Fortress Paper
Post by: OptsyEagle on May 09, 2012, 08:20:32 AM
Btw, doesn't look like that asset sale is anything of importance. Just some spare cash and less to worry about?

Still a little dissappointing that we didn't get details.  Makes a big difference if it was sold for $15 million as opposed to $1.5 million, etc.  Fortress can use the money and I suspect some are concerned about the dilution that might come about if they need to issue stock. Chad has already indicated that an equity issue would be a very, very, very last resort, since he has more at stake (2.4 million shares) then anyone else.  This sale would go a long way to showing the market that he can accomplish the capital requirements without issuing stock.

When I ask myself why no details, it is difficult to come up with any reasons.  Sometimes there are no details because the purchaser or seller is concerned about the news.  This usually comes from the buyer paying too much for the asset and not wanting their shareholders to find out or the seller, selling it too low and not wanting their shareholders to find out.   With Chad I like to think it is the former, but again, we may never know.  The other reason might be that Chad is in discussions with a purchaser for Landqart.  If they were at some price negotiated for the whole company, and Chad sold the power assets for a big number, the buyer would want that big number subtracted from what they pay.  So don't say anything and tell the buyer it was insignificantly small.  I doubt this is the case since selling part of a company when negotiating the sale of it in its entirety would be complicated.

Anyway, I am sure they got something for it and since it is definitely non-core, I am glad to see it sold.
Title: Re: FTP - Fortress Paper
Post by: keerthiprasad on May 14, 2012, 05:24:58 PM
Q1 results:

http://www.marketwire.com/press-release/fortress-paper-announces-first-quarter-2012-results-tsx-ftp-1656965.htm (http://www.marketwire.com/press-release/fortress-paper-announces-first-quarter-2012-results-tsx-ftp-1656965.htm)

Not too much here really, wallpaper is doing great, currency poor (for the time being), and pulp is still ramping up (slower than desired). 
Title: Re: FTP - Fortress Paper
Post by: OptsyEagle on May 14, 2012, 06:13:06 PM
It would have been a positive $3.5 million EBITDA if we had of shut down Landqart last year. $5.2 million loss again this quarter from that division.  Better then the $7 million or so it lost last quarter but still significant.  Always nice to know that if Fortress Paper ever wants to earn a quick $1.25 EPS per share, all it has to do is buy a big padlock and snap it on the front door of that plant.

In any event, $18 million for Landqarts hydro assets.  Wonderful.  Should shore up any liquidity concerns for the remainder of the year and Thurso should be spewing serious positive cash before we end this year to take care of 2013 and beyond.
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 14, 2012, 06:59:33 PM
Not good, but not a surprise. Now the next few quarters should become really interesting :)

Nice price they got for the hydro at Landquart. I don't see the downside of not owning that anymore, so good deal.
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 15, 2012, 09:28:17 AM
CC starting now:

A conference call to discuss the financial results for the first quarter 2012 will be held on May
15, 2012 at 9:30 a.m. (PST). To attend the conference call, please dial one of the following
numbers:
North America: 1-855-353-9183
International: 1-403-532-5601
Participant pass code: 15086#
Conference Reference Number: 770462
A replay of the conference call will be available for 7 days. To access the replay, listeners may
dial 1-855-201-2300 from North America or 403-255-0697 International.  The conference
reference number is 770462 and the participant pass code to access the replay is 15086 #.
Title: Re: FTP - Fortress Paper
Post by: OptsyEagle on May 15, 2012, 10:45:36 AM
Conference Call Highlights:

- Continued delays of orders at Landqart should continue into Q2.  New orders received should start production in 2nd half of 2012 and take up a considerable amount of excess capacity.  Chad indicated that he is fully confident of an immanent turnaround for this division.

- Demand for non-woven wallpaper, higher then expected.  Q1 results were from a ramping up of production and therefore going forward, would expect Q1 results to be repeated or surpassed.  Waste reduced to only 5% as opposed to above 9% industry average.  Current order log is very healthy.  Asia is also opening up as a new and very large market.

- Kurt seemed confident that liquidity needs will be met by existing cash, line of credit, amounts receivable and cash flow from Thurso in 2nd half.  Looking to sell land adjacent to Landqart for between $5M and 10M over the next 6 months and of course all assets are for sale to the right offer.  Of $19M in debt due within 1 year, about $10 million of it can be deferred at Fortresses option.

- Co-gen is about 80% done.  Still expect Q4 start up.

LSQ finalization is simply a matter of burocracy.  Many players.  Expect to close in next few days or weeks.

Landqart Hydro sale for $18 million swiss francs (about $18 million Cdn dollars).  Cash is now in the bank.  Ongoing costs for the sold hydro only about $400K. WOW.  What a deal.

- Thurso - Produced $25,000 tonnes of DP in Q1 on a ramping up basis.  Had good days and bad days.  On good days the production peaked at estimated design levels.  They see no reason why they should not be operating at design levels by 2nd half of 2012.

- Thurso costs fluctuated depending on whether they were having a good day or bad day but they see no reason why they will not achieve production costs as estimated.

- Thurso had no issues with quality.  All customers approved product and it has already gone through the Viscose production process at customer plants with excellent results.  Contract pricing has not changed and they see no problem with current long term contracts.  Current spot price at around $1100 per tonne.
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 15, 2012, 10:53:20 AM
You beat me to it Optsy, my CC notes are pretty similar. Thanks for sharing.
Title: Re: FTP - Fortress Paper
Post by: colinwalt on May 15, 2012, 11:46:59 AM
Thanks from me too Optsy...
Title: Re: FTP - Fortress Paper
Post by: OptsyEagle on May 15, 2012, 11:52:16 AM
Ya gotta be quick Lib.

I can't believe some investors are selling this stock at these prices.  Did they not graduate even grade 6 math.  Fortress is earning $1.60 EPS from Dresden alone and it is growing rapidly, and by Q4 Fortress Paper will earn $0.75 EPS from the Co-gen with already signed long term contracts from Hydro Quebec.  That's $2.35 EPS without even factoring in Thurso, LSQ or Landqart.

Even if the worst case scenerio happened and Chad decided to issue another 1 million shares you could reduce the above number to $2.20 EPS. 

Anyway, Chad is scheduled to be on BNN at 3:10 pm EST today for anyone interested.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on May 15, 2012, 12:37:58 PM
Nothing on estimated cash cost/ton on thurso? Or did I miss it?
Title: Re: FTP - Fortress Paper
Post by: OptsyEagle on May 15, 2012, 12:53:36 PM
Nothing on estimated cash cost/ton on thurso? Or did I miss it?

You missed it.

"- Thurso costs fluctuated depending on whether they were having a good day or bad day but they see no reason why they will not achieve production costs as estimated."
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on May 15, 2012, 12:58:16 PM
Nothing on estimated cash cost/ton on thurso? Or did I miss it?

They suggested to date the cash costs are sporatic due to ramp up phase. When they are running at capacity the cash costs are expected to be in line with previous guidance.

One thing that was mentioned was the fact that Chinese Cotton Linters (with high cash costs) have been shutting the doors. This has caused a moved back up in DP to $1150/MT.

This is important as it validates our thesis and mitigates counter party risk on $1200/mt floor price.  The prices they sold for was mixed as it was off-spec sales and discounted as ramp up production.  We'll just have to be patient to see in the coming quarters what the cash cost will be. 

Today was largely as expected for me with an upside surprise on Dresden. Landquart / Thurso were pretty much what was expected.
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 15, 2012, 01:03:06 PM
Some head in the clouds stuff:

Looking at the price of the stock, it almost makes me wish they would sell either Dresden or Landquart (or both) quickly and try to buy back something like half the outstanding shares in a tender offer. But it probably wouldn't work, in good part because price would probably rocket back up if they tried to do that, and they couldn't get these kinds of prices for a few million shares (volume has always been low and price volatile).

Too bad. Imagine if they could buy back half of Thurso and LSQ for something like 150 million.. That'd be so great, much better expected ROI than if they keep Dresden and Landquart.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on May 15, 2012, 01:07:49 PM
Ok thanks guys. I can live with what has been reported but really want to see a change in Landqart soon, although the sell was ok. They don't have forever to ramp up Thurso as there are plenty of things to pay off.  The value is here but I don't want to see liquidity problems because Chad wants the last drop, better safe than sorry.
Title: Re: FTP - Fortress Paper
Post by: OptsyEagle on May 15, 2012, 02:06:04 PM
Chad was on BNN at around 3:10pm today.  I tried to find the link but BNN Video seems to jump from 3:05 to 3:40.  Maybe someone there forgot to hit the record button.

Anyways, Chad indicated that they have new orders that they fully expect will be ready for the 2nd half of 2012.  The orders are numerous enough that they are now concerned about scheduling difficulties at Landqart over the 2nd half of this year.  These orders are in addition to the one big order they have been waiting on and also expect to receive, that will take up over 1/2 of Landqart's capacity as well.

I suppose this is why he is reluctant to buy the padlock I suggested a while back for that division.
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 15, 2012, 02:31:17 PM
It's now on BNN.ca

http://watch.bnn.ca/clip679792#clip679792

(funny how they screwed up the video ratio on Chad's feed so that he looks like he has a super wide head)
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on May 15, 2012, 02:31:25 PM
Chad was on BNN at around 3:10pm today.  I tried to find the link but BNN Video seems to jump from 3:05 to 3:40.  Maybe someone there forgot to hit the record button.

Anyways, Chad indicated that they have new orders that they fully expect will be ready for the 2nd half of 2012.  The orders are numerous enough that they are now concerned about scheduling difficulties at Landqart over the 2nd half of this year.  These orders are in addition to the one big order they have been waiting on and also expect to receive, that will take up over 1/2 of Landqart's capacity as well.

I suppose this is why he is reluctant to buy the padlock I suggested a while back for that division.

http://watch.bnn.ca/#clip679792

Title: Re: FTP - Fortress Paper
Post by: Liberty on May 16, 2012, 08:02:45 AM
Here's how I think Chad is looking at Landquart (and this is just my guess):

In that business, moving from 'new order' to 'printing' seems very tough. There are delays, lots of bureaucratic layers, very stringent specifications to meet, which can cause more delays, etc. But once you are printing, as Alfonso said on the call yesterday, a new series can go on for 10 years.

Landquart just upgraded from 2,500 tons/year to 10,000 tons/year.

That's 7,500 new tons that didn't exist before, so they need new orders to fill them, all at once, 3x more than what they had before. So now they're in the tough part of trying to get to printing, and they're getting the delays and bureaucrats..

But once they start printing enough big orders to almost fill the papiermachines, it sounds like there should be minimal fuss for a while, and Landquart at 4X the production that it had before sounds like it could be nicely profitable. I think that's why Chad is being so patient with it. They just have to get through this transition period (after all, you don't quadruple production very often) and get to a stable state.

But that's just my guess.
Title: Re: FTP - Fortress Paper
Post by: Myth465 on May 16, 2012, 08:24:11 AM
One also has to consider a Euro breakup. Its a big job printing all those new notes from the countries which may or may not leave.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on May 16, 2012, 08:28:25 AM
Myth, I believe that would take half a year at least. Mr market is more worried about the short term liquidity, cash cost for thurso and problems at landqart.

I too believe there could be some real value at Landqart once the 10,000 tons start to get used efficiently. Dresden is worth almost the current market cap. And does anyone believe FTP would trade at below $100m market cap if Chad had to sell Dresden suddenly for $200m?

I bought more at $20.8 just now but had to sell some of another holding for it. I just couldn't pass this after a 20%+ drop.
Title: Re: FTP - Fortress Paper
Post by: Myth465 on May 16, 2012, 08:45:57 AM
Im trying to sell my ATPGP to do the same. I am using this downturn to clear out all of the rift raft. If I get a bid, I will use the cash to buy some more FTP. You know you have a good holding when you dont care if it goes down, and want to buy more. Thats how I feel about SD and FTP.
Title: Re: FTP - Fortress Paper
Post by: OptsyEagle on May 16, 2012, 02:21:31 PM
WOW, these prices.

Anyone feel like you just took at shower at a maximum security prison ... and you dropped your soap!
Title: Re: FTP - Fortress Paper
Post by: colinwalt on May 16, 2012, 02:43:37 PM
WOW, these prices.

Anyone feel like you just took at shower at a maximum security prison ... and you dropped your soap!

Or one of the guys who didn't drop the soap - a big opportunity ;-)
Title: Re: FTP - Fortress Paper
Post by: bonechip1 on May 16, 2012, 08:42:54 PM
FTP has a very similar setup to the prototypical company discussed in chapter 5  "When to Buy" in Fisher's Common Stocks and Uncommon Profits.  Fisher talks about a shake down period when a complex plant is ramping up to commercial production and takes much longer than even the most pessimistic engineer would have thought it would take to work out the bugs.  Disappointment in the investment community results in the punishment of the share price, but according to Fisher, it is at this inflection point that it is time to buy.
Title: Re: FTP - Fortress Paper
Post by: bathtime on May 16, 2012, 10:09:12 PM
FTP has a very similar setup to the prototypical company discussed in chapter 5  "When to Buy" in Fisher's Common Stocks and Uncommon Profits.  Fisher talks about a shake down period when a complex plant is ramping up to commercial production and takes much longer than even the most pessimistic engineer would have thought it would take to work out the bugs.  Disappointment in the investment community results in the punishment of the share price, but according to Fisher, it is at this inflection point that it is time to buy.

Thanks for that analogy, bonechip1. Good to hear from you, I may have first come across FTP in a post of yours at Motley Fool. Always enjoyed your writing.
Title: Re: FTP - Fortress Paper
Post by: OptsyEagle on May 17, 2012, 05:41:59 AM
Yeah, I kind of thought we were going to find the bugs and problems during the long conversion last year.  I guess I should have known that bugs are not that visable.  Anyway, this stuff is normal.  It is the investment community that is not.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on May 17, 2012, 07:31:14 AM
Yeah, I kind of thought we were going to find the bugs and problems during the long conversion last year.  I guess I should have known that bugs are not that visable.  Anyway, this stuff is normal.  It is the investment community that is not.

Daryl Swetlishoff's commentary on May 16th is an excellent read if you can get your hands on a copy.
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 18, 2012, 09:33:05 AM
Bought a few shares today at 20.09 -- couldn't resist.
Title: Re: FTP - Fortress Paper
Post by: merkhet on May 18, 2012, 01:48:09 PM
I finally sat down and ran a few of the numbers and scenarios in my head.

Dresden looks to be worth about the current market cap of the company.
Landqart looks to be worth about double the market cap of the company (when run @ capacity).
Thurso & LSQ look to be worth at least a billion a piece.

What am I missing here?

It does look like Chad's cutting it a bit close with the liquidity issues, but from the latest conference call, I got the following:

Sources of liquidity:

(1) Landqart hydro sale = $18 million
(2) Landqart lands sale = $5 million (assuming they don't get the zoning approval for an extra $5 million)
(3) Tax credits from gov = $13 million (might be a million more)
(4) Remainder on IQ loan = $4 million
(5) Accounts Receivable = $30 million
(6) Cash on hand = $6 million

Total sources of liquidity = $76 million

Sources of spend:

(1) Finishing Thurso co-gen = $50 million
(2) Paying off short-term loans = $19 million (assuming they decide not to defer $9 million)

Total sources of spend = $69 million

Additionally, they could always push off closing the Thurso co-gen and not have to spend the whole $50 million this year, since the penalty for not completing in a timely fashion is capped at $1.8 million...

Of course, this neglects to factor in the following:

(1) Dresden throws off about $8 million in operating earnings per quarter, so there's $24 million coming in this CY
(2) Landqart burned about $7 million last quarter and has at least one more quarter of burn.
(3) Thurso burned about $4 million last quarter and may be break-even or even positive this quarter.

Even assuming Landqart burns $21 million over the next three quarters (i.e. further delays on the large customer that is looking to take up 50% capacity or 5,000 tonnes), you can cover that with Dresden w/o even counting Thurso.

Best case scenario is that Landqart burns one more quarter and gets online w/ an extra 5,000 tonnes, which I believe would drop around $9 million onto operating earnings per quarter...

So... what's the problem?  What am I missing?
Title: Re: FTP - Fortress Paper
Post by: tombgrt on May 18, 2012, 02:14:46 PM
How do you come at that value for Landqart merkhet? I have no clue how to value it so I just put in a big zero or even put in a negative valuation to be sure. I would just be guessing if I tried!
I also think Thurso is worth far less than $1b now. Maybe if DP prices get to $1600 but not now. We'll see what value it has in a couple of years. I also but zero value on LSQ. Maybe in 2014.  ;)

Uncertainty is something most people can't live with. Most would rather have $100 in their hand than a 75% chance to get $200.

FTP has a very similar setup to the prototypical company discussed in chapter 5  "When to Buy" in Fisher's Common Stocks and Uncommon Profits.  Fisher talks about a shake down period when a complex plant is ramping up to commercial production and takes much longer than even the most pessimistic engineer would have thought it would take to work out the bugs.  Disappointment in the investment community results in the punishment of the share price, but according to Fisher, it is at this inflection point that it is time to buy.

Correct. It's also mentioned in Money Masters of Our Time where I read it for the first time.  :)
Title: Re: FTP - Fortress Paper
Post by: merkhet on May 18, 2012, 02:57:10 PM
tombgrt,

Landqart

Landqart makes about $16 million of revenue on 1,000 tonnes, and I believe Chad mentioned recently that they used to make 20% EBITDA contribution margins.  So an additional 5,000 tonnes brings in an additional $80 million of revenue w/ $16 million of EBITDA minus about $1 million of cap-ex spend minus the $7 million current shortfall of operating earnings gets us to about $8 million of pre-tax profits a year @ a tax rate of 28.6%, that's around $5.6 million a quarter or $22 million of profit a year.

If they fill up the remaining 9,000 tonnes, then the calculation rounds out to about $58 million of profit a year...

A sanity check against De La Rue, which has a 14.4% net margin, indicates that on revenues of $640 million a year @ capacity, making $58 million or around a 9% net margin isn't crazy... nor is applying a 1x sales multiple to Landqart when De La Rue has a 2.1x sales multiple.  (De La Rue isn't a pure play though, so the comparison is, by necessity, a little flawed...)

To be completely fair, I'm not sure my number is any better than a guess.  ;D

Thurso & LSQ

Good point -- I think @ around $1,050 per tonne, Thurso is probably worth around $600 million or thereabouts.  If pricing gets back to $1,200 per tonne, Thurso is worth around $700 million and at $1,600 per tonne it might be worth about $1.25 billion.

I'd get LSQ in a range of $850 million to $1.5 billion once we get it...
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 18, 2012, 10:42:50 PM
Looks like they got a pretty good deal on that european credit facility, replacing one with an effective interest rate of 7.6% with one at 3.81%.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on May 19, 2012, 06:48:31 AM
Thanks for the explanation merkhet. Would be great if you are right. I'm not sure if those margins are still relevant and Chad has been overoptimistic in the past, but even with half those margins there would be considerable value at Landqart that we aren't seeing now.
Title: Re: FTP - Fortress Paper
Post by: merkhet on May 19, 2012, 09:07:09 AM
tombgrt,

I agree that the margins for Landqart may not be relevant given changes that are largely, I believe, due to the strong Swiss franc and higher raw material costs -- but I also think that the "large coefficient" factor is that they're running at 10% capacity... my best guess is that you won't see 20% EBITDA contribution margins, but maybe 15% or 12% so long as they're up and above a certain critical threshold...

Landqart seems to me to fulfill Berkowitz's checklist question of "Is the company essential?' -- over time, I'd guess that someone who holds on to Landqart will do well once the issues that are causing the strong Swiss franc and higher raw material costs subside...
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 19, 2012, 09:20:10 AM
Higher material costs should also impact competitors and allow LQ to pass on costs to customers over time. Strong swiss franc is a different thing, though...
Title: Re: FTP - Fortress Paper
Post by: tombgrt on May 20, 2012, 02:24:57 AM
Post on FTP from another shareholder.

http://pretoriainvestment.com/2012/05/17/the-tree-or-the-forest/

Can't say he's really wrong.
Title: Re: FTP - Fortress Paper
Post by: colinwalt on May 20, 2012, 07:49:35 AM
This is a pretty scary scenario (one Prem has been worried about for a while now)...

World edges closer to deflationary slump as money contracts in China

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9263196/World-edges-closer-to-deflationary-slump-as-money-contracts-in-China.html

I wouldn't think those long term contracts would be worth much if commodity prices slumped...
Title: Re: FTP - Fortress Paper
Post by: merkhet on May 20, 2012, 08:52:08 AM

I wouldn't think those long term contracts would be worth much if commodity prices slumped...


I've been thinking about this one as well... It seems, though, that not all commodities are the same. If iron, oil and coal slump, does that mean dissolving pulp slumps? Maybe... Maybe not...
Title: Re: FTP - Fortress Paper
Post by: tombgrt on May 20, 2012, 09:31:42 AM
If I am not mistaken, companies like Rayonier have had very stable relationships and contracts with their costumers over time no matter what the price of cotton and DP did. I must add that this was mostly the case for their specialty DP. Anyway, it's important to be a low cost producer, those contracts are more or less irrelevant imo over the longer term. The biggest risk is whether we will see a cash cost under $750-800 after co-gen is active.

As long as Fortress can pay the bills, current low prices are a good thing. Supply will drop (high cost producers will stop operating and new capacity will be delayed) what will make sure that there isn't too much overcapacity in the coming years. If you believe the thesis that DP will be in higher demand in the future, then current volatility doesn't matter all that much. It will be important to have higher prices in 2014 and beyond when both mills are fully operational, not now.
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 20, 2012, 10:24:08 AM
I think it's possible for DP to slump for a short period, but very hard to imagine a few billion people in emerging markets not buying significantly more clothes going forward (probably the most affordable luxury). There's also a feedback loop: if cotton prices go down, farmers plant less of it and switch to other crops, so supply gets smaller for next season...  Also, China has shown a wilingness to step in with massive stimulus, and they have a lot more dry powder than the west and more levers they can pull quickly (and according to the Economist, they're almost certainly  under-reporting their current inflation, which creates problems, but not deflation). It will also help when US and EU come back, won't slump forvever. On top of this, specialty DP prices would probably drop less because supply will always be much smaller and long term safety of supply probably means even more there than with rayon producers. Just my 2 reminbis.
Title: Re: FTP - Fortress Paper
Post by: colinwalt on May 20, 2012, 11:48:36 AM
I agree overall with the last few posts regarding medium to long term pricing, what concerns me is more of a short-term issue given the debt and possible covenant issues should pricing slump in the near-term.

I suppose, as was mentioned in an earlier post, capital could be raised via issuing more shares and if things got really desperate, Dresden could be sold.

But if there were widespread deflation, Dresden would probably be impacted too, with sales potentially drying up as consumers retrenched in the face of deflation.

On the other hand (assuming orders get approved), under such a scenario, Landqart could save the day as once the orders are in place I wouldn't think they would be cancelled - presumably these would be long term, on-going contracts.

Just trying to figure out, given the debt, what would it take for shareholders to be wiped out and how likely such a scenario might be?
Title: Re: FTP - Fortress Paper
Post by: tombgrt on May 23, 2012, 10:03:07 AM
Great post by BelowIV on De La Rue and Landqart here: http://www.stockhouse.com/Bullboards/MessageDetail.aspx?p=0&m=31092048&l=0&r=0&s=FTP&t=LIST

It's fun to add more knowledge about these businesses almost daily. Keep it coming guys!
Title: Re: FTP - Fortress Paper
Post by: gokou3 on May 23, 2012, 10:52:37 AM
Great post by BelowIV on De La Rue and Landqart here: http://www.stockhouse.com/Bullboards/MessageDetail.aspx?p=0&m=31092048&l=0&r=0&s=FTP&t=LIST

It's fun to add more knowledge about these businesses almost daily. Keep it coming guys!

Found another news article thru SH.  Sounds like some suspected wrongdoing?  Can someone explains what happened between De La Rue and Landqart? Thx
http://www.indianexpress.com/news/ministries-spar-over-currency-paper-deal/952154/0
Title: Re: FTP - Fortress Paper
Post by: triedtestedand on May 23, 2012, 11:15:56 AM
Down another $.80 to $19.20 today ... off volume of ~175K so far ... 3 big trades of ~50K each accounting for vast majority of it
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 23, 2012, 11:19:44 AM
Down another $.80 to $19.20 today ... off volume of ~175K so far ... 3 big trades of ~50K each accounting for vast majority of it

I bet Chad wishes he wasn't blocked from buying FTP stock (he mentioned it in an interview -- he constantly has information about new deals, so he can't buy)...

This price is truly crazy. But I have to stop being surprised by Mr. Market..
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on May 23, 2012, 11:28:02 AM
I was asked privately by another member the following question. I don't profess to have all the answers but I will share my response below as its a point of confusion for many.

BTW.  I presume you also post on Stockhouse?  If so, do you have more colour r.e. 1300 tonnes of off-spec Indian currency paper?  Did DLR have it lying around after their contract expired, and then passed/sold it to Landqart for them to use/sell in some manner ... but in so doing raised ire of Indian officials, who would get antsy with such material (even if off-spec) getting to yet-to-be-fully-cleared (and contracted) 3rd parties?  And why would Landqart pick it up (and have DLR employees working with them).   I didn't quite get all the nuance of this ...

My Response:

Yes, I'm the same person (belowiv). I don't post on that board much save for times when comments go way off the rails and I'm compelled to add my $.02 for whatever its worth.

If you re-read the article a few times it starts to make more sense. The message is somewhat lost in translation, me thinks.  I believe I'm on my 5th time, now.

It appears to me that two ministries within the same government are arguing on the security clearance for Landquart. This isn't too surprising to me. They just got burned by DLR and given they do not have the technology within their own borders to print their own paper ... they're required to go back into the marketplace and import product from a new producers. Once bitten - Twice shy, I suppose.

Here is the cliff notes:

Sept 2011:  It's reported that 1300 MT of paper not meeting specs is floating around in the ether - not able to be used by RBI.

Oct 2011:  Finance Ministry sends a letter to the RBI suggesting they have intelligence that the 1300 MT of DLR paper is being offloaded through Landquart. Landquart hired 7 ex-emplyees to oversee the process is the claim.

Late 2011: Home Ministry reacts to this letter by putting Landquart's security clearance in abeyance. (setting it aside)

May 9, 2012: Home Ministry writes to Finance Ministry saying the Central Intelligence have "not" confirmed the veracity of their claims. 

May 14, 2012: Finance Ministry responds saying that the Directorate of Currency was not involved in the security clearance process for Landquart.

Subsequently: Ministry of Home Affairs clarifies that all security related approvals are within the domain of the Ministry of Home Affairs and suggests that the Department of Economic Affairs (I'm guessing the Ministry of Finance falls under this umbrella) has no say in the matter.

I think this is what Chad was referring to when talking about "bureaucracy".

Title: Re: FTP - Fortress Paper
Post by: bathtime on May 23, 2012, 11:35:05 AM
Anyone attending the annual meeting June 7 in Vancouver? I intend to be there. If you have any suggestions for questions I might ask, post them here or send me a PM.
Title: Re: FTP - Fortress Paper
Post by: motownsf on May 23, 2012, 01:02:43 PM
Down another $.80 to $19.20 today ... off volume of ~175K so far ... 3 big trades of ~50K each accounting for vast majority of it

I bet Chad wishes he wasn't blocked from buying FTP stock (he mentioned it in an interview -- he constantly has information about new deals, so he can't buy)...

This price is truly crazy. But I have to stop being surprised by Mr. Market..


Bought some more today in several accounts. Is Chad really restricted from buying?
Title: Re: FTP - Fortress Paper
Post by: tombgrt on May 23, 2012, 01:05:56 PM
Down another $.80 to $19.20 today ... off volume of ~175K so far ... 3 big trades of ~50K each accounting for vast majority of it

I bet Chad wishes he wasn't blocked from buying FTP stock (he mentioned it in an interview -- he constantly has information about new deals, so he can't buy)...

This price is truly crazy. But I have to stop being surprised by Mr. Market..


Bought some more today in several accounts. Is Chad really restricted from buying?


Yes, also from selling if I'm not mistaken.
Title: Re: FTP - Fortress Paper
Post by: jeffmori7 on May 23, 2012, 05:44:07 PM
bathtime, you should ask Chad to clarify what's going on at Landquart. What are these contracts, do they expect to loose money for the rest of the year, if the contracts expected don't work out, will they sell, or close? Actually, Landquart is the great unknown so far, so an update of the situation and the different possible scenarios would be great!

Thanks!
Title: Re: FTP - Fortress Paper
Post by: bathtime on May 24, 2012, 10:17:43 AM
Jeff, I'll do my best to get clarification on Landquart scenarios. Thank you for your question.

A disappointing aspect of the drop in the stock price is the convertible debentures for LSQ will be issued at a lower level.

---
Fortress Paper has also signed a subscription agreement with a Quebec financial institution providing for the subscription of an unsecured convertible debenture of Fortress Paper in the aggregate principal amount of $25-million maturing in five years with an interest rate of 7 per cent per annum. The Quebec financial institution will have the option to convert its debenture, in whole or in part, into common shares of Fortress Paper at any time after closing of the APA at a conversion price equal to the volume-weighted average price of the common shares of the corporation on the Toronto Stock Exchange for the five trading days immediately preceding the closing of the APA plus a premium equal to 50 per cent of such trading price. The debenture will be redeemable, in whole or in part, at the option of Fortress Paper, from the second anniversary date of its issuance at par plus all accrued and unpaid interest, provided that the volume-weighted average trading price of the common shares of Fortress Paper on the TSX is not less than 125 per cent of the conversion price. The debenture financing is subject to various conditions, including the concurrent completion of the IQ financing, the closing of the APA and receipt of the requisite TSX approval.
---
Title: Re: FTP - Fortress Paper
Post by: gokou3 on May 24, 2012, 10:37:53 AM
Just bought my FTP shares @ $19 today.  Have been contemplating entering a position since before the Q1 earning announcement and a $25 stock price.  I thought I have had more patience this time around, but of course the stock promptly drops another 50 cents.

Anyways, thanks for the amazing research from everyone on this board.  I think the catalysts for the stock will be Thurso operating as projected and, on a lesser extent, new contracts at Landqart.  Hope we will get some clarity in the Q2 CC (probably Q3 or later for Landqart).
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 24, 2012, 11:09:01 AM
Added 800 shares at 18.55.
Title: Re: FTP - Fortress Paper
Post by: merkhet on May 24, 2012, 02:08:59 PM
In the last 3 months, the stock has fallen over 50%.

Amazingly, the only hard deadline they have to meet this year is on the order of $11.8 million, which they can already meet with their $18 million sale of hydro assets and $10 million of cash on hand. 

Debt: $10 million in non-deferrable short-term debt and $1.8 million in capped penalties if Thurso's co-gen isn't online by the end of the year.

Cash: $18 million from sale of hydro assets, $6 million of cash on the balance sheet and $4 million of cash drawn on the revolver after the quarter's end.

Again, if Dresden cancels out Landqart for the next three quarters of "cash burn" then you really only have to deal with an additional $12 million of possible burn from Thurso assuming it continues the rate of burn from the previous quarter -- as opposed to continuing its ramp up of production.
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 24, 2012, 06:47:59 PM
http://www.bloomberg.com/news/2012-05-25/china-cotton-planting-may-fall-by-10-on-increasing-labor-costs.html
Title: Re: FTP - Fortress Paper
Post by: alertmeipp on May 24, 2012, 07:11:50 PM
do u guys mean FTP is running into some cash crunch issue?
I have followed it closely these days but I thought their new DP will generate good cash flow when fully operated? how much time they need to fully ramp up?

I remember they raise convert bond not long ago, where did the money go?
Title: Re: FTP - Fortress Paper
Post by: colinwalt on May 24, 2012, 07:46:33 PM
They've spent about $157M on Thurso so far and have about another $55M to go and that's assuming there are no more surprises - they are currently going to be about (a massive!) $50M over-budget due to (if I remember correctly):

- problems with some 2nd hand machinery they were hoping to get, which in the end turned out to not be available or not up to spec - so they had to shell out for new equipment.
- An unexpected wild-cat strike
- overly-optimistic ramp up forecasts at Thurso.

Having said that, most of the remaining spend is for the co-gen facility - that could be deferred as the penalties for that are capped at $1.8M

My concern is that additional delays and surprises could result in them violating some of their debt covenants....
Title: Re: FTP - Fortress Paper
Post by: 17thstcapital on May 24, 2012, 07:53:40 PM
In the last 3 months, the stock has fallen over 50%.

Amazingly, the only hard deadline they have to meet this year is on the order of $11.8 million, which they can already meet with their $18 million sale of hydro assets and $10 million of cash on hand. 

Debt: $10 million in non-deferrable short-term debt and $1.8 million in capped penalties if Thurso's co-gen isn't online by the end of the year.

Cash: $18 million from sale of hydro assets, $6 million of cash on the balance sheet and $4 million of cash drawn on the revolver after the quarter's end.

Again, if Dresden cancels out Landqart for the next three quarters of "cash burn" then you really only have to deal with an additional $12 million of possible burn from Thurso assuming it continues the rate of burn from the previous quarter -- as opposed to continuing its ramp up of production.

Share price decline is not shocking if you think about it.  The entire paper sector seems to be down a decent amount in recent months.  Many other cyclical names that I follow have also been hit pretty hard recently.  But I also think that there are company specific issues here that the market has a right to be concerned about -  mgmt missing expectations on a regular basis, cash burn, high debt and questionable liquidity.  As someone who trades distressed, I think there's definitely risk here of equity getting layered (debt/pfd stock, etc) or getting diluted by a large-ish equity offering.  Management would be crazy if they weren't looking to raise additional liquidity in some fashion given the volatility in the markets that probably doesn't go away in the next 12 months. 

I'm recently long this stock based on the sum-of-the-parts thesis that has been well articulated here on this thread.  But without some significant positive developments in the coming quarters, wouldn't be surprised if this falls further. 
Title: Re: FTP - Fortress Paper
Post by: alertmeipp on May 24, 2012, 08:03:30 PM
their convert last traded at 97.5, not distressed at all I would say.
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 25, 2012, 06:49:22 AM
Bought a few hundreds more. Guess we'll see if that was a good move in a couple years..
Title: Re: FTP - Fortress Paper
Post by: maxthetrade on May 25, 2012, 06:55:36 AM
Good news for you guys:
"Cotton planting in China, the biggest producer and consumer, has dropped about 10 percent in major growing regions as labor costs increased, cutting profits, according to an industry association..."

http://www.bloomberg.com/news/2012-05-25/china-cotton-planting-may-fall-by-10-on-increasing-labor-costs.html
Title: Re: FTP - Fortress Paper
Post by: triedtestedand on May 25, 2012, 09:53:41 AM
There was a large trade today of  ~150K shares at ~ $17.70 ... which got me to thinking who owns/buying the stock (and believes the story), and conversely who's selling (and has soured, or capitulated).   

From Morningstar.ca (which shows top 10 holdings) and SEDAR (which shows >10% holdings) the following #'s are provided, based on reportings from past 6mo:

Chad Wasilinikoff               2390K                                                     -> Holds >10%
Mawer                                 691K                   (as of Apr 30/12)       -> reduced from >1M?
IA Michael (ABC Funds)        800K                  (as of Apr 30/12)       
Invesco                              1478K                  (as of Apr 30/12)        -> Holds >10%
FaithLife                               352K                  (as of Mar 31/12)
Scotia Private                       188K                  (as of Mar 31/12)
Fiera                                     321K                  (as of Mar 31/12)
Standard Life                        352K                  (as of Mar 31/12)
Industrial Alliance                  234K                 (as of Mar 31/12)
Dimensional                          111K                  (as of Feb 29/12)
Manulife                                226K                  (as of Feb 29/12)
BMO Guardian                       222K                  (as of Jan 31/12)
Trimark                                  273K                  (as of Dec 31/11)
GBC                                       208K                  (as of Mar 31/12)*

*GBC is part of Pembroke, which did own 1360K shares as of Oct31/11.  It looks like GBC sold half their position before Mar31/12, so presume that Pembroke's overall position reduced proportionately (or more) since October.

Not factoring possible incremental Pembroke holdings, the total is ~7.8M shares (of 14.3M), or about 55% spread across 14 players.

It'll be interesting to see if/how the mix changes, as over the past 7+ days there has now been about 1472K shares traded ... which is about 10% of the total outstanding. Of that amount there has been about 10 trades where >30K shares have traded, totaling ~500K+ shares.   (If I had the tools, it would probably show the classic 80/20 distribution.)

Anyway ... just some friday musings.
                 


I looked at both funds and institutions, and removed duplicates where funds are a subset of an institution's holdings.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on May 25, 2012, 10:09:24 AM
I'm curious to discover whether Hedge Funds are shorting heavily trying to drive a liquidity event.
They knew the FTP was cuttting it close. If they drive down the stock on liquidity worries, dilution fears become more worrisome at the lower share price.

Risky, given the catalysts to turn the boat are short term but its been done many times before. If such speculation proved correct - it would be nice to see those shares landing in the hands of long term stable shareholders ....  :D
Title: Re: FTP - Fortress Paper
Post by: triedtestedand on May 25, 2012, 10:24:32 AM
<IV:

I was wondering similar, as would be good to have stuff land in stickier hands.

Do you or others who know how to get such things (similar to Sparkie from M*A*S*H*), have access to FTP short position details/changes?



BTW -> there was an earlier question about whether Chad has ability to buy/sell ... the answer was no, but it looks like there's an automated sell worked into his/others share payments.

http://www.fortresspaper.com/images/pdfs/releases/NewsReleases_2010/NewsRelease_Dec10_2010.pdf

Title: Re: FTP - Fortress Paper
Post by: triedtestedand on May 25, 2012, 10:41:27 AM
PS ->   If/when this LSQ mill deal closes, isn't there a $25M unsecured convertible debenture subscription that goes to corporate (Fortress Paper) without being tied to the cellulose (Fortress Global) subsidiary?

http://www.fortresspaper.com/images/pdfs/releases/NewsReleases_2012/NewsRelease_Jan31_2012.pdf

I ask ... as wouldn't this add to corporate liquidity that they could use without constraint? 

Of course (as someone else has already noted), whoever is signing up for it would be getting a much better priced deal than in January. As would IQ, who's supposed to get 715K of warrants.   Maybe they're the ones shorting this ... ;-)
Title: Re: FTP - Fortress Paper
Post by: bathtime on May 25, 2012, 04:56:44 PM
RBC Dominion Securities 5/15/12

Q112 results below expectations - Fortress reported adjusted EPS of ($0.64) in Q112 compared to our estimate of ($0.33) and consensus of ($0.26). Adjusted EBITDA of ($1.8MM) was worse than our ($1.1MM) forecast and consensus of $1.8MM. Strong performance from wallpapers was more than offset by continued cost pressure in the banknote operations and a slower-than-expected ramp-up of DP production at Thurso. Paper shipments of 15.3k mt were up 17% q/q but flat y/y.

Thurso (commodity dissolving pulp) - EBITDA was ($3.5MM) in Q112, down from ($1.3MM) in Q411 and below our forecast of ($1.2MM). Fortress included only the last two weeks of March in its Q1 operating results, so we will have to wait until Q2 to get a better idea of Thurso's cost position. Pulp shipments increased to 35.7k mt from 8.2k mt in Q4 as the mill ramped up production following conversion to DP (71% op. rate in Q1). Commodity DP prices have trended lower over the last two months to ~$1,120/mt and are down 30% since September as ~20% more nameplate capacity has been added globally. We believe pricing momentum stalls at ~$1,3000/mt as prices are then high enough to attract swing capacity into the market.

Dresden (wallpaper) - EBITDA was $9.4MM, up from $9.1MM in Q411 and above our estimate of $8.2MM due to strong margins. Shipments of 14.3k mt were 19% higher than Q4 due to record production. Management commented that the order book is "healthy."

Landqart (banknotes) - EBITDA generated in Q1 was ($5.2MM), slightly better than the ($7.2MM) in Q411 and our ($6.0MM) estimate. Results were impacted by high mill costs due to low utilization rates caused by a postponement of orders across the banknote industry while the mill faced continued challenges from high raw material costs, the strong Swiss franc, and production issues. Fortress believes operating rates will improve in H212. Following the sale in Q2 of a hydropower asset to a local utility for CHF18MM, Fortress is now "assessing strategic options" for this business that may result in further sales of non-core assets.

Balance sheet weakens with net-debt-to-cap of 44% - As of May 14, Fortress has spent $158MM so far on the $213MM Thurso conversion (incl. co-gen). The total project cost was revised upwards by $3MM (an improvement on the $30MM bump last quarter).

Paul Quinn, RBC Dominion Securities
Title: Re: FTP - Fortress Paper
Post by: bathtime on May 25, 2012, 05:04:38 PM
RBC Dominion Securities 5/16/12

Maintain Outperform but trimming target - While Fortress is trading at only 2.9x our trend EBITDA forecast of $172MM, the valuation is somewhat understandable considering that the company's ambitious targets have been consistently missed. Additionally, continued pricing uncertainty for commodity DP (in light of capacity additions) and persistent cost pressures in the banknote business continue to weigh down on the story.

Lowering EBITDA estimates - We have become even less confident in management's targeted cost position for Thurso/LSQ. Q212E from $21MM to $6MM. FY12E from $77MM to $44MM. FY13E from $116MM to $103MM.

Considerable upside potential if some of management's targets are met - While Fortress hasn't made it easy on itself with very high performance goals, we believe the company will eventually get close to its targeted cost position, but it will take some time. However, we suspect the market will not pay up for lower costs until they begin to show up in financial performance, especially considering how Thurso's conversion cost guidance has continued to increase over time. Fortress capitalized all DP revenue and costs for most of Q1 so the market will have to wait until Q2 to get a sense of real-world operating costs at Thurso. Commodity DP prices have trended lower over the last two months to ~$1,120/mt and are down 30% since September as ~20% more nameplate capacity has been added globally. We believe pricing momentum stalls at ~$1,300/mt as prices are then high enough to attract swing capacity into the market.

Breaking into specialty will not be easy - Fortress is targeting placing ~50% of its production into the high-alpha specialty market within 3-5 years. This market has very high barriers to entry from a technical, cost, and customer perspective, so success is by no means guaranteed. Fortress will be facing off against Sateri and Sappi which also have big plans to grow in specialty.

Q112 results below expectations - Fortress reported adjusted EBITDA of ($1.8MM), below our ($1.1MM) forecast and consensus of $1.8MM.

Valuation: Our price target is based on a blended 4.0x EV/EBITDA multiple of our trend EBITDA estimate of $172MM (85%) and our revised 2012 EBITDA estimate of $44MM (15%). We believe Fortress should trade at a multiple below the bottom of the typical Canadian Paper & Forest Products trading range (4.5x to 6.5x), reflecting the company's smaller size, uncertain outlook for commodity DP pricing, and risks associated with the LSQ mill conversion.

We are using a 2012 commodity DP price assumption of US$1,150/mt and a long-term dissolving pulp price of US$1,250/mt.

Price Target Impediments: New capacity additions in commodity dissolving pulp may have a significant negative impact on prices and materially affect Fortress' profitability. A reduction in banknote consumption driven by higher growth rates in non-cash payment systems, or a faster-than-expected transition to polymer vs. cotton-based paper banknotes would likely increase competition to secure cotton-based banknote paper contracts, negatively impacting margins. Slower-than-expected demand growth in non-woven wallpaper base, caused by a change from recent design trends in Europe or a slowdown in housing construction and renovation activity, may negatively impact margins. New capacity additions in security or wallpaper industries would have a negative impact on prices. Raw material costs, including pulp and synthetic fibers, are determined in large part by non-controllable factors, which can substantially impact operating results. A significant reduction of purchases by any of Fortress' largest customers could have a material adverse effect on Fortress' business, financial condition, liquidity, and results of operations.

Paul Quinn, RBC Dominion Securities
Title: Re: FTP - Fortress Paper
Post by: roundball100 on May 25, 2012, 05:27:07 PM
There was a large trade today of  ~150K shares at ~ $17.70 ... which got me to thinking who owns/buying the stock (and believes the story), and conversely who's selling (and has soured, or capitulated).   

From Morningstar.ca (which shows top 10 holdings) and SEDAR (which shows >10% holdings) the following #'s are provided, based on reportings from past 6mo:

...


Was surprised not to see Liberty among the top 10 holders.  (Just kidding!)

Keep up the great commentary and technical insight on this thread!
Title: Re: FTP - Fortress Paper
Post by: alertmeipp on May 25, 2012, 07:07:15 PM
RBC Dominion Securities 5/16/12

Maintain Outperform but trimming target - While Fortress is trading at only 2.9x our trend EBITDA forecast of $172MM, the valuation is somewhat understandable considering that the company's ambitious targets have been consistently missed. Additionally, continued pricing uncertainty for commodity DP (in light of capacity additions) and persistent cost pressures in the banknote business continue to weigh down on the story.

Lowering EBITDA estimates - We have become even less confident in management's targeted cost position for Thurso/LSQ. Q212E from $21MM to $6MM. FY12E from $77MM to $44MM. FY13E from $116MM to $103MM.

Considerable upside potential if some of management's targets are met - While Fortress hasn't made it easy on itself with very high performance goals, we believe the company will eventually get close to its targeted cost position, but it will take some time. However, we suspect the market will not pay up for lower costs until they begin to show up in financial performance, especially considering how Thurso's conversion cost guidance has continued to increase over time. Fortress capitalized all DP revenue and costs for most of Q1 so the market will have to wait until Q2 to get a sense of real-world operating costs at Thurso. Commodity DP prices have trended lower over the last two months to ~$1,120/mt and are down 30% since September as ~20% more nameplate capacity has been added globally. We believe pricing momentum stalls at ~$1,300/mt as prices are then high enough to attract swing capacity into the market.

Breaking into specialty will not be easy - Fortress is targeting placing ~50% of its production into the high-alpha specialty market within 3-5 years. This market has very high barriers to entry from a technical, cost, and customer perspective, so success is by no means guaranteed. Fortress will be facing off against Sateri and Sappi which also have big plans to grow in specialty.

Q112 results below expectations - Fortress reported adjusted EBITDA of ($1.8MM), below our ($1.1MM) forecast and consensus of $1.8MM.

Valuation: Our price target is based on a blended 4.0x EV/EBITDA multiple of our trend EBITDA estimate of $172MM (85%) and our revised 2012 EBITDA estimate of $44MM (15%). We believe Fortress should trade at a multiple below the bottom of the typical Canadian Paper & Forest Products trading range (4.5x to 6.5x), reflecting the company's smaller size, uncertain outlook for commodity DP pricing, and risks associated with the LSQ mill conversion.

We are using a 2012 commodity DP price assumption of US$1,150/mt and a long-term dissolving pulp price of US$1,250/mt.

Price Target Impediments: New capacity additions in commodity dissolving pulp may have a significant negative impact on prices and materially affect Fortress' profitability. A reduction in banknote consumption driven by higher growth rates in non-cash payment systems, or a faster-than-expected transition to polymer vs. cotton-based paper banknotes would likely increase competition to secure cotton-based banknote paper contracts, negatively impacting margins. Slower-than-expected demand growth in non-woven wallpaper base, caused by a change from recent design trends in Europe or a slowdown in housing construction and renovation activity, may negatively impact margins. New capacity additions in security or wallpaper industries would have a negative impact on prices. Raw material costs, including pulp and synthetic fibers, are determined in large part by non-controllable factors, which can substantially impact operating results. A significant reduction of purchases by any of Fortress' largest customers could have a material adverse effect on Fortress' business, financial condition, liquidity, and results of operations.

Paul Quinn, RBC Dominion Securities

Target price is $31. Market has lost fate in management to deliver their promise.
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 25, 2012, 07:27:49 PM

Was surprised not to see Liberty among the top 10 holders.  (Just kidding!)

Keep up the great commentary and technical insight on this thread!

Ha! Sadly, my few thousands of shares don't qualify. Maybe someday if price keeps going down...
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 25, 2012, 07:37:22 PM
Analyst projections are pretty worthless. I sometimes find the reports useful for factual due diligence that I can't always do myself (ie. "we went to the plant and saw that it was running well...", construction is progressing well, etc). But other projections? Meh. Go back a year or two ago and see if they predicted what's happening now. So now they can predict what'll happen in a year?

I was reading some Howard Marks early memos today, and he's spot on on this. Analysts just predict more of the same, whatever that is. When things are going great, it'll keep going great, and when it's going badly, it'll keep going badly. Less risk to their jobs predicting like that. They pretty much miss all the inflections, reversals and changes of direction, which is what would be useful to know in advance...

Bottom line for me is, I believe these assets are worth a lot more than what I'm paying for, and I trust management to execute and keep adding value, and be a good stewart of capital. Doesn't mean it'll always move in a straight line without any setback, but I think the probability of permanent loss of capital is extremely low and the probability of a great outcome is very high.

But that's just my 2 ounces of dissolved cellulose...
Title: Re: FTP - Fortress Paper
Post by: alertmeipp on May 25, 2012, 07:56:42 PM
Analyst projections are pretty worthless. I sometimes find the reports useful for factual due diligence that I can't always do myself (ie. "we went to the plant and saw that it was running well...", construction is progressing well, etc). But other projections? Meh. Go back a year or two ago and see if they predicted what's happening now. So now they can predict what'll happen in a year?

I was reading some Howard Marks early memos today, and he's spot on on this. Analysts just predict more of the same, whatever that is. When things are going great, it'll keep going great, and when it's going badly, it'll keep going badly. Less risk to their jobs predicting like that. They pretty much miss all the inflections, reversals and changes of direction, which is what would be useful to know in advance...

Bottom line for me is, I believe these assets are worth a lot more than what I'm paying for, and I trust management to execute and keep adding value, and be a good stewart of capital. Doesn't mean it'll always move in a straight line without any setback, but I think the probability of permanent loss of capital is extremely low and the probability of a great outcome is very high.

But that's just my 2 ounces of dissolved cellulose...

are they running into possible liquidity issue or is the issue overblown? It's a bad time to have cash crunch.
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 25, 2012, 08:36:47 PM
are they running into possible liquidity issue or is the issue overblown? It's a bad time to have cash crunch.

It's tighter than I would like, but as it is, I don't think it's that bad (and it's more than priced in anyway), and it's a problem that is eminently surmountable and temporary (it's not as if Thurso is years away from full production). Who knows, maybe other big problems could surface and compound it... But based on what is currently known, I don't think it'll be a big problem, and they have lots of ways to deal with it (with dillution as a last resort - but even that wouldn't be the end of the world since you are paying such a low price and have such a big margin of safety, IMO).

I'm also taking into account that this is a very big transition for the company, and because of the planning fallacy*, stuff is going to take longer and cost more. But if the end result is worth it, I can be patient, and it's not as if this was normal operations and liquidity was a bit tight. If they get to normal production, liquidity shouldn't be a problem at all (we're not talking about a business that has paper thin margins and lots of leverage during normal operations). They are more vulnerable now, but it's not the normal state of this animal.

Some people might want to wait for the vulnerable phase to end before investing, and that's understandable, but as Buffett says, you pay a high price for a rosy consensus, and by the time it's clear that the transition period is successfully over, price could be much higher.


* http://en.wikipedia.org/wiki/Planning_fallacy
Title: Re: FTP - Fortress Paper
Post by: alertmeipp on May 25, 2012, 09:32:06 PM
are they running into possible liquidity issue or is the issue overblown? It's a bad time to have cash crunch.

It's tighter than I would like, but as it is I don't think it's that bad (and it's more than priced in anyway), and it's a problem that is eminently surmountable and temporary (it's not as if Thurso is years away from full production). Who knows, maybe other big problems could surface and compound this. But based on what is currently known, I don't think it'll be a big problem and they have lots of ways to deal with it (with dillution as a last resort - but even that wouldn't be the end of the world since you are paying such a low price and have such a big margin of safety, IMO).

I'm also taking into account that this is a very big transition for the company, and because of the planning fallacy*, stuff is going to take longer and cost more. But if the end result is worth it, I can be patient, and it's not as if this was normal operations and liquidity was a problem. If they get to normal production, liquidity shouldn't be a problem at all (we're not talking about a business that has paper thin margins and lots of leverage during normal operations).


* http://en.wikipedia.org/wiki/Planning_fallacy

Thanks Liberty.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on May 26, 2012, 04:49:57 AM
Lib, you are right but we can't deny that Chad has a serious case of 'planning falacy' with extreme overestimates of EBITDA projections, costs overruns, construction delays and the like. And all of them multiple times and some pretty badly. I've said in the past (december, january) that he was overly optimistic and now, as you said, the market is extrapolating the situation forever and gives him no credit. We know very well where this current share price is coming from. Still, I believe my MoS was sufficient at $30-32 and it should be a lot higher now at $18, although some delays and cost overruns made an impact on current liquidity and future profitability.

Let's just sit back and watch things unfold now! ;)
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 26, 2012, 09:42:41 AM
Lib, you are right but we can't deny that Chad has a serious case of 'planning falacy' with extreme overestimates of EBITDA projections, costs overruns, construction delays and the like. And all of them multiple times and some pretty badly. I've said in the past (december, january) that he was overly optimistic and now, as you said, the market is extrapolating the situation forever and gives him no credit. We know very well where this current share price is coming from. Still, I believe my MoS was sufficient at $30-32 and it should be a lot higher now at $18, although some delays and cost overruns made an impact on current liquidity and future profitability.

Let's just sit back and watch things unfold now! ;)

Here's how I look at this, let me know if you think I'm off-base :)

Like investing, running a business is a lot about having a good process. It's dangerous to judge yourself or others only on outcome because in the short-term some people with bad process are lucky and some people with good process are unlucky. But over the long-term, those with good process usually come out on top (in the long-term, the market is a process-vetting machine?).

So while it's true that there were cost overruns and delays, let's look at the kinds we faced:

Out of mgmt's control
-Unfavorable currency changes (Canadian dollar, Swiss Franc... but currency doesn't move in the same direction forever, as we saw with the CAD this week, and this could eventually help FTP)
-Lower cotton/DP prices (not surprising considering the macro environment + the fact that after record highs, lots of farmers will plant more cotton, but the pendulum should swing back, and FTP never projected these high prices to continue, so not a surprise)
-Delayed security paper orders (I don't think there's much management can do about it. The good news is that it appears that once printing has begun, series can last for many years)
-Spontaneous province-wide strike for about a week (not much to do here)
-Change in the mood of the Canadian market from greed to fear (TSX down 15% in past year, TSX venture down 35%). Even with good news, FTP was bound to be dragged down at least some.

Maybe under mgmt's control
-Engineering firm's screw up for co-gen (maybe there was something they could do to avoid this one, hard to say)
-Used parts for cogen not available so they had to buy new, more expensive ones (maybe they could have locked those down better, but without knowing what happened exactly, it's hard to tell. Maybe they did things right and got screwed by a counter-party, who knows?)

Mgmt is to blame
-Publicly announcing aggressive targets for conversion, rather than average or conservative targets (afaik, the thurso conversion is currently pretty on target compared to industry averages, though it is behind the aggressive timeline that was originally given. Maybe being aggressive lit a fire under them and helped them perform better because of the accountability of a public statement, or maybe they should have kept that target private and instead under-promised)
-When journalists ask for projections, it's best to say nothing (because even if all you give is your best estimate based on current information, people will interpret it as a promise and blame you if it doesn't happen exactly the way you said, leading to disappointment. When speaking to someone rational, you can make predictions with uncertain outcomes, but the general public looks at things in a binary way)

I'm probably forgetting something..

Anyway. My point is that if most of the bad stuff had happened because of the way management did things, I would be more critical. But as it is, I think they had mostly a good process and did things right, but they still had somewhat unfavorable outcomes. Since I'm not seeing any problems that aren't surmountable and/or temporary, I think we should be fine.

But as Geoff Gannon says, investing is ultimately a cash to cash transaction. And since you can't change just one thing (ceteris paribus is a nice construct in theory, but doesn't happen in practice), the question is, how much will these problems matter in the end all things considered? If FTP had hit every single aggressive milestone and currency had never moved against them and the macro environment was better-looking (higher cotton/DP prices) and central banks hadn't delayed currency series, etc.. Things would certainly look much better, but my average cost would probably be at least in the 40s, probably in the 50s or 60s, maybe higher, rather than in the 20s as it is now. So from a cash to cash perspective, would I actually have done better in the end in that rosier scenario? Maybe, but maybe not.

Bad stuff happened, but the price went down to more than compensate for it, IMO, and most of it didn't shake my confidence in management because a lot of times there wasn't much they could do about it. With hindsight, we can no doubt find things they could have done differently, but overall I feel they are being prudent enough (the way they structure their deals and the prices they pay for their assets provide them a good margin of safety, IMO. They aren't building from scratch billion-dollar plants that will end up high-cost producers) and their good process should lead to good outcomes over time.

I agree that at this point what this company needs is a bit of time to allow things to unfold. I've heard from a few people who sold their shares before the conversion of Thurso was completed and others who sold before the ramp up was complete. I understand that dropping share prices can be scary, but if shareholders lack the patience to wait for a company's biggest asset to be up and running, they may lack the patience required to do well as investors. It's not for nothing that Buffett and Munger say that the hardest thing is sitting on your ass and doing nothing.
Title: Re: FTP - Fortress Paper
Post by: HJ on May 26, 2012, 11:55:38 AM
Pretty new to the specialty paper sector, so please pardon my ignorance, but other than the presentation on Fortress website, how does one get comfortable that Thurso and LSQ will be competitive cost wise vs other potential capacity being planned?
Title: Re: FTP - Fortress Paper
Post by: colinwalt on May 26, 2012, 12:24:21 PM
@Liberty

Very well put together - pretty much how I'm thinking about this - I actually started to try and write up something along these lines, but in the end didn't have the time - I also don't think there was any chance it would have come out anything like as well as yours.

I just hope we're not all providing each other with some seriously false "positive reinforcement"
Title: Re: FTP - Fortress Paper
Post by: gokou3 on May 26, 2012, 01:13:59 PM
I am trying to view the recent company presentation again but it has been removed from the company website.  Anyone has saved a copy himself?
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 26, 2012, 07:46:24 PM
I just hope we're not all providing each other with some seriously false "positive reinforcement"

I'm always afraid of that, but I try to actively seek out contrary opinion and so far I haven't found much that was convincing (most of it is just chartists and technical people, and that's when they even give a reason for being bearish). But if anyone here has something, please post!
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 26, 2012, 07:46:49 PM
I am trying to view the recent company presentation again but it has been removed from the company website.  Anyone has saved a copy himself?

Here's the one from March: http://depositfiles.com/files/huorxb4rw
Title: Re: FTP - Fortress Paper
Post by: bonechip1 on May 26, 2012, 10:12:45 PM
Great post Liberty.   Thurso's 4 month delay and cost over-run by a factor of about 1/3 from initial estimates is disappointing to see as an FTP investor.   And granted, the recent slide probably isn't totally related to the cost over-run, but even the oilsands producers weren't punished this hard for cost over-runs on their big expansion projects in the last decade of multiples of initial estimates. 

http://noelmaurer.typepad.com/aab/2009/09/the-private-sector-is-bad-at-big-stuff-too.html

Attached is another presentation you might want to revisit again - the management presentation of the Thurso acquisition from April 15, 2010.  FTP management at the time of Thurso announcement was using a long term dissolving price of $900 per tonne in their models, and we are materially above that currently.  Also consider that 36% of Thurso production is being sold at VSF spot price less $1,000, which historically has been about a $200 premium to DP spot price.  If their Chinese customers honor their contracts with floors of $1,200, which I believe they will, thinking about it from a game theory point of view, management's estimates on the long term trend of dissolving pulp have been quite conservative which certainly gives them some credibility in estimates.  The proof will be in the delivered cash costs when the mill is fully ramped up.

Lastly, you know a stock is hated when an analyst downgrades his rating on FTP because FTP management now is estimating Thurso operating at full capacity "in the middle of 2012", compared to management previously saying "at the end of June".  Downgrading a stock for this reason is as stupid as if I gave my daughter sh*t for coming home at midnight when she said she'd be home at 12:00 am (hypothetical, she's not a teenager yet).  Ridiculous. 
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 26, 2012, 10:54:07 PM
Hey Bonechip, nice to see you posting again. I think you were one of the people who initially made me check out FTP, so thanks (but if it doesn't work out in the end, I'll blame you  :P ;) ).

Quote
Also consider that 36% of Thurso production is being sold at VSF spot price less $1,000, which historically has been about a $200 premium to DP spot price.

That's a good point. Another thing that isn't mentioned often is that even within its price collar, FTP isn't selling DP at just the basic spot price that we often see quoted. They are selling it at the price of "comparable quality" DP.

So f.ex.  (hypothetical numbers), if DP spot price is 1200, but DP with an alpha of 96% (very high) sells for 1300 and that's what they have, they'll get the higher price. That's part of their contract. It's not quite as big a premium as if they got certified on the specialty market, but it can make a difference.
Title: Re: FTP - Fortress Paper
Post by: alertmeipp on May 27, 2012, 08:46:58 AM
So, why was Chad getting 16millions of compensation at 2010?
Title: Re: FTP - Fortress Paper
Post by: Liberty on May 27, 2012, 09:42:37 AM
So, why was Chad getting 16millions of compensation at 2010?

I'm not sure the number was exactly that, but it was high mostly because they got thurso, afaik, which was a great deal and game changer for the company. Iirc, some of that was part of a multi-year compensation plan. That's more money than I would strictly like, but if the deal turns out to be worth hundreds of millions over the long term,  it's worth rewarding the key man who made it happen. I do wish everybody was like Buffett on compensation, though.

He did give up all bonuses for 2011.

Edit: see here http://www.stockhouse.com/Bullboards/MessageDetailThread.aspx?sv=2&p=0&m=29845189&r=0&s=FTP&t=LIST
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on May 27, 2012, 03:50:19 PM
So, why was Chad getting 16millions of compensation at 2010?

I'm not sure the number was exactly that, but it was high mostly because they got thurso, afaik, which was a great deal and game changer for the company. Iirc, some of that was part of a multi-year compensation plan. That's more money than I would strictly like, but if the deal turns out to be worth hundreds of millions over the long term,  it's worth rewarding the key man who made it happen. I do wish everybody was like Buffett on compensation, though.

He did give up all bonuses for 2011.

Edit: see here http://www.stockhouse.com/Bullboards/MessageDetailThread.aspx?sv=2&p=0&m=29845189&r=0&s=FTP&t=LIST

It was $16M in 2010.
It was also $1M in 2009 and $1.3M in 2011.
Title: Re: FTP - Fortress Paper
Post by: Liberty on June 04, 2012, 07:10:25 AM
Bought a few hundred more at 17.05 this morning. I thought it was cheap at 30, so this is just a gift. Any problems they're having right now are more than priced in at this level, IMHO, and a patient holder who can wait a few years should be amply rewarded.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on June 04, 2012, 07:23:50 AM
Did the same Lib.  :) Average now $24. I am buying 3-4 times more shares a time now than I did at $28-32. Almost out of ammo tho! I'm either brave and stupid or just brave.  :D
Title: Re: FTP - Fortress Paper
Post by: Liberty on June 04, 2012, 08:27:42 AM
Did the same Lib.  :) Average now $24. I am buying 3-4 times more shares a time now than I did at $28-32. Almost out of ammo tho! I'm either brave and stupid or just brave.  :D

The frustrating thing is that there's something else that I really want to be buying right now, but I try to be rational about it and compare that opportunity to my other best ideas, and right now FTP is so cheap that it keeps coming on top. I wish I had come into this with 50% cash like Parsad.. :) Every time I resolve to start accumulating cash, stuff I like becomes too cheap to pass.. Oh well, it's not optimal, but it should turn out well in the end.
Title: Re: FTP - Fortress Paper
Post by: Liberty on June 04, 2012, 09:33:02 AM
One thing that should be mentioned is that a weaker Canadian dollar should be good for FTP because afaik DP is priced in USD.
Title: Re: FTP - Fortress Paper
Post by: keerthiprasad on June 06, 2012, 07:09:19 AM
Bought some more last week.  This is definitely an uncertainty vs. risk situation (getting thurso and lanquardt for free).  Additionally, most people just don't want to wait (kind of a perfect storm of delays that hit thurso and lanquardt at the same time).

Is anyone attending the annual meeting? 
Title: Re: FTP - Fortress Paper
Post by: Liberty on June 06, 2012, 07:23:43 AM
Is anyone attending the annual meeting?

I wish I could, but it's a bit far. Hopefully others who can attend will share their notes.
Title: Re: FTP - Fortress Paper
Post by: sculpin on June 06, 2012, 10:31:52 AM
This type of news doesn't help the investor sentiment on the DP biz...

Plunging cotton prices cast pall on commodities outlook

Wednesday, June 6, 2012
DAVID BERMAN
dberman@globeandmail.com

Read David Berman's Market Blog at tgam.ca/marketblog

Polyester shirts are not only uncomfortable - they're also behind-the-times as reflections of the commodities market.

When cotton prices were sky-high last year, polyester was used as a cheaper replacement. Now, cotton prices have hit hard times, and the decline provides a troubling indicator for the global economy.

"When cotton gets sick, the rest of the commodities show up at the hospital eventually," said Ron Lawson at commodities broker LOGIC Advisors in Sonoma, Calif. "It's the longest-leading economic indicator because it passes through the greatest number of hands."

To be sure, cotton isn't alone among commodities singing the blues right now. The Reuters/Jefferies CRB index of 19 commodities is close to a 21-month low after tumbling 27 per cent from its recent high in 2011. But cotton has had it particularly rough. Prices have fallen to about 67 cents (U.S.) a pound in New York, down from a record high of nearly $2.20 a pound in March, 2011. That's nearly a 70 per cent slide, and makes crude oil's recent troubles look comparatively tame.

The decline has been so sharp that the price of cotton is now at its lowest level since late 2009, when the global economy was still in the early stages of emerging from the frightening financial crisis the year before.

Cheaper cotton is good news for companies that make and sell clothing because the cheaper input costs can translate into fatter profit margins. J. Crew Group Inc.'s chief financial officer seemed to be breathing a sigh of relief when he said on a conference call in late May that "the commodity pressures that we're seeing in cotton are beginning to ease."

True enough, cotton is declining from very high levels in 2011, when prices surged to record highs because of devastating crop damage in Pakistan and Texas, low inventories and high consumer demand.

But as a signal for the global economy - already weighed down by slowing growth in China, the ongoing sovereign-debt crisis in Europe and a faltering U.S. recovery - the current price is nonetheless giving some investors another reason to fret.

"Yes, the market got too extended in 2011," Mr. Lawson said. "Now we're back down to what we would typically think are historically normal levels" - but other commodities, including corn, remain well above historically normal levels.

"It'll sort itself out. But for now, the cotton market is hurtin' for certain."
Title: Re: FTP - Fortress Paper
Post by: Liberty on June 06, 2012, 10:48:53 AM
This type of news doesn't help the investor sentiment on the DP biz...

Plunging cotton prices cast pall on commodities outlook

Certainly, but it's also good because there are many competing DP plants that probably won't be built, and when the cycle goes back up (the current downturn isn't unexpected after the record high prices that pushed farmers to plant a lot more cotton than usual), FTP should be ready to benefit massively.
Title: Re: FTP - Fortress Paper
Post by: BRK7 on June 06, 2012, 02:42:47 PM
This type of news doesn't help the investor sentiment on the DP biz...

Plunging cotton prices cast pall on commodities outlook

Certainly, but it's also good because there are many competing DP plants that probably won't be built, and when the cycle goes back up (the current downturn isn't unexpected after the record high prices that pushed farmers to plant a lot more cotton than usual), FTP should be ready to benefit massively.

Along those lines, Sateri is possibly not very excited about the prospects for its Fengdu project (principally a DP project, I believe) in China.  They are selling the Fengdu project to RGE for US$2.7 million (the amount of expenditure Sateri had incurred by on the project), while retaining an option (with right of first refusal) to buy it back at any time during the next 5 years.  The stated reason for selling Fengdu seems to be to focus Sateri’s resources on its VSF project (requiring capex of RMB3.5 billion or roughly US$0.5billion).

Note that RGE (controlled by billionaire Sukanto Tanoto) owns about 84% of Sateri.  So, it is a “related party” transaction.  Not sure what to make of that, but it will be interesting to see if RGE develops Fengdu or just holds the assets, hoping to sell the assets for a capital gain in the event that DP pricing goes through the roof again.

It would also be interesting to know the expected production cost of DP from the Fengdu project.

http://www.sateri.com/download/news/e20120525-Connected_Transactions_48.pdf

Title: Re: FTP - Fortress Paper
Post by: bathtime on June 06, 2012, 08:36:14 PM
Barring further travel snafus, I'll be at the meeting.

Unless there's something of great import I won't have time to give my impressions until the weekend.

If anyone else from the board will be there, please let me know. Or just say hi to the blonde guy in jeans around Chad's age.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on June 07, 2012, 07:54:50 AM
This type of news doesn't help the investor sentiment on the DP biz...

Plunging cotton prices cast pall on commodities outlook

Wednesday, June 6, 2012
DAVID BERMAN
dberman@globeandmail.com

Read David Berman's Market Blog at tgam.ca/marketblog

Polyester shirts are not only uncomfortable - they're also behind-the-times as reflections of the commodities market.

When cotton prices were sky-high last year, polyester was used as a cheaper replacement. Now, cotton prices have hit hard times, and the decline provides a troubling indicator for the global economy.

"When cotton gets sick, the rest of the commodities show up at the hospital eventually," said Ron Lawson at commodities broker LOGIC Advisors in Sonoma, Calif. "It's the longest-leading economic indicator because it passes through the greatest number of hands."

To be sure, cotton isn't alone among commodities singing the blues right now. The Reuters/Jefferies CRB index of 19 commodities is close to a 21-month low after tumbling 27 per cent from its recent high in 2011. But cotton has had it particularly rough. Prices have fallen to about 67 cents (U.S.) a pound in New York, down from a record high of nearly $2.20 a pound in March, 2011. That's nearly a 70 per cent slide, and makes crude oil's recent troubles look comparatively tame.

The decline has been so sharp that the price of cotton is now at its lowest level since late 2009, when the global economy was still in the early stages of emerging from the frightening financial crisis the year before.

Cheaper cotton is good news for companies that make and sell clothing because the cheaper input costs can translate into fatter profit margins. J. Crew Group Inc.'s chief financial officer seemed to be breathing a sigh of relief when he said on a conference call in late May that "the commodity pressures that we're seeing in cotton are beginning to ease."

True enough, cotton is declining from very high levels in 2011, when prices surged to record highs because of devastating crop damage in Pakistan and Texas, low inventories and high consumer demand.

But as a signal for the global economy - already weighed down by slowing growth in China, the ongoing sovereign-debt crisis in Europe and a faltering U.S. recovery - the current price is nonetheless giving some investors another reason to fret.

"Yes, the market got too extended in 2011," Mr. Lawson said. "Now we're back down to what we would typically think are historically normal levels" - but other commodities, including corn, remain well above historically normal levels.

"It'll sort itself out. But for now, the cotton market is hurtin' for certain."


BAL:US rebounded the last few days ...
<IV

http://blogs.barrons.com/focusonfunds/2012/05/11/cotton-prices-likely-to-get-support-from-here/

Cotton Prices: Likely To Get Support From Here.EmailPrint
smaller Larger  By Brendan Conway
It was a tough week for cotton, but there are reasons to suspect the commodity is near a bottom now that it’s fallen to a 22-month low this morning.

First the week’s bad news for prices. The U.S. Department of Agriculturecapped a bearish run in cotton Thursday by forecasting a 9% production increase this season in the U.S., the world’s top cotton exporter. The agency also said global supplies are set to hit another record. Demand in China has been pretty weak of late, which is one reason the bears have been on top. Cotton for July delivery is falling another 2.5% to just under 80 cents  a pound as of midsession after sliding yesterday.


AFP/Getty ImagesNow the price-bullish news: Export demand could pick up at prices below 80 cents, in the judgment of Morgan Stanley’s commodities researchers, who put on a bearish cotton trade back in March. In addition, don’t count on weather in the South being as cooperative as market prices currently suggest. The analysts led by Hussein Allidina recommended this morning that traders close out the short position:

One leg of our argument for lower prices has been that global consumers (particularly in Asia) were likely to cancel prior purchases of US cotton as the end of the Chinese reserve purchase program pressured domestic prices. Lower US prices reduce the likelihood that these cancellations will be realized, posing upside risk of up to 700K bales to our current export forecast of 11.25 mln bales. If achieved, this would leave US 11/12 S/U below 20%, and likely support near-dated cotton prices.

Supply-side may also pose bullish risks.
Cotton prices have been pressured in recent weeks by better precipitation in the Southern US, which has raised yield estimates and lowered abandonment forecasts in drought-stricken Texas. While the trend appears to be in favor of more precipitation, much of the Texas dryland cotton area remains under drought conditions, and we note that a decline in precipitation could reverse the market’s optimism on US production prospects.

There are, in fact, a handful of ways to invest in cotton in the ETF market, although none are particularly well-traversed. The iPath Dow Jones UBS Cotton Subindex Total Return ETN (BAL), down about 23% in 2012, has just $33 million in assets. The ETN’s prospectus and more are found here.

Title: Re: FTP - Fortress Paper
Post by: lessthaniv on June 07, 2012, 08:31:52 AM
Thought this was well written aside from trying to predict the future trading values. But the framework is a good summary.

http://seekingalpha.com/article/627801-attention-commodity-shoppers-cotton-s-blue-light-special

I've been spending some time on reading up about the enviromental impact that Cotton farming is having throughout the world but praticularily in China. After reading numerous articles and whitepapers its pretty clear that current Chinese practices are not sustainable. I recall Chad putting an asterik beside the Chinese's contribution to world cotton production for this very reason. The Aral sea disaster is a sad example of what has been going on in the World Cotton markets. I've attached a great summary from idhsustainabletrade.com. The article footnotes refrences numerous sources to continue your reading...
Title: Re: FTP - Fortress Paper
Post by: Liberty on June 07, 2012, 09:26:21 AM
Thanks <IV, interesting stuff.

I don't pretend to be an expert on the minutiae of the cotton market, but I think the big trends are very favorable:

-There's a floor below which cotton farmers switch to other crops (not a static floor because it depends on other ag-commodity prices), putting upward pressure on prices. We seem to be way below that floor right now, yet DP prices are at levels that would still make FTP profitable because the high-cost producers are idling (on top of that, they have their long-term contracts, and their higher quality DP is sold at a premium to the spot that we often see quoted). That's reassuring.
-If I look out 5-10 years, I see very little chances that China won't require massively more cotton and cotton substitutes like rayon than it does now. Even if they grow at just 4-5% a year on average, that's hundreds of millions of people who can buy an extra pair of jeans and a few extra t-shirts. And there seems to be a consensus that China needs to rebalance its economy and encourage consumption, so even low total growth could hide high growth in consumption.
-A couple more billion people in places like Africa, South-America, India.. will be able to upgrade their wardrobe, one of the most accessible luxuries as people start having a bit of money above subsistence levels
-China's cotton production should be pressured downward for environmental reasons. Their high yields don't appear sustainable, and as has happened pretty much everywhere else, as people get richer, they start to care more about not being exposed to toxic chemicals, having clean air, safe water, etc. It has already begun in China.
-At some point the US and European economies will show a lot more vigor and consume more cotton and cotton-substitutes (as well as specialty DP products).
-Many of the things that can negatively impact FTP are things that will impact other companies too (ie. if China crashes or there's a global financial crisis, FTP will have a hard time, but so will most other things I could invest in too), but there are many unforeseeable but probable events that could give a lot of upside to FTP but not to others (ie. a big drought in a cotton-producing area, or the price of corn or soybeans going through the roof, making farmers switch to those).
-I won't get into all the reasons why I think supply of DP won't go up nearly as fast as some people think, but let's just say that a lot of projects that were announced when prices were at record highs were cancelled or postponed, that very few plants are good conversion candidates (iirc, Chad said he found 6 around the world, and he's already bought 2 of them and hired many of the people who knew how to do a conversion), China isn't a good place to produce DP because of the wood supply situation, FTP is the only new entrant to that industry in the past 30-40 years, and building a DP plant from scratch is a big gamble (expensive and long to build, and if you aren't a low-cost producer and prices for DP aren't where you thought they would be, you have a batch process plant rather than a continuous process plant, which is sub-optimal if you want to convert it to other types of pulp). Barriers to entry in the industry seem fairly high.

And since at current prices you are pretty much just paying for Dresden, you get to ride these big secular trends for free.

My 2 cents.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on June 07, 2012, 10:13:35 AM
I think that's about it.

BAL up 5.2% today. Short covering.

http://in.reuters.com/article/2012/06/06/markets-cotton-idINL1E8H6HS520120606

Title: Re: FTP - Fortress Paper
Post by: tombgrt on June 07, 2012, 10:52:24 AM
Up 12% from the low but considering how far it fell... No need to follow this on a month-to-month basis, let alone weekly. I want $1600/ton prices in 2015/2016!
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on June 07, 2012, 10:52:34 AM
Cotton Council International very bullish on Chinese Demand.

http://www.cotton247.com/article/28003/cci-is-very-optimistic-about-china-s-cotton-demand

At the moment, a large snake (cotton market) is swallowing a large goat (increased production). Once the goat is digested the snake will be ready to eat again.

By the end of July 2012, China will hold a full 25% (roughly 18M bales) of the worlds cotton stock due to massive buying the National Reserve.

During his presentation in Chengdu on the 2012 global cotton market outlook, Anthony Tancredi (president, Allenberg Cotton Co.) said no single factor will have a greater impact on cotton prices in the near future than the actions of the Chinese and Indian governments. It was a bit of a shock to hear that government intervention is as influential, if not more so, than the most basic tenet of economics – the law of supply and demand. But it stands to reason that the supply of cotton in global stocks is a much different thing than the available supply of cotton in global stocks.
Title: Re: FTP - Fortress Paper
Post by: sculpin on June 07, 2012, 12:59:44 PM
Great discussion on the cotton industry guys. AGM 4pm today in Vancouver. Would have liked to have been there.
Title: Re: FTP - Fortress Paper
Post by: Liberty on June 07, 2012, 01:24:12 PM
Great discussion on the cotton industry guys. AGM 4pm today in Vancouver. Would have liked to have been there.

I wish they would record these and post the video on youtube. In fact, I think I'll email them with that suggestion. It's such a low cost way to provide more transparency for your shareholders, they should def. do it next year.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on June 07, 2012, 02:58:28 PM
One down!!

Fortress Paper customer reinstates banknote order

2012-06-07 17:55 ET - News Release


Mr. Chadwick Wasilenkoff reports

FORTRESS PAPER PROVIDES LANDQART OPERATIONAL UPDATE

Fortress Paper Ltd.'s wholly owned subsidiary, Landqart AG, a leading manufacturer of banknote and security papers, has had a material banknote order reinstated. This order was unexpectedly suspended in the fourth quarter of 2011, which negatively impacted the financial results of Landqart's operations in the first half of 2012.

Chadwick Wasilenkoff, chairman, chief executive officer and president of Fortress Paper, commented: "The recommencement of this previously delayed order will provide Landqart with momentum to realize additional orders and maximize operating efficiencies. This important order allows Landqart to better optimize the overall mill and should provide a meaningful contribution to its margins compared to recent quarters."

We seek Safe Harbor.
 

Title: Re: FTP - Fortress Paper
Post by: triedtestedand on June 07, 2012, 02:58:55 PM
Order, order ...

http://www.digitaljournal.com/pr/745246

Title: Re: FTP - Fortress Paper
Post by: lessthaniv on June 07, 2012, 03:18:17 PM
no way to verify by the press release but it would be nice if this was the India contract estimated to be 50% of Landquarts capacity. maybe we'll see something out of the indian papers tomorrow.
Title: Re: FTP - Fortress Paper
Post by: Liberty on June 07, 2012, 03:22:00 PM
Excellent. I didn't expect this until H2 2012, but I'll take it now. Even if it only brings Landquart to zero cash burn, that's truly all that is needed, but if it's a big order, we could actually see green ink.
Title: Re: FTP - Fortress Paper
Post by: triedtestedand on June 07, 2012, 08:41:34 PM
Gents:

Managed to get to the AGM.   Was mostly interested in the Q&A, which was fairly thorough (lasted ~50min), and was refreshingly candid.   I got what I was looking for, which was primarily reassurance.  Not that FTP is without any challenges ... but they certainly seem capable of both confronting and addressing them ... and there's obviously significant upside in doing so!  Didn't have pen/paper, so notes below are from short term memory bank ... hopefully I haven't mixed up too many of the numbers, but it should provide reasonable gist of things:


Dresden
-   No material issues from operational standpoint (As example ... they "spend 5 minutes on" during regular internal update sessions.)
o   Generates (significant) predictable cash
o   Margins are now trending towards 25%. (I think I got that # right?)
-   Capacity growth potential
o   Originally rated at 20K tonnes/yr, keeps increasing (last year another +15%) , now heading towards 60K?  “Every year they keep finding new ways to improve/add/tinker to the existing system”, even though it seemingly is at max rating
o   Without further incremental would need step function capability (i.e. another machine) that would then add further step function capacity (eg 50K+ tonnes), so not seriously considering such a jump until sufficient demand/supply imbalance is favourable to FTP. 
o   Have had enquires for joint ventures to expedite capacity expansion, but that's not of much appeal right now, as it might cede pricing power, reduce barriers to entry, etc.
-   Shareholder maximization
o   Have been asked (repeatedly?) about selling … Tactical buyer in nearer term would likely be private equity or similar, but such would want to buy for 3.5-4x EBITDA to get super attractive returns for them.   This isn’t attractive enough for FTP, so haven’t entertained seriously, especially as continue to grow and haven't reached plateau.  Such buyer would also need to secure financing, which (in Europe especially) isn't easiest/most favourable at this time.

Landqart
-   Got news on 5K tonne deal (which apparently has 25% extra allotment potential) a few hours before the AGM, so very timely!
-   Because deal was put in abeyance 6mo ago, raw material supplies are already procured,  so expect to be able to ramp up fairly quickly.
-   It's getting late for Q2, but order will fill the machines for 2012H2 (and contribute corresponding margins).  It will also facilitate optimizing all that new capacity that they brought online with other orders.
-   Looking at macro events ... death of the Euro might be good for printing money paper, but not for Swiss based Landqart, as most costs denominated in safe-haven Swiss francs, which would be highly inflated and uncompetitive in such situation.

LSQ
-   Despite complexity, w lots of moving parts, confident about closing (very, very soon?)
o   Interesting point ... Quebec govt has motivation to approve (imminently? before summer?), as otherwise risk missing a construction season (owing to northern location, winter weather issues, etc.), and associated stall in promised new jobs.
o   Deal would close in two stages.  First stage would be in escrow, at which point would then have lease access to building for union employees, who in turn would need to vote on contract (FTP seeking 15% wage reduction.) National union has been supportive, which is a good sign, but still need local union ratification for deal to totally close.
o   $25M convertible debenture subscription associated with the deal would flow specifically to this project (i.e. doesn’t seem that it can be used for general purposes)


Thurso
-   Lots of small issues (made crack about worrying about "death by a thousand cuts"), but have overcome all key ones to date … a few examples include:
o   Computer system glitches (back in December) that kept raising red flags needlessly
o   Valve that was not set properly, inefficiently wasting chemicals, sending some directly into sewage treatment
o   Target rating of 37% efficiency w wood supply (i.e. 1 tonne of wood yields .37 tonnes of DP) was originally down around 33% … but now approaching target by blending appropriate chemical mix ... or whatever it is they do ;-)
-   The above noted, team is closing in on sustained (important word!) rated capacity
o   Rated capacity is 575 tonnes/day … they have now had several multi day stretches now where have achieved >600 tonnes/day, so confident in rating.
o   Further, in last month+ have averaged out at ~83% (even w startups/downs), with last couple of weeks or so the average nearing 90%.   
o   Presuming continued progress along this front, may likely issue update to general market soon.
-   Cost Structure
o   As fixed costs amortized over ~80% of production, have only just recently (per point above) started to reach cost target objectives
o   Confident of hitting ~$725/tonne cost basis once co-gen is up … for modelling purposes, before that add ~$100+/tonne
o   One example ... energy usage (steam) optimized with higher (and consistent) production rates

-   Pricing
o   Current contracted amounts provide minimum blended base of around $1150 ... which is right around spot price (see below)
o   NB: Contracts provide minimum commitments by customer, but not by supplier (i.e. FTP haven’t had to buy spot DP to cover while they ramp)   
o   That said, contracted customers appear keen to take amounts above minimum commitments ... just need to supply the goods. ;-)
o   If continue with DP quality enhancements, may be able to get another $50 premium for general DP market
o   Spot price in last 6mo for DP has decoupled from (the tanked, now bouncing?) cotton market.   DP spot has hovered around $1100 +/-$50 …
o   Chinese swing producers seem to need $1200/tonne to be viable … NB: they seem to effectively collar the pricing, as if spot increases significantly, they can (currently) bring on a fair bit of incremental supply … BUT if it goes too low, they need to shut down.   This makes it attractive for a consistent low-cost producer like FTP, as it keep out competitors
-   Shareholder maximization
o   (Applies to Thurso and LSQ?) … as quality increases, can move towards the acetate market, which gets  a consistent $1600/$1700 value … but will need further CAPEX upgrades to do, so that’s a future.
o   Low cost producer status makes it attractive for a consistent low-cost producer like FTP to keep out competitors ... and makes them also potentially attractive acquisition by a customer with big enough supply requirements (I think Chad mentioned Ful ida's acquisition of Port Alice specialty pulp mill)

Cash Flow
o   Equity markets are last resort … not keen on dilution w current share price. Low hanging fruit appears to be Dresden operations, which currently have 25M EURO credit line … operations could support 2x to 3x that amount


There were some other Q&A about acquisitions (sounded like not looking at pulling any triggers until get further of above further ramped up and self organizing; also not keen on while share price is in the tank, as do not want to be dilutive in issuing equity), lawsuit (similarly sounds like it's on a backburner, and happy to keep it there for now), staffing (happy w team have been able to ramp up), long-term (will sell assets when/where/if attractive valuation presents itself, and redeploy or return cash as makes best sense for shareholders)

That's about it ... Glad I jotted this down ... I'll likely forget it all in a few days. ;-)
Title: Re: FTP - Fortress Paper
Post by: Liberty on June 07, 2012, 09:06:23 PM
Thank you very much Triedtestedand. I truly appreciate it, and wish I could have attended myself.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on June 07, 2012, 10:19:19 PM
Thanks a lot triedtestedand! Will be late for work after reading all this but whatever!  :D
Title: Re: FTP - Fortress Paper
Post by: BRK7 on June 07, 2012, 10:42:49 PM
There was a large trade today of  ~150K shares at ~ $17.70 ... which got me to thinking who owns/buying the stock (and believes the story), and conversely who's selling (and has soured, or capitulated).   

From Morningstar.ca (which shows top 10 holdings) and SEDAR (which shows >10% holdings) the following #'s are provided, based on reportings from past 6mo:

Chad Wasilinikoff               2390K                                                     -> Holds >10%
Mawer                                 691K                   (as of Apr 30/12)       -> reduced from >1M?
IA Michael (ABC Funds)        800K                  (as of Apr 30/12)       
Invesco                              1478K                  (as of Apr 30/12)        -> Holds >10%
FaithLife                               352K                  (as of Mar 31/12)
Scotia Private                       188K                  (as of Mar 31/12)
Fiera                                     321K                  (as of Mar 31/12)
Standard Life                        352K                  (as of Mar 31/12)
Industrial Alliance                  234K                 (as of Mar 31/12)
Dimensional                          111K                  (as of Feb 29/12)
Manulife                                226K                  (as of Feb 29/12)
BMO Guardian                       222K                  (as of Jan 31/12)
Trimark                                  273K                  (as of Dec 31/11)
GBC                                       208K                  (as of Mar 31/12)*

*GBC is part of Pembroke, which did own 1360K shares as of Oct31/11.  It looks like GBC sold half their position before Mar31/12, so presume that Pembroke's overall position reduced proportionately (or more) since October.

Not factoring possible incremental Pembroke holdings, the total is ~7.8M shares (of 14.3M), or about 55% spread across 14 players.

It'll be interesting to see if/how the mix changes, as over the past 7+ days there has now been about 1472K shares traded ... which is about 10% of the total outstanding. Of that amount there has been about 10 trades where >30K shares have traded, totaling ~500K+ shares.   (If I had the tools, it would probably show the classic 80/20 distribution.)

Anyway ... just some friday musings.
                 


I looked at both funds and institutions, and removed duplicates where funds are a subset of an institution's holdings.

Invesco updated its filing today indicating that it bought another 536,300 shares in May
Title: Re: FTP - Fortress Paper
Post by: triedtestedand on June 07, 2012, 11:21:48 PM
Playing around with some #'s tonite ... here's a rough cost/EBITDA variability analysis for Thurso:

Presumptions:
   - 200K tonnes rated capacity
   - $850/tonne pre cogen cost target (with cogen savings of $100/tonne)
   - 80% of costs are fixed  (20% are variable)
   - Sales Price/tonne of $1150

    ->  This conservatively could imply that $136M (=200K tonnes x  .8  x $850/tonne) is fixed ... however much or little is produced.

Corresponding EBITDA sensitivity analysis:

% Capacity Usage            EBITDA contribution (per annum ... pre cogen)              EBITDA contribution (per annum ... post cogen)
    70%                                          $1.7M                                                                               $15.7M
    80%                                          $20.8M                                                                             $36.8M                       
    90%                                          $40.4M^                                                                           $58M
   100%                                         $60M                                                                                $80M


^ As example, for 90% ... the number is determined as follows:
            All-In Cost = Fixed + Variable
                             = $136M  + (200K  * .9  x $850/tonne * .2)
                             = $136M  + $30.6M
                             = $166.6M
            All-In Cost/tonne = Cost / Production
                                       = $166.6M / (200K x .9)
                                       = $925.56/tonne
            EBITDA contribution = (Sale Price/tonne - All-In Cost/tonne) x Production
                                           = ($1150 - $925.56) x (200K x .9)
                                           = $40.4M

Is there a flaw in the logic there?  If not, and if they do hit ~90% in/by early Q3 and simply maintain, then H2 is actually looking pretty good overall, with all 3 operations running close to or at capacity.  And after that start looking for bennies (cogen bump, pricing above $1150, other cost optimizations, LSQ) after that.
Title: Re: FTP - Fortress Paper
Post by: triedtestedand on June 07, 2012, 11:26:18 PM
BRK7 -   Can you point me to the source of your updated Invesco filing for May?  I saw one for April on SEDAR, dated May 8th.

Title: Re: FTP - Fortress Paper
Post by: tombgrt on June 08, 2012, 01:57:59 AM
Sounds about right triedtestedand, thank you for your calculations. Should be an easy double from here with Dresden at par, break-even landqart and EBITDA of $40M from Thurso. I would be very suprised if we fell much further but would certainly welcome it (80% position and growing).

A lot of good news actually at the AGM from what I can tell:
- I was expecting $800/cash cost for Thurso after cogen, not $725.
- Dresden keeps growing. Really amazing if you think about where they started and for what price they bought the business. 3.5-4x EBITDA offers are of course foolish, worth at least current market cap. At 60k tonnes maybe $300M.
- I was expecting news on the delayed order in the third quarter at best, not now.
- Not doing any new acquisitions, focussing on what we have now and LSQ.
- DP holding up despite total killing in cotton price, contracts seem to work out. Future DP price is where a multibagger will ultimatily have to come from for FTP. I'm confident in the LT prospects.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on June 08, 2012, 06:40:09 AM
TTT,
Thanks for sharing your notes. Good stuff.
Title: Re: FTP - Fortress Paper
Post by: BRK7 on June 08, 2012, 06:40:40 AM
BRK7 -   Can you point me to the source of your updated Invesco filing for May?  I saw one for April on SEDAR, dated May 8th.


Triedtested,

Thanks for sharing your AGM notes.

The May “Alternative Monthly Early Warning Report” is posted on SEDAR, with a filing date of Jun 7 2012.

-brk7
Title: Re: FTP - Fortress Paper
Post by: bonechip1 on June 08, 2012, 07:50:11 AM
Thanks so much for these fantastic AGM notes triedtestedand.

Chip
Title: Re: FTP - Fortress Paper
Post by: tombgrt on June 08, 2012, 10:31:10 AM
My portfolio up 11% today. Also shows how much it suffered in the last couple of weeks ;D, although I have been buying plenty under $22.
Title: Re: FTP - Fortress Paper
Post by: sculpin on June 08, 2012, 01:30:15 PM
Canaccord

PAPER AND FOREST PRODUCTS
Fortress Paper Ltd. | Neal Gilmer, MBA, 1.416.869.7294
FTP : TSX : C$16.70 | C$253.0M | Buy , Target C$42.00
•         Landqart has significant banknote order reinstated; maintaining BUY rating and C$42.00 target
Investment recommendation
Fortress Paper announced after the market close yesterday that its banknote subsidiary Landqart, has had a material banknote order reinstated. The company had announced last fall that it had secured a significant order that would improve the utilization of the two paper machines at Landqart in 2012. That order was subsequently postponed, and weak results have continued in 2012. With the order now reinstated, Landqart's operating metrics and margins should improve materially in H2/12. We had previously assumed that Fortress would be successful in securing the contract beginning in Q3/12, therefore, the announcement does not affect our estimates. However, we view the announcement as positive in that it removes one of the issues that have plagued the stock recently.
Following weak Q1/12 results and the uncertain update on the timing of the banknote order, we believe that many investors had discounted the possibility that Fortress would not be successful in reinstating the order. With this update, we believe investors can be confident that Landqart should cease being an earnings drag, and attention should be placed solely on Thurso. We acknowledge that investors continue to await confirmation that Thurso will reach full operating capacity and cost structure, but we believe at the current share price, Fortress should have a nice bump following this announcement. However, the overhang in the shares is likely to remain until Thurso’s operating rate and cost structure is confirmed, which may occur between now and the Q2/12 earnings call expected in early August. But, we view this announcement as a positive piece of news that should put some positive momentum in the stock. We reiterate our BUY recommendation and C$42.00 target price.
Valuation
Our 12-month target price of C$42.00 represents a 6.4x EV/2013E EBITDA estimate and is supported by our DCF valuation.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on June 08, 2012, 03:04:18 PM
I was praticularily glad to hear that DP pricing has decoupled from Cotton pricing as of late. Our long time thesis (on the thread) seems to be validated by witnessing DP pricing hovering around the Chinese producers cash costs. Good news.
Title: Re: FTP - Fortress Paper
Post by: gokou3 on June 08, 2012, 08:28:36 PM
Thurso
o   Confident of hitting ~$725/tonne cost basis once co-gen is up … for modelling purposes, before that add ~$100+/tonne

Thanks for the great notes, triedtestedand.  Regarding the $725 figure, I wonder if that includes shipping to China? In the March 2012 presentation, management presented a table with a DELIVERED cash cost to Shanghai of $659/tonne (after co-gen), which includes shipping cost of $100/tonne.

So, even assuming the $725 figure includes shipping, the cost projection has still crept up by $66/tonne or ~10%. Still not too bad, but of course would love to see them meet their original projections.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on June 09, 2012, 08:49:49 AM
gokou3,

This has been addressed by a couple of analysts recently. Variable costs have been affected negatively by inflation and its not expected that the original cash costs as presented will hold. Nothing management did - it affects the industry. Higher oil, chemicals etc ....

Raymond James is modeling all in delivered cash costs of $825 pre cogen and $725 post cogen.

Cheers,

<IV
Title: Re: FTP - Fortress Paper
Post by: colinwalt on June 09, 2012, 11:05:12 AM
I was wondering about that too, so thanks for the explanation <IV

This would mean (all other things being equal) that competitors are subject to similar cost pressures and therefore should mean that the higher break-even price for high cost producers will cause them to close down or postpone bringing on-line new production at a higher price point than in the past, resulting in a higher long term average price trend...

Anyone think there's something too simplistic with the above logic?
Title: Re: FTP - Fortress Paper
Post by: gokou3 on June 09, 2012, 03:01:43 PM
<IV,

Thanks for the details.  It's good that the entire industry is affected equally for this cost increase.  FTP would be able to maintain its cost ranking.  However, it would be *relatively* less competitive vs cotton, at least in the short term.
Title: Re: FTP - Fortress Paper
Post by: bathtime on June 09, 2012, 06:35:37 PM
Yes, Chad indicated cost structure would rise across the industry - I forget what dollar amount he gave.

Not much I can add to triedandtested's great report. I want to comment on this part: "I was mostly interested in the Q&A, which was fairly thorough (lasted ~50min), and was refreshingly candid. I got what I was looking for, which was primarily reassurance."

I also felt Chad was candid. A big part of going to the meeting for me was making a subjective assessment of the personal qualities of the CEO. I liked him. I felt he answered questions directly and honestly. I left with a greater confidence in his capabilities.


Title: Re: FTP - Fortress Paper
Post by: shoeless on June 10, 2012, 09:37:27 AM
triedtestedand and bathtime I too thank you both for sharing your notes/comments from the AGM
Title: Re: FTP - Fortress Paper
Post by: bathtime on June 10, 2012, 06:11:10 PM
ZeroHedge "recommended" FTP on Friday:

http://www.zerohedge.com/news/material-banknote-order-reinstated

"Well, if the chart of De La Rue is any indication of how banknote printers respond to potential European disintegration, it just may be that the best hedge to a VIX soaring to 80, aka "disorderly Grexit" as explained earlier by Citi, just may be TSX:FTP."

Hussman quoted from the ZH article today:

http://hussman.net/wmc/wmc120611.htm

I believe that speculation that the order is related to the EU crisis/breakup is incorrect.
Title: Re: FTP - Fortress Paper
Post by: Liberty on June 11, 2012, 06:38:20 AM
http://www.marketwatch.com/story/fortress-paper-updates-status-of-dissolving-pulp-production-2012-06-11

Quote
VANCOUVER, BRITISH COLUMBIA -- (Marketwire) -- 06/11/12 -- Fortress Paper Ltd. ("Fortress Paper" or the "Company") (TSX:FTP) is pleased to announce that it has ramped up production of dissolving pulp at its Fortress Specialty Cellulose Mill to an average of approximately 92% of final targeted capacity during the last 10 days and have averaged approximately 83% over the last 4 weeks. The mill commenced production of dissolving pulp at the end of 2011 and has been steadily improving its production efficiency and technical capabilities. Following initial delays, we recently took scheduled periods of downtime to eliminate process constraints. These have proven successful and the ramp-up to full capacity continues to improve. The dissolving pulp being produced is meeting customer specifications and shipments to viscose customers located in China are increasing in volume.

Chad Wasilenkoff, Chief Executive Officer of Fortress Paper, commented: "We are pleased with the ramp-up of dissolving pulp production at our Fortress Specialty Cellulose Mill and the quality of the product. With our continually increasing production of dissolving pulp as well as process optimization, we are well on our way to achieving management's forecasted top quartile cost structure once our Cogeneration facility is fully operational. We expect our dissolving pulp segment to provide a meaningful contribution to our financial results as the year progresses."
Title: Re: FTP - Fortress Paper
Post by: tombgrt on June 11, 2012, 06:52:47 AM
Great news.  :) Next stop LSQ official closing of the deal?

For now really glad that I dared to buy more at $17 (and twice at $20). I hope others did it too! If DP price holds its spot price we should see major share price improvement in coming quarters once market factors in the value for Thurso + LSQ.
Title: Re: FTP - Fortress Paper
Post by: Liberty on June 11, 2012, 06:57:47 AM
Great news.  :) Next stop LSQ official closing of the deal?

For now really glad that I dared to buy more at $17 (and twice at $20). I hope others did it too! If DP price holds its spot price we should see major share price improvement in coming quarters once market factors in the value for Thurso + LSQ.

The way Chad was speaking on the CC (and what was reported from the AGM), I would expect LSQ to close any day now.

Glad I increased my number of FTP shares by 40% around $17-18 :)
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on June 11, 2012, 08:05:27 AM
LSQ closing next up ..... and then an agreement to sell the output shortly thereafter? When Thurso was announced the steps were executed very quickly. Obviously, lots of planning went into this and I expect that round 2 will be no different. I suspect the flowchart on the white board of the boardroom has been drawn out for quite some time.

For Thurso:

March 18,2010 - announce aquisition of Thurso
April 30, 2010 - closes on Thurso
May 6, 2010 - energy supply agreement with Quebec
May 10, 2010 - NBSK pulp agreement with IFP
Jun 1, 2010 - production of NBSK begins
Jun 3, 2010 - appoints manager for conversion
Jun 7, 2010 - buys equipment for conversion
Oct 4, 2010 - announce DP contracts with China.
Title: Re: FTP - Fortress Paper
Post by: Liberty on June 11, 2012, 08:09:17 AM
Agreee, <IV. Chad's M.O. is not to do a deal unless he's already pretty sure that all the pieces of the puzzle will fall into place rapidly.

I would expect that if LSQ closes, it means that almost everything else's in the bag.
Title: Re: FTP - Fortress Paper
Post by: gokou3 on June 11, 2012, 11:15:54 AM
Great news.  If anything, the market can now value the company as a ongoing business.
Title: Re: FTP - Fortress Paper
Post by: OptsyEagle on June 11, 2012, 12:02:29 PM
It's interesting that when Fortress announced the acquisition of LSQ, the stock market made some assumptions of how things were going and might work out in the future, and priced the stock upwards of $38.  Now, when the stock market knows that those assumptions are working out, it prices the stock at $23.

I would love to know how all that is rational.  I know in the long run it doesn't matter, but I always find this stuff so fascinating to watch.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on June 11, 2012, 01:26:11 PM
And to think that some of us thought FTP was very cheap at $38! I've even bought a handful of shares at $37 thinking it was a steal... Nothing rational about the market. Stock ran up almost 40% in two days on news that we all expected sooner or later and it's still valued as if most will turn to crap.
Title: Re: FTP - Fortress Paper
Post by: Liberty on June 11, 2012, 01:32:06 PM
And to think that some of us thought FTP was very cheap at $38! I've even bought a handful of shares at $37 thinking it was a steal...

I still believe it was cheap at 38 (if you hold it for a few years), it just got a heck of a lot cheaper since then!
Title: Re: FTP - Fortress Paper
Post by: tombgrt on June 11, 2012, 01:45:25 PM
And to think that some of us thought FTP was very cheap at $38! I've even bought a handful of shares at $37 thinking it was a steal...

I still believe it was cheap at 38 (if you hold it for a few years), it just got a heck of a lot cheaper since then!

Don't get me wrong, I do too. I just had to be more patient I guess. Easy to say now, I'm already glad I don't time the market or look at macro stuff...

But easily worth $76 (twice $38..) by 2014 and possibly a bunch more but that will depend on broader markets and cotton/DP prices.
Title: Re: FTP - Fortress Paper
Post by: prunes on June 11, 2012, 03:45:50 PM
Agreed that this has been a good example of the manic-depressive nature of the market. No way that the intrinsic value of the company has changed this much in the past few weeks. Instead you probably had a large owner looking to liquidate and not enough demand, price being determined at the margin.

I still need to learn how to size my positions better. I snatched up a lot at $26, which I thought was a great price. (I still do.) After we fell to $17 I felt I had already allocated enough to FTP and didn't want to allocate more. At $26 I was afraid to miss out; at $17 I was sitting on my hands. Part of this is the psychology of the difficulty of catching a falling knife I suppose, but I think more of it is that when I see what I think is a good deal, I have trouble waiting for the price to fall lower before I max out my allocation.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on June 11, 2012, 04:32:51 PM
Agreed that this has been a good example of the manic-depressive nature of the market. No way that the intrinsic value of the company has changed this much in the past few weeks. Instead you probably had a large owner looking to liquidate and not enough demand, price being determined at the margin.

I still need to learn how to size my positions better. I snatched up a lot at $26, which I thought was a great price. (I still do.) After we fell to $17 I felt I had already allocated enough to FTP and didn't want to allocate more. At $26 I was afraid to miss out; at $17 I was sitting on my hands. Part of this is the psychology of the difficulty of catching a falling knife I suppose, but I think more of it is that when I see what I think is a good deal, I have trouble waiting for the price to fall lower before I max out my allocation.

Great comment.

I wondered about a short fund trying to prey on a company which is in transition knowing they have a tight share count. I've seen this in numerous other positions over the years. The shorting gaps the price down and given the uncertainty with Lanqart/Thurso the market panics and sells into it. Pretty risky given the short term catalysts in the stock. But the company was potentially going to have to seek liquidty if those Landqart/Thurso didn't come in on time.  Probably never know. Sure looks like a short was covering though.  ;D
Title: Re: FTP - Fortress Paper
Post by: OptsyEagle on June 12, 2012, 08:37:02 AM
In my continuous fascination of the stock market, I find it quite interesting that when I quote Fortress Paper on Yahoo and then look down at what other people who have obtained quotes on Yahoo, are looking at, I see only one stock ... Facebook (FB).

I have to assume that the majority of the people looking at the Facebook quotes are shorters (just my opinion due to its overhype and stupid valuation), so it seems to me that FTP must have come up in the short sellers screens.

I am probably wrong, but I did find this intersting ... and also meaningless.  A bit of a slow day for me.

http://finance.yahoo.com/q?s=FTP.TO
Title: Re: FTP - Fortress Paper
Post by: Liberty on June 12, 2012, 10:24:06 AM
Chad on BNN:

http://watch.bnn.ca/#clip697985

I like what I hear.
Title: Re: FTP - Fortress Paper
Post by: bathtime on June 12, 2012, 07:24:17 PM
FTP triggered a buy signal on Bill Cara's free RSI Tool on June 4, 2012 at market close at the price of $17.04. At the close yesterday that was a 39% return in less than a week. June 4th was the first time the tool triggered a buy since the stock began its fall from the $70 level.

http://rsi.caracommunity.com/RSIApp/RSIApp.html#ftp.to

"Buy alert (trig. 6 days ago [on 2012-06-04 at $17.04, +38.97% chg], after a 1 day AZ [Accumulation Zone])"

I will also note that the tool triggered buys on GDX (and most major gold stocks) at $39 near multi-year lows last month followed by a 20% return on GDX in three weeks. If I remember correctly it was the first time the tool triggered buys on these gold equities since the buy signal following their crash in 2008. Since 2010 I have seen the tool trigger buys for WMT in the 40s, XOM in the 50s, QCOM in the 30s, and I think BAC in the 5s. These are anecdotal recollections and of course it doesn't work every time. But even if it works just 50% of the time, it provides a huge advantage.

More and more I try to pay attention to this tool as it provides a safeguard against catching a falling knife - one of my greatest weaknesses. The logic of using this technical tool as an aid may not be immediately obvious to fundamentally-oriented investors. Bill Cara's description of how to apply it helps frame the logic of its utility (http://caracommunity.com/content/week-review-32-2010-0):

------------------
Now I would like to teach you how to apply the RSI-7 technical indicator. Ian Notley used to say it’s a bit like timing the ripening on an avocado to get the perfect texture and taste.

You start with the Monthly RSI-7 chart looking for the time for the stock to hit the long-term Accumulation Zone, which for a low beta, defensive stock is going to be in the low 30’s vs say a high beta, aggressive stock, which would be in the 20’s. Then when that Monthly RSI-7 appears ready – we never know because there are so many factors involved from macroeconomics, corporate fundamentals, market technicals, interest rates, commodity prices, currency market fluctuations, etc, all of which may have a minor or major bearing on the stock you are assessing – then you switch to the Weekly data series, and then the Daily and then the Hourly data series, and then when you have that avocado within minutes of peeling off the skin, you move to the 10-minute data series to find the point of reversal below the 30 level. If the broad market that day is in a downer, you can afford to wait until the RSI-7 lifts up above 30 to strike your target. But if the market is moving higher, you can go in as soon as the falling RSI-7 trendline is crossed after it has noticeably started to rise.

Don’t let anybody (and I mean anybody) try to convince you that trading is not an art. Yes, there is the science of simple arithmetic involved, which computers do for you, but your job is to get a feel for the price action. A long time ago you made the decision that the company is a high quality one, worthy of your investment capital, and then you decided that the industry group it’s in is also solid for fundamental reasons. Those decisions have already been made. Then you become a skeptic, knowing that the big money also knows what you know (and a whole lot more), and you wait until they pay off enough lazy reporters to publish floods of negative “news” that is intended to knock the share price down to levels they want and need to invest at for long run success. You ignore the headlines and look at the data and the guidance from management and the same for others in the peer group. You laugh at the worst of the awful headlines and rumors if, as and when the stock price is coming into your cross-hairs because at that point you are 95% certain the public is being deliberately misled, sophisticated rumormongers playing on the public’s fears. You buy into weakness, particularly when you feel the negatives have been pretty much been played out.

Trading is an art, backed up by science. The science plays a necessary discipline role as humans are, well, like humans. We’re emotional creatures and, when trading, we need to hold ourselves in check. Computer algorithms help us do that.
--------------

Cara recently commented on the tool here (note that it can also be applied in the reverse way to determine a sell signal):

http://caracommunity.com/content/bill-caras-blog-may-30-2012#comment-109611

And as Bill Cara mentions on the tool page:

-----------------------
A final note of advice from Bill Cara's webpage: "I use the following technical indicators every day, but in combination with fundamental and quantitative studies plus a healthy dose of intuition and common sense. I never rely on technical studies alone -- and neither should you." The point being that these RSI calculations can help inform your investing, but it would not be wise to blindly follow what they say.
------------------------
Title: Re: FTP - Fortress Paper
Post by: jeffmori7 on June 14, 2012, 05:59:49 AM
http://finance.yahoo.com/news/fortress-paper-announces-escrow-closing-121400808.html
Title: Re: FTP - Fortress Paper
Post by: Liberty on June 14, 2012, 06:29:44 AM
http://finance.yahoo.com/news/fortress-paper-announces-escrow-closing-121400808.html

You beat me to it.  ;)

Great news for FTP! Looks like trading might have been stopped..?

Quote
Fortress Paper has completed a loan agreement whereby IQ has agreed to provide up to $132.4 million to Fortress Global to support the proposed business plan in respect of the LSQ Mill. The first tranche of $102.4 million has a term of 10 years and the second tranche of $30 million has a term of three years. The loan is secured by the capital assets of Fortress Global and accrues interest at a fixed rate of 5.0% per annum for the first five years, followed by a rate not to exceed 5.5% per annum for the remaining five years, and includes equity compensation in the form of 715,000 share purchase warrants of Fortress Paper with an expiry date of December 31, 2017. The warrant exercise price will be based on the volume weighted average price of the common shares of the Corporation over the five trading days on the Toronto Stock Exchange (the "TSX") prior to the date upon which all the closing conditions to the Purchase Agreement have been satisfied. The exercise of the warrants may not occur prior to the earlier of: (i) December 31, 2014; and (ii) the date on which the loan has been fully disbursed. In addition, IQ may only trade in the common shares obtained through the exercise of the warrants if a period of at least six months for the first 357,500 common shares and 12 months for the remaining 357,500 common shares has elapsed from the exercise date of such warrants.

Note that the warrants will be priced from the final closing date, which should be around June 20. By then price should be even higher.
Title: Re: FTP - Fortress Paper
Post by: jeffmori7 on June 14, 2012, 06:40:29 AM
Yes, great news! Quite happy to have bought more at 17$ and 21$. A lot less of uncertainty from the latest bunch of news.
Title: Re: FTP - Fortress Paper
Post by: Liberty on June 14, 2012, 06:55:02 AM
Some new info in there:

Quote
Following the Corporation's press release on January 31, 2012, the Corporation has conducted additional engineering due diligence and technical reviews and has revised its planned capital expenditure program to increase the anticipated annual production capacity at the LSQ Mill from 236,000 ADMT to 250,000 ADMT. It has also determined that the technical limitations at the LSQ Mill did not warrant the previously contemplated cogeneration project to increase the power generated from 30 megawatts to 50 megawatts as the return on investment did not support the expenditures. However, management has identified certain modifications to the cogeneration facility that are expected to increase the power to 34 megawatts.

Too bad about bigger cogen, but extra DP production capacity sure is nice! Fixed costs can be spread over more tons, and they'll be quite valuable, especially when DP move up from its structural bottom.
Title: Re: FTP - Fortress Paper
Post by: triedtestedand on June 14, 2012, 08:18:41 AM
Three positive press releases, plus a candid AGM session in the past week.  Not bad, eh? 

That said, get Thurso to 100%, and what other near-term catalysts are there?  My own thoughts would be to see them allay any residual liquidity concerns by leveraging their Dresden operation with an increased line of credit, or something similar from other.  If such cash is not needed for buffer purposes, and if the mills' cash flows support it, renewing last year's share repurchase agreement (which I think expires this week) - and actually using it this time - might then be an option. (Especially with the share price at 2+ years low, despite the material progress in the business since then.)
Title: Re: FTP - Fortress Paper
Post by: Liberty on June 14, 2012, 09:02:57 AM
Funny how there's no reaction from the market. My working theory is that the market can't think further than the next quarter, so it can't conceive of 2014 :)
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on June 14, 2012, 09:15:20 AM
Funny how there's no reaction from the market. My working theory is that the market can't think further than the next quarter, so it can't conceive of 2014 :)

Sunday's Greek election has the market paralyzed.
Title: Re: FTP - Fortress Paper
Post by: ECCO on June 14, 2012, 09:19:51 AM
Three positive press releases, plus a candid AGM session in the past week.  Not bad, eh? 

That said, get Thurso to 100%, and what other near-term catalysts are there?  My own thoughts would be to see them allay any residual liquidity concerns by leveraging their Dresden operation with an increased line of credit, or something similar from other.  If such cash is not needed for buffer purposes, and if the mills' cash flows support it, renewing last year's share repurchase agreement (which I think expires this week) - and actually using it this time - might then be an option. (Especially with the share price at 2+ years low, despite the material progress in the business since then.)

Forget about them buying back stock, they need their cash. Liquidity was a main concern 2 weeks ago and is still a (less) concern. So dont expect them to buy back stock when they will need a lot of money for LSQ. If they buy back stock, that will raise a concern for me about their capacity to manage that company.
Title: Re: FTP - Fortress Paper
Post by: triedtestedand on June 14, 2012, 09:31:12 AM
ECCO ... You're no doubt right, esp. in near term.  I tend to get ahead of myself.   Best get some extended period of operational credibility with all 3 mills firing first.
Title: Re: FTP - Fortress Paper
Post by: jjsto on June 14, 2012, 06:20:27 PM
So, a quick question regarding the Landquart order.  Any idea how long it takes to start full production after receiving the order?  For example, do they have all the materials in place and they get the order on monday, flip a switch, and start producing on tuesday?  Or, is there a significant (couple weeks - month) lag time?  Not that it matters that much in the long run, but could be significant for short term liquidity.  I think chad touched on this briefly in the last interview, but it still wasnt clear to me.  Just wondering.  Thanks.
Title: Re: FTP - Fortress Paper
Post by: lessthaniv on June 14, 2012, 08:24:26 PM
So, a quick question regarding the Landquart order.  Any idea how long it takes to start full production after receiving the order?  For example, do they have all the materials in place and they get the order on monday, flip a switch, and start producing on tuesday?  Or, is there a significant (couple weeks - month) lag time?  Not that it matters that much in the long run, but could be significant for short term liquidity.  I think chad touched on this briefly in the last interview, but it still wasnt clear to me.  Just wondering.  Thanks.

The start up period can take months but ... this order was cancelled last fall a week before production was to start according to Chad. I'm hoping much of the heavy lifting is already done. But ultimately, I guess we'll just have to wait and see.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on June 16, 2012, 12:37:15 AM
http://finance.yahoo.com/news/fortress-paper-announces-escrow-closing-121400808.html

You beat me to it.  ;)

Great news for FTP! Looks like trading might have been stopped..?

Quote
Fortress Paper has completed a loan agreement whereby IQ has agreed to provide up to $132.4 million to Fortress Global to support the proposed business plan in respect of the LSQ Mill. The first tranche of $102.4 million has a term of 10 years and the second tranche of $30 million has a term of three years. The loan is secured by the capital assets of Fortress Global and accrues interest at a fixed rate of 5.0% per annum for the first five years, followed by a rate not to exceed 5.5% per annum for the remaining five years, and includes equity compensation in the form of 715,000 share purchase warrants of Fortress Paper with an expiry date of December 31, 2017. The warrant exercise price will be based on the volume weighted average price of the common shares of the Corporation over the five trading days on the Toronto Stock Exchange (the "TSX") prior to the date upon which all the closing conditions to the Purchase Agreement have been satisfied. The exercise of the warrants may not occur prior to the earlier of: (i) December 31, 2014; and (ii) the date on which the loan has been fully disbursed. In addition, IQ may only trade in the common shares obtained through the exercise of the warrants if a period of at least six months for the first 357,500 common shares and 12 months for the remaining 357,500 common shares has elapsed from the exercise date of such warrants.

Note that the warrants will be priced from the final closing date, which should be around June 20. By then price should be even higher.

Hmm, 715,000 warrants at an average price of $20-22 is a great bargain for those holders. Imagine that we could buy them on the secondary market! We should get plenty of value in return if LSQ works out, but I'm still disappointed that it has to happen at the current price.

Am I correct to understand that the loan is secured by all Fortress Global Cellulose assets (Thurso + LSQ) and that Thurso's loan was only secured on Thurso's assets? Or was Thuro's loan secured on all FGC's assets back then and in the future? Not that it matters much as Thurso is up and running now and should do fine but still... I also like the idea that worst case Dresden and Landqart stand alone and have less than $100m in debt.

---

I'd also like to hear more opinions on Landqart profitability if someone has experience with the sector. One should wonder why Chad invests another $50m in the mill to expand capacity if there aren't reasonable expectations to earn at least $10-20m a year.
Title: Re: FTP - Fortress Paper
Post by: colinwalt on June 16, 2012, 01:24:42 AM

Hmm, 715,000 warrants at an average price of $20-22 is a great bargain for those holders. Imagine that we could buy them on the secondary market! We should get plenty of value in return if LSQ works out, but I'm still disappointed that it has to happen at the current price.


On the other hand, the recent prices have provided an unprecedented buying opportunity for many of us, the upside of which should far exceed the impact of the related dilution on our future economic interests in the company.
Title: Re: FTP - Fortress Paper
Post by: tombgrt on June 16, 2012, 03:03:21 AM

Hmm, 715,000 warrants at an average price of $20-22 is a great bargain for those holders. Imagine that we could buy them on the secondary market! We should get plenty of value in return if LSQ works out, but I'm still disappointed that it has to happen at the current price.


On the other hand, the recent prices have provided an unprecedented buying opportunity for many of us, the upside of which should far exceed the impact of the related dilution on our future economic interests in the company.

Correct. I've added 60% under $21 and will buy a few hunderd more once the next paycheck comes in next week at these prices. We can't have it all!
Title: Re: FTP - Fortress Paper
Post by: tombgrt on June 16, 2012, 05:01:12 AM
Btw, co-generation facility at LSQ not being upgraded. Doesn't that mean that they don't have to spend the $40m (182m for LSQ and 40m for co-gen)? No mention of it in the press release.
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on June 19, 2012, 08:15:01 AM
Saw an article yesterday which noted recent dissolving pricing being discussed at $1160-$1170.

http://yarnsandfibers.com/preferredsupplier/news_fullstory.php?id=34435
Title: Re: FTP - Fortress Paper
Post by: Liberty on June 19, 2012, 08:33:01 AM
Btw, co-generation facility at LSQ not being upgraded. Doesn't that mean that they don't have to spend the $40m (182m for LSQ and 40m for co-gen)? No mention of it in the press release.

Logically it seems to follow, but I wonder if the increase in capacity from 236k to 250k tonnes/year is free or if they've decided to instead spend more money there because it had a higher return than spending on the bigger cogen. Hopefully they'll shed some light on this in the next CC.
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on June 19, 2012, 09:00:52 AM
Liberty/Tombgrt:

Good points.   Might be worth an email into investor relations once the deal comes out of escrow (tomorrow?).
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on June 19, 2012, 09:32:15 AM
Liberty/Tombgrt:

Good points.   Might be worth an email into investor relations once the deal comes out of escrow (tomorrow?).

I already emailed them, will write here if they reply. Feel free to email them too, maybe there's a higher chance of getting a reply if the see it's something more than one person wants to know about.
Title: Re: FTP.to - Fortress Paper
Post by: tombgrt on June 19, 2012, 10:12:23 AM
Jup, would be interesting.

Btw, co-generation facility at LSQ not being upgraded. Doesn't that mean that they don't have to spend the $40m (182m for LSQ and 40m for co-gen)? No mention of it in the press release.

Logically it seems to follow, but I wonder if the increase in capacity from 236k to 250k tonnes/year is free or if they've decided to instead spend more money there because it had a higher return than spending on the bigger cogen. Hopefully they'll shed some light on this in the next CC.

Don't know, maybe they misjudged the total costs and "cover" their mistake a little this way.

Was that $40m a cost for both upgrading the co-gen AND reactivating it? If the cost for just reactivating it was already $10-20m I guess the rest of the difference could be from the capacity upgrade now, but I doubt it would cost the full $40m. Not sure if I'm making sense here, had a long day at work! ;)


Oh and I bought some more yesterday at $20.70 with some cash that just came in.  ;)
Title: Re: FTP.to - Fortress Paper
Post by: lessthaniv on June 19, 2012, 01:15:14 PM
Fortress has been halted - Pending News.

Fortress Paper halted at 1:07 p.m. PT
Ticker Symbol: C:FTP
Fortress Paper halted at 1:07 p.m. PT
Fortress Paper Ltd (C:FTP)
Shares Issued 14,309,693
Last Close 6/18/2012 $20.66
Tuesday June 19 2012 - Halt Trading
Fortress Paper Ltd. has been halted at 1:07 p.m. PT on June 19, 2012, pending news.
© 2012 Canjex Publishing Ltd.
Title: Re: FTP.to - Fortress Paper
Post by: bathtime on June 19, 2012, 01:20:46 PM
(Bah! Another convert.)

Fortress Paper arranges $40-million financing

Fortress Paper Ltd (C:FTP)
Shares Issued 14,309,693
Last Close 6/18/2012 $20.66
Tuesday June 19 2012 - News Release

Mr. Chadwick Wasilenkoff reports

FORTRESS PAPER ANNOUNCES $40 MILLION PUBLIC OFFERING OF CONVERTIBLE DEBENTURES

Fortress Paper Ltd. has entered into an agreement with a syndicate of underwriters co-led by Raymond James Ltd. and Scotiabank, and including Canaccord Genuity Corp., Dundee Securities Ltd., RBC Capital Markets, TD Securities Inc., CIBC World Markets Inc., Cormark Securities Inc. and Acumen Capital Finance Partners Ltd., pursuant to which the underwriters will purchase a $40-million principal amount of convertible, unsecured, subordinated debentures at a price of $1,000 per debenture. Fortress Paper has also granted the underwriters an over-allotment option to purchase up to an additional $6 million aggregate principal amount of debentures for a period of 30 days following closing to cover over-allotments.

The convertible debentures will mature on December 31, 2019 and will accrue interest at the rate of 7.0% per annum payable on a semi-annual basis, commencing December 31, 2012. At the holder's option, the convertible debentures may be converted into common shares in the capital of Fortress Paper at any time up to the maturity date. The conversion price will be $31.00 for each common share, subject to adjustment in certain circumstances.

The convertible debentures will be direct, unsecured obligations of Fortress Paper, subordinated to other indebtedness of the Corporation for borrowed money and ranking equally with all other unsecured subordinated indebtedness.

The convertible debentures will not be redeemable prior to July 1, 2015. On or after July 1, 2015 and prior to July 1, 2017, the convertible debentures may be redeemed in whole or in part from time to time at the Corporation's option, at a price equal to their principal amount plus accrued and unpaid interest, provided that the current market price for the period ending five trading days preceding the date upon which the notice of redemption is given is at least 125% of the conversion price. After July 1, 2017 and prior to the maturity date, the convertible debentures may be redeemed in whole or in part from time to time at the Corporation's option at a price equal to their principal amount plus accrued and unpaid interest.

Subject to specified conditions, Fortress Paper will have the right to repay the outstanding principal amount of the convertible debentures, on maturity or redemption, through the issuance of common shares of the Corporation. Fortress Paper also has the option to satisfy its obligation to pay interest through the issuance and sale of additional common shares of the Corporation.

The Corporation intends to use the net proceeds of the financing for: (i) funding of capital expenditures relating to the cogeneration project at the Fortress Specialty Cellulose Mill, (ii) funding of capital expenditures relating to the Lebel-sur-Quevillon Mill, subject to the completion of the acquisition and (iii) working capital and general corporate purposes. Although the Corporation intends to spend the funds available to it as stated above, there may be circumstances, where for sound business reasons, a reallocation of funds may be necessary or advisable. The actual use of available funds may vary depending on the Corporation's operating and capital needs from time to time and will be subject to the discretion of the management of the Corporation.

The offering is scheduled to close on or about July 10, 2012 and is subject to certain conditions including, but not limited to, the receipt of all necessary approvals including the approval of the Toronto Stock Exchange.

A preliminary short-form prospectus will be filed with securities regulatory authorities in all provinces of Canada.

We seek Safe Harbor.
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on June 19, 2012, 01:39:41 PM
I feel $31 is low, but it's still about 50% over the current price, so probably about as good as they could have gotten under the circumstances.
Title: Re: FTP.to - Fortress Paper
Post by: bathtime on June 19, 2012, 02:00:24 PM
At the end of the day better to be safe and have the spare cash. Preferable to diluting equity at market price, but I hate that converts can put a cap on the stock with institutions buying the convert and shorting the common.
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on June 19, 2012, 02:25:09 PM
Here's the reply that I got from FTP:

Quote
Hi,

The 36MW cogen should cost approximately $30 million less than the 50MW version.

The upgrade in capacity should cost approximately $20 million to increase projected capacity from 236k to 250k, but we feel the overall the projects are significantly de-risked with this change.

Regards,

Chris Holland
Fortress Paper
Title: Re: FTP.to - Fortress Paper
Post by: gokou3 on June 19, 2012, 02:51:46 PM
Potential to increase the share outstanding by 1.3M or 9%.  Sucks, but far from the end of the world, given the huge margin of safety.  Perhaps the market will react positively now that liquidity concern is alleviated.
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on June 19, 2012, 03:40:40 PM
The pricing is basically the same as what the Fonds is paying for their $25M. Presuming the union votes tomorrow, they're paying 150% of the past 5 days of trading, which will be around 1.5x of ~$21 to $22.   So they pretty much had to price it the same for the new guys.  In this case however they have a longer term duration, so that's good.  And hey ... the 7% coupon is less than the Spaniards paid for their sovereigns today, no?

I've got no problem them taking the $40M in this market, having a nice buffer, and removing the liquidity risk.  It shows they can still tap into the markets despite current global uncertainties, which is good.

And as far as the dilution is concerned, if weak hands persist, cash flow ramps up as expected, and they have margin of safety, they could conceivably start buying back some shares (not many, and over time) on the open market ... especially if some institution has bought the convertible and shorted the common.

That said ... does anyone have access to FTP short interest that they could provide to the board???
Title: Re: FTP.to - Fortress Paper
Post by: A Dhandho Investor on June 19, 2012, 10:26:08 PM
That said ... does anyone have access to FTP short interest that they could provide to the board???

triedtestedand,

Current short interest is 518.700 shares or about 3,6% of total shares outstanding.
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on June 20, 2012, 06:29:44 AM
Thanks AD!

BTW ... LSQ has closed as of today.

http://www.digitaljournal.com/pr/761698
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on June 20, 2012, 06:33:12 AM
PS ... And they've upped the latest convertible debenture offer to $60M from $40M
Title: Re: FTP.to - Fortress Paper
Post by: tombgrt on June 20, 2012, 06:44:49 AM
Considering $31 is almost double the price at which I bought more shares at one point a week ago ($17), I don't think conditions are terrible. Sure it's dilution, but the added value from LSQ should be far higher.

This is the price FTP pays for playing it too tight, but that is easy to say in hindsight. If Chad thought LSQ with this new convertible included would be a bad deal, I'm quite sure he would call the project off. I'm confident this package is better than the one without LSQ and dilution but hope they delay any further acquisitions for the next year unless they can sell off Dresden or Landqart at a great price.
Title: Re: FTP.to - Fortress Paper
Post by: prunes on June 20, 2012, 06:50:04 AM
PS ... And they've upped the latest convertible debenture offer to $60M from $40M

They didnt know yesterday that they needed an additional $20 million? Typo? Cash needs changed dramatically?
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on June 20, 2012, 06:56:33 AM
Prunes:

More demand for the bought deal than expected ... so they're taking the cash now.  Could be an extra $23M if you factor in the over-allotment. Heck ... if they're now going to be floating with so much extra cash, that's enough to buy back more than a million shares at these prices (stock's down so far today).
Title: Re: FTP.to - Fortress Paper
Post by: prunes on June 20, 2012, 08:04:06 AM
How much of the total equity is FTP putting into LSQ? Looks like it will be between $20 - $29 m of a total $222 m based on the PRs I'm looking at. Anyone have similar figures for Thurso?

FTP took down the investor presentation from its website. If anyone has updated stabilized projections for the two mills that they can share it would be greatly appreciated.
Title: Re: FTP.to - Fortress Paper
Post by: gokou3 on June 20, 2012, 10:29:05 AM
How much of the total equity is FTP putting into LSQ? Looks like it will be between $20 - $29 m of a total $222 m based on the PRs I'm looking at. Anyone have similar figures for Thurso?

FTP took down the investor presentation from its website. If anyone has updated stabilized projections for the two mills that they can share it would be greatly appreciated.

Attached is the presentation re: LSQ.  I am at work but am pretty sure you can figure out the equity contribution from it.
Title: Re: FTP.to - Fortress Paper
Post by: bathtime on June 20, 2012, 06:19:38 PM
Trying to do the math on shares out plus what the converts will add. A recent Raymond James report has fully diluted shares out at 15.3m. I think that figure includes issued shares plus stock options.

Then we have three convertible debentures. The financing that closed 12/22/11 for Thurso was for $40.25m and stated "The conversion price of the debentures is $37.50 per share, which represents 26.6667 shares for each $1,000 principal amount of debentures." [1000/37.5].

12/22/11:  $40.25m is 40,250 debs at $37.50 = 1.07m shares
06/20/12:  $60m is 60,000 debs (possibly more if 9,000 over allotment filled) at $31.00 = 1.94m shares

Yet to be issued: $25m debs with Fonds de solidarity FTQ for LSQ, which if I use the same $31.00 price as the current raise = 0.81m shares.

All in all that adds up to 18.82m shares out once debs are converted. Let me know if I left anything out or messed up the math!
Title: Re: FTP.to - Fortress Paper
Post by: gokou3 on June 20, 2012, 06:56:02 PM
Just got a trial subscription with CCFGroup http://www.ccfgroup.com/informs/index_prod.php?Class_ID=500000 (http://www.ccfgroup.com/informs/index_prod.php?Class_ID=500000).  Looks like DP prices have now dropped to US$1000/mt, with buyers taking a wait and see approach.  Wonder if FTP's customers still honour their collar?

OTOH, VSF spot is at RMB$14400 = US$2264/MT.  That works out to US$1264 for Thurso's contract (spot - $1000)
Title: Re: FTP.to - Fortress Paper
Post by: bonechip1 on June 20, 2012, 10:43:40 PM
Hi gokou3,
Thanks very much for this info.  I would be very appreciative if you could post the gist of the CCF articles with the headlines "fulida to shut vsf lines" from June 20 and " fulida's turnaround plan not confirmed finally" from June 19.

Thanks,
Chip
Title: Re: FTP.to - Fortress Paper
Post by: gokou3 on June 20, 2012, 11:15:46 PM
Hi gokou3,
Thanks very much for this info.  I would be very appreciative if you could post the gist of the CCF articles with the headlines "fulida to shut vsf lines" from June 20 and " fulida's turnaround plan not confirmed finally" from June 19.

Thanks,
Chip

Full articles:

Fulida to shut VSF lines
Fulida announces that it will shut VSF lines of its Xiaoshan plant on Jul 1 for 15-20 days' turnaround and the operating rate may fall to 30%.


Fulida's turnaround plan not confirmed finally
Fulida said last week it would shut VSF lines of Xiaoshan plant. It was rumored previously that one line would be shut for turnaround and this morning the plant was rumored to be closed.

Executives from Fulida reflect that the turnaround has not been confirmed yet. Some lines may be maintained later and whether the whole plant will be closed depends on market situation.



Btw, just found a Raymond James research report talking about the relationship between Fulida and Fortress:
http://www.andrewjohns.ca/sites/default/files/FTP_20120516%20Due%20Dilligence%20Boosts%20Thurso%20Conversion%20Confidence;.pdf
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on June 21, 2012, 07:22:34 AM
http://www.theglobeandmail.com/globe-investor/investment-ideas/fortress-paper-playing-the-waiting-game/article4357935/

I find it interesting how he was fine recommending the company at twice+ the current price and while the company was a year+ away from shipping DP, while now that it is months from getting full cash-flow from Thurso and the stock is half the price, it's a "wait and see" story. I mean, I understand how the situation doesn't look as good as it once did (macro and micro), but the long-term potential remains very similar, and since you are paying less than half what you used to, the risk/reward profile is probably much better than it was.
Title: Re: FTP.to - Fortress Paper
Post by: roundball100 on June 21, 2012, 08:16:12 AM
http://www.theglobeandmail.com/globe-investor/investment-ideas/fortress-paper-playing-the-waiting-game/article4357935/

I find it interesting how he was fine recommending the company at twice+ the current price and while the company was a year+ away from shipping DP, while now that it is months from getting full cash-flow from Thurso and the stock is half the price, it's a "wait and see" story. I mean, I understand how the situation doesn't look as good as it once did (macro and micro), but the long-term potential remains very similar, and since you are paying less than half what you used to, the risk/reward profile is probably much better than it was.

Exactly my thoughts when I read the article in the paper this morning.  ("You pay a high price for certainty ...").   Once it doubles, no doubt everyone will change their recommendations again, so as not to be out of step with other analysts.
Title: Re: FTP.to - Fortress Paper
Post by: bonechip1 on June 21, 2012, 09:12:28 AM
Thanks again gokou3.  Great info.  Fulida is FTP’s largest customer hence my interest in those 2 articles – I think Fulida takes 36% of FTP production. Not sure what % of capacity Xiaoshan is of total Fulida production. At first glance, I thought the second article may have meant that Fulida was considering shutting in production at Xiaoshan indefinately depending on market conditions. However, re-reading the releases a few times, the way I now read into these 2 news releases is that Fulida are shutting down production of the majority (70%) of the Xiaoshan plant VSF lines for a 15-20 day maintenance turnaround, and depending on market conditions, they may shut the whole plant down for the turnaround and bring back on the full production in 15-20 days (mid to late July). The second release has a rumour element to it (Fulida’s turnaround not confirmed finally), and the more recent release (Fulida to shut VSF lines) seems to be an official release by Fulida from yesterday.

Agree on Fabrice Taylor.  I have gotten some value out of reading the free content on his President's Club website, especially his interviews with management, however, I find his scuttlebutt doesn't go much beyond talking to company CEOs.  There certainly are material risks here, but I think the risk/reward is much more in a long's favor now than when Taylor was first recommending FTP. 
Title: Re: FTP.to - Fortress Paper
Post by: lessthaniv on June 22, 2012, 09:15:36 AM
I know that Chad has suggested nothing is on the immediate horizon for Dresden but it's still in the back of my mind that this gets sold in the next year or two. The size of the wallpaper market hasn't really grown and as more old school paper orders migrate to the non-woven product the future growth becomes more limited. I think Chad's MO will be to liquidate this soon with a little growth left for the buyer to maximize the multiple.

Liquidating this would solve many problems.

Title: Re: FTP.to - Fortress Paper
Post by: tombgrt on June 24, 2012, 04:30:41 AM
Is there any reason why non-woven won't take over the old paper completely? Look at the videos below:
http://www.youtube.com/watch?v=p3JxOww61JI
http://www.youtube.com/watch?v=AClmVNEO8Q8
http://www.youtube.com/watch?v=bSLkviLfJxU&feature=list_related&playnext=1&list=SPA8447D452FBA20AC


Why would anyone still buy the old product over time?


I would actually not mind if Chad held on to this one, I believe the moat is more than decent as long as they keep most of the market share. Very predictable cash flow, margins of almost 25% now, niche market that is still growing double digits for some years, ... What's not to like?

Current capacity is almost 60K tonnes/year for Dresden. They now hold 50-60% of the market? Total possible capacity for non-woven could be 300K tonnes in x years. What if FTP could "corner" the market with the best product and highest capacity, giving it the best production cost and product. I guess that would keep competitors out over the long term because 1) there is no capacity for another big producer because of limited demand, 2) their costs would be higher and product weaker. Am I oversimplifying things?

Does anyone know how fragmented the other producers are? There was talk about future construction or buying a second mill for non-woven with 50K tonnes production at the annual meeting. Not now but maybe later if demand is high enough. I have no experience with things like game theory, but if they could get the same results as in Dresden, wouldn't that result in an interesting situation with competitors at 20-30K tonnes/year at best?

If there is a way to make it economically unprofitable for competitors to try and steal market share over the long term, keep it! Selling this thing at 5xEBITDA would be nuts imo, let alone 3.5-4x! One can dream of owning a 'hidden champion'...   :)

Btw, lessthaniv, what are the problems you speak of? Liquidity?
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on June 25, 2012, 11:28:18 PM
Got this (and attached graph) from the ccfgroup.com website tonite ...


Dissolving pulp import of China in 2011-May 2012

According to customs data, dissolving pulp import of China keeps climbing up to 162.322kt in May 2012, up 27.81% from the previous month and up 52.12% year on year.
Title: Re: FTP.to - Fortress Paper
Post by: colinwalt on June 26, 2012, 11:06:33 AM
Got this (and attached graph) from the ccfgroup.com website tonite ...


Dissolving pulp import of China in 2011-May 2012

According to customs data, dissolving pulp import of China keeps climbing up to 162.322kt in May 2012, up 27.81% from the previous month and up 52.12% year on year.

Thanks triedtestedand, very interesting, articles such as the one linked below have me worrying about the impact on DP consumption due to the general slowdown in China... these DP figures provide some re-assurance that the growth in the DP market is currently sustainable...

http://www.mastermariners.org.au/index.php/component/content/article/3-news-international/559-30-coal-vessels-float-off-chinas-coast

At least 30 Panamax or Capesize vessels are floating off China's coast because traders who bought them have been unable to resell them to end-users, two industry sources said at a conference in Indonesia, Platts reports.

...
Title: Re: FTP.to - Fortress Paper
Post by: prunes on June 26, 2012, 06:23:23 PM
Is there any way to gain additional comfort beyond just trusting management that Thurso and LSQ will hit the cost estimates that management has provided? Is there any way to gain additional comfort that Thurso and LSQ will retain their relative positions in the cost curve?

I've seen people comment that we should expect management's DP to sell at a premium to spot because it is of relatively high quality. But in the RJ research note, it was observed that it is of quality comparable to Chinese producers. What am I missing?

Title: Re: FTP.to - Fortress Paper
Post by: tombgrt on June 27, 2012, 09:33:38 AM
By my understanding they are first ramping up to full production and then they will finetune the process to get best cash cost versus quality.  :) I'm not trying to focus too much on receiving a premium, conversion to speciality cellulose, etc. First things first and then upside should take care of itself.

I rely on analyst reports a bit for cash cost estimates.  Things like RJ research. It's not quite exact but it gives some reassurance that cash cost won't be $1000 or anything in that order. The analysis recently posted here was helpful as well imo.

Referring to our pm's about new capacity I also found this back in my folders:
http://www.tappi.org/content/events/11diss/fortin.pdf

It might make you more or less comfortable about the added capacity, take it for what it's worth. Maybe you've read it already.. I think it is reassuring to see that over 55% of that announced capacity is located in China. As you know the average cash cost for Chinese producers is $1150-1250. Even if it is $1000 for this new capacity (which I doubt considering it was announced when prices where much much higher), we have little to worry about. Only +- 10% is from Brazil and South-Africa, which are basically the best places to be a low cost producer.

I don't think the DP price will become very attractive again in the near term. This will take some time to settle. Luckily we have a long way to go anyway before LSQ is properly functioning.

Hope it helps!


Tom
Title: Re: FTP.to - Fortress Paper
Post by: shoeless on June 30, 2012, 01:54:20 PM
Spent some time looking into Landqart and thought I'd share some stuff I found interesting and hasn't been mentioned on the thread (or I missed it)

If the rumors that India is now a Lanqart customer are true, this may be short-lived as apparently India is committed to being self-sustaining wrt banknote production.
http://www.currency-news.com/articles/2012-the-winds-of-change-january-2012

I also found this article about the industry interesting
http://www.currency-news.com/articles/banknote-production-the-perfect-storm-may-2011

FWIW, I also had a look at De La Rue's currency segment numbers: in FY 2011 they produced 9900 tons of banknotes (Landqart capacity is 10K) which sold for 450mill USD and an operating profit "before exceptional items" of 44.69mill USD (9.88% margin). In FY 2012 they reported currency revenue of 520mill USD and operating profit of 71.04mill USD (13.64% margin). (DLR reports in GBP, I converted to USD at todays rate)
Title: Re: FTP.to - Fortress Paper
Post by: shoeless on July 01, 2012, 07:04:13 AM
Is there any way to gain additional comfort beyond just trusting management that Thurso and LSQ will hit the cost estimates that management has provided? Is there any way to gain additional comfort that Thurso and LSQ will retain their relative positions in the cost curve?

I've been trying to find some reassurance as well.
It seems there are (at least) three other DP mills in Canada: AV Group's (A.Birla owned), Atholville and Nackwick mills and Neucell's (Fulida owned as of 2011) Port Alice Mill.

Why would Fulida and A.Birla invest in mills that are structurally expensive? In particular Fulida's investment was quite recent.
To me an investment indicates a bit more conviction compared to a long-term contract.

Is there any reason to think FTP's costs will be significantly different from these mills?
Reminder: Peter Vinall, now at Fortress, was CEO of AV Group and oversaw some of the conversion to DP.

Would be nice to get more direct evidence of the cost structure at those mills though. Or the price Fulida paid for Neucell.

btw, another acquisition last year was A.Birla's purchase of Domsjo in Sweden. They paid $340M for a mill with 210K tons/year capacity (though I think part of it is specialty grade). But I haven't been able to find information about the costs at that mill. I did see reference to Sweden importing some wood from Canada but have no idea how relevant that is to this particular mill.

Quote from: colinwalt
Thanks triedtestedand, very interesting, articles such as the one linked below have me worrying about the impact on DP consumption due to the general slowdown in China... these DP figures provide some re-assurance that the growth in the DP market is currently sustainable...
What would be the likely effect of a China real-estate slowdown on Fortress input costs? Could it open up opportunities for good long-term wood supply contracts?
Title: Re: FTP.to - Fortress Paper
Post by: prunes on July 01, 2012, 11:54:59 AM
Some crude calculations for Port Alice...

http://www.youtube.com/watch?v=C3b_44FbEx4 According to the CEO of Neucel, he estimates the business will spend over $200 M in 2010, and that 75% has a "direct or indirect impact" in the local area of Port Alice.

http://manufacturing-today.com/index.php/featured-content/261-neucel-specialty-cellulose-ltd Port Alice's capacity is 160,000 tons with plans to expand to 200,000 tons.

Assuming that annual production costs are $200 M * 75%, unit costs are anywhere from $750 - $950 by my calculations.
Title: Re: FTP.to - Fortress Paper
Post by: BRK7 on July 02, 2012, 12:15:38 PM
Spent some time looking into Landqart and thought I'd share some stuff I found interesting and hasn't been mentioned on the thread (or I missed it)

If the rumors that India is now a Lanqart customer are true, this may be short-lived as apparently India is committed to being self-sustaining wrt banknote production.
http://www.currency-news.com/articles/2012-the-winds-of-change-january-2012

I also found this article about the industry interesting
http://www.currency-news.com/articles/banknote-production-the-perfect-storm-may-2011

FWIW, I also had a look at De La Rue's currency segment numbers: in FY 2011 they produced 9900 tons of banknotes (Landqart capacity is 10K) which sold for 450mill USD and an operating profit "before exceptional items" of 44.69mill USD (9.88% margin). In FY 2012 they reported currency revenue of 520mill USD and operating profit of 71.04mill USD (13.64% margin). (DLR reports in GBP, I converted to USD at todays rate)


Thanks for the currency-related articles, Shoeless.  The January 2012 Whistler Conference has some good color from Chad on banknotes, specifically on the use of plastic/polymers in banknotes.  No color on the market capacity situation, though.  In case you haven’t heard it:

http://webcasts.welcome2theshow.com/whistler2012 (originally posted to the FTP thread by Liberty in January.)  Free registration, check around the 40 min mark.

Essentially, Chad makes a case that polymer-based currencies indeed have better durability/longevity, but are inferior in the sense that they are easier to counterfeit.  Further, Chad claims that the current transition to polymer in Canada is “not going well”, and that polymer has been 4%-5% of the market for the past 15 years with very little growth.
Title: Re: FTP.to - Fortress Paper
Post by: LongTerm on July 03, 2012, 02:23:18 AM
Quote
FWIW, I also had a look at De La Rue's currency segment numbers: in FY 2011 they produced 9900 tons of banknotes (Landqart capacity is 10K) which sold for 450mill USD and an operating profit "before exceptional items" of 44.69mill USD (9.88% margin). In FY 2012 they reported currency revenue of 520mill USD and operating profit of 71.04mill USD (13.64% margin). (DLR reports in GBP, I converted to USD at todays rate)
by Shoeless

Thanks so much for this priceless tidbit shoeless. It both sheds some light on Landquart economics and highlights some questions that I've been grappling with for a while. Maybe someone on this board with more knowledge of Fortress Paper (i.e. just about anyone) can help me.

When I look at the above numbers from DLR it looks like revenue per ton in 2012 is over USD $50,000. But when I look at Landquart 1Q 2012 numbers it looks like the average revenue per ton is just over USD $13,000. I thought the security paper products would be somewhat comperable between the companies. Am I missing something here? Is it a question of product mix? (for example, more security paper and less or no banknotes at Landqart).  With the reinstatement of the 2011 banknote order will the price per ton produced by Landqart begin to approach the DLR levels? If Landqart profitability were to approach that (or even half that) achieved by DLR then this is a valuable asset. On the other hand, even if the mill were to run at 100% capacity (1Q seems to be at about 40%) at current product pricing levels it could hardly justify the cash investment made to date.

I don't see this discussed elsewhere on the thread but I could have missed it. Thanks in advance for any thoughts or pointing me to prior posts about this.
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on July 03, 2012, 07:22:39 AM
I don't know so I'm just speculating here, but afaik De La Rue is both a security papermaker and a printer, so their prices are not directly comparable to Landquart. It's also possible that Landquart's recent production mix was lighter on banknote and heavier on other security papers (visa papers, etc)..? It's possible that the rev/ton numbers could look completely different with another mix.

At this point I'm waiting to see what happens with LQ. Too hard to predict. But I have confidence that management will do what's best for shareholders.
Title: Re: FTP.to - Fortress Paper
Post by: BRK7 on July 03, 2012, 03:55:06 PM
I don't know so I'm just speculating here, but afaik De La Rue is both a security papermaker and a printer, so their prices are not directly comparable to Landquart.

Liberty, you are correct that De La Rue is both a security papermaker and a printer.  Below is a link to a recent interview with De La Rue CEO, Tim Cobbold.  The segment from 3:23 – 4:30 is worth watching, as it relates to Landqart.

http://www.cantos.com/company/De%20La%20Rue
Title: Re: FTP.to - Fortress Paper
Post by: shoeless on July 03, 2012, 04:24:27 PM
Thanks BRK7, lots of interesting information in the Whistler presentation.
LongTerm, great point. I didn't  know the answer but it looks like we may have part of it now. Thanks guys.

update: some numbers Chad gave in the Whistler presentation
commodity paper: $600-$900 a ton
Lowest quality passport paper: $6-7K/ton
Low grade banknote with few security features: $12-12K/ton
Euro 25-28K/ton
Swiss franc: just over $30K/ton
Durasafe: 45K/ton

So the potential for higher revenue/ton is there if they can get the right orders.
Title: Re: FTP.to - Fortress Paper
Post by: gokou3 on July 05, 2012, 05:23:40 PM
Terrace Bay paper mill to convert to rayon fibre
http://www.saultstar.com/ArticleDisplay.aspx?e=3592166

AV Group to purchase Terrace Bay Pulp for dissolving pulp
http://www.pulpandpapercanada.com/news/av-group-to-purchase-terrace-bay-pulp-for-dissolving-pulp/1001520194/

Quote
Aditya Birla Group, through its Canadian subsidiary AV Group, has agreed to purchase the assets of the idled mill for a reported price of $300 million. The Indian company, which already owns two dissolving pulp mills in Canada, plans to invest more than $250 million to convert the Terrace Bay site to dissolving pulp for use in rayon

So, a total consideration of $550M for a DP mill.  Per the below article, the converted capacity by 2016 will be 280kT/yr:
http://m.indianexpress.com/news/aditya-birla-to-buy-terrace-bay-pulp-mill/970830/
Title: Re: FTP.to - Fortress Paper
Post by: motownsf on July 06, 2012, 08:14:51 AM
Terrace Bay paper mill to convert to rayon fibre
http://www.saultstar.com/ArticleDisplay.aspx?e=3592166

AV Group to purchase Terrace Bay Pulp for dissolving pulp
http://www.pulpandpapercanada.com/news/av-group-to-purchase-terrace-bay-pulp-for-dissolving-pulp/1001520194/

Quote
Aditya Birla Group, through its Canadian subsidiary AV Group, has agreed to purchase the assets of the idled mill for a reported price of $300 million. The Indian company, which already owns two dissolving pulp mills in Canada, plans to invest more than $250 million to convert the Terrace Bay site to dissolving pulp for use in rayon

So, a total consideration of $550M for a DP mill.  Per the below article, the converted capacity by 2016 will be 280kT/yr:
http://m.indianexpress.com/news/aditya-birla-to-buy-terrace-bay-pulp-mill/970830/


You can look at this two ways. First, it's bad because it adds additional capacity.

Secondly, it's positive because 1) Another group views the economics of producing DP at these price levels as being so attractive that they are willing to commit over half a billion to a new project, 2) It assigns value to Thurso and LSQ in the event Chad wanted to sell either project at some point down the line.  If someone is willing to commit $550m for 280k ton/yr of capacity, what will FTP's 437k of capacity be worth at LSQ and Thurso? If we use this project as a proxy, FTP's two projects could be worth somewhere between $800m and $900m to an outside buyer if the economics of the projects are similar to this one.  Add in Dresden (which is on a run-rate of $37.5m in EBITDA) and assign an LBO multiple of somewhere between 6 and 8x and you have breakup value well in excess of today's EV. In addition, Landqart (with its new large order) presumably will become an economically viable operation at some point.





Title: Re: FTP.to - Fortress Paper
Post by: Liberty on July 06, 2012, 08:33:02 AM
I think it also highlights that, despite the cost overruns on the cogen, FTP is getting these assets very cheaply. Chad's not paying 300 million for LSQ, yet it's a very modern mill that is about as good as any in the world as far as I can tell...

It also makes me wonder whether Chad had a look at that Ontario mill and passed because the price was too high, or maybe some other reason (wood supply not as good as LSQ and Thurso? do they have a cogen? is the Ontario government giving worse terms than the Quebec government? how about labour contracts? is the mill less adapted to very high alpha specialty DP?). There are lots of moving pieces that need to come together to make a good deal, the physical mill is just one of them.

Hopefully by 2016 the market will have grown enough to easily absorb new capacity. I can't predict macro, but I think the thesis that billions around the world will be able to afford more clothes in the coming years and cotton will have trouble keeping up makes a lot of sense.
Title: Re: FTP.to - Fortress Paper
Post by: lessthaniv on July 06, 2012, 08:39:41 AM
I'm not so sure its proper to automatically assume that world DP production rises with every new mill. There exists a wide gap between the cost structures of domestic Asian producers and domestic North American producers. As we've already discussed and witnessed; DP prices are decoupling from Cotton; Chinese DP producers are shutting the doors at $1150/mt.

Are we simply witnessing a shift? As new low-cost production hits the market it may be somewhat offset by the shuttering of doors from Asian producers; hence supply may not be growing as fast as you think.

(http://i728.photobucket.com/albums/ww289/MikeNCathy/Fortress.jpg)

Remember, as per the chart above roughly 35% of the forecasted (may be slightly dated) 2013 world supply comes from Chinese suppliers or Cotton linters with cash costs north of $1000/mt.

There is a reason that your linked article (thanks for posting this gokou3) is describing an Asian Rayon producer buying a North American DP asset.

I think we are hearing more of these deals at the moment because soft DP pricing expedites the transition. In analysing a project to convert a mill, soft pricing expectations allow one to reduce world supply estimates knowing that roughly 1/3rd of the world supply is unprofitable and unsustainable.
Title: Re: FTP.to - Fortress Paper
Post by: motownsf on July 06, 2012, 09:04:37 AM
I think it also highlights that, despite the cost overruns on the cogen, FTP is getting these assets very cheaply. Chad's not paying 300 million for LSQ, yet it's a very modern mill that is about as good as any in the world as far as I can tell...

It also makes me wonder whether Chad had a look at that Ontario mill and passed because the price was too high, or maybe some other reason (wood supply not as good as LSQ and Thurso? do they have a cogen? is the Ontario government giving worse terms than the Quebec government? how about labour contracts? is the mill less adapted to very high alpha specialty DP?). There are lots of moving pieces that need to come together to make a good deal, the physical mill is just one of them.

Hopefully by 2016 the market will have grown enough to easily absorb new capacity. I can't predict macro, but I think the thesis that billions around the world will be able to afford more clothes in the coming years and cotton will have trouble keeping up makes a lot of sense.


My guess is that the group from India came in and paid a bigger number than the local players. It usually happens that way.
Title: Re: FTP.to - Fortress Paper
Post by: tombgrt on July 06, 2012, 09:12:14 AM
One of the questions that remain then is at what spot price it makes sense to built new DP mills after all economically viable conversions are completed and have replaced high cost producers.

Say that it costs $1b to build a 250,000 tonnes DP mill with cash costs (all inclus) at $600/ton. Would I be far off? Maybe a couple hundred millions, idk. Anyway, it's probably fair to assume that they won't build it with the prospects of selling for $1200/ton or less (giving the mill only $150m in EBITDA at best under that scenario) IF $1b is a correct raw estimate. Maybe they get 350,000 tonnes out of $1b, again, idk. The fact is that Thurso and LSQ should remain fairly profitable in the first 5-10-15 years even when this happens.

This gives me only more reassurance that DP prices should be reasonable in almost any case, even when others invest heavily in new mills with lower production costs. Every time you see either much higher conversions costs, much higher cash costs or a combination of both (which I believe Terrace Bay could be). When the industry runs out of possible conversions, this will become even more true.

Do I make any sense here or is my reasoning seriously flawed? Just thinking out loud here.
Title: Re: FTP.to - Fortress Paper
Post by: motownsf on July 06, 2012, 09:27:15 AM


One of the questions that remain then is at what spot price it makes sense to built new DP mills after all economically viable conversions are completed and have replaced high cost producers.

Say that it costs $1b to build a 250,000 tonnes DP mill with cash costs (all inclus) at $600/ton. Would I be far off? Maybe a couple hundred millions, idk. Anyway, it's probably fair to assume that they won't build it with the prospects of selling for $1200/ton or less (giving the mill only $150m in EBITDA at best under that scenario) IF $1b is a correct raw estimate. Maybe they get 350,000 tonnes out of $1b, again, idk. The fact is that Thurso and LSQ should remain fairly profitable in the first 5-10-15 years even when this happens.

This gives me only more reassurance that DP prices should be reasonable in almost any case, even when others invest heavily in new mills with lower production costs. Every time you see either much higher conversions costs, much higher cash costs or a combination of both (which I believe Terrace Bay could be). When the industry runs out of possible conversions, this will become even more true.

Do I make any sense here or is my reasoning seriously flawed? Just thinking out loud here.


I think it depends on what the entity doing the conversion has a their return target and what their cost of capital is.  I personally would want to generate well in excess of 30% IRR for taking on a project with this kind of risk.
Title: Re: FTP.to - Fortress Paper
Post by: shoeless on July 06, 2012, 03:28:40 PM
Terrace Bay paper mill to convert to rayon fibre
http://www.saultstar.com/ArticleDisplay.aspx?e=3592166

AV Group to purchase Terrace Bay Pulp for dissolving pulp
http://www.pulpandpapercanada.com/news/av-group-to-purchase-terrace-bay-pulp-for-dissolving-pulp/1001520194/

Quote
Aditya Birla Group, through its Canadian subsidiary AV Group, has agreed to purchase the assets of the idled mill for a reported price of $300 million. The Indian company, which already owns two dissolving pulp mills in Canada, plans to invest more than $250 million to convert the Terrace Bay site to dissolving pulp for use in rayon

So, a total consideration of $550M for a DP mill.  Per the below article, the converted capacity by 2016 will be 280kT/yr:
http://m.indianexpress.com/news/aditya-birla-to-buy-terrace-bay-pulp-mill/970830/

Thanks for posting gokou.

Seems there are conflicting reports of the price paid in the Terrace Bay deal (110M vs 300M). I also saw this "The mill has two full integrated pulp lines, and three integrated pulp machines, with a rated capacity of approximately 550,000 air-dried metric tonnes of pulp per year (hardwood and softwood combined)."
So maybe 280K DP is in addition to other production.
Title: Re: FTP.to - Fortress Paper
Post by: shoeless on July 06, 2012, 04:29:06 PM
Quote
One of the questions that remain then is at what spot price it makes sense to built new DP mills after all economically viable conversions are completed and have replaced high cost producers.

I think "all economically viable conversions" may be a moving target. One interesting point in the Whistler Conference presentation was the discussion by Mercer CFO of why they halted their plans to convert one of their mills to be a "swing" DP producer.
He said that in the past mills with continuous digesters (like the mill Mercer considered converting) have not been successfully converted to DP production but that recently Andritz sold such a solution to a Chinese customer with 'performance guarantees'. Mercer thinks that if this project is successful there is a chance that continuous digester mills in Brazil may convert to DP using this technology and bring on cheap capacity so they decided to wait and see how this plays out.
I see here http://reports.andritz.com/2012q1/andritz-report2012q1-en-pulp-and-paper.pdf that one such conversion has been completed (Sun Paper’s Yanzhou mill) and another conversion has been started in Japan
Some additional info here:
http://www.andritz.com/no-index/pp-continuous-pre-hydrolysis-cooking.htm

I also ran into mention of another technology that may effect Rayon production, search for "paper pulp viscose".

Title: Re: FTP.to - Fortress Paper
Post by: Liberty on July 06, 2012, 04:35:11 PM
I think "all economically viable conversions" may be a moving target. One interesting point in the Whistler Conference presentation was the discussion by Mercer CFO of why they halted their plans to convert one of their mills to be a "swing" DP producer.
He said that in the past mills with continuous digesters (like the mill Mercer considered converting) have not been successfully converted to DP production but that recently Andritz sold such a solution to a Chinese customer with 'performance guarantees'. Mercer thinks that if this project is successful there is a chance that continuous digester mills in Brazil may convert to DP using this technology and bring on cheap capacity so they decided to wait and see how this plays out.
I see here http://reports.andritz.com/2012q1/andritz-report2012q1-en-pulp-and-paper.pdf that one such conversion has been completed (Sun Paper’s Yanzhou mill) and another conversion has been started in Japan
Some additional info here:
http://www.andritz.com/no-index/pp-continuous-pre-hydrolysis-cooking.htm

I also ran into mention of another technology that may effect Rayon production, search for "paper pulp viscose".

Have you contacted FTP's IR to ask them what they think about those? I don't quite remember if Chad addressed those at the Whistler conference, might have to listen again.
Title: Re: FTP.to - Fortress Paper
Post by: Christopher1 on July 07, 2012, 03:28:05 AM
Updated presentation from the website:
http://www.fortresspaper.com/images/pdfs/investor_relations/Fortress%20Paper%20Powerpoint%20July%202%202012.pdf
Title: Re: FTP.to - Fortress Paper
Post by: shoeless on July 07, 2012, 09:46:54 AM
Have you contacted FTP's IR to ask them what they think about those? I don't quite remember if Chad addressed those at the Whistler conference, might have to listen again.

I haven't been in touch with IR. I don't recall Chad addressing this in the conference.

Title: Re: FTP.to - Fortress Paper
Post by: Liberty on July 07, 2012, 10:23:28 AM
Updated presentation from the website:
http://www.fortresspaper.com/images/pdfs/investor_relations/Fortress%20Paper%20Powerpoint%20July%202%202012.pdf

Page 9 is very interesting. Very healthy-looking curve.

They seem confident they can reach cost targets.

DP was 1250 in april, now back to 1100 on recession fears.
Title: Re: FTP.to - Fortress Paper
Post by: lessthaniv on July 07, 2012, 11:06:54 AM
Slide 18:

confirms my last post. even though supply is increasing, utilization ex-high cost mills is north of 100%.

 :)
Title: Re: FTP.to - Fortress Paper
Post by: colinwalt on July 07, 2012, 11:22:36 AM
Slide 18:

confirms my last post. even though supply is increasing, utilization ex-high cost mills is north of 100%.

 :)

Guess I'm missing something, how can utilization be > 100%?
Title: Re: FTP.to - Fortress Paper
Post by: A Dhandho Investor on July 07, 2012, 11:38:57 AM
Slide 18:

confirms my last post. even though supply is increasing, utilization ex-high cost mills is north of 100%.

 :)

Guess I'm missing something, how can utilization be > 100%?

I don't think it can, as the real utilization rate (the blue line) has never been above 100%.

Just guessing here, maybe they want to show that without the high cost Chinese mills, the utilization rate of the low cost producers' mills should be above 100% to address current DP demand? This would mean that, at current DP prices, at which the Chinese mills are not profitable, there is still room for additional (low cost) supply.
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on July 07, 2012, 11:46:24 AM
I'm not sure I understand slide 18 either. Do they mean that if China's high cost mills shut down there will be a supply gap? Meaning there's a floor a that price level? Am I missing something?
Title: Re: FTP.to - Fortress Paper
Post by: roundball100 on July 07, 2012, 01:42:29 PM
I'm not sure I understand slide 18 either. Do they mean that if China's high cost mills shut down there will be a supply gap? Meaning there's a floor a that price level? Am I missing something?
The message I got was: if certain producers start losing money below $1200, then they shut production when the price falls below that - and those who can produce profitably at less than this point get the business (i.e., competition falls away).  Is that it?
Title: Re: FTP.to - Fortress Paper
Post by: lessthaniv on July 07, 2012, 05:03:35 PM
First look at the blue line - Utilization:

You'll note in 2010; demand = supply and so utilization is at 100%. As we move forward into 2012,2013 & 2014 supply will exceed demand due to the new start ups and therefore utilization falls to a range of (85% -100%).

Now look at the red dashed line - Utilization excluding high cost Chinese mills:

At the current DP price many of the high cost Chinese mills are not profitable. They are unsustainable and will close their doors if prices remain below $1200/mt for too long. If you assume that DP prices remain at $1100/mt and hence unprofitable mills in China end up closing (safe assumption) - the remaining supply in 2012 won't be enough to offset demand. Hence utilization "ex high cost China mills" is greater that 100%.

This is what I was saying in my last post. Those high cost producers represent about 1/3rd of the world supply. At these levels they are unprofitable, hence unsustainable. If prices were to stay here we'd lose more supply than the world can handle.

That's why Chad keeps saying there is floor around $1200/mt and why the floor price of their contracts is at $1200/mt. Everyone knows a fall in price below these levels for too long is unrealistic.

The market can absord a 1/3rd increase in supply from new low cost operations. That will only knock off the high cost producers over time leaving the total supply to the market stable.

<IV

Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on July 07, 2012, 08:58:39 PM
Going back to the Terrace Bay announcement ... Am glad FTP did not attempt to match AV Group's bid to the bankruptcy court.   Consider:

- possible upfront cash purchase of upwards of $110M (or more?) ... vs FTP's $1/nominal amount for each of LSQ and Thurso
- no contractual commitment to convert (i.e. intend to run as NBSK for awhile, then convert for 2016 timeframe, which sounds like an option to me)
- self-financing of $250M ... vs FTP's provincial gov't supported AND project specific (i.e. non-recourse) financing for each of LSQ and Thurso

Proposing similar to AV Group for Terrace Bay would have required some serious up-front cash, with only marginal returns for a few years.  AV Group, being the much bigger player, no doubt has a longer-term view to secure options and lock up potential in-house low-cost supply as forecasted demand grows.   That said, this does provide a possible valuation benchmark however, which is good.  Note the following:

                                                      Terrace Bay                       Thurso+LSQ                   Ratio

Dissolving Pulp Capacity                       280K*                              458K                          1.6357
Conversion Capex                               ~$250M                          ~$430M                       1.72
Purchase Price                                    ~$110M                               $1


If we used same ratio of ~1.65, then a valuation (ex conversion CAPEX) for Thurso&LSQ would be ~$180M.  Not a bad margin of safety for FTP purchase for $1 ... especially with the added benefit of the conversion project financing for each being held at the subsidiary level.

* I'm not sure about the capacity # for Terrace Bay ... the 280K number is from the recent press releases, but if you look at older info, it notes that Terrace Bay had two pulp lines ... a main one producing 350K of NBSK a year (which is the one that has been started/stopped multiple times in the past few years), and a secondary one capable of producing 125K of NBSK/NBHK a year.

Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on July 07, 2012, 09:25:59 PM
As relates the new presentation ... One thing I would have liked to have seen more detail about is the demand side for dissolving pulp.  I'm comfortable with arguments about the macro trend, and with the low-vs-high cost supplier mix, but how much do short term swings if VSF customer utilization factor in to FTP's own utilization, sales, and pricing power. 

For example, if Fulida experiences a slowdown, I might expect them to curtail purchases from 3rd parties such as FTP before curtailing production at a company owned dissolving plant, no?  Or maybe they would only do so in event of a protracted slowdown?

I raise question mostly because have seen some headlines of late on ccfgroup.com denote VSF plants planning on taking downtime for maintenance, etc. in near-term as business has been slow/prices have been low.
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on July 07, 2012, 10:40:50 PM
One more thing ... a number of the presentation visuals are sourced from, and reference, the following website:

http://www.fmhaemmerle.com/downloads.html

It appears likely that this consultant's study was commissioned by the Lenzing Group.

http://www.lenzing.com/fileadmin/template/pdf/konzern/investor_center/factsheet_E_Q1_SCREEN.pdf
Title: Re: FTP.to - Fortress Paper
Post by: shoeless on July 08, 2012, 04:11:46 AM
This is what I was saying in my last post. Those high cost producers represent about 1/3rd of the world supply. At these levels they are unprofitable, hence unsustainable. If prices were to stay here we'd lose more supply than the world can handle.
<IV

Did you include specialty cellulose and cotton linter capacity when estimating the amount of high cost capacity? Am I wrong in thinking the impact of low VSF demand on a SC/cotton linter producer would be minimal since they're targeted at other uses?
Title: Re: FTP.to - Fortress Paper
Post by: A Dhandho Investor on July 09, 2012, 08:34:17 AM
Hey guys,

I just noticed the 2011 annual report and management discussion have been filed on Bloomberg last week.

Currently, they have only been filed in French. I will also post the English versions as soon as they are filed.

Title: Re: FTP.to - Fortress Paper
Post by: Liberty on July 10, 2012, 06:50:35 AM
http://www.marketwire.com/press-release/fortress-paper-announces-closing-of-69-million-bought-deal-offering-tsx-ftp-1678248.htm

Quote
VANCOUVER, BRITISH COLUMBIA--(Marketwire - July 10, 2012) - Fortress Paper Ltd. ("Fortress Paper" or the "Company") (TSX:FTP) is pleased to announce that it has completed its previously announced bought deal offering (the "Offering") of 7.0% convertible unsecured subordinated debentures (the "Debentures"), including the exercise in full of the underwriters' over-allotment option, resulting in aggregate gross proceeds of $69,000,000. The Offering was conducted by way of a short form prospectus dated July 3, 2012 through a syndicate of underwriters co-led by Raymond James Ltd. and Scotiabank, and included Canaccord Genuity Corp., Dundee Securities Ltd., RBC Dominion Securities Inc., TD Securities Inc., CIBC World Markets Inc., Cormark Securities Inc. and Acumen Capital Finance Partners Limited, who purchased a total of 69,000 Debentures at a price of $1,000 per Debenture.

Fortress Paper intends to use the net proceeds of the Offering to fund capital expenditures relating to the cogeneration project at its Fortress Specialty Cellulose Mill, to fund capital expenditures relating to its recently acquired Fortress Global Cellulose Mill in Lebel-sur-Quévillon, Québec, to reduce outstanding indebtedness and for working capital and general corporate purposes.
Title: Re: FTP.to - Fortress Paper
Post by: sculpin on July 11, 2012, 06:23:55 AM
Fortress CEO Sees Pulp Rally or Going Private: Corporate Canada
2012-07-11 04:01:00.4 GMT

By Christopher Donville
     July 11 (Bloomberg) -- Fortress Paper Ltd. Chief Executive Officer Chad Wasilenkoff says his strategy of buying unprofitable Canadian pulp mills will either spark a rally or push him to buy the whole company.
     Wasilenkoff is betting idled paper-grade pulp mills can be transformed into some of the world’s lowest-cost makers of the pulp used in synthetic fabrics and LCD screens. Fortress bought a second Quebec mill last month and the CEO said he’s in talks to acquire another in North America and one in Europe.
     The growing market for so-called dissolving pulp, combined with Fortress’s cheap acquisition costs, government financial support and wage concessions from workers will generate “staggering” returns for investors, Wasilenkoff said.
Fortress’s market value declined 56 percent in the past year.
     “We are going to see a significant upward movement in the shares in the next 12 months,” Wasilenkoff, who also is chairman, company founder and its largest shareholder, said in an interview near his company’s North Vancouver headquarters.
“If we don’t, I’d consider taking the company private.”
     Fortress is moving into an industry that has been stung by the U.S. housing slowdown, the strength of the Canadian currency and plummeting use of newsprint and magazine paper as the Internet and personal tablets gain in popularity. Direct jobs in the C$57 billion ($55.7 billion) industry declined by 35 percent to 233,880 in the last 11 years, according the Forest Products Association of Canada.

                          ‘Good Talker’

     Wasilenkoff faces a global expansion of dissolving-pulp production capacity, said Brian McClay, founder of Brian McClay & Associates Inc., a Montreal-based pulp-industry consultancy.
Still, Wasilenkoff is helping to defy the perception that the Canadian forest-products industry is in irreversible decline.
     “He’s a larger-than-life character, a good talker and a dealmaker,” McClay said in a telephone interview. “There are a lot of reasons why dissolving pulp should do very well.”
     A fourth-generation Russian-Canadian and a former investment adviser at Canaccord Capital Inc., Wasilenkoff, 40, isn’t averse to taking a contrarian position.
     Fortress acquired its first Quebec mill in 2010, a facility near the town of Thurso held by bankrupt Fraser Papers Inc. At the time, Fortress’s main assets were a wallpaper mill near Dresden, Germany, and a banknote-paper making operation in Switzerland.

                        ‘Outside the Box’

     The Quebec move was so unexpected for Daryl Swetlishoff, a Vancouver-based forest-industry analyst at Raymond James Ltd., that he described it as a “Crazy Ivan,” a term in Tom Clancy’s
1984 novel “The Hunt for Red October” that refers to a bold, yet risky submarine-warfare tactic.
     Wasilenkoff took the comment as a compliment.
     “It was a recognition that we really were outside the box, creating opportunity where others couldn’t see it,” Wasilenkoff said in the interview.
     Fortress completed the purchase last month of its second Quebec mill near Lebel-sur-Quevillon for C$1. Domtar Corp.
permanently closed the mill, 500 kilometers (311 miles) northwest of Montreal, in 2008 citing “deteriorating conditions” for the global pulp market.
     Fortress, which declined 1.1 percent to C$16.94 yesterday in Toronto, has dropped 36 percent this year. In that time, Jacksonville, Florida-based Rayonier Inc., the world’s largest maker of specialty dissolving pulp, rose 1.9 percent in New York. The pulp is so named because it’s dissolved in chemicals before use to make products from rayon and cigarette filters to the nose cones of the now defunct NASA space shuttles.

                          Cost Overruns

     The transformation of Thurso, about 100 kilometers west of Montreal, from a mill that made pulp for paper to a producer of dissolving pulp was slower and more expensive than expected.
     The project was first forecast to be completed by mid-2011 and to cost C$153 million, according to a March 2010 statement.
Production began in December and the project is now projected to cost C$210 million, Sean Steuart, a Toronto-based analyst at Toronto-Dominion Bank, said in a June 12 note to clients.
     That contributed to a “tight” cash position for Fortress, Steuart said.
     The company consistently missed “ambitious” targets, said Paul Quinn, a Vancouver-based analyst at Royal Bank of Canada.
     “The market will not pay up for lower costs until they begin to show up in financial performance, especially considering how Thurso’s conversion cost guidance has continued to increase over time,” Quinn said in a May 16 note to clients.

                        Quarterly Losses

     Fortress reported net losses in five of the last six quarters and analysts project a second-quarter loss excluding one-time items of 20 Canadian cents a share, the average of four estimates compiled by Bloomberg.
     The company said yesterday it sold 7 percent debentures in an offering to raise C$69 million to help complete construction of a power plant at Thurso and to fund the restart of Lebel-sur- Quevillon.
     Fortress isn’t the only company in North America now seeking to exploit the market for dissolving pulps.
     Aditya Birla Group, based in Mumbai, said last week it will buy and upgrade a mill in Terrace Bay, Ontario. Paper Excellence BV, a unit of Jakarta-based Sinar Mas Group, is investing in dissolving-pulp capacity at a mill in Prince Albert, Saskatchewan. And Johannesburg-based Sappi Ltd. is upgrading a mill in Cloquet, Minnesota.
     Global production capacity is set to rise 36 percent by
2015 to about 8.1 million metric tons, according to McClay, helping to contribute to an oversupply of viscose staple fiber, a pulp derivative used to make rayon fabric.

                     ‘Timing is Everything’

     “Right now in China the price is probably $950 a ton, down from about $1,500 a year ago and $2,650 at its peak in April 2011,” said McClay, referring to the type of dissolving pulp made by Fortress. “Timing is everything in this business.”
     A key assumption for Fortress is that increasing demand in China and India will lift cotton prices, helping to spur demand for dissolving pulp and rayon, a cotton substitute, Wasilenkoff said.
     “You really need some big issue in cotton that drives prices up so high that people start to look for alternatives, which would be rayon,” Kevin Mason, managing director of Gibsons, British Columbia-based ERA Forest Products Research, an independent forest-industry research company, said in a telephone interview last week.
     Cotton futures have plunged 23 percent this year in New York amid concern global economic activity was slowing and demand from manufacturers in China was falling.

                           ‘Pure Play’

     Wasilenkoff said Fortress may consider concentrating its operations on dissolving pulp within three years by spinning off its wallpaper and banknote-paper businesses.
     “We are moving in the direction of a pure play,”
Wasilenkoff said. “We think it would attract more investors”
and help the company to escape its “holding-company discount.”
     In the meantime, the plan is to begin production at Lebel- sur-Quevillon and show that the transforming company can generate consistent profits, Wasilenkoff said.
     “This is the year to rebuild investor confidence,” he said.

For Related News and Information:
Fortress Paper news: FTP CN <Equity> CN BN <GO> Stories about lumber: NI LUMBER <GO> News about forest products: NI PAP <GO> Top news about Vancouver: TOP VN <GO> Top Canada stories: TOPC <GO>

--Editors: Steven Frank, Simon Casey

To contact the reporter on this story:
Christopher Donville in Vancouver at +1-604-331-1310 or cjdonville@bloomberg.net

To contact the editor responsible for this story:
Simon Casey at +1-212-617-3143 or
scasey4@bloomberg.net
Title: Re: FTP.to - Fortress Paper
Post by: motownsf on July 11, 2012, 06:42:11 AM
Due to droughts (and record prices), will farmers move cotton producing land to produce grain?
http://in.reuters.com/article/2012/07/11/markets-grains-idINL3E8IB2DK20120711

This would seemingly boost cotton prices if supply shifts towards other commodities.
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on July 11, 2012, 07:24:22 AM
Quote
Fortress bought a second Quebec mill last month and the CEO said he’s in talks to acquire another in North America and one in Europe. [...]

Wasilenkoff said Fortress may consider concentrating its operations on dissolving pulp within three years by spinning off its wallpaper and banknote-paper businesses.
     “We are moving in the direction of a pure play,”

Interesting stuff, thanks for posting.
Title: Re: FTP.to - Fortress Paper
Post by: bathtime on July 11, 2012, 07:55:19 AM
Thanks for the article. I do get uneasy when I read Wasilenkoff predicting the stock will see big gains. Considering that the last time it happened it didn't pan out.
Title: Re: FTP.to - Fortress Paper
Post by: tombgrt on July 11, 2012, 08:13:32 AM
I think Chad is uncomfortable with the low stock price because this limits the potential of acquiring more mills. No way he can issue new shares now to raise more cash. It's bad enough that he has to offer debt with a nice kicker attached.
I also believe that if we don't see a stock price that is a lot higher than it is today in 12 months, our thesis was simply wrong or at least way too bullish.
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on July 11, 2012, 09:11:11 AM
I also dislike CEOs who talk too much about the stock price, and I don't want to sound like I'm defending Chad too much, but with these interviews it can be hard to know what exactly was said. What questions the interviewer asked? How many other things that we would have liked to read about were said but didn't make it to the printed page? It's not like Chad spends any time talking about stock price in conference calls..

His thought process is probably something like: We've been having delays and have lost money for a while, and the market didn't like that. But with how things are going now, next year we should earn multiple dollars per share and the market should hopefully notice, and if not, screw it, I'll look into taking the company private.

IMO there's a difference between management that speaks as if what truly matters to them is the stock price rather than generating long-term business value, and management that says that operational results should now be good enough for the market to notice. My interpretation is that what Chad said falls in the latter camp, and that he's thinking about the actual business and how to build it over many years when he's having insomnia, not about the what the stock is doing this quarter.

But still, it's not my favorite thing to read in an interview.
Title: Re: FTP.to - Fortress Paper
Post by: keerthiprasad on July 11, 2012, 09:15:25 AM
I too wish he didn't care much about the stock price, but I am sure he knows that a lot of investors are disappointed with how things have worked out recently.  I was recently wondering about why he hasn't taken the company private and I really hope it doesn't happen!
Title: Re: FTP.to - Fortress Paper
Post by: lessthaniv on July 11, 2012, 11:01:15 AM
Genuity Analyst is now out of the blackout period and provided an update.

_________

Paper and Forest Products -- Paper and Forest Products
CLOSES CONVERTIBLE DEBENTURE
FINANCING
Investment recommendation

We are no longer research restricted following the closing of Fortress
Paper’s convertible debenture financing. We remain positive on Fortress
Paper’s earnings potential as a result of its expanding dissolving pulp
production at Thurso and potential at LSQ. We believe H2/12 will
demonstrate a marked improvement in earnings with Thurso reaching
full operating capacity along with the banknote order reinstated at
Landqart announced in early June. While the soon to be released Q2/12
results will not demonstrate the true earnings potential of Fortress, we
believe they will mark the turning point. Given the longer than expected
turnaround at Landqart, and the delayed ramp-up at Thurso, we
understand some investors have grown weary. But, with the material
bank note order in place and Thurso ramping from the 84% level the
company announced in early June, we believe Q3 should demonstrate a
material improvement. Dissolving pulp prices have edged lower, but in
our view, remain at a level that will be profitable for Thurso at full
operating rates. We are slightly more cautious in our overall price
outlook, but remain positive in the cost structure of Fortress’ mills.
While we remain bullish in our longer term view on Fortress, we will
not be surprised for the shares to remain near current levels as current
investor demand may have been soaked up by the $69 million financing
and as investors await tangible evidence of Thurso’s profitability. We
reiterate our Buy recommendation but are lowering our target price to
C$38 (from C$42) to reflect the effect of the recent financing.
Investment highlights
• Fortress raised gross proceeds of $69 million through a 7%
convertible debenture with a conversion price of $31.00.
Valuation
Our target price of $38.00 represents 7.0x EV/2013E EBITDA and is
supported by our DCF.
Daily Letter | 2
10 July 2012

Convertible debenture financing

Fortress raised gross proceeds of C$69 million through a 7%, seven-year convertible
debenture. The debentures will have a conversion price of $31.00 and will accrue interest
at 7% per annum payable on a semi-annual basis beginning December 31, 2012. Fortress
intends to use the majority of the net proceeds from the offering to finance capital
expenditures with respect to the cogeneration project at Thurso and to finance capex at
LSQ. The remaining will be used to repay outstanding indebtedness and for working
capital and general corporate purposes.

Dissolving pulp

Current prices for staple grade dissolving pulp are reported to be in the US$1,000 per
tonne range according to CCF. Prices have edged down over the past month, not
surprisingly due to the decline in cotton prices and global macro-economic uncertainty.
Given the nature of the dissolving pulp market and the higher quality product Thurso is
expected to produce, we expect Fortress is able to command a premium to quoted prices
but until we have a couple normalized quarters it is difficult to quantify the premium
realized. However, with its cost structure expected to come in below a significant portion of
the overall market capacity, we believe some high cost manufacturers have and will
continue to scale back production, limiting further material price weakness. We believe the
Q2/12 results will provide some clarity on Thurso's price realizations, but expect that Q3
should provide even better operating metrics to evaluate Thurso.

Outlook and recommendation

Overall, we believe Q2/12 will mark the bottom for Fortress, with very promising prospects
for a material ramp in earnings as we progress through H2/12 and into 2013. Dresden, the
wallpaper segment, continues to perform well with strong operating rates and we believe
continued solid margins. We believe Landqart will report a significant loss once again in
Q2/12, but moving forward it should reach the breakeven level or be slightly EBITDA
positive following the material banknote order being reinstated. Lastly, Thurso should have
close to its first full operating quarter in Q3, which should provide some insight into
normalized revenues and costs. While we remain positive in our outlook over the long
term, we highlight the possibility for the shares to be somewhat range-bound over the next
few months. A lot of investor demand was likely satisfied by the financing and we believe
many will look for evidence that Thurso continues to ramp towards 100% and have a
better grasp of its profitability before pushing the shares materially higher. That said, we
remain bullish on the long-term earnings growth potential driven by Fortress’ growing
dissolving pulp footprint.
Title: Re: FTP.to - Fortress Paper
Post by: PLynchJr on July 12, 2012, 08:15:34 AM
I've decided to start building a small position.  I got some yesterday for $16.30 and today for $15.49.
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on July 12, 2012, 08:21:57 AM
TD analyst reduced target from 26 to 20, still on HOLD.
Title: Re: FTP.to - Fortress Paper
Post by: tombgrt on July 12, 2012, 08:27:23 AM
I bought some more as well today.

Liberty, do you have an analyst report for TD or was it not included?
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on July 12, 2012, 08:34:23 AM
I bought some more as well today.

Liberty, do you have an analyst report for TD or was it not included?

Here it is.
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on July 12, 2012, 09:20:02 AM
Pop quiz ... which stock has fallen further in the past 3 months ... RIMM or FTP.

Yes, the answer is RIMM, but only by a few % points.
Title: Re: FTP.to - Fortress Paper
Post by: tombgrt on July 12, 2012, 02:01:54 PM
Thanks for the analyst report Liberty. Let's see if our assesment of the DP market holds up now that spot prices are reported under $1000/ton. If the thesis is correct, lower prices for a prelonged period would actually be a very good thing. I'm actually more worried about Chad taking this company private in 2013 if DP pricing stays this low, which would influence the share price too much.  :-\

I also saw a comment you made on Bullboards:

Quote
Yea, crazy price. Wouldn't it be interesting if they sold Dresden for 200m+ and did 100m of buybacks and used the rest to fund a good chunk of LSQ's conversion?

It would, but I think it would be quite impossible to do $100m in buybacks.  ;D Even if $50m in buybacks was an option before the price shot up to the $25-30 range, I think Chad wouldn't hesitate considering how determined he is to make FTP a pure DP play. I think I'd like a spin-off more.
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on July 12, 2012, 03:32:33 PM
Quote
Yea, crazy price. Wouldn't it be interesting if they sold Dresden for 200m+ and did 100m of buybacks and used the rest to fund a good chunk of LSQ's conversion?

It would, but I think it would be quite impossible to do $100m in buybacks.  ;D Even if $50m in buybacks was an option before the price shot up to the $25-30 range, I think Chad wouldn't hesitate considering how determined he is to make FTP a pure DP play. I think I'd like a spin-off more.

I don't think it's likely or even possible because of how very little volumes can move the stock price a lot. Just an interesting thought experiment to put in perspective the current market cap :)
Title: Re: FTP.to - Fortress Paper
Post by: gokou3 on July 12, 2012, 04:34:51 PM
I think there's a TSX rule that limits yearly buybacks to 10% of outstanding shares.
Title: Re: FTP.to - Fortress Paper
Post by: 17thstcapital on July 12, 2012, 04:41:12 PM
I haven't read the convertible bond indenture but I would presume that stock buybacks are prohibited......
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on July 12, 2012, 06:24:30 PM
I haven't read the fineprint recently, but don't think that the debs preclude a buyback. I asked IR about renewing last year's NCIB using nominal excess funds from the oversibscription of the deb issue, and while they indicated other priorities for the cash (no specifics), they did not indicate that such was impossible.  Besides, I do know that the debs (both issues)  allow for both interest and principal to be repaid via a share issuance, so theoretically FTP could buy back shares now, and then reissue with (hopefully higher priced) shares in future if such was needed.
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on July 12, 2012, 11:43:59 PM
FWIW ... FTP closed today below book value.

Also ... Does anyone recall what FTP carried Landqart's hydro assets at before they sold them?  I think I remember hearing it stated, but forget where (maybe Q1 earning call?).  The assets were sold for 18M swiss franc (about $19.2M CDN), so trying to anticipate how that might show up numerically as an extraordinary item in FTP's Q2 financials.  With analyst mean estimates of ($.20)/share from operations translating into a forecasted net loss of ~$3M for Q2/2012, offsetting gains from the sale of these assets could materially push them into a net positive for the quarter.

Finally ... Has anyone been mulling FTP's stated use of the $66M in proceeds from the deb ... or rather the other potential cash sources listed in the Raymond James analysis of May 16th, some/much of which can now be possibly redirected.   The RJ analysis indicated that FTP could have potentially squeezed by without the financing, so now that they have it, I'm wondering what they do with the likes of:
          $7M    Q1 cash
          $4M    IQ loan drawdown from Thurso
          $19M  Landqart hydro sale proceeds
          $31M  tax credits/other receivables over next 12 months
          $27M  Q2 to Q4 Dresden FCF
          X        Q2 to Q4 Thurso FCF

Am just speculating, but for the most part I'd guess they'd want to avoid using holdco cash to pay down any subsidiary debt that wasn't due, especially (as in Thurso case) if it is non-recourse.   For Dresden the, what if they now redirected it's significant FCF to pay down the >$30M LOC they have?  Doing so would use devalued Euros to pay down devalued Euro demoninated debt, but as they got the subsidiary debt down to zero, wouldn't it also make Dresden more easily marketable as an LBO candidate, especially if they had a pre-negotiated, but untapped LOC available for use by a potential buyer?  I'm not a finance guy, but the shell games that go on with cash are always fun to watch.
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on July 13, 2012, 08:39:35 AM
All right. There's some stuff I just can't resist. I kept hearing Munger's voice in my head, talking about seizing opportunities when they come and betting big when you have high conviction.

I almost doubled my FTP share count today (not quite doubled... more like up by 80%).. Had to sell something else, but I think the risk/reward profile is much better here now.

My average cost is now below 23. With my luck it'll now tank below $10/share, but oh well.. I think there's a very good chance that in a couple years I'll be very happy about this move. We'll see...
Title: Re: FTP.to - Fortress Paper
Post by: lessthaniv on July 13, 2012, 09:20:38 AM
Found an interesting tid-bit on Neucel. This Port Alice mill was bought by Fulida early in 2011. I found an article from China Economic Net suggesting they paid $250M US. According to the Neucel website the capacity is 195,000 MT.

http://en.ce.cn/Business/Macro-economic/201202/18/t20120218_23083629.shtml

http://www.neucel.com/about/about-the-company.aspx

Fulida was already a minority shareholder prior to this transaction hence $250M would represent the value of the portion they acquired.

http://www.neucel.com/news/documents/NeucelPressRelease.pdf



Title: Re: FTP.to - Fortress Paper
Post by: prunes on July 13, 2012, 09:47:06 AM
Really need more info to use that as a comp but good to know. Likely they would have paid less if they bought it today. It was easier to underwrite higher prices in 2011. What does this imply about the value of FTP's assets to EV? I calculated EV at around $470 MM the other day (it's less now).

That sale all else equal would imply $563 MM for Thurso/LSQ, and then there is Dresden and Landqart. Call Dresden's value $180 MM (6x 2011 EBITDA), LQ is anyone's guess but call it $50 MM for the sake of round numbers. You'd need to capitalize corporate expenses but the total before that is nearly $800 MM. Given the risk and the drop in DP prices is this a large enough MOS? Is there anything I'm ignoring?

Apologies if I flubbed any numbers, I'm writing from memory off my iPhone.
Title: Re: FTP.to - Fortress Paper
Post by: prunes on July 13, 2012, 09:54:57 AM
I was emailing with an employee of a large DP producer that shall remain unnamed. He speculated that DP prices would bottom at low to mid $800s. He also noted that current spot prices were higher (!!) than his company's contract prices. He also noted that they are currently signing new long term contracts at current NBSK prices, and that he expects DP spot prices to converge to NBSK prices.
Title: Re: FTP.to - Fortress Paper
Post by: shoeless on July 13, 2012, 10:08:28 AM
Found an interesting tid-bit on Neucel. This Port Alice mill was bought by Fulida early in 2011. I found an article from China Economic Net suggesting they paid $250M US. According to the Neucel website the capacity is 195,000 MT.

http://en.ce.cn/Business/Macro-economic/201202/18/t20120218_23083629.shtml

http://www.neucel.com/about/about-the-company.aspx

Fulida was already a minority shareholder prior to this transaction hence $250M would represent the value of the portion they acquired.

http://www.neucel.com/news/documents/NeucelPressRelease.pdf

Thanks for posting lessthaniv.
Attached is some interesting information from the Sateri prospectus about a few of the mills we've mentioned lately: AV Cell Group, Domsjo and Neucel.

Seems Neucel capacity at the time was 140.
There's also capacity and cost information for the Domsjo mill acquired last year.

In the Whistler conference Chad mentioned two Canadian mills in passing. The one was close to Thurso and apparently had a low alpha of 91 and another one was of better quality.  Anybody know which is the one close to Thurso (yeah I guess I'm being lazy).

btw, the prospectus referenced some information sourced from the UN which led me to the following site. http://comtrade.un.org/db/mr/rfCommoditiesList.aspx?px=H2&cc=47
Title: Re: FTP.to - Fortress Paper
Post by: shoeless on July 13, 2012, 10:45:04 AM
I was emailing with an employee of a large DP producer that shall remain unnamed. He speculated that DP prices would bottom at low to mid $800s. He also noted that current spot prices were higher (!!) than his company's contract prices. He also noted that they are currently signing new long term contracts at current NBSK prices, and that he expects DP spot prices to converge to NBSK prices.

Interesting.
FWIW, Chad has mentioned they see 96-97% correlation between DP prices and a model made of 40% NBSK and 60% cotton.

btw, anyone remember the original Thurso presentation? There was a Thurso Proforma model with the low end being based on a DP price of $900
Title: Re: FTP.to - Fortress Paper
Post by: BRK7 on July 13, 2012, 11:08:32 AM
I was emailing with an employee of a large DP producer that shall remain unnamed. He speculated that DP prices would bottom at low to mid $800s. He also noted that current spot prices were higher (!!) than his company's contract prices. He also noted that they are currently signing new long term contracts at current NBSK prices, and that he expects DP spot prices to converge to NBSK prices.


Maybe I am misunderstanding, but I don’t see how DP spot prices could converge to NBSK. 

Why would a pulp mill go through the extra expense and lower yield associated with producing DP, if they can get the same price/ton by producing NBSK?  In other words, wouldn’t capable DP producers simply would switch over to NBSK and earn a better profit?  If so, supply of DP would drop, driving the price of DP higher.
Title: Re: FTP.to - Fortress Paper
Post by: gokou3 on July 13, 2012, 11:11:16 AM
Attached is some interesting information from the Sateri prospectus about a few of the mills we've mentioned lately: AV Cell Group, Domsjo and Neucel.

I suppose these are FOB prices, whereas FTP presentations showed shanghai-delivered prices?
Title: Re: FTP.to - Fortress Paper
Post by: shoeless on July 13, 2012, 11:49:52 AM
Attached is some interesting information from the Sateri prospectus about a few of the mills we've mentioned lately: AV Cell Group, Domsjo and Neucel.

I suppose these are FOB prices, whereas FTP presentations showed shanghai-delivered prices?
I think you're right about the numbers from Sateri but am not positive

Title: Re: FTP.to - Fortress Paper
Post by: prunes on July 13, 2012, 11:55:05 AM
I think a good question to ask is, would FTP have bought Thurso today? Think about where prices were then and what costs were expected to be, and where prices and costs are now. How much of what FTP is doing now is simply path dependence?
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on July 13, 2012, 12:19:54 PM
Prunes:

Good point.  That said, would FTP have proceeded w LSQ in that case?  In any event, their risk is mitigated via significant portions of project financing for both Thurso and LSQ being contained at the sub level.  The other reassuring point is seeing likes of recent purchase of Terrace Bay w similarly planned conversion expense (unless both are wrong)
Title: Re: FTP.to - Fortress Paper
Post by: prunes on July 13, 2012, 01:36:35 PM
Here's an interesting question for the group. If DP prices remain depressed, how feasible would it be to convert to 100% specialty production? How would one calculate the cost/benefit?
Title: Re: FTP.to - Fortress Paper
Post by: shoeless on July 13, 2012, 03:29:23 PM
Given the risk and the drop in DP prices is this a large enough MOS? Is there anything I'm ignoring?

Well one thing you didn't mention is Chad. Some would say his committed attention to creating value for at least the next 5 years may be worth significantly more than his compensation.

Title: Re: FTP.to - Fortress Paper
Post by: prunes on July 13, 2012, 04:07:29 PM
As long as the compensation committee can rein him in.

I don't want to be too dour but let's look at things objectively.

Chad's 2010 comp was egregious. Yes, 2010 was a heady time for the DP industry, so buying Thurso for the price FTP paid looked like a coup. But arguably we also top ticked the DP market. DP prices have been plummeting since 2010.

In retrospect, the Thurso pro forma looks foolish both on the topline and from an expense standpoint. As I said in a previous post, it's not clear to me that FTP would have done that deal today. That's not to say there isn't necessary value here but there is much less upside to the cellulose operations than we initially projected. Viewed from this perspective, Chad swung hard and missed.

Landqart has basically been a failure. From 2004 - 2006, total earnings were $2.6 MM, and EBITDA was $18.5 MM. 2011's $31 MM operating loss was astoundingly large. 1Q12, Landqart had an operating loss of $7.2 MM. The magnitude at which Landqart has burned cash recently has completely dwarfed its ability to generate cash in the good years. People seem to think Chad has some sort of ace up his sleeve. We'll see. Two questions for you: what margins do you think Landqart will have once (if) it is turned around, and with those margins and your estimate of revenue, how long will it take to reverse the deficit it has generated?

Dresden has been the one standout performer. Hopefully it will continue to perform and not succumb to competitive pressures.
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on July 13, 2012, 04:39:42 PM
In retrospect, the Thurso pro forma looks foolish both on the topline and from an expense standpoint. As I said in a previous post, it's not clear to me that FTP would have done that deal today. That's not to say there isn't necessary value here but there is much less upside to the cellulose operations than we initially projected. Viewed from this perspective, Chad swung hard and missed.

I'm not sure I follow you. Thurso hasn't even had a quarter of production, and the co-gen isn't done. Do you know something I don't? If this was an investment for next quarter or two maybe you'd be right, but Chad is building something for the long term (commodity DP probably isn't even the destination), and while DP prices are low right now, if you think the general thesis wrt cotton/cellulose is correct, they won't stay this low forever. We're now at a time when the whole global market is in fear mode, right after history-books-type cotton prices pushed everybody and their dog to grow more cotton, and right at the crucial inflection point in the business when they have spent the maximum amount on getting a new plant going without seeing any of the benefits yet. This is transitory. Things might not be all rainbows and puppies afterwards, but be careful about extrapolating too much from a special point in time.

Maybe if FTP was still selling for 50-60 things would look tighter, but at these prices, I think there's very little downside left and tons of upside if anything good happens at all (and we know that dark clouds never stick around forever).

In fact, I don't mind the dark clouds while they are gearing up if 1) it allows me to buy cheaper while the end result in a few years will probably look very similar anyway and 2) it reduces competition's animal spirits.

I could be wrong about all this, but I think it's too early to tell about a lot of things, and I'm afraid that the stock price is coloring a lot of people's perceptions; if it was still selling for 45, would we get all this hand-wringing? Yet wouldn't the situation be inherently riskier at 45?
Title: Re: FTP.to - Fortress Paper
Post by: prunes on July 13, 2012, 05:07:35 PM
http://fortresspaper.com/images/pdfs/releases/NewsReleases_2010/Fortress_Specialty_Cellulose_March_24.pdf

When the deal was first announced, FTP estimated total cash cost of $536 with a pulp price of $900. At the time, DP was around $1500 and management rightly based it's model assuming mean reversion.

Then in 2011, FTP put out a presentation (uploaded previously in the thread; not on the website anymore) showing cash cost of ~$625 and DP prices of $1200 to $1600. Not sure why mean reversion didn't apply anymore.

Now we're looking at $725 cash cost and DP prices are below or at the lower bound of the previous estimate.

This is all history and I'm not complaining. But one needs to look at the facts. Management purchased Thurso based on a set of assumptions about revenues and expenses. These assumptions turned out to be wrong. Period. Therefore it's not clear to me that Chad would have thought the deal made sense in 2010 with today's knowledge. And I think one of the things we need to do as owners is evaluate management's ability to execute on its business plan.
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on July 13, 2012, 05:29:38 PM
Landqart has basically been a failure. From 2004 - 2006, total earnings were $2.6 MM, and EBITDA was $18.5 MM.

Not sure how useful that info is, btw. Landquart's product mix and capacity was very different at the time.
Title: Re: FTP.to - Fortress Paper
Post by: lessthaniv on July 13, 2012, 05:42:11 PM
http://fortresspaper.com/images/pdfs/releases/NewsReleases_2010/Fortress_Specialty_Cellulose_March_24.pdf

When the deal was first announced, FTP estimated total cash cost of $536 with a pulp price of $900. At the time, DP was around $1500 and management rightly based it's model assuming mean reversion.

Then in 2011, FTP put out a presentation (uploaded previously in the thread; not on the website anymore) showing cash cost of ~$625 and DP prices of $1200 to $1600. Not sure why mean reversion didn't apply anymore.

Now we're looking at $725 cash cost and DP prices are below or at the lower bound of the previous estimate.

This is all history and I'm not complaining. But one needs to look at the facts. Management purchased Thurso based on a set of assumptions about revenues and expenses. These assumptions turned out to be wrong. Period. Therefore it's not clear to me that Chad would have thought the deal made sense in 2010 with today's knowledge. And I think one of the things we need to do as owners is evaluate management's ability to execute on its business plan.

Facts:

Inflated costs of chemicals is industry wide. Not specific to Chad. Rising cost curves has been an industry fact of life.

The presentation you cite (original) was done in March 2010. At that time they did not have any contracts in place to sell the output. Hence, Chad presented the numbers based on long term trends and also showed proforma spot rates. In the 2011 presentation the parameters changed to $1200 - $1600 to reflect the floor/ceiling price of the contracts they signed in October of 2010. Mean reversion doesn't make sense when your holding contracts unless you beleive the contracts are bogus.

But if you feel the counterparty risk is high - ask yourself why Fulida;

1) Bought Neucel outright.
2) Signed a contract 1 1/2 years in advance of production completion.
3) Said in May 2012 that they are pleased with FTP's output and would consider taking on more.
4) has a 5 year plan to double their own production.

These conversations are educational, healthy and useful. But I'm getting the distinct sense that shareholder conviction is waning. Capitulation?



Title: Re: FTP.to - Fortress Paper
Post by: Liberty on July 13, 2012, 05:51:07 PM
http://fortresspaper.com/images/pdfs/releases/NewsReleases_2010/Fortress_Specialty_Cellulose_March_24.pdf

When the deal was first announced, FTP estimated total cash cost of $536 with a pulp price of $900. At the time, DP was around $1500 and management rightly based it's model assuming mean reversion.

Then in 2011, FTP put out a presentation (uploaded previously in the thread; not on the website anymore) showing cash cost of ~$625 and DP prices of $1200 to $1600. Not sure why mean reversion didn't apply anymore.

Now we're looking at $725 cash cost and DP prices are below or at the lower bound of the previous estimate.

This is all history and I'm not complaining. But one needs to look at the facts. Management purchased Thurso based on a set of assumptions about revenues and expenses. These assumptions turned out to be wrong. Period. Therefore it's not clear to me that Chad would have thought the deal made sense in 2010 with today's knowledge. And I think one of the things we need to do as owners is evaluate management's ability to execute on its business plan.

Those are good points. No plan survives contact with reality intact. It's weird that on p.17 of that presentation the delivered cash cost seems to be 600 while on p.19 it's 536. Not sure if it's an error or what I'm missing..

In any case, I feel that for what I paid for, I'm getting a lot in return and have a very good chance of doing quite well, and that for the level of complexity of what was achieved, and the terms that were had from all the stakeholders, things went pretty well despite the increased costs and delays (some of those will also fall on competitors). There are some things that I'm not happy about (many of them out of management's control), but overall, there are a lot more things to be happy about IMHO.

As I said elsewhere, it would have been great if there had been no delays, no cost overruns, etc. My average cost might have been in the 40s or 50s or 60s (if I had bought at all) rather than in the low 20s, though, so in the end, 2-3+ years from now, I'm not sure I would have done much better if it had all been clear sailing.

And I think they used 1200 and 1600 in the 2011 presentation because by then they had their long-term contracts using for most of their production using those prices, and because they seem to believe that 1200 is a mid-term floor and 1600 is probably about as high as things could get over any period of time (?).
Title: Re: FTP.to - Fortress Paper
Post by: shoeless on July 13, 2012, 06:49:55 PM
It's weird that on p.17 of that presentation the delivered cash cost seems to be 600 while on p.19 it's 536. Not sure if it's an error or what I'm missing..

As I read it, $536 CAD does not include shipping.

2010-march presentation- cash cost: 536 CAD, shipping:  90 CAD. Total 626 CAD
2012-march presentation- cash cost: 559 CAD, shipping: 100 CAD. Total 659 CAD
To the above, for modeling purposes one needs to add sales commissions

AGM: $725 (I assume CAD) including shipping, and since ttt's notes say this is the number Chad said to use for modeling purposes then I assume it also includes sales commissions. Thus to compare to the above numbers we must deduct $24 (assuming $1200 sale price).

So since 2010 we've seen an increase from 626 to 700 in delivered costs to china which is around 12%

update: re-reading ttt's notes I'm not sure if 725 includes sales commissions or not. If not, we've seen an increase of 100 (16%)
Title: Re: FTP.to - Fortress Paper
Post by: shoeless on July 13, 2012, 07:03:13 PM
prunes, I'm glad you bring up Landqart. I'm actually quite confused about it and hopefully somebody can set me straight.

(deleted - i see my mistake  :-[  will repost after giving it more thought)

I'm happy to entertain an argument for DP reaching and staying the NBSK levels - can your contact give us more to chew on here in terms of arguing for this?
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on July 14, 2012, 12:11:43 AM
So I'm listening to the Whistler talk again to refresh my memory, and a few things stood out so far:

Thurso cogen should produce about 20m EBITDA/year. Nice stable source of cash, not cyclical. At the current stock price, just that cash will probably be worth a good chunk of the market cap (though of course we shouldn't double-count it if we use it on the other side on the DP production costs).

If I heard right, since they bought Dresden it went from 1m EBITDA/year to about 30m EBITDA/year.

Chad talked about DP spot prices, and how at the time there was some DP for sale at 1050 that was having a lot of trouble moving, but some other higher quality DP from another source was sold out "through march" (a few months ahead at the time) at a price of 1280. Looks like the "30 stringent criteria" for DP matter a lot to end users, and they won't just take whatever's cheapest if it's not what they need to fit their recipes or keeps their processes at optimal efficiency. So far the signs are good about Thurso producing some of the best DP in the world, and hopefully that turns out to be a nice competitive advantage (same is predicted for LSQ, but too early to tell) until they get certified for specialty pulp (which would be an even stronger moat and provide a few hundred $ more per ton).

He says his end customers are ready to pay up to 280 in spread between low quality DP and high quality, with the alpha being the main factor (and of course their long-term contracts take quality into account, not just the basic spot price).

I didn't remember that one: They've been "approached by viscose producers to set up operations in China." Seems like that's part of the reason why they are so confident about the cost structure in China; they did their homework to see if it could work for them... Says they believe cost in China for DP is probably close to 1300.

Something else I had apparently forgotten: The next Swiss Franc, which was delayed, will apparently use DuraSafe. Should be some pretty high-margin production for Landquart, though probably not huge tonnage. You can even see what they'll look like here (just do a search on the page for durasafe): http://www.polymernotes.org/country_pages/che.htm

Glad I listened again. It was good to refresh my memory, and if anything, I actually feel even more confident in the jockey than I did this morning when I increased my FTP sharecount by 80%.
Title: Re: FTP.to - Fortress Paper
Post by: tombgrt on July 14, 2012, 05:16:52 AM
Prunes: I would like to know more about that source if you can give any additional information. What level of management is he in? Quite a bold statement to make and based on the economics of DP and NBSK, prior and current conversions and underlying macro-trend (+ versus cotton), one take makes little sense. Would love to hear his reasoning. Does he expect this converging to happen or the whole company? Their contract prices seem pretty bad in any case...

And yes, I'm very confident Chad would pull the trigger again for Thurso today. Let's not forget that he started looking into DP before prices every reached anything near $1600/ton. The fact that he has stated that he is looking at making FTP a pure DP producer reinforces that imo.

@Liberty: A 80% position increase! Lucky you! Best I could do was +10%.  ;)
Btw, I think he'd now say the spread between low and high quality DP is a bit lower, more like $150-200/ton. (Just something I picked up somewhere from Chad in the last few months, can't remember where sorry.)
Correct about Dresden, quite amazing. Will we see $10m in EBITDA this Q?  :)
Title: Re: FTP.to - Fortress Paper
Post by: shoeless on July 14, 2012, 05:24:04 AM
Did you get the part where he says Landqart capacity for 2012 and into 2013 is at 1-5 contribution margin (around minute 8 )? Given revenue per ton of 13K like it was in Q1, and assuming 10K tons that is 130M in revenue. Even at 5% margin there is just not much there. I'm guessing the re-instated delayed order, if it is indeed from India, would likely be at the lower end of the banknotes rather than the Durasafe end and so doesn't much change the revenue per ton.
Labor costs at Landqart were 25% of operating costs according to the RJ report than initiated coverage (april 2008). Assuming this still holds and using it as a proxy for fixed costs (though there are ~10% fewer Landqrt employees in 2011 than 2008 this balances out with there being additional costs) - will Landqart be breaking-even at 1-5% contribution margin?
Given the current over supply in the banknote market I'm not sure we can conservatively expect higher margins at Landqart for a long time coming.

So prunes, I'm agreeing with you and others that have brought this up, the justification for the the investments made into Landqart isn't clear to me either.

Personally I'm weary of the price floor thesis for DP that Fortress would have us believe. Too much DP capacity is being added and coupled with a likely China slowdown (my opinion), I think even if Chinese suppliers were to stop producing there is a real risk of the price floor not holding.

Do recent acquisitions in the space reflect per-ton EBITDA like Fortress is projecting?

One other comment, depicting input costs as something out of Chad's control is not accurate. Signing long term contracts with customers but not with suppliers is a choice isn't it?

Overall I've learned a ton from the discussion in the thread but I have the feeling people who looked at the situation and have negative opinions just ignore the thread so the discussion is tilted to the positive which is not in anybody's best interest. So I welcome prunes questions and tone.
Title: Re: FTP.to - Fortress Paper
Post by: premfan on July 14, 2012, 09:25:46 AM
+1
Title: Re: FTP.to - Fortress Paper
Post by: tombgrt on July 14, 2012, 09:41:50 AM
A notion that can be entirely false if you can buy underused assets for $1 a piece, thus avoiding the big(gest) capital outlay that Buffett and Munger fear. Even better if you can actually move from a commodity product with that mill you bought for almost nothing to something that has characteristics of product with some competitive advantages, for example the non-waven wallpaper at Dresden.

I'm a big fan of Buffett and Munger but this is something entirely different. Obviously FTP isn't a great business at a good price. It's a fair business at best with a great operator, priced at a bargain price and an incredibly nice kicker if the DP thesis turns out to be correct.
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on July 14, 2012, 09:48:18 AM
A notion that can be entirely false if you can buy underused assets for $1 a piece, thus avoiding the big(gest) capital outlay that Buffett and Munger fear. Even better if you can actually move from a commodity product with that mill you bought for almost nothing to something that has characteristics of product with some competitive advantages, for example the non-waven wallpaper at Dresden.

I'm a big fan of Buffett and Munger but this is something entirely different. Obviously FTP isn't a great business at a good price. It's a fair business at best with a great operator, priced at a bargain price and an incredibly nice kicker if the DP thesis turns out to be correct.

You beat me to it. I wouldn't invest in "the forestry sector", but FTP isn't the forestry sector anymore than FairFax is "the insurance sector".
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on July 14, 2012, 10:00:30 AM
Did you get the part where he says Landqart capacity for 2012 and into 2013 is at 1-5 contribution margin (around minute 8 )? Given revenue per ton of 13K like it was in Q1, and assuming 10K tons that is 130M in revenue. Even at 5% margin there is just not much there. I'm guessing the re-instated delayed order, if it is indeed from India, would likely be at the lower end of the banknotes rather than the Durasafe end and so doesn't much change the revenue per ton.
Labor costs at Landqart were 25% of operating costs according to the RJ report than initiated coverage (april 2008). Assuming this still holds and using it as a proxy for fixed costs (though there are ~10% fewer Landqrt employees in 2011 than 2008 this balances out with there being additional costs) - will Landqart be breaking-even at 1-5% contribution margin?
Given the current over supply in the banknote market I'm not sure we can conservatively expect higher margins at Landqart for a long time coming.

As long as Landquart breaks even, I'll be relatively happy. I've given up trying to model it because who knows if the 13k/t revenue assumption is anywhere close to realistic since we don't know the mix that they had and how much the reinstated big order will provide (or the DuraSafe Swiss Franc order after that, or other things they have in the pipeline). On this one I'll just wait and see. It's not like I'm paying for it at current prices, and I think that if it had little chances of contributing it would have been shut down or sold by now.

Quote
So prunes, I'm agreeing with you and others that have brought this up, the justification for the the investments made into Landqart isn't clear to me either.

It is definitely the worst performing asset that they have so far. But I'm not convinced it can't be turned around.

Quote
Personally I'm weary of the price floor thesis for DP that Fortress would have us believe. Too much DP capacity is being added and coupled with a likely China slowdown (my opinion), I think even if Chinese suppliers were to stop producing there is a real risk of the price floor not holding.

That's definitely an important point in the investment thesis and each investor will have to decide what their confidence level is with regards to this.

Quote
One other comment, depicting input costs as something out of Chad's control is not accurate. Signing long term contracts with customers but not with suppliers is a choice isn't it?

Depends what the costs of hedging were. If they were very high, it might not have been worth it.

Quote
Overall I've learned a ton from the discussion in the thread but I have the feeling people who looked at the situation and have negative opinions just ignore the thread so the discussion is tilted to the positive which is not in anybody's best interest. So I welcome prunes questions and tone.

Ditto. As in the EBIX thread a while back with Hester, I welcome contrary opinion and appreciate the discussion.
Title: Re: FTP.to - Fortress Paper
Post by: shoeless on July 14, 2012, 01:28:35 PM
Labor costs at Landqart were 25% of operating costs according to the RJ report than initiated coverage (april 2008). Assuming this still holds and using it as a proxy for fixed costs (though there are ~10% fewer Landqrt employees in 2011 than 2008 this balances out with there being additional costs) - will Landqart be breaking-even at 1-5% contribution margin?

I forgot to say, 25% of operating costs came to 14-20 million in 2006-2009
So if they make 5% on 130M before fixed costs of 14-20 (not even counting depreciation) they're not breaking even.

I'm new to this type of stuff and I'm hoping somebody can point out my mistake...

I've given up trying to model it because who knows if the 13k/t revenue assumption is anywhere close to realistic since we don't know the mix that they had and how much the reinstated big order will provide (or the DuraSafe Swiss Franc order after that, or other things they have in the pipeline).
IMO the 1-5% includes the delayed order because I think he said these are the margins for the entire 2012 capacity.
Title: Re: FTP.to - Fortress Paper
Post by: prunes on July 14, 2012, 04:05:18 PM
Would love to see how you guys are calculating IV these days. What are you using as normalized DP & cost amounts?
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on July 16, 2012, 08:12:43 AM
Interesting backstory article today on the Terrace Bay pulp mill purchase:

http://www.chroniclejournal.com/content/news/local/2012/07/16/chinese-firm-fought-hard-pulp-mill
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on July 16, 2012, 08:57:56 AM
Oh, and here's the link to the E&Y document centre that has all the info on Terrace Bay:

http://documentcentre.eycan.com/Pages/Main.aspx?SID=102

I haven't checked thru it at all, but there may be some interesting tidbits.
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on July 16, 2012, 10:20:36 AM
Terrace Bay document review ... some tidbits:

- 8 bids received by due date ... 6 for liquidation, 2 for ongoing operations (including Aditya Burla)
- 4 other LOI's received after due date ... including chinese bid (subject of the article) ... none pursued
- Terrace Bay does not have it's own power
- details of the non-winning bids being presented (in confidence) at court today (wonder if FTP was one of them??)

Aditya Burla's bid:
    - $2M cash consideration
    - forgiveness of Ontario gov't loan (~$24.5M)
    - assumption of some liabilities (mostly employee pensions, etc.)
    - exclusion of some non-core assets (mostly land)
    - exclusion of cash, AR, etc.
    - promise to invest $220M for conversion by 2016
    - no government financing

Am guessing then that the $110M denoted in the article represents equity injection for ongoing operations?

Chinese firm came in after the fact (i.e. after sale agreement signed) w/ a $35M cash offer (and subsequent request to have an open auction).  As article notes, they promised an immediate conversion, and also did not request any government financing.  They also mentioned immediately using the plant for semi dissolving pulp (which I haven't heard of).   A google search on that yielded:

http://umu.diva-portal.org/smash/get/diva2:514909/ATTACHMENT01

Title: Re: FTP.to - Fortress Paper
Post by: tombgrt on July 16, 2012, 12:20:38 PM
Thank you triedtestedand.


I've been looking at some press releases and documents from ICAC.

This is one of the last:

http://icac.org/wp-content/uploads/2012/07/PR-JULY-2012-World-Cotton-Trade-to-Decline-Significantly.pdf

Quote
Global 2012/13 cotton production is forecast at 24.9 million tons, down by 8% from this season: the decline in
prices during 2011/12 has driven cotton plantings down this year in many countries. Global stocks are expected
to expand by 10% in 2012/13 to 15.1 million tons. By the end of July 2013, global cotton stocks could represent
64% of global consumption, the highest stocks-to-use ratio since the mid-1980s. The projected accumulation of
cotton stocks will weigh on international cotton prices in 2012/13.

Interesting website: http://icac.org/
Title: Re: FTP.to - Fortress Paper
Post by: jeffmori7 on July 16, 2012, 01:37:33 PM
Thanks for all the info guys, once again!

Added to my position today, average cost now under 22$.
Title: Re: FTP.to - Fortress Paper
Post by: lookingstill on July 17, 2012, 07:05:06 AM
Does anybody know when FTP is to release their second quarter results? Last year they released June 30, this year, it is July 17 and they still don't even have a news release as to when they are going to announce. Why would that be? It bothers me a bit.
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on July 17, 2012, 07:33:34 AM
Does anybody know when FTP is to release their second quarter results? Last year they released June 30, this year, it is July 17 and they still don't even have a news release as to when they are going to announce. Why would that be? It bothers me a bit.

I don't think they released it June 30 last year, as that's the exact day when the quarter ends (afaik) and they aren't quite that fast :) 

From memory, I'd expect it in late July/early-August.
Title: Re: FTP.to - Fortress Paper
Post by: lookingstill on July 17, 2012, 07:56:59 AM
Does anybody know when FTP is to release their second quarter results? Last year they released June 30, this year, it is July 17 and they still don't even have a news release as to when they are going to announce. Why would that be? It bothers me a bit.

I don't think they released it June 30 last year, as that's the exact day when the quarter ends (afaik) and they aren't quite that fast :) 

From memory, I'd expect it in late July/early-August.

You are correct. Sorry, the brain didn't quite wake up yet. Just looked at the front page of last year's release without thinking that the date will just be the last day of the quarter. But anyway, they could've at least announced the release date by now. While adding at these levels, just itching to find out what their second quarter looks like.
Title: Re: FTP.to - Fortress Paper
Post by: jose on July 17, 2012, 08:48:18 AM
According to the TD report, Fortress is scheduled to report Q2 after market close on August 13.
Title: Re: FTP.to - Fortress Paper
Post by: lessthaniv on July 17, 2012, 09:37:44 AM
getting excited about q2 results is perhaps setting yourself up for a bit of a letdown. while i expect improvement, the real meat and potatoes will be in managements comments about Q3.
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on July 17, 2012, 09:42:06 AM
getting excited about q2 results is perhaps setting yourself up for a bit of a letdown. while i expect improvement, the real meat and potatoes will be in managements comments about Q3.

Indeed, I wouldn't expect too much for Q2. It's really H2 2012 that will become interesting, and early 2013 after the cogen is done that I'm truly waiting for. Patience is required.
Title: Re: FTP.to - Fortress Paper
Post by: lookingstill on July 17, 2012, 10:09:10 AM
According to the TD report, Fortress is scheduled to report Q2 after market close on August 13.

Thank you.

I don't expect much from the Q2 results, just hope there are no significant unpleasant surprises.
Title: Re: FTP.to - Fortress Paper
Post by: prunes on July 17, 2012, 10:27:28 AM
Some questions:

In an interview linked off FTP's website, it was observed that Thurso's insurable value was greater than $800 MM and that scrap value was even more. Why then do the financials show an original cost closer to $80 MM? Im guessing this is probably 1950s untrended original cost and that depreciation was estimated. Is this right? Or was the equivalent of GAAP purchase accounting applied in which fair value was estimated?

Also, on a Sappi call they mention the 1 - 2 year vetting period for new DP suppliers. How did FTP manage to execute contracts in 2010 without a track record producing DP (management aside) and without Thurso operational.
Title: Re: FTP.to - Fortress Paper
Post by: motownsf on July 17, 2012, 10:34:33 AM
PULP Highlights from 01-15, Jul 2012

Prices for linter were stable at the beginning of the first half of this last fortnight in the Chinese domestic market. Cotton linter pulp industry meeting was held and pulp producers were advised to cut operating rate to control prices. Cotton linter market remained in stagnation during the second half of this last fortnight. In cotton linter market, both inquiries and sales have been improved, but prices still lagged behind as buyers cut offers and reduced purchasing volumes. In cotton pulp market, prices were largely stable.
Jul 2012                 
Title: Re: FTP.to - Fortress Paper
Post by: shoeless on July 17, 2012, 11:29:46 AM
Also, on a Sappi call they mention the 1 - 2 year vetting period for new DP suppliers. How did FTP manage to execute contracts in 2010 without a track record producing DP (management aside) and without Thurso operational.

Are you sure the remark wasn't about specialty grade cellulose (Sappi makes that too)?
Title: Re: FTP.to - Fortress Paper
Post by: tombgrt on July 17, 2012, 11:34:46 AM
Fair questions Prunes, like your input. Hope someone can answer them as well. ;)

Not that I like how much attention this topic gets but it is interesting to see how people are becoming more nervous. Take the question about earnings release and the fear that something could be wrong.

I'm wondering what is preventing management to do a MBO at this point? I have knowledge or experience in this field so maybe someone could explain what possible problems could be. They could sell off Dresden and Landqart and probably pay back the debt of the MBO in one move? Would banks fear that there is too much leverage even if there is a very good chance that the other units will be sold? Would it leave FTP to leveraged compared to its two main assets, of which one would still be in process of transforming into a DP-producer? Or is Chad really hoping to use the money of any sale of non-core assets (Dresden, Landqart incl.) for a new acquisition, which would not be possible in an MBO unless it was financed with private equity from someone else?
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on July 17, 2012, 12:33:31 PM
So did the knife hit the floor today, or are we witnessing another dead cat bounce?

One big issue I see with a MBO is the convertibles ... reading thru the prospectuses (prospectii?) recently, I think there's wording stating that they become due if there's a change of control.   As such, it might provide more flexibility to pretty-up Dresden and Landqart first, sell them off, and then pull the proceeds from them back up to corporate level.  If the valuation then didn't follow, they'd have more options, no?

In terms of Thurso's valuation in the financials, they apparently used "fair value at acquisition time", which is much different than "replacement value" (I'm not sure about scrap value), the mechanism for insurance purposes, no?   Here's some language from Note 6 of the consolidated financial statements of Dec. 31st:


On April 30, 2010, the Company completed the purchase of a northern bleached hardwood kraft pulp mill located in Thurso, Quebec through a wholly owned subsidiary, Fortress Specialty Cellulose Inc. (“Fortress Specialty Cellulose” or “FSC”), for $3 million. The Company has since converted the Thurso operations into a dissolving pulp mill.
The recognition of assets acquired and liabilities assumed is based upon estimated fair values at the date of acquisition. Fair values are estimated using market information where applicable; however, directly comparable information is not always readily available so significant estimates and judgment are used. The Company believes it has made reasonable assumptions with respect to determining the fair values recognized. A gain of $41,804 has been recognized as the estimated fair values of the net assets acquired exceed consideration paid. The gain has been included as other income in the statement of operations.
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on July 17, 2012, 12:36:32 PM
So did the knife hit the floor today, or are we witnessing another dead cat bounce?

Guess it depends how many margin calls are left..  :)
Title: Re: FTP.to - Fortress Paper
Post by: lessthaniv on July 17, 2012, 01:10:02 PM
I don't see a going private transaction any time soon. Lot's of advantage to being public for a company like Fortress which looking to grow and spin off other businessess.
Title: Re: FTP.to - Fortress Paper
Post by: alertmeipp on July 17, 2012, 04:34:32 PM
kind of disappointed with go-private talk.

Delivery the cash flow and stock will appreciate.

Cost over-run, over optimistic projection and running company to the edge won't help pps.

Title: Re: FTP.to - Fortress Paper
Post by: Liberty on July 17, 2012, 04:42:37 PM
I think going private would be a last resort thing, done after other options have been exhausted (many profitable quarters, maybe buybacks or dividends if acquisitions slow, etc). But saying that he'd consider going private certainly sends a signal about Chad's confidence in the business.
Title: Re: FTP.to - Fortress Paper
Post by: alertmeipp on July 17, 2012, 04:54:28 PM
I think going private would be a last resort thing, done after other options have been exhausted (many profitable quarters, maybe buybacks or dividends if acquisitions slow, etc). But saying that he'd consider going private certainly sends a signal about Chad's confidence in the business.

Except quiet period rules, anything stop him from buying in the market?
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on July 17, 2012, 04:59:00 PM
Except quiet period rules, anything stop him from buying in the market?

Yes, he's mentioned at least once (at the end of the Whistler conference) that he's been blacklisted from trading FTP stock from the very start of the company because he's always working on many deals.

I can't really know for sure, but I think he'd be backing up the truck if that wasn't the case. I mean, if he's considering buying almost the whole thing, I'm sure he'd be willing to buy a fraction of that in the open market if given the chance :P
Title: Re: FTP.to - Fortress Paper
Post by: alertmeipp on July 17, 2012, 07:37:55 PM
should he stop making deals and smooth out the existing operations first?
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on July 17, 2012, 07:42:39 PM
should he stop making deals and smooth out the existing operations first?

I think he believes that the end result will be better if both are done at the same time. It's probably not as if his personal time & energy is the bottleneck in operations anyway. He's hired lots of experienced operations people, and his best use is probably at a higher strategic level. IMO.
Title: Re: FTP.to - Fortress Paper
Post by: bathtime on July 18, 2012, 10:05:23 AM
Is FTP's value proposition at present most cogent as a discount to the sum of the parts? This makes more sense to me than buying it for forward EBITDA - on which it doesn't seem like a bargain based on analyst's 2013 estimates.
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on July 18, 2012, 10:51:55 AM
Is FTP's value proposition at present most cogent as a discount to the sum of the parts? This makes more sense to me than buying it for forward EBITDA - on which it doesn't seem like a bargain based on analyst's 2013 estimates.

I guess it depends if you trust the analyst estimates (were they right before?).
Title: Re: FTP.to - Fortress Paper
Post by: bathtime on July 18, 2012, 11:36:33 AM
Good point, Liberty, thanks.
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on July 18, 2012, 12:00:36 PM
Sum of the parts (pre-LSQ), using back-of-the-envelope "What might they be able to get relatively quickly?":

1.    Dresden ->    $170M 
       (let's say 4.5x FCF of $9.5M/qrtr to a private equity firm)

2.    Thurso   ->    $310M 
       ($210M for conversion&cogen + $40M for existing + throw in $60M for 1x FCF because it's up-and-running now)
       uses Terrace Bay as baseline (i.e. sell to the party who loses out in the bankruptcy bid?)
       sounds in-ball-park comparing sale of Swedish mill last year for $340M plus $75Mdebt (for ~250K tonnes/yr)
     
3.    Landqart ->   $40M   
       (total guess ... assume liquidation? ... we know they might get $5M to $10M just from extra land)

4.    other     ->    $0
       assume near-term cash sources ($19M Landqart hydro, $17M grants, etc) offset by cash complete Thurso cogen

Total is $520M ... less Q1 debt of $180M gives you $340M ... divide by 15.3M fully diluted shares gives you $22/share?

Title: Re: FTP.to - Fortress Paper
Post by: bathtime on July 18, 2012, 04:32:29 PM
Thanks triedtestand!

That's a great straightforward breakdown. There are so many (moving) parts to this company that I sometimes lose track of the whole when focusing on concerns over the details.

The way I'm thinking about it now is that it's at a likely discount to sum of the parts with the kicker of earnings leverage if we see operating success and earnings improvements with Thurso and Landquart.
Title: Re: FTP.to - Fortress Paper
Post by: motownsf on July 18, 2012, 04:58:27 PM
Sum of the parts (pre-LSQ), using back-of-the-envelope "What might they be able to get relatively quickly?":

1.    Dresden ->    $170M 
       (let's say 4.5x FCF of $9.5M/qrtr to a private equity firm)

2.    Thurso   ->    $310M 
       ($210M for conversion&cogen + $40M for existing + throw in $60M for 1x FCF because it's up-and-running now)
       uses Terrace Bay as baseline (i.e. sell to the party who loses out in the bankruptcy bid?)
       sounds in-ball-park comparing sale of Swedish mill last year for $340M plus $75Mdebt (for ~250K tonnes/yr)
     
3.    Landqart ->   $40M   
       (total guess ... assume liquidation? ... we know they might get $5M to $10M just from extra land)

4.    other     ->    $0
       assume near-term cash sources ($19M Landqart hydro, $17M grants, etc) offset by cash complete Thurso cogen

Total is $520M ... less Q1 debt of $180M gives you $340M ... divide by 15.3M fully diluted shares gives you $22/share?

Dresden is worth more than $170m...There is over $400B in PE dry powder right now. Average EBITDA (disclosure: I hate EBITDA and this is very lazy) multiples in middle market are 7-8x.  At a 7x multiple (this is a growing, world leader in its niche), we are above $250m.
Title: Re: FTP.to - Fortress Paper
Post by: bathtime on July 18, 2012, 08:07:34 PM
http://blogs.wsj.com/privateequity/2012/06/22/sp-lbo-multiples-below-2010-levels/

----
U.S. buyout firms paid an average of 8.2 times Ebitda, below the last two years’ levels, according to LCD. Firms paid an average of 8.8 times Ebitda last year and 8.5 times Ebitda in 2010. Purchase-price multiples hit a post-crisis low in 2009, when firms paid 7.7 times Ebitda on average, according to LCD.
----

Also:

http://www.midcapadvisors.com/resources/blog/market-insights/394-size-means-more-than-financial-performance-in-private-equity-deals.html

At the AGM Chad indicated that the problem was that buyers can't get the 3.5-4x leverage in borrowing from the banks.
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on July 18, 2012, 09:22:25 PM
motownsf:

I don't disagree ... just using fire-sale type prices to look at a base swag.   A PE firm in Europe might be most likely tactical buyer (vs a NA firm? i.e. given that Dresden is in Germany), and as bathtime noted, Chad indicated that credit is a bit harder to get these days in Europe ... seems like governments are sucking it all up. ;-)
Title: Re: FTP.to - Fortress Paper
Post by: motownsf on July 18, 2012, 10:23:50 PM
motownsf:

I don't disagree ... just using fire-sale type prices to look at a base swag.   A PE firm in Europe might be most likely tactical buyer (vs a NA firm? i.e. given that Dresden is in Germany), and as bathtime noted, Chad indicated that credit is a bit harder to get these days in Europe ... seems like governments are sucking it all up. ;-)

Got it. I understand where you are coming from. YTD, Euro M&A is down over 20% in deal count and is down almost 8% in deal value. If tactical means a strategic buyer (not sure what you mean), they will pay more than a buyout firm would.
Title: Re: FTP.to - Fortress Paper
Post by: tombgrt on July 19, 2012, 04:18:41 AM
I'll bite on valuation: We should think in terms of probability and come to some sort of expected value. I like to think of 2015-2016 and what FTP could look like. There is a very wide range of possible outcomes but that doesn't mean you can't estimate value, something the broad market will always miss as it hates uncertainty. Say you expect these probabilities (just plucked them out of thin air for now based on not much) for EBITDA (to keep it simple):


22,50% chance at   $50m ebitda
35,00% ...   $100m
30,00%   $225m
10,00%   $300m
2,50%   $400m

You get expected EBITDA of $153,75m or +- $8,3/share on say 18,5m shares. I don't think those numbers are agressive. This method at least gives you the chance to think about bad scenario's and avoids anchoring. That's really how I try to think about it as we just don't know all that much.
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on July 19, 2012, 09:46:25 AM
Looks like Aditya Birla got the OK from the bankruptcy judge to proceed with purchase of Terrace Bay, precluding late bid from chinese firm:

http://www.cbc.ca/news/canada/thunder-bay/story/2012/07/19/tby-terrace-bay-pulp.html

Title: Re: FTP.to - Fortress Paper
Post by: tombgrt on July 20, 2012, 06:47:35 AM
Corn, soybeans and wheat making new highs on a daily basis (because of US drought?)...  Should help cotton pricing over time. Let's see if Chad's [40% NBSK + 60% Cotton]-formula is still valid by then.  ;)
Title: Re: FTP.to - Fortress Paper
Post by: colinwalt on July 21, 2012, 02:48:49 AM
In terms of selling off assets to raise cash, I feel it would definitely make sense to sell off Landqart in the not too distant future - hopefully for a valuation based on the results due to the latest orders - which should show up in the numbers over the next 6 months or so. 

I know Chad has presented numbers showing that the use of cash is actually growing, but this article: http://tech.fortune.cnn.com/2012/07/09/dorsey-square-death-cash/ indicates that digital cash is making steady inroads.

I think cash could easily (inevitably?) and almost overnight vanish from our lives - similar to what happened to film use once digital photography took off.
Title: Re: FTP.to - Fortress Paper
Post by: OptsyEagle on July 22, 2012, 12:59:08 PM
Not sure if this article was ever posted.  It is from May 7, 2012.  This blog has a $50 target price on the stock.  But hey, that was like, 2 months ago.  Surely, securing all the financing they need for Thurso and some of LSQ, as well as confirming the ramp up is proceeding very well and costs are well below selling prices, and of course reducing the concerns with Landqart must warrant a 70% reduction from that price.  I mean this is the stock market.

http://amp2012.com/2012/05/08/fortress-paper-a-double-target-4-50/
Title: Re: FTP.to - Fortress Paper
Post by: sculpin on July 24, 2012, 08:02:48 AM
Update from Dundee Securities today:


Maintaining A BUY But Lowering Our Target to $35

We are lowering our target on Fortress Paper (FTP-T) to C$35.00/share from C$42.00/share, after decreasing our dissolving pulp (DP) price assumptions. We continue to rate FTP a BUY.  Our target price is based on a target forward EV/EBITDA multiple of 4.7x (unchanged) applied to our normalized EBITDA forecast of C$145 million (was C$155 million), and have accounted for the recently issued convertible debentures as equity.

Cotton Markets Remain Weak But Close To Bottoming & DP Contracts at Thurso Holding

Cotton markets remain weak… Cotton and DP are highly correlated (~89% correlation coef.) as rayon (the end product of dissolving pulp) and cotton are substitutes in textile production (Exhibits 1-2). With the recent free fall in cotton prices, we were not surprised to see DP prices (and rayon prices) following. Prices of cotton are currently at US$0.72/pound, down 13% MoM, 23% YTD and more than 30% YoY (Exhibits 3-4) on the back of expectation for a slowdown in demand as slower economic growth concerns reemerged, and significant buildup in global cotton inventories (world stock to use of 66% vs. 50Y average of 46% - Exhibits 5-6).

…but we can see the bottom…While cotton demand/supply fundamentals seem pretty bleak at the moment, we believe that most if not all bad news is already priced in. Here, we would like to highlight the considerable divergence of cotton prices from the three major food crops (corn, soybean, and wheat - Exhibit 8). Prices of these commodities have skyrocketed in the past several months (up between 25% and 50% MoM - Exhibit 7) as the massive drought in the US has been killing the crops and yields have been expected to come down, and this is on top of already low stock-to-use ratios. While the recent drought conditions have impacted yield expectations for cotton as well, we highlight that cotton is a fairly drought-resistant crop, so the damage has not been as bad so far. Having said that, if weather conditions worsen, and Texas and the rest of the Southwestern US (where the majority of cotton is planted) continues to get no rain in the upcoming weeks, we might see more deterioration in yields (see Exhibit 9).

…as farmers switch acreage to other profitable crops & traders start short covering. As a result of the spike in corn and soybeans (both at all time highs), we expect that during the next planting season, farmers will switch some of the acreage currently devoted to cotton to other crops to profit from the higher margins (Exhibit 10). This should put a limit to further declines in cotton prices as supply diminishes. Finally, considering the amount of speculative shorts on cotton (see Exhibits 11-12) we would expect a surge in short covering interest should we see a sustained upturn in prices.

DP prices to follow cotton price trends… Prices have fallen to US$950/tonne and given our outlook on cotton, DP prices should have bottomed at this time. Looking at past correlation data, DP prices should be slightly higher (~US$100/tonne more) given where cotton trades today. We have lowered our long term DP price forecast by US$50/tonne (to US$1,150) to reflect continued weakness in the cotton market, and given the fairly high supply additions in the DP market (Exhibit 13).
The good news… contracts at Thurso are holding…Thurso is price protected to a large degree with three separate contracts covering almost 80% of the mills' future DP production (5-10 years @ an average  min price at US$1,150/tonne depending on the contract - see Exhibit 14 for full disclosure). 
Title: Re: FTP.to - Fortress Paper
Post by: Arden on July 24, 2012, 08:39:40 AM
Why aren't you talking about the convertible bonds?

Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on July 24, 2012, 08:53:38 AM
Looks like Viscose prices may have bounced off a bottom ...

CCFGroup daily/weekly reports (via an eval subscription)  show VSF regular and premium grades strengthening (with further increase monday), and operating rates increasing.   DP staple grades at $1000/ton.

Title: Re: FTP.to - Fortress Paper
Post by: Liberty on July 24, 2012, 08:56:59 AM
Thanks Sculpin. Good to see another source confirm that the contracts are holding up.
Title: Re: FTP.to - Fortress Paper
Post by: keerthiprasad on July 24, 2012, 09:02:57 AM
Thanks Sculpin. Good to see another source confirm that the contracts are holding up.

Agreed.  Its nice to hear.  Although if I recall, these were the same guys recommending SinoForest as "strong buy" or something like that lol (I know fraud is a different animal).
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on July 24, 2012, 09:12:46 AM
Thanks Sculpin. Good to see another source confirm that the contracts are holding up.

Agreed.  Its nice to hear.  Although if I recall, these were the same guys recommending SinoForest as "strong buy" or something like that lol (I know fraud is a different animal).

Heh, yeah, and the SEC oversaw Enron and Worldcom, so I guess all companies overseen by the SEC are potentially guilty by association  ;)

I think SinoForest was covered by analysts from all the big banks and big analyst firms in Canada, as well as many big international/U.S. banks. Another reason not to trust analysts to do your DD for you... But if you've done your DD, it doesn't hurt to see if their facts match with yours (and if not, figure out why).

http://www.sinoforest.com/analystcoverage.asp  (wouldn't be surprised if that list was even longer before the Muddy Waters report)
Title: Re: FTP.to - Fortress Paper
Post by: motownsf on July 24, 2012, 10:02:02 AM
Update from Dundee Securities today:


Maintaining A BUY But Lowering Our Target to $35

We are lowering our target on Fortress Paper (FTP-T) to C$35.00/share from C$42.00/share, after decreasing our dissolving pulp (DP) price assumptions. We continue to rate FTP a BUY.  Our target price is based on a target forward EV/EBITDA multiple of 4.7x (unchanged) applied to our normalized EBITDA forecast of C$145 million (was C$155 million), and have accounted for the recently issued convertible debentures as equity.

Cotton Markets Remain Weak But Close To Bottoming & DP Contracts at Thurso Holding

Cotton markets remain weak… Cotton and DP are highly correlated (~89% correlation coef.) as rayon (the end product of dissolving pulp) and cotton are substitutes in textile production (Exhibits 1-2). With the recent free fall in cotton prices, we were not surprised to see DP prices (and rayon prices) following. Prices of cotton are currently at US$0.72/pound, down 13% MoM, 23% YTD and more than 30% YoY (Exhibits 3-4) on the back of expectation for a slowdown in demand as slower economic growth concerns reemerged, and significant buildup in global cotton inventories (world stock to use of 66% vs. 50Y average of 46% - Exhibits 5-6).

…but we can see the bottom…While cotton demand/supply fundamentals seem pretty bleak at the moment, we believe that most if not all bad news is already priced in. Here, we would like to highlight the considerable divergence of cotton prices from the three major food crops (corn, soybean, and wheat - Exhibit 8). Prices of these commodities have skyrocketed in the past several months (up between 25% and 50% MoM - Exhibit 7) as the massive drought in the US has been killing the crops and yields have been expected to come down, and this is on top of already low stock-to-use ratios. While the recent drought conditions have impacted yield expectations for cotton as well, we highlight that cotton is a fairly drought-resistant crop, so the damage has not been as bad so far. Having said that, if weather conditions worsen, and Texas and the rest of the Southwestern US (where the majority of cotton is planted) continues to get no rain in the upcoming weeks, we might see more deterioration in yields (see Exhibit 9).

…as farmers switch acreage to other profitable crops & traders start short covering. As a result of the spike in corn and soybeans (both at all time highs), we expect that during the next planting season, farmers will switch some of the acreage currently devoted to cotton to other crops to profit from the higher margins (Exhibit 10). This should put a limit to further declines in cotton prices as supply diminishes. Finally, considering the amount of speculative shorts on cotton (see Exhibits 11-12) we would expect a surge in short covering interest should we see a sustained upturn in prices.

DP prices to follow cotton price trends… Prices have fallen to US$950/tonne and given our outlook on cotton, DP prices should have bottomed at this time. Looking at past correlation data, DP prices should be slightly higher (~US$100/tonne more) given where cotton trades today. We have lowered our long term DP price forecast by US$50/tonne (to US$1,150) to reflect continued weakness in the cotton market, and given the fairly high supply additions in the DP market (Exhibit 13).
The good news… contracts at Thurso are holding…Thurso is price protected to a large degree with three separate contracts covering almost 80% of the mills' future DP production (5-10 years @ an average  min price at US$1,150/tonne depending on the contract - see Exhibit 14 for full disclosure).

Sculpin,

Would you be able to attach the report w/exhibits? Thanks very much.
Title: Re: FTP.to - Fortress Paper
Post by: sculpin on July 24, 2012, 11:36:54 AM
Kalertas, who followed FTP & Sino Forest, at Dundee has moved on to an IR/corp development job in industry (I think some fertilizer company). have tried to attach the full pdf.
Title: Re: FTP.to - Fortress Paper
Post by: OptsyEagle on July 24, 2012, 12:09:28 PM
Update from Dundee Securities today:


Maintaining A BUY But Lowering Our Target to $35

We are lowering our target on Fortress Paper (FTP-T) to C$35.00/share from C$42.00/share, after decreasing our dissolving pulp (DP) price assumptions. We continue to rate FTP a BUY.  Our target price is based on a target forward EV/EBITDA multiple of 4.7x (unchanged) applied to our normalized EBITDA forecast of C$145 million (was C$155 million), and have accounted for the recently issued convertible debentures as equity.

So if $35.00 per share relates to a 4.7x  EV/EBITDA, then today's price of $14.33 per share means this company is currently trading at only 1.9 x  EV/EBITDA.

Is that math correct or did I forget to carry a 1 or something?
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on July 24, 2012, 05:21:57 PM
Q2 results moved up to August 7th

http://finance.yahoo.com/news/fortress-paper-release-second-quarter-234400364.html

Title: Re: FTP.to - Fortress Paper
Post by: Liberty on July 24, 2012, 06:06:31 PM
Q2 results moved up to August 7th

http://finance.yahoo.com/news/fortress-paper-release-second-quarter-234400364.html

Almost same day as last year (August 8, 2011). Conf call is pretty early, though. In Vancouver it'll be 5 AM.
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on July 24, 2012, 06:22:55 PM
Apparently mgmt is in Thurso on 8th for a board meeting, that's why conference call is set for 8EDT.
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on July 24, 2012, 07:53:18 PM
Apparently mgmt is in Thurso on 8th for a board meeting, that's why conference call is set for 8EDT.

That makes sense.

Thurso isn't that far from where I am. Maybe I should drop by and say "hello"  ;) 8) :P

That reminds me. At some point I should contact IR and see if there's a way to get a tour of the plant. I doubt it (if only for insurance reasons), but you never know..
Title: Re: FTP.to - Fortress Paper
Post by: jeffmori7 on July 25, 2012, 12:32:56 PM
We now have market cap under 200M...that is for me the value of either Thurso or Dresden alone, considering a valuation about 5 times EBIDTA.

Still no catalyst before next quatery results..and still..
we will probably have to wait one or two quarter more to see the real perfromance of Thurso and know what will happen with Landquart.
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on July 25, 2012, 12:47:16 PM
We now have market cap under 200M...that is for me the value of either Thurso or Dresden alone, considering a valuation about 5 times EBIDTA.

Still no catalyst before next quatery results..and still..
we will probably have to wait one or two quarter more to see the real perfromance of Thurso and know what will happen with Landquart.

Indeed, and the recent debentures are soaking up demand that might otherwise have gone to the common. Could take a little bit of time for that effect to pass...

It sucks to have missed the bottom, but I know I'll never buy the bottoms and sells the tops. That's just not how it works. All I can do is buy things that I believe are worth more than I pay and that have a good runway in front of them, and then be patient.

I'm not in the "be patient" part of the deal.
Title: Re: FTP.to - Fortress Paper
Post by: OptsyEagle on July 25, 2012, 01:29:25 PM
Indeed, and the recent debentures are soaking up demand that might otherwise have gone to the common. Could take a little bit of time for that effect to pass...


The stock has lost 25% of it's value in July alone.  WOW.  Except for those debentures, I cannot think of anything that really changed, except that they now have all the money they need for their capital commitments, Thurso is on track, Landqart is improving, the co-gen should be done and producing in another quarter and Dresden is firing on all cylinders.

Can't wait until that debenture liquidity is soaked up.  This is rediculous.
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on July 25, 2012, 02:16:51 PM
Via TMX.com ...

About 9M worth of the new debentures have changed hands since the deal closed, which is the value of the over-allotment.  They have hovered around 96-to-97, but in the last two days price has dipped under $96.00 (yesterday on high volume, today on low volume), which is the break-even for the underwriters.  It is telling that in the past couple of days the newer ones have traded lower than the older ones, even though the newer ones convert at a lower price, have longer duration, higher coupon, so not sure if that means the underwriters have started to clear their book or not ... might need a few more days to tell.

NEW DEBS

Date                   Open           High           Low           Close           Volume   Chg           % Chg
07/25/2012   95.000   95.000   93.300   94.000   148,000   -1.100   -1.16%
07/24/2012   96.000   96.000   95.050   95.100   883,000   -1.180   -1.23%
07/23/2012   96.040   96.280   95.750   96.280   143,000   0.280   0.29%
07/20/2012   96.750   96.750   95.550   96.000   300,000   -0.350   -0.36%
07/19/2012   96.850   97.000   96.350   96.350   621,000   -0.150   -0.16%
07/18/2012   96.100   96.500   96.010   96.500   114,000   -0.500   -0.52%
07/17/2012   96.150   97.000   96.100   97.000   632,000   0.500   0.52%
07/16/2012   95.900   96.500   95.900   96.500   175,000   0.600   0.63%
07/13/2012   96.000   96.000   95.700   95.900   47,000   -0.420   -0.44%
07/12/2012   96.500   97.000   96.000   96.320   377,000   -0.180   -0.19%
07/11/2012   97.450   97.500   96.250   96.500   493,000   -0.920   -0.94%
07/10/2012   98.010   99.000   97.000   97.420   5,059,00  97.420   0.00%

OLD DEBS

Date                   Open           High           Low           Close           Volume   Chg           % Chg
07/25/2012   95.500   97.500   95.000   95.500   271,000   0.060   0.06%
07/24/2012   96.000   96.000   95.440   95.440   272,000   -0.160   -0.17%
07/23/2012   96.000   96.000   95.600   95.600   59,000   -0.400   -0.42%
07/20/2012   96.000   96.000   95.680   96.000   167,000   0.000   0.00%
07/19/2012   96.150   96.150   95.900   96.000   74,000   0.100   0.10%
07/18/2012   96.000   96.000   95.500   95.900   198,000   -0.100   -0.10%
07/17/2012   96.000   96.000   95.750   96.000   228,000   0.000   0.00%
07/16/2012   96.000   96.000   95.900   96.000   169,000   0.250   0.26%
07/13/2012   95.500   96.000   95.500   95.750   140,000   0.000   0.00%
07/12/2012   96.000   96.000   95.750   95.750   232,000   -0.250   -0.26%
07/11/2012   97.000   97.000   95.010   96.000   250,000   -0.900   -0.93%
07/10/2012   97.550   97.550   96.900   96.900   262,000   -0.850   -0.87%
07/09/2012   98.000   98.000   97.500   97.750   283,000   -0.750   -0.76%
07/06/2012   98.900   98.900   98.500   98.500   68,000   -0.500   -0.51%
07/05/2012   98.250   99.000   98.250   99.000   141,000   0.250   0.25%
07/04/2012   98.750   98.750   98.750   98.750   18,000   -0.250   -0.25%
07/03/2012   98.350   99.000   98.350   99.000   167,000   1.500   1.54%
06/29/2012   97.490   97.500   97.490   97.500   184,000   0.010   0.01%
06/28/2012   97.490   97.500   97.490   97.490   147,000   -0.010   -0.01%
06/27/2012   98.000   98.000   97.490   97.500   113,000   -0.800   -0.81%
06/26/2012   98.270   98.300   98.000   98.300   130,000   -0.700   -0.71%
06/25/2012   98.990   99.000   98.990   99.000   34,000   0.010   0.01%
Title: Re: FTP.to - Fortress Paper
Post by: OptsyEagle on July 26, 2012, 06:41:13 AM
Is it just me or do the debenture trading numbers make very little sense.  The two debenture issues seem to be trading within $1 of each other (about 1% difference) but the newer debentures pay 7% and convert at $31.00, whereas the older debentures pay only 6.5% and convert at $37.50.  There are different maturity dates but I find it hard to see that making any significant difference, in this example.

For a buck, would you not prefer the newer debentures over the older issue and shouldn't that in itself make a larger price difference. For Fortress Paper, all this is irrelevant, but how others invest constantly perplexes me.  Don't get me wrong.  My method has not been all that lucrative lately, but I do find it hard to see how these other people's strategy are supposed to pay off.   Would love to find out.  I keep asking.
Title: Re: FTP.to - Fortress Paper
Post by: keerthiprasad on July 26, 2012, 06:50:04 AM
Is it just me or do the debenture trading numbers make very little sense.  The two debenture issues seem to be trading within $1 of each other (about 1% difference) but the newer debentures pay 7% and convert at $31.00, whereas the older debentures pay only 6.5% and convert at $37.50.  There are different maturity dates but I find it hard to see that making any significant difference, in this example.

For a buck, would you not prefer the newer debentures over the older issue and shouldn't that in itself make a larger price difference. For Fortress Paper, all this is irrelevant, but how others invest constantly perplexes me.  Don't get me wrong.  My method has not been all that lucrative lately, but I do find it hard to see how these other people's strategy are supposed to pay off.   Would love to find out.  I keep asking.

I was very confused by these numbers too.  I guess these are the same people who have made the stock so cheap too, so I guess I don't agree with them on a number of issues haha.
Title: Re: FTP.to - Fortress Paper
Post by: BRK7 on July 31, 2012, 12:28:22 PM
Lenzing AG Intensifies Pulp Cooperation with Sappi

http://www.lenzing.com/fileadmin/template/pdf/konzern/presseinformationen/Presse_EN/PA_2012_07_23_EN_Sappi_Intensifies.pdf
Title: Re: FTP.to - Fortress Paper
Post by: bathtime on July 31, 2012, 02:18:48 PM
July 13th Comark analyst report attached (this might have been shared already).
Title: Re: FTP.to - Fortress Paper
Post by: tombgrt on August 01, 2012, 09:17:59 AM
July 13th Comark analyst report attached (this might have been shared already).

FTP was their "top pick" at $50+ last year... The first of February it was their top pick with a $58 price target. Dresden and Landqart were worse than they are now, only DP pricing was slightly better and Thurso seemed to be ramping up faster. What where their thoughts on DP prices 16-18 months ago? Wouldn't give much weight to it. But it's great to read more bearish thoughts nonetheless.


I'd say Grantham's latest letter is far more interesting and relevant for my (our?) long term thesis:
http://www.gmo.com/websitecontent/GMOQ2Letter.pdf

We are after all looking at this as a 5-10 year investment. Well, I am.

Quote
The following comments on this topic are mine personally and reflect my Foundation’s portfolio (and a total
lack of career risk!).  These comments are based on a time horizon of 10 years and beyond.  The portfolio
investment implications are that investors should expect resource stocks – those with resources in the ground
– to outperform over the next several decades as real prices of the resources rise.  Farming and forestry,
though, are at the top of the list.  Serious long-term investors should have a very substantial overweighting in
a resource package.  I suggest for long-term investors a resource position of at least 30%.  Another relative
beneficiary of resource pressure is the quality group of equities.  Resources are a smaller fraction of final sales
than average and higher profit margins make them more resilient to margin pressures. 

A lot of stuff that was discussed in the Lenzing paper (http://www.lenzing.com/fileadmin/template/pdf/konzern/lenzinger_berichte/ausgabe_89_2011/LB_2011_2_Haemmerle.pdf) in terms of sustainability is brought up as well.
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on August 01, 2012, 09:30:44 AM
July 13th Comark analyst report attached (this might have been shared already).

FTP was their "top pick" at $50+ last year... The first of February it was their top pick with a $58 price target. Dresden and Landqart were worse than they are now, only DP pricing was slightly better and Thurso seemed to be ramping up faster. What where their thoughts on DP prices 16-18 months ago? Wouldn't give much weight to it. But it's great to read more bearish thoughts nonetheless.

Those were pretty much my thoughts. It's good to read the doom & gloom and test your thesis against it, but I don't give these analysts any predictive power. A year ago they were predicting something totally different, and chances are that in a year things will again be totally different. They are only good at telling you were you were in the recent past.

If they really had any predictive talent they wouldn't be analysts, they'd be hedge fund managers (and we know that even hedge fund managers, on average, aren't that good when it comes to predicting the future)  :P

What I'll be curious to learn about in the next few quarters is how much Thurso is getting for its non-pre-sold DP.

These analysts always talk about the spot price, but my understanding is that these spot prices are sometimes arrived at in trades of small quantity during low volume periods, and at different grades from what Thurso will produce. So they might not always tell the whole story (though I also don't expect a huge premium).
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on August 01, 2012, 09:56:01 AM
Maybe I'm just looking for "Have we seen a bottom in DP pricing?" events, but have seen various snippets the following the past week or so from the ccfgroup.com website that have been encouraging.   I scraped a couple of charts and attach, including:

a) VSF pricing chart from last week
     - bouncing back from lows of ~14500/ton in mid-June ... up to ~15100/ton as of last week
     - NB: Pricing has gone subsequently higher (towards ~15500/ton this week) if you track the snippets of the daily reports that they make public without a subscription.

b) VSF export chart
     - exports ballooned in June ... not sure if it's good or not (i.e. if product of faltering domestic consumption)

Title: Re: FTP.to - Fortress Paper
Post by: BRK7 on August 03, 2012, 03:34:19 PM
recent article on conversion of mills, including some comments from peter vinall:

http://www.workingforest.com/new-pulp-mills-old/
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on August 06, 2012, 08:30:46 PM
http://www.bloomberg.com/news/2012-08-07/cotton-harvest-in-india-set-to-tumble-as-dry-weather-hurts-crops.html
Title: Re: FTP.to - Fortress Paper
Post by: tombgrt on August 07, 2012, 01:43:39 AM
Explains the jump in price over the last 3 days.

http://www.globalpost.com/dispatch/news/science/120804/james-hansen-climate-change-heat-drought-us-europe-nasa

Droughts are happening 10 times more than in the 1950s-1970s and it's getting worse. Can't see how this will get 'fixing' other than through extreme economic and social conditions that force major economies to act. Like Grantham said, we are politically flawed for these kind of things.
Title: Re: FTP.to - Fortress Paper
Post by: jeffmori7 on August 07, 2012, 06:02:10 AM
A new interview with Chad :

http://www.bloomberg.com/video/fortress-paper-seeks-more-acquisitions-ceo-says-pWD5YAaZRk2GfG1kozzcsA.html
Title: Re: FTP.to - Fortress Paper
Post by: tombgrt on August 07, 2012, 06:36:26 AM
Thanks BRK7, lots of interesting information in the Whistler presentation.
LongTerm, great point. I didn't  know the answer but it looks like we may have part of it now. Thanks guys.

update: some numbers Chad gave in the Whistler presentation
commodity paper: $600-$900 a ton
Lowest quality passport paper: $6-7K/ton
Low grade banknote with few security features: $12-12K/ton
Euro 25-28K/ton
Swiss franc: just over $30K/ton
Durasafe: 45K/ton

So the potential for higher revenue/ton is there if they can get the right orders.


65K/ton now for their very best product. Very unlikely of course that this number is scalable (if they ever reach it...) but thought it was an interesting comment of Chad.
Title: Re: FTP.to - Fortress Paper
Post by: valueinvesting101 on August 07, 2012, 02:23:54 PM
http://www.bloomberg.com/news/2012-08-07/cotton-harvest-in-india-set-to-tumble-as-dry-weather-hurts-crops.html (http://www.bloomberg.com/news/2012-08-07/cotton-harvest-in-india-set-to-tumble-as-dry-weather-hurts-crops.html)

With lower cotton harvest in India and greater demand for soybean in US, cotton prices should be heading higher. That might have pushed FTP higher today.
Title: Re: FTP.to - Fortress Paper
Post by: motownsf on August 07, 2012, 03:58:32 PM
Just reported:

http://finance.yahoo.com/news/fortress-paper-announces-second-quarter-223200874.html

Haven't had time to read through with fine comb, but Specialty Papers run rate is beating what they said on last quarter's call--currently at $42m EBITDA run rate.  This is a very valuable business (worth way in excess of market cap and almost the value of the current EV in my opinion given LBO multiples.

Security Paper still struggling and uncertain when new order helps results.  Dissolving Pulp still having some technical issues.

Title: Re: FTP.to - Fortress Paper
Post by: lessthaniv on August 07, 2012, 04:38:16 PM
http://www.bloomberg.com/news/2012-08-07/cotton-harvest-in-india-set-to-tumble-as-dry-weather-hurts-crops.html (http://www.bloomberg.com/news/2012-08-07/cotton-harvest-in-india-set-to-tumble-as-dry-weather-hurts-crops.html)

With lower cotton harvest in India and greater demand for soybean in US, cotton prices should be heading higher. That might have pushed FTP higher today.

China is the main importer. They are sitting on excess supply bought up to stablize prices. This may offset some of the drought issues.
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on August 07, 2012, 04:59:04 PM
China is the main importer. They are sitting on excess supply bought up to stablize prices. This may offset some of the drought issues.

True, though ceteris paribus, a bad cotton harvest due to drought will always lead to higher cotton prices than a good harvest with no drought.
Title: Re: FTP.to - Fortress Paper
Post by: tombgrt on August 07, 2012, 05:11:28 PM
Just reported:

http://finance.yahoo.com/news/fortress-paper-announces-second-quarter-223200874.html

Haven't had time to read through with fine comb, but Specialty Papers run rate is beating what they said on last quarter's call--currently at $42m EBITDA run rate.  This is a very valuable business (worth way in excess of market cap and almost the value of the current EV in my opinion given LBO multiples.

Security Paper still struggling and uncertain when new order helps results.  Dissolving Pulp still having some technical issues.



As expected.

Could anyone take notes of tomorrow's CC? TIA!
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on August 07, 2012, 05:17:48 PM
I'm still digesting all this, and it'll be interesting to get more details on the CC call tomorrow, but so far it seems about as I expected.

Thurso's was still in the 70%s for the quarter, and most of the profits come from the last percents because of the fixed costs, so it's not surprising it didn't generate much cash yet (also doesn't have cogen). All DP sold through Q3, which is good to hear, but would love to know pricing (probably will be discussed in the CC). Dresden seems to be doing extremely well, better than I expected. Good to hear that Landquart has started printing the big order in July (wish I knew when exactly in the month). Some work beginning at LSQ.

Next few quarters should be much more interesting.
Title: Re: FTP.to - Fortress Paper
Post by: keerthiprasad on August 07, 2012, 05:52:04 PM
a little more positive news on bank notes would've been nice.  Otherwise I'm just disappointed that thurso is still lagging.
Title: Re: FTP.to - Fortress Paper
Post by: jjsto on August 07, 2012, 06:11:40 PM
End result was in line with what I was thinking.  Will be interesting to see what the sp does tomorrow if that reflects other people's expectations.  Any idea why pulp shipments (tonnes) would be flat from q1 to q2?  I assumed the ramp up while not being reflected in the bottom line would at least show in the quarter to quarter shipment numbers.  I guess the interesting numbers will have to wait till q3/q4.
Title: Re: FTP.to - Fortress Paper
Post by: jjsto on August 07, 2012, 06:13:55 PM
Also, on that bloomberg article was chad saying he had some contracts for the new mill in place with a floor of $1,000?  or did that possibly apply to some of the thurso production as well?
Title: Re: FTP.to - Fortress Paper
Post by: alertmeipp on August 07, 2012, 06:51:37 PM
the quarter looks boring, lack of progress in DP is disappointing. I think that's the value driver going forward.

But the expectation was so low so we should do fine. 8)
Title: Re: FTP.to - Fortress Paper
Post by: OptsyEagle on August 07, 2012, 07:04:57 PM
Any idea why pulp shipments (tonnes) would be flat from q1 to q2?  I assumed the ramp up while not being reflected in the bottom line would at least show in the quarter to quarter shipment numbers.  I guess the interesting numbers will have to wait till q3/q4.

I believe the DP shipments in Q1 and Q2 are the minimum Fortress Paper has to deliver each quarter as per their contracts.  If they don't produce the amount of product within their contracts, they are required to purchase it on the spot market, for delivery to their customer.  They record this as pulp shipments.  They did this in Q1 and since their own costs were at about where the spot price was, it made very little difference.  What will be interesting is how much of the 35,000 tonne that they delivered in Q2, was produced at Thurso.  I believe this number will be increasing nicely to probably all of it.  I mean simple math says that if they produced at an average of 70% of 200,000 tonnes, divided by 4 quarters, you get 35,000 tonnes produced in Q2.  I forget how much they produced in Q1 but I know it was a lot less.
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on August 07, 2012, 07:06:07 PM
Also, on that bloomberg article was chad saying he had some contracts for the new mill in place with a floor of $1,000?  or did that possibly apply to some of the thurso production as well?

I think maybe that's the viscose-based contract at thurso.. Viscose spot minus 1k, maybe with floor of 1k ? Not entirely sure.
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on August 07, 2012, 08:40:31 PM
Who would have thought that wallpaper could be so lucrative, eh?  Obviously they are over-delivering in that segment, along with gains on sale of hydro assets, so no problems there. 

Two works in progress then ... Thurso and Landqart.

Thurso looks like will need another quarter to really show up in the numbers.  Am not ecstatic (but not totally surprised) that they didn't fully ramp up as of end-of-the-quarter, but trusting they are getting close on the technical finessing, and better they get it done now than have a back-pedal job to do later ... especially in a quarter where downstream market was weak.

That said, I am quite encouraged that the cost model is more-or-less proving itself out ... there was a quote early this year where they indicated that they are essentially an all-in breakeven operation at 70% utilization (or maybe a tad more) pre-cogen, and that's what this quarter showed (even with a number of optimizations still being worked on).  It also aligns with the back-of-the-napkin EBITDA analysis I posted on June 7th ... so that is reassuring.

Looking at pricing ... they generated $35M on 35K of volume, which with a simple division would mean $1000/ton.  This is low ... but am guessing that the quarter includes some discounting, etc. for early non-spec stuff, so probably need another quarter to prove things out better.

Note for Liberty, per your comments ... If I recall correctly the Q1/12 pulp volumes included residual regular pulp that had been produced pre-transition, had been bought back in Q4/11 for some reason, and then resold in Q1/12, so that would fudge the #'s for that quarter (i.e. mix of dissolving and regular pulp) ... also remember that they have one contract with min price of $1200/ton, and a couple of others with base price of $1000/ton, but that these contracts (per a remark at the AGM) do NOT force FTP to buy spot dissolving to cover contracts, so I think all the pulp volumes are their own.

One last thought, looking at the market going forward ... besides the comments on cotton pricing, viscose utilization is also ramping back up (see attached graph), and further, ccfgroup.com indicated a few days ago that spot prices for DP are ramping up a bit from the $1000/ton they've been at the past mont or two.

The one nagging worry I have from the quarter is Landqart ... even with the material order reinstatement, the language in the release includes a number of if/whens/earliests/etc ... and they produced less this quarter than last (even though it wasn't much in either quarter) ... so hopefully a) they start recognizing material revenue from the order this quarter, and b) they start securing more new orders ... I'm also confused about other "delayed orders" that were alluded to in the release.
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on August 07, 2012, 09:48:29 PM
A couple of other tidbits that point in an encouraging direction:

a) Lenzing cellulose doing well, looking at acquisitions:

  http://www.reuters.com/article/2012/08/07/lenzing-ceo-idUSL6E8J72OR20120807

b) Rayonier reports strong results for it's cellulose segment:

  http://www.marketwatch.com/story/rayonier-reports-strong-second-quarter-2012-results-2012-07-26

c) Sappi reports strong results for it's cellulose segment:

  http://www.digitaljournal.com/pr/823713
Title: Re: FTP.to - Fortress Paper
Post by: OptsyEagle on August 08, 2012, 04:55:28 AM

Note for Liberty, per your comments ... If I recall correctly the Q1/12 pulp volumes included residual regular pulp that had been produced pre-transition, had been bought back in Q4/11 for some reason, and then resold in Q1/12, so that would fudge the #'s for that quarter (i.e. mix of dissolving and regular pulp) ... also remember that they have one contract with min price of $1200/ton, and a couple of others with base price of $1000/ton, but that these contracts (per a remark at the AGM) do NOT force FTP to buy spot dissolving to cover contracts, so I think all the pulp volumes are their own.

Those comments were mine and I do seem to recall that question on the conference call.  I also remember that there were some residuals from Q4 that were resold but I also seem to recall that they bought some pulp for resale as well.  This is all from memory and it was news to me at the time and perhaps I was mistaken, but that what I seem to recall that they did. 

It seems logical that their customers might have wanted some assurance that the pulp would be available to them.  They were contracting for it back when Thurso still had dust on all their equipment.  Anyway, maybe they will touch upon it during this CC.
Title: Q2 Conference Call Highlights.
Post by: OptsyEagle on August 08, 2012, 06:20:55 AM
   Generated $10.5 M EBITDA from Dresden, lost $ 0.7M at Thurso and $ 6.2M at Landqart.  Corp costs were $1.3M for a combined EBITDA of minus $2.3 M.

- Dresden doing very well.  Above expectations.  Order book very healthy with great visibility to end of 2012.  Dresden's market share continues to grow and they currently have greater then 50% market share.  Plant maintenance took place for 10 days and will end Aug. 9th.  This will result in higher production rates and cost efficiciencies, going forward.

- Landquart had another difficult quarter due to low volumes.  The significant order received in Q2 has started up in the middle of July.  They expect a Q3 EBITDA loss at Landquart but nowhere near what it was in Q2.  With significant order, it allows much larger profitability on any new orders that they receive, while allowing them to run at the break even level until then.  This significant order should run until mid 2013.

- Thurso ramp up continuing along.  Produced at 70% of mill capacity in Q2 and 75% for June.  Had a few down days to address one time equipment issues. 90% of the time the plant was producing at above design capacity.  They have produced at over 100% of design capacity for the last 10 to 11 days but do expect more down days in the future.  For example, they had a couple of down days in July due to a pipe that required replacement and assume going forward there will be more days like this, but still fully confident that the plant can produce to design capacity and that they will get there.  When producing to capacity, they expect their costs to come in, post-cogen, delivered to China in the low $700 per tonne range.  They have allocated an additional $5 million for maintenance for the next two years,  to address any one time equipment issues they identify during ramp up.  This brings annual planned maintence investment to around $14 million at Thurso.

- Contracts at Thurso holding up fine.  Majority of their pulp is going to their largest customer with the $1000 floor price, with the rest going to the other with the $1200 floor.  95% of pulp produced was on spec.  Amount sold that was off spec was only in the 100s of tonnes.  Very, very little.

Current DP spot price at $1,030 and is believed to by at a cycle low.  Many Asian competitors have idled their plants due to their higher costs.

- Co-gen moving along.  Currently at 58% efficiency.  Completion expected late Q4, 2012.

- Fortress Optical Features has opened for business on Aug. 8th in Thurso.  Very promising interest in product at this stage.

- LSQ.  When up and running with Thurso, expect to produce over 450,000 tonnes of dissolving pulp.  Engineering and design have commenced at LSQ and no issues have been identified.  Conversion should be complete at the end of 2013 with commercial production starting in 2014.

- Still reviewing future opportunities for acquisitions.  They are a growing company.  Future acquisitions will be a little more difficult, since they already have a very stringent list of requirements before they would make any acquisition, but currently they need to deal with a couple of other realities.  Current share price is so low they cannot look at issuing equity at these prices to fund a new acquisition.  Current balance sheet has an amount of debt that if more were issued may cause some concerns for the company and share price.  Chad joked that if he can do an acquisition without issuing debt or equity he would be glad to do it.  Ha, ha.  He did indicate, however, that if they did find an acquisition candidate that was such a no-brainer as LSQ was, he would attempt to buy it with a call option structure, as opposed to an out and out acquisition.  Not expecting any new acquisitions this year.

- Received $14 million tax refund in July that is now sitting in the bank.


Anyways, thats about what I saw.  Continuous improvement, in pretty much all divisions and they now have plenty of cash to convert their recent acquisitions and fund daily operations.

Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on August 08, 2012, 06:31:35 AM
Conf call notes (supplemental to info from press release and results documents) ... you will see they are pretty much the same as OptsyEagle's notes:

Dresden
- order book remains 6-7 weeks ... as strong as last quarter
- market share still >50%, despite higher growth rates for market at large
- gave example of increase in market share in Russia & Ukraine
- staying ahead of competition w new products, competitive intel
- mill down for 10days for mtnc and upgrades, will be back online Aug 9th
- improvements post-upgrade will yield 56K tonnes capacity for 2012, which is above guidance, along w lower energy use
- no FOREX worries ... 95% of sales in EUROS

Landqart
- material order reinstatement status
    - started printing in mid-July, first shipment sent
    - it will basically fill the first paper machine for the next 12 months
    - it is breakeven business, but allowing focus for second paper machine sales to be on higher value orders
- sales
   - good order intake and visibility into 2013 ... have secured repeat orders, but also new orders from Africa, Asia, LA
   - Q4 has # of large tenders, which have now been pre-qualified for, but which also will be fiercely contested
   - still have market over-capacity which will contain margins, but market starting to soak it up
   - Durasafe ... have a second order secured from a different central bank; also progress on other opportunities
- margin
   - Q3 will still be -'ve EBITDA, but way down (no # given), trending towards breakeven or better for Q4?
- non-core land sale
   - appear to be still working on rezoning, but seem to have support of local officials
   - may realize 10% to 15% of sales ($5M to $10M ... maybe more?) in this calendar year, with rest next year
 
Thurso
- pricing
   - spot averaged $1030; supply/demand in balance; think are at cycle lows
   - yes, the collars on contracted volumes have been tested, but they are holding
- opex
   - moving to budgeted levels (which are at 725-750 per ton landed costs post-COGEN)
   - sounds like new plant investments mostly working well ... but that reliability issues mostly with legacy infrastructure
        - e.g. downtime in July ... 3 days due to broken water pipe and erosion ... also had to re-align dryer
        - have increased mtnc budget for this year and next by $5M for such unplanned items
- quality
   - 95% of DP is on-spec ... very low off spec sales amounts (in 100's of tonnes)
- reliability
   - last 10-11 days have been at 100%, but have to assume there will be other mtnc issues that crop up

Other
- have kept close eye on continuous digester technology (which could make it $40M+ cheaper for hardwood pulp mills to convert) still has significant issues ... the one plant in China that uses it has to switch over to paper production repeatedly to clear alkaline levels ...
- not looking at new equity or debt for any acquisitions ... any acquisitions would currently be funded internally (e.g. with longer transition times using existing cash flows, or buy asset on-the-cheap and keep it as a call-option until suitable, etc.)

Overall
- Dresden ... remains a no-brainer ... sounds likely to continue to out-perform
- Landqart ... felt more confident post-call ... my biggest worry was/is sales order (and mix/margin), and conf call details provided more reassurance than the press release that they are making progress
- Thurso ... on operations side, they sounded deliberately as wanting to manage expectations (as have obviously been snake-bitten in recent past ... so they did not want to provide a specific utilization % target for Q3, except to say they continue to make progress ... i.e. better than last quarter). That said, it sounds like they have good team of problem solvers who don't want to claim victory until they have an extended run of continuous use (e.g. a month or more?) ... and on the sale/pricing side, it sounds like their contracts have scraped off a bottom without breaching

Title: Re: FTP.to - Fortress Paper
Post by: tombgrt on August 08, 2012, 06:50:25 AM
Thank you guys, great job.

More reassuring than the press release, but it's a CC of course. Doesn't seem they are overconfident tho.
Somewhat bugged with floor on biggest DP contract but at least it holds. Better safe than sorry. Better than expected news on Landqart and reliability in the last 10 days for Thurso sounds good as well.
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on August 08, 2012, 07:41:22 AM
You guys beat me to it, my notes are pretty similar. Thanks for sharing!
Title: Re: FTP.to - Fortress Paper
Post by: OptsyEagle on August 08, 2012, 09:40:32 AM
a) Lenzing cellulose doing well, looking at acquisitions:

  http://www.reuters.com/article/2012/08/07/lenzing-ceo-idUSL6E8J72OR20120807

What do you think?  With Fortress Paper trading at a market cap of $225 million with all the cash and financing it needs to bring both mills into full production, is it safe to assume these guys have at least looked at a buyout.  For the love of god, they could sell Dresden for $225 million (5.6 x EBITDA) and they would get everything else for free.

Obviously it would take more then $15 per share to get the company but it is amazing at what prices people will sell their stock for.
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on August 08, 2012, 10:41:22 AM
Re Lenzing  ... I had the same fleeting thought. 

Chad would likely want a good price for his shares (or some other platinum plated parachute), otherwise Lenzing could still go hostile and just aim for 50%+1.  That said, another obstacle is the debs ... they come due in a change of control situation, and not sure if other debt has any similar string attached. And with various Quebec gov't entities involved, would there be a Fibrek minority shareholder nightmare redux?
Title: Re: FTP.to - Fortress Paper
Post by: OptsyEagle on August 08, 2012, 11:25:03 AM
Re Lenzing  ... I had the same fleeting thought. 

Chad would likely want a good price for his shares (or some other platinum plated parachute), otherwise Lenzing could still go hostile and just aim for 50%+1.  That said, another obstacle is the debs ... they come due in a change of control situation, and not sure if other debt has any similar string attached. And with various Quebec gov't entities involved, would there be a Fibrek minority shareholder nightmare redux?

I don't think they would worry about the debentures.  With the money Lenzing has in the bank, they would probably just pay them off and perhaps issue new debt at lower rates if they wanted to hold onto their cash.  Remember, all the cash for the debentures is currently just sitting in Fortress Paper's bank account, as we speak, along with about $50 Million more.

My main point here is that I doubt they will find any other acquisition cheaper then "free" which is what the Thurso and LSQ mills are currently valued at with todays stock price.  If you simply added $150 million dollars (less then what they would need to invest in converting one new mill and we have two) to the price it would allow for a $25 per share offering price.  I know I wouldn't tender to that price but seeing how it is about 66% above the current price, I would bet they could get a hostile deal through very close to it. 

Let's just hope they don't.
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on August 09, 2012, 01:30:15 PM
Maybe we should hope they do ...

This yo-yo'ing is manic ... the stock is back down to where we were pre-earnings release, but now all the analysts have cut targets (although not ratings), to varying degrees:

http://www.dailypolitical.com/finance/stock-market/td-securities-sets-fortress-paper-price-target-at-17-00-ftp.htm

Those with access to such, can you post?
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on August 09, 2012, 07:57:29 PM
We have a new leader ... largest FTP shareholder (excluding options/restricted shares) as of July 31st is no longer Chad ... it is now Invesco. 

From Morningstar.ca, SEDAR, and SEDI the following #'s are provided:

Invesco                              2410K                  -> Holds >10% ... up ~900K in last 3 to 4 months
Chad Wasilinikoff               2390K                  -> Holds >10%
Mawer                                 724K                   -> up 30K in last 3mo
IA Michael (ABC Funds)        800K                  -> same     
FaithLife                               432K                  -> up 80K in last 3mo
Scotia Private                       199K                  (as of Mar 31/12)
Fiera                                     120K                  -> down 200K in last 3mo
Standard Life                        432K                  -> up 80K in last 3mo (is it the same as FaithLife??)
Industrial Alliance                  234K                 (as of Mar 31/12)
Dimensional                          111K                  (as of Feb 29/12)
Manulife                                0                        -> sold out - down 226K in last 4mo
BMO Guardian                       222K                  (as of Apr30/12)
Trimark                                  113K                  (as of Mar 31/11 - down 160K in 3mo)
GBC                                       0                       -> sold out - down 208K in last 3mo
HSBC                                     144K                 -> new in last 2mo
Bissett                                   134K                 -> new in last 2mo

The concentration is increasing vs the June tabulation ... the total is now ~8.4M shares (vs 7.8M), or about 59% of 14.3M undiluted shares, spread across a similar -  but not the same - 14 players (2 new, 2 sold out).

It appears that Invesco's increase in July alone was ~400K shares, and that there were ~1.1M shares traded during that period. If that is the case, they sucked up 36% of the shares traded (about 90% of which traded below $17/share). Another ~450K shares and they hit 20%

Given the volumes traded, the market cap is obviously being set at the edges.

Title: Chad is Scheduled to be on BNN at 2:15 EST today.
Post by: OptsyEagle on August 10, 2012, 08:30:46 AM
Here is their schedule.

http://www.bnn.ca/Schedule.aspx
Title: Re: FTP.to - Fortress Paper
Post by: OptsyEagle on August 10, 2012, 12:19:50 PM
Here is the clip.

http://watch.bnn.ca/#clip737398
Title: Re: FTP.to - Fortress Paper
Post by: valueInv on August 13, 2012, 12:35:43 AM
Looks like the cotton situation is not that bad:

http://online.wsj.com/article/SB10000872396390444900304577583922816485442.html
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on August 14, 2012, 06:53:32 AM
http://www.canadianinsider.com/node/7?ticker=FTP

Alfonso Ciotola sold a bunch of shares. Not sure what this means (you can never be sure why people sell).. But maybe he's being replaced by someone else to oversee the European operations and turnaround of Landquart?

I can't seem to find it again, but a few months ago there was an announcement about how Alfonso's title was changed. This could all be foreshadowing of a bigger change.
Title: Re: FTP.to - Fortress Paper
Post by: lessthaniv on August 14, 2012, 08:07:56 AM
March 30th press release:

The Company also announces that Alfonso Ciotola has resigned as President of the Company and Mr. Wasilenkoff has consolidated such position with his role as Chief Executive Officer. Mr. Ciotola will remain with the Company as Chief Executive Officer of Landqart AG and Managing Director of Dresden. In addition, Erich Sulser, Chief Operating Officer of the Company and Chief Financial Officer of Landqart AG, is no longer with the Company. His duties will be assumed by other officers at this time.

Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on August 14, 2012, 09:15:12 AM
Sedi.ca provides more detailed set of transactions.  He exercised then sold a bunch of $8 options. He did similar at end of 2011, so while not something you want to see, esp when stock is at multi-year lows, doesn't look like totally unprecedented behavior.
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on August 14, 2012, 09:30:57 AM
Sedi.ca provides more detailed set of transactions.  He exercised then sold a bunch of $8 options. He did similar at end of 2011, so while not something you want to see, esp when stock is at multi-year lows, doesn't look like totally unprecedented behavior.

Thanks, that's useful.
Title: Re: FTP.to - Fortress Paper
Post by: Arden on August 15, 2012, 04:02:49 AM
Wanting to know what part of the full price of a T-shirt is raw material, I checked what is the price of a Rayon shirt when bought in bulk, and found this:
http://www.alibaba.com/product-gs/530547013/Customized_Logo_Women_s_Print_T.html
http://www.alibaba.com/product-gs/579326586/rayon_top_blouse_shirt_2012_fashion.html

(the price for cotton shirts is similar and perhaps a little higher:
http://www.alibaba.com/product-gs/475124715/Plain_white_color_printing_cute_logo.html)

Prices in bulk reach below 1$, which means the cost of producing it is even lower. How can it be this cheap? I'm missing some data regarding how much pulp is needed to make a T-shirt, and I know a T-shirt weighs about 150 grams. Furthermore, I need to know how much Pulp is needed to make a ton a Rayon.

I'm really not sure about the missing data, but with rough approximation I find it's pretty significant- about half the price, meaning a doubling in the price will really affect the price of (cheap) clothing.
Title: Re: FTP.to - Fortress Paper
Post by: Arden on August 16, 2012, 03:47:16 AM
My friend from another value investor community found the answer. In the chemical process that is used to produce Rayon, you start with C6H10O5 and some chemicals, and the final product is also C6H10O5, so it may be that the weight of the pulp is just marginally greater than the weight of the rayon produced from it.


If so, and assuming the price of DP is 1050$, then a 150 gram shirt contains 0.1575$ due to the price of the pulp. So even a serious increase in the price of pulp will do little to lower the quantity of product being sold, even in developing countries.

Source: http://web.utk.edu/~mse/Textiles/Rayon%20fibers.htm
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on August 16, 2012, 04:42:12 PM
An article in this week's Economist about De La Rue, and the business of printing banknotes:

http://www.economist.com/node/21560275

Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on August 19, 2012, 07:11:22 PM
Sateri posted H1-2012 results late last week.   They are available at:

http://www.sateri.com/download/news/e20120816-Interim_Results_52.pdf

Sateri is one of the closest publicly listed proxies to FTP that I can find, as it has mix of DP and VSF production.   Some stats as follows:

Market Cap:           ~$790M USD
Revenue:               ~$750M USD (annualized by 2x'ing the results)
EBITDA:                 ~$192M USD                    "
Net Debt:               ~$125M USD (calculated using current assets minus current+longterm liabilities)
BV:                         ~$1680M USD

Ratios (trades on Hong Kong exchange)
  Price/EBITDA            4.16x
  Price/BV                   0.47x     
  Price/Sales             ~1.05x

I don't think they scored the same deals as FTP in securing their assets, so as consequence their book value is higher.   

They currently have more DP production than VSF production, but they are building another VSF plant (at a cost of $500M USD!), and that will likely eat into the amount of rayon grade DP they sell externally (and likely eat into their cashflow as well). Further, while revenues from the two divisions are relatively equal, currently the majority of EBITDA comes from the DP side, especially as significant (~22%) portion of DP production is specialty grades (acetate, etc.).  Average selling prices across all grades sold externally (i.e. not consumed by VSF division) was $1300 for H1 (it was $1900 for H1 2011). 
Title: Re: FTP.to - Fortress Paper
Post by: meiroy on August 23, 2012, 02:07:39 AM

as a BTW on wood pulp:
http://www.newscientist.com/article/mg21528786.100-why-wood-pulp-is-worlds-new-wonder-material.html?DCMP=OTC-rss&nsref=online-news (http://www.newscientist.com/article/mg21528786.100-why-wood-pulp-is-worlds-new-wonder-material.html?DCMP=OTC-rss&nsref=online-news)

"NCC will replace metal and plastic car parts and could make nonorganic plastics obsolete in the not-too-distant future, says Phil Jones, director of new ventures and disruptive technologies at the French mineral processing company IMERYS. "Anyone who makes a car or a plastic bag will want to get in on this," he says.

In addition, the human body can deal with cellulose safely, says Jones, so NCC is less dangerous to process than inorganic composites. "The worst thing that could happen is a paper cut," he says."

...and that would be absolutely amazing. "NCC will replace metal and plastic car parts and could make nonorganic plastics obsolete in the not-too-distant future"
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on August 23, 2012, 08:13:33 AM
Some more market info from CCF ... it looks like VSF/DP market managing, despite apparent headwinds:

a) Lenzing volumes & profit are reasonable ... if take away the 2011 spike in VSF/DP pricing, they actually compare fairly well against prior years.
     http://wood.lesprom.com/news/53248/

b) YOY monthly DP imports to China YOY continue to be strong into July (see attached chart), implying that - at the least - VSF mills are importing lots of lower cost DP while spot price remains below $1200 cost threshold needed to ramp up some of the higher cost domestic mills.

c) VSF pricing has recovered fairly quickly from June/July dip, back up to ~16000 yuan/mt where it was at entering Q2 (see attached chart).  CCF has recently noted that VSF facility utilization is also now back up over 80%.  It appears that the higher price of domestic cotton in China, combined with import quotas reaching limits on cheaper foreign cotton, is squeezing margins of domestic textile manufacturers, and further encouraging the secular adoption of VSF from cotton.

That said, there are lots of variables at play in the macro world, including mixed messages on prognostications for cotton.  But it is encouraging as reinforcing general FTP strategy.    Now we just need Thurso to string a month or two of running at 90% or so. From trader's perspective, it looks like the last week or so has had most on the sidelines (or at the beach) ... most recent 5-day volume average traded on TMX is at a two year low.



Title: Re: FTP.to - Fortress Paper
Post by: Liberty on August 23, 2012, 08:49:30 AM
Thanks for the info, triedtestedand.
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on August 28, 2012, 09:23:26 PM
Hey all:

Does anyone have detailed access to DP spot prices?   I can get sense via overview updates I've googled from likes of (ccfgroup.com; yarnsandfibers.com; emergingtextiles.com), but was wondering if anyone knew of other sources out there.   In any event, from each, it looks likes DP pricing is starting to follow VSF in bouncing off bottoms.

a) Aug 27th update from Yarns and Fibers alludes to recent quotes up to $1080/mt, and deals rising above $1000/mt lows to $1030.

   http://www.yarnsandfibers.com/preferredsupplier/news_fullstory.php?id=35203

b) CCFgroup.com alluded to similar yesterday (but don't have subscription to see details)

   http://www.ccfgroup.com/newscenter/newsview.php?Class_ID=500000&Info_ID=20120828027


This is happening even as NBSK prices head further south ... Resolute has apparently announced another $20/mt drop, to $830/mt for September.  Offsetting that (and presumably good for FTP as well) is that wood chip prices are falling as lumber business recovers and sawmills spring back into action:
 
   http://www.troymedia.com/2012/08/04/wood-chip-prices-fell-throughout-the-us-and-canada-in-the-2q12/
Title: Re: FTP.to - Fortress Paper
Post by: lessthaniv on August 29, 2012, 08:11:03 AM
A couple of new blog posts on the history of LSQ:

http://specialtycellulose.com/learning-mill-lebelsurquvillon-2.htm

http://specialtycellulose.com/history-lebelsurquvillon.htm

Title: Re: FTP.to - Fortress Paper
Post by: OptsyEagle on August 30, 2012, 05:32:38 AM
Hey all:

Does anyone have detailed access to DP spot prices?   I can get sense via overview updates I've googled from likes of (ccfgroup.com; yarnsandfibers.com; emergingtextiles.com), but was wondering if anyone knew of other sources out there.   In any event, from each, it looks likes DP pricing is starting to follow VSF in bouncing off bottoms.


The problem with dissolving pulp spot prices is that DP only trades perhaps once or twice per week.  It is too illiquid to get good pricing information.  That is why the idea that our customers would walk away from their long term contracts is pretty foolish.  If they had to rely on the spot market they would starve for product way too often and their factories would be shut down many days of the week.  Almost all DP is sold from long term contracts so the pricing of new long term contracts is really the metric for DP prices at any given time.
Title: Re: FTP.to - Fortress Paper
Post by: sculpin on August 30, 2012, 06:44:34 AM
From Raymond James this morning...

Fortress Paper August 30, 2012
FTP-TSX Company Comment

Daryl Swetlishoff CFA | 604.659.8246 | daryl.swetlishoff@raymondjames.ca
David Quezada CFA (Associate) | 604.659.8257 | david.quezada@raymondjames.ca
Forest Products | Pulp & Paper

Encouraging Developments in Chinese Rayon Markets

Event
Over the summer, inventories of Viscose Staple Fibre (“VSF” or “Rayon”), the
primary end market for Dissolving Pulp (“DP”) are down and prices are up. We
are encouraged by this trend seeing the potential further DP price hikes.
Recommendation
We regard Fortress’ valuation as inexpensive and expect the stock to react
positively to emerging positive commodity price trends and progress with the
Thurso dissolving pulp mill project.
Analysis
DP prices now trending up after bottoming at ~US$1,000/mt – According to
data from Chinese fibre consultants, CCF Group, DP price quotes are currently
in the US$1,050/mt range, up from recent lows of US$995 in July (see Exhibit 1)
in line with our US$1,050 2H12 assumption and our 2013 US$1,080 forecast.
We highlight that this runs counter to continuing weak textile markets (the
Bloomberg Asia Pacific Textiles Index is off 18% since Apr-12 and still trending
down). We regard this as evidence of a DP price floor at ~US$1,000 – supported
by high cash cost Chinese producers (in the $1,150-$1,250/mt range).
Substitution effects benefiting rayon – We note that while typically trading at
a $500-700/mt discount, relative Chinese cotton pricing has increased – now
trading at a $500/mt premium to rayon. As rayon and cotton are substitutes,
we expect this price differential has resulted in increased rayon demand (at the
expense of cotton) despite continuing weakness in the overall Asian textile
market. Chinese VSF inventories are reported at just 11 days supply (down
from 29 in Jun-12) which has spurred an 8% recovery in rayon pricing, now at
RMB15,700/mt (see Exhibit 2). In response, rayon producers have ramped up
production and are now running at 85% of capacity up from just 55% in July.
We expect this has prompted increased demand for DP feedstock contributing
to tighter markets and DP price increases. We highlight that current dry
weather conditions have resulted in spikes in food crop pricing (e.g., corn).
Should these trends continue, this could incent farmers to allocate less land to
cotton – potentially increasing demand for rayon (and DP) longer term.
Valuation
Our $40.00/share target price represents a 5.2x weighted average mid-cycle
EV/EBITDA multiple, in-line with the peer group average of pulp and paper
producers in our coverage universe.
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on August 30, 2012, 10:37:53 AM
Thanks Sculpin.
Title: Re: FTP.to - Fortress Paper
Post by: maxthetrade on September 01, 2012, 07:14:13 AM
Plague of Broken Contracts Frays Cotton Market

The market for cotton, one of the world's oldest commodities, has been roiled by rampant breaking of contracts by farmers and textile mills.

Over the past two years, cotton prices nearly tripled before they fell by almost two-thirds, triggering the broken deals. Both cotton growers and the overseas mills that spin cotton into yarn have walked away from previously signed agreements after prices turned against them.

As much as 20% of the hundreds of thousands of contracts written since 2010—valued at as much as $12 billion—have been reneged on or rewritten, estimates Terry Townsend, executive director of the International Cotton Advisory Committee, an association of governments with cotton interests.

"It destroys people's confidence in these markets," says Neal Gillen, former executive vice president of American Cotton Shippers Association. The industry has been shaken, he says, by "the sheer amount of the losses, the audacity of the buyers, their feeling they can just walk away."

Full article: http://online.wsj.com/article/SB10000872396390444772404577589611222756168.html
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on September 07, 2012, 05:02:37 PM
Friday afternoon reading ... latest update:

   http://www.stockhouse.com/News/CanadianReleasesDetail.aspx?n=8609485

Seems like general progress on all fronts, with holes continuing to be plugged. 

At 83% in August, still wanting Thurso to have a super good month for everyone to start nodding heads ... but still reasonable. Actually, if they clawed back the 4 days of production lost to tube failure, they would have been at ~95% of production, which indicates to me that de-bottlenecking is continuing to make progress and they are nearing their targets.

And if I was cynical and thinking they were looking to massage EBITDA, I'm guessing they could have pushed out planned maintenance into October, so view that as solid, especially as efforts look to include measures to ensure they get the cogen going for the new year. 

Note that with annual production rate target of ~200K tons/yr, and daily rate target of 575 tons (which itself is targeted at ~90% of max day rates north of 600 tons), this implies an estimate of ~2 weeks/year of various and sundry maintenance/downtime (200,000/575 =  348 days = ~50 weeks), so that's worth remembering.   And heck, if they continue to now run smoothly until the shutdown (i.e. at closer to max daily rates), even with the shutdown September could actually be a mid-to-high 80%'s month ... at worst though they set the tone nicely going into Q4.

And finally, while they probably need to check hemoglobin levels, it looks like they've been able to start applying the tourniquet at Landqart ... I think everyone was starting to get weary of the words "challenging month/quarter".
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on September 07, 2012, 11:48:49 PM
Nice to see things moving in the right direction overall. Not too much to comment about, except that the plan for me at this point is just to be patient and wait for Thurso + cogen and then LSQ to be producing at full capacity. If they can execute and get to that point, I believe shareholders will do really well. If they can get Landquart in the green, even better. Wouldn't be surprised if they acquired another plant once they can self-finance a new conversion from cashflow (if good candidates are still available at the right conditions, of course), and we'll probably see some move over to specialty certification and maybe even some biorefinery stuff as soon as things are stable, which should boost margins..

Gotta say that Dresden's a real gem.
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on September 12, 2012, 12:31:31 PM
http://longtermvalue.wordpress.com/2012/07/19/fortress-paper-at-last/

It might be a bit circular to post this here since they mention this board in the writeup.. :)
Title: Re: FTP.to - Fortress Paper
Post by: jeffmori7 on September 12, 2012, 03:18:07 PM
http://longtermvalue.wordpress.com/2012/07/19/fortress-paper-at-last/

It might be a bit circular to post this here since they mention this board in the writeup.. :)

Merci Liberty! Circular or not, it's a great writeup, and the whole blog is really interesting.
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on September 17, 2012, 06:44:34 PM
Here's a couple of interesting graphs cut-n-pasted recently from ccfgroup.com website:

a) DP vs cotton-linter prices over past 18 months

b) VSF price & margin over past 18 months

What would be as useful would be an overlay of the two, along with a graph I once saw (which can't find at the moment) which showed VSF plant operating rates over the same period.

Overall though, it does point out to me that industry-wide VSF margins are fairly skinny, reinforcing an observation from Sateri's H1-2012 results, which highlight that they make better margin on even commodity grade DP than on VSF. (And yet despite all that they've committed another half-a-billion dollars in a VSF plant?)  So the best sustainable spot to be in is definitely a low cost DP producer, especially when VSF prices today in China are way less than domestic cotton prices.  It does make Thurso and LSQ intrinsically of interest to a Chinese VSF producer, no?

That said ... we wait on Thurso continuing to make progress.. 

In the interim though, if I'm Chad I'd look to sell Landqart ... if even to liquidate, get breakeven, and get $40M would simplify the story, and remove risk.  And further, with QE3 money greasing wheels, maybe there is a credit market window of opportunity re-opening where he can find a private equity buyer for Dresden willing to fork out >5x EBITDA ... following latest upgrades Dresden could likely make $11.5M/qrtr, which at that multiple would translate to a $230M pricetag.  Between those two, they would be awash in liquidity and make a fortress of the balance sheet.  Heck ... it's do-able ... Carlyle group just paid >9x EBITDA for DuPont's car paint unit, and I just read about some fancy new "MLP" structures used to package up various income producing assets.

http://online.wsj.com/article/SB10000872396390443720204578000123518794446.html



Title: Re: FTP.to - Fortress Paper
Post by: Liberty on September 17, 2012, 06:56:19 PM
Thanks Triedtestedand!

One thing I'd like to know is how much further they think they can push Dresden. Seems like every year they are increasing capacity and utilization... Are they about to hit a hard ceiling that would require lots of capex to bust through, or are they just getting started?

Either way, I'll admit that a sale for 200M+ would certainly give a whole different feel to the balance sheet and help grease the way for more acquisitions, if that's still what they want to do. The whole company is selling in the secondary market for 203M right now, so it would certainly be interesting to see the market's reaction to that :) If the acquisitions they want to do can't/won't happen (they most certainly don't have tons of targets remaining by now - I'd guess at most half a dozen, with maybe half that really fitting all the criteria they want), they could easily do big buybacks with that dough.

About Landquart, I still have to defer to their judgement. They seem unemotional enough about assets and good enough capital allocators that if they thought the best thing to do with it right now was to close it or sell it in a fire sale, they'd do it. So I have to assume that they think they can either turn it around enough to make it pay for itself, or enough to get a better price in a sale later. I know it's not the most satisfying answer, but that's all I have right now, and if I didn't trust them that far, I wouldn't have invested in the first place. But who knows how it'll turn out...
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on September 17, 2012, 07:25:14 PM
Liberty:

With August optimizations, capacity at Dresden goes to 60K tons/yr from 56K tons/yr, at a CAPEX cost of $3.7M.  I think I recall hearing that they might be able to squeeze out a similar incremental optimization next year ... enough to grow with the market and maintain >50% market share.  But after that,  they'd hit that hard ceiling and need to invest in a whole new line ... and probably then have to wait for the market to grow into the added capacity.  So selling it now would provide some incentive/buffer for a new owner to secure a bit more revenue/margin growth without much cost/risk, and treat it more as a stable income generator.  It's definitely proven itself as a cash generating machine.

As far as Landqart's concerned (ironically being in the business of generating cash, but actually not making any) ...  unless they get flush real soon with a huge set of orders for super-high-margin Durasafe, turning it around still isn't likely to generate the same size EBITDA #'s that they're looking for with the others, and it probably occupies a disproportionate amount of management energy/focus (especially being in high cost jurisdiction, and being a niche player), so as such I think they'd be in better hands with an actual printer who doesn't have a paper supplier (or who needs more such capacity).  They've run out the string on this one IMHO, and could use the cash elsewhere (if even in my own shareholder pocket).
Title: Re: FTP.to - Fortress Paper
Post by: sculpin on September 19, 2012, 11:11:23 AM
CIBC was out with a 100+ page report initiating coverage yesterday with a $27 target price. Tried to post but was too large of a file to download.

Found this snippet from the report interesting from a valuation standpoint in capturing the worth of the 2 cogen plants at Thurso & LSQ:

Green Energy Will Be A Meaningful EBITDA
Stabilizer For The Dissolving Pulp Mills

We expect each of the pulp mills that Fortress is converting to dissolving pulp
operations will benefit from meaningful green energy contracts with Hydro
Quebec. These revenue streams will serve to provide a stable level of cash flow
and substantially improve the competitive cost position of each of these mills.
The Thurso green energy agreement is already in place and provides for the sale
of 18.8 MW of power per hour, or approximately 152 GWh per annum at a rate
of approximately $118 per MWh, or approximately $18 million per annum. This
equates to a cost offset for Thurso dissolving pulp of approximately $90 per
tonne at full operating capacity.
The LSQ energy purchase agreement with Hydro Quebec is under negotiation
and we expect the company to finalize the agreement by the end of Q3/2012.
We expect the purchase rate of power will be in the range of $108 per MWh, and
will be for about 50% greater volume of electricity per annum than Thurso.
Based on an analysis of steam generation, Fortress believes the LSQ energy
island can be operated at a rate close to 34 MW per hour and the energy
contract will reflect a volume purchase rate of approximately 230 GWh per
annum. We expect the annual purchase of green energy by Hydro Quebec from
the LSQ mill to be in the range of $24 million per annum and the contract to be
a 25-year term compared to the 15-year term at Thurso. This equates to a cost
offset for LSQ dissolving pulp of approximately $96 per tonne at full operating
capacity.
Combined, these two green energy contracts will provide some $42 million of
stabilized cash flow per annum to Fortress’s dissolving pulp operations . If we
apply a utility type multiple of 8x EBITDA, this green energy cash flow would be
worth $336 million and represent value equivalent to approximately 75% of the
total capital that Fortress is spending on the Thurso and LSQ conversions.
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on September 19, 2012, 01:40:56 PM
There are some good nuggets in the report.  I'm aligned with their thinking r.e. strategic options (esp wrt divesting of Landqart soonest - which they repeat multiple times during the report, putting a base value of $25M against it; and also possibly Dresden - if they can get good price, which they target at 6x EBITDA, or >~$220M) which have cut-n-pasted below:

Strategic Alternatives

Focus Is On Execution In Dissolving Pulp
Fortress’s strategic priority for the better part of the next two years is first and foremost its dissolving pulp business, and: (1) the successful ramp of the Thurso mill to meeting its production target of 200,000 tonnes per annum while also meeting the stringent product quality requirements of the viscose dissolving pulp business; and (2) the successful conversion of the LSQ mill with an on-time, on- budget conversion that sees that mill producing dissolving pulp by Q3/2014.

Decision On Landqart Mill
The company’s other strategic priority is to effectively deal with the Landqart security paper mill. We see little hope for a strong operational future for this mill under Fortress management and would applaud a plan that leads to a disposition of this asset within the next year.

Strategic Options In The Wallpaper Base Business
Fortress will also be considering the best path forward for the wallpaper base business. While a niche business, this continues to be a growing market and the market demand is expected to grow from 110,000 tonnes in 2011 to approximately 175,000 tonnes in 2015.  Thus, Fortress can either decide to remain in this niche business and look for intelligent ways to add further capacity, or it could decide to sell the business if a full value offer were presented. The capital realized on exiting this business could be applied to debt reduction and/or further growth opportunities in the dissolving pulp sector.

Other Growth Possibilities
Fortress continues to consider business arrangements that will augment growth and create shareholder value.
Integration In Some Form With Viscose Staple Fiber Manufacturers  One area that may be worth consideration is further integration with viscose staple fiber manufacturers (VSFM) in China. The dominant players in the global viscose staple fiber business like Aditya Birla, Lenzing and Sateri are vertically integrated to a certain degree with captive viscose dissolving pulp supply. There are many growing Chinese VSFMs that are looking at ways they can achieve vertical integration as well. Fortress may be able to play a role in assisting a VSFM in this regard. Possible transactions could range from investment by a VSFM directly in Fortress, or combining VSF manufacturing capacity with Fortress’s viscose dissolving pulp capacity, or combining a Chinese viscose dissolving pulp operation with Fortress’s operations. The point we are looking to make is that Fortress, as it successfully converts and ramps up its dissolving pulp production, will have strategic assets that will be recognized for their inherent value.

Expanding The Bio-refinery Concept
The other area that Fortress will be looking to derive more value from is the dissolving pulp process byproducts that today have no material value and are burned in the recovery boiler. These products are hemi-cellulose and lignin.
Hemi-cellulose is composed of carbohydrates based on pentose sugars (such as xylose) and hexose sugars (such as glucose and mannose). Opportunities to use this by-product include: (1) the manufacture of furfural (can be used as a feedstock for furfuryl alcohol, which is used in the production of resins or in the production of furan, which in turn is used to manufacture pharmaceuticals, chemicals or stabilizers; (2) the manufacture of xylose or xylitol, which is used in food and confectioneries (such as mouthwash or toothpaste); or (3) the production of ethanol through fermentation.
Lignin can be used in the manufacture of both biofuels and biomaterials (possibilities include thermo-plastics, adhesives and resins, and carbon fibers). Companies such as Vancouver-based Lignol (LEC-V) are pursuing these opportunities.
While it is early days for the application of these technologies, they do represent avenues of incremental value that will most probably be realized in the next three to five years. The other benefit of finding uses for these by-products is that often dissolving pulp mill production is limited by the lignin and hemi- cellulose loadings on the recovery boiler, and if applications can be found for some of this material, it would permit a greater volume of dissolving pulp production. For example, at the Thurso mill, if Fortress had a use for the hemi- cellulose produced in the cooking plant, it could increase dissolving pulp production by approximately 125 tonnes per day or 44,000 tonnes per annum with only limited additional capital investment.

Moving Up The Specialty Cellulose Value Chain
The other value-enhancing initiative that Fortress may consider in the medium term is moving some production into the higher-alpha specialty dissolving pulps, which are used in the production of products such as acetate tow or cellulose ethers or microcrystalline cellulose or nitro cellulose. While this is a smaller market than viscose dissolving pulp, it is also a much less volatile market from a pricing perspective, and a higher-margin market. Specialty dissolving pulps are currently selling for between US$1,200 and US$1,800 per tonne (nitrates around US$1,200 per tonne, ethers and MCC around US$1,400 per tonne and acetates between US$1,600 and US$1,800 per tonne) while viscose dissolving pulp is selling for US$1,050 per tonne. While specialty dissolving pulps are more expensive to manufacture, the cost increment is nowhere near the up to US$750 per tonne pricing differential that exists today.  The black spruce softwood fiber that the LSQ mill will have access to would make a high-quality, high-alpha pulp, and we estimate Fortress could produce up to 150,000 tonnes of specialty dissolving pulps between the Thurso and LSQ mills. However, we also believe that the management team at Fortress fully understands that over the next two years, its job is to successfully convert and ramp up the Thurso and LSQ mills as viscose dissolving mills. Any move into specialty dissolving pulps would be in the medium-term horizon.
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on September 19, 2012, 02:19:59 PM
Quote
The other benefit of finding uses for these by-products is that often dissolving pulp mill production is limited by the lignin and hemi- cellulose loadings on the recovery boiler, and if applications can be found for some of this material, it would permit a greater volume of dissolving pulp production. For example, at the Thurso mill, if Fortress had a use for the hemi- cellulose produced in the cooking plant, it could increase dissolving pulp production by approximately 125 tonnes per day or 44,000 tonnes per annum with only limited additional capital investment.

This just blew my mind. I had never thought of it this way, and I don't remember hearing the company ever mention it  quite like that (yes, biorefinering would get more value out of the feedstock, but I didn't know it could also increase DP production). This would improve the overall economics of the project significantly.

Anyone can confirm that this is actually how things would happen? I'm not sure I quite understand how lignin and hemi-cellulose could bottleneck DP production... Can anyone shed some light on how exactly this process works?

In any case, very interesting stuff.

Update: I've been in touch with FTP and they asked one of their DP experts for his views on this. Am just waiting for the email.. They seemed to be saying that we shouldn't expect something quite as dramatic as CIBC is saying, but there might be some mileage there anyway. I'll update you guys when I have the email.
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on September 20, 2012, 10:03:12 AM
Here's what one of FTP's DP experts had to say (via Chris Holland, who did a great job getting this info to me in less than a day):

Quote
“CIBC’s analysis is correct although 44,000 mt of additional capacity is theoretically correct but in practice it would be somewhat lower.   When switching from paper pulps to dissolving pulps we have to remove the hemi-cellulose component of the wood. This hemi-cellulose is combined with the lignin component and then burned in the recovery boiler to generate steam for the process and to produce electricity.  The added hemi-cellulose overloads the recovery boiler which quickly becomes a bottleneck.   To de-bottleneck a recovery boiler is very expensive and therefore any opportunity to offload hemi or lignin can allow incremental production of dissolving pulp as typically most other process areas are not a bottleneck.”

I like that he only thinks it would be "somewhat" lower than the 44k/mt. Even if it's just half (22k/mt), that would make a big difference in cost per ton since the higher volume would be spread over similar fixed costs. And that doesn't even include the biorefinering's added value.

Of course, going into biorefining probably isn't simple and must take a while, so this isn't a short-term catalyst. But it's good to know that there's this long runway ahead and that there are known ways to squeeze more cashflow out of these assets.
Title: Re: FTP.to - Fortress Paper
Post by: FrankArabia on September 20, 2012, 10:48:25 AM
this sounds like a huge cigar butt.

all this technical talk is only masking the real problems underneath the company.
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on September 20, 2012, 11:10:06 AM
this sounds like a huge cigar butt.

all this technical talk is only masking the real problems underneath the company.

Please elaborate.
Title: Re: FTP.to - Fortress Paper
Post by: FFHWatcher on September 20, 2012, 11:28:00 AM
this sounds like a huge cigar butt.

all this technical talk is only masking the real problems underneath the company.

Cigar butt investing involves company's with "one puff of smoke left".  FTP's largest assets with the Specialty Cellulose business, in one case, haven't even started to produce anything.  The other very large asset there has just started production this year.  As for the banknote and security papers printing business, perhaps if paper currency eventually gets replaced by electronic currency, I could agree with what you are saying.  But for the most part, I have no idea what you are talking about. 

Perhaps you are using the 'cigar butt' term with reference to the stock price?
Title: Re: FTP.to - Fortress Paper
Post by: FrankArabia on September 20, 2012, 11:40:31 AM
I suppose this is not even a cigar butt than as their operations are barely off the ground really.

Just sounds like this company has "potential". Not sure why some value guys are all over this. The analyst I work work with who covers this stock don't think its worth anything more than $18.
Title: Re: FTP.to - Fortress Paper
Post by: jeffmori7 on September 20, 2012, 11:43:06 AM
Just sounds like this company has "potential". Not sure why some value guys are all over this. The analyst I work work with who covers this stock don't think its worth anything more than $18.

The Dresden mill alone is worth more than the actua marketcap!
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on September 20, 2012, 11:44:37 AM
I suppose this is not even a cigar butt than as their operations are barely off the ground really.

Just sounds like this company has "potential". Not sure why some value guys are all over this. The analyst I work work with who covers this stock don't think its worth anything more than $18.

Ok, so basically you haven't really taken an in-depth look at it and it's not your style. That's fine.
Title: Re: FTP.to - Fortress Paper
Post by: FrankArabia on September 20, 2012, 11:57:21 AM
The Dresden Mill is worth more than the market cap? how do you get to that valuation and how much cash does that mill throw off each year?

This is from ABC Funds:

"The Dresden Mill is located in the town of Heidenau, 12 kilometres south of Dresden on the Elbe River. The mill has total capacity of 36,000 tonnes and a 12,000 tonne machine costs approximately EUR 30 million. Therefore the total replacement value of three 12,000 tonne machines is EUR 90 million or CAD $125 million. Additionally, the Dresden complex includes land, a hydroelectric plant and a water treatment facility, which were appraised at CAD $50 to CAD $100 million combined."

Title: Re: FTP.to - Fortress Paper
Post by: Liberty on September 20, 2012, 12:07:26 PM
The Dresden Mill is worth more than the market cap? how do you get to that valuation and how much cash does that mill throw off each year?

This is from ABC Funds:

"The Dresden Mill is located in the town of Heidenau, 12 kilometres south of Dresden on the Elbe River. The mill has total capacity of 36,000 tonnes and a 12,000 tonne machine costs approximately EUR 30 million. Therefore the total replacement value of three 12,000 tonne machines is EUR 90 million or CAD $125 million. Additionally, the Dresden complex includes land, a hydroelectric plant and a water treatment facility, which were appraised at CAD $50 to CAD $100 million combined."

Your info is very old. Dresden now produces 56,000 tonnes per year, has around 50% of world production market share (and growing) in its niche, and lower costs than its competitors (they coat the paper online, which nobody else does, etc), and it throws off close to 40m EBIDTA per year, so even at a 5X price it would be around 200m.
Title: Re: FTP.to - Fortress Paper
Post by: FrankArabia on September 20, 2012, 12:19:15 PM
so why is company barely making any money? their EBITDA LTM is roughly negative 2 million?

i sense they got a bunch of hidden assets (both good and bad).
Title: Re: FTP.to - Fortress Paper
Post by: jeffmori7 on September 20, 2012, 12:22:56 PM
FrankArabia, could you just start by looking at the financial results of the company more in depth?

Ah, and if you read this entire thread, you will get a lot of answer also! Then feel free to ask your questions!
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on September 20, 2012, 12:33:46 PM
so why is company barely making any money? their EBITDA LTM is roughly negative 2 million?

i sense they got a bunch of hidden assets (both good and bad).

If you really want to know, all the info is in this thread and the company's financials.

It's definitely not an investment that will fit everybody's style, but in my opinion, it's a great asymmetric opportunity.
Title: Re: FTP.to - Fortress Paper
Post by: FrankArabia on September 20, 2012, 12:36:13 PM
sorry for the questions. i did look at the financials and figured it out. easy pass for me.
Title: Re: FTP.to - Fortress Paper
Post by: kevin4u2 on September 20, 2012, 04:06:12 PM
sorry for the questions. i did look at the financials and figured it out. easy pass for me.

Frank, I too took a look at this one and decided to pass.  I just don't see the value in the financials either.  I have followed the discussion here from the start but most of the reasoning behind this one is the "faith" in the CEO.
Title: Re: FTP.to - Fortress Paper
Post by: FrankArabia on September 21, 2012, 09:14:24 AM
Kevin...i agree.

i think value investors cling on to this story because it sounds smart. i like to see profitability and cash. i don't see anything here. not even a dividend. excuses about why the company is operating in the red don't pay the bills. i just want to know who was buying this at over 30.
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on September 21, 2012, 11:06:32 AM
Kevin...i agree.

i think value investors cling on to this story because it sounds smart. i like to see profitability and cash. i don't see anything here. not even a dividend. excuses about why the company is operating in the red don't pay the bills. i just want to know who was buying this at over 30.

I'm buying this for the earning power of the assets, because I think liquidation value is higher than what I'm paying for, protecting the downside, because I think the billions of people in developing countries who can afford a few more clothes will put significant pressure on cotton production which won't keep up because of structural reasons, and because I trust management to add value (they've bought great assets for peanuts in very cleverly structured deals) and be shareholder-friendly (the CEO owns ±20% of the stock).

It's a kind of risk/time arbitrage. I think these assets are worth X when running, but right now they aren't so the market assigns them a very low value. Sure I could wait for these assets to all be cash-flowing optimally to reduce risk, but maybe by then there would be no gap between IV and market price and thus no opportunity.

As someone else said elsewhere:

Quote
To reference Phil Fisher:
When to buy a good stock?

The best time to buy a company’s shares is right before the improvement of its earning power and before its shares price reflects the anticipated earnings improvement.
When the company’s commercial plant for a new processes is about to begin production. Initially, growth drains profit and other resources of the business. The point in the development of a new process that worth considering as buying time is that at which the first full-scale commercial plant is about to begin production. (Extra cost will incur, benefit of the new production has not crept into EPS. But eventually profit will come.)
When the company Introduces new products
When the company faces problems of starting complex plants. Such troubles are temporary rather than permanent

Is it a sure thing? No. Few things are. But I like the risk/reward profile, and we'll see how things turn out in a year or two...
Title: Re: FTP.to - Fortress Paper
Post by: keerthiprasad on September 23, 2012, 07:25:38 AM
I wont get into the details of why i hold shares,  but I was buying above 30 and I tend to agree with Liberty for the most part.  I dont think this is a sure bet, but it is a very assymetric one with the downside being significantly limited at current prices.
Title: Re: FTP.to - Fortress Paper
Post by: triedtestedand on September 26, 2012, 06:17:09 PM
Looks like an updated company presentation (dated Sept 20th)  was posted yesterday:

http://fortresspaper.com/images/pdfs/investor_relations/Fortress%20Paper%20Powerpoint%20Sept%2020%202012%20Black.pdf

Key picture is on page 12 ... which shows ramp-up of Thurso production rates until end-of-August.  Compared to similar graph from the previous presentation from early July (which displayed ramp-up until Jun11th, when they first hit a 7-day moving average >90%) ... the trend is encouraging (despite downtime), as continues to generally move upward, including a week-to-two-week stretch in August where they actually got pretty close to 100% of target.  They also state on p10 that the cost structure is coming into line with projections.

Not much else different between the presentations from what I recall.  For Thurso, it looks like they took out a slide which showed a bunch of DP attributes (viscosity, ash, etc.) and how they were rating ... but they also added in a slide for Landqart showing how the Swiss are enforcing their exchange rate with the Euro.

Now they just need to sell Landqart (for whatever they canget) and Dresden too? (if they can get a good price)
 
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on September 26, 2012, 06:52:22 PM
Now they just need to sell Landqart (for whatever they canget) and Dresden too? (if they can get a good price)

Selling Landquart would definitely be a good move. If they know it can at least break even or make a little bit of money soon, it can make sense to wait until then to shop it around, but just the freed up management time and energy from getting rid of it would probably be worth it. I used to be more on the fence about it - figuring that if they're keeping it there's a reason - but as time goes on I'm starting to lean more heavily on the "sell it soon" side.

For Dresden, I think it's a good deal either way (a sale for 200m+ or keeping it operating close to 40m EBIDTA/y), and it seems to take very little of management's time since it runs so trouble-free.
Title: Re: FTP.to - Fortress Paper
Post by: OptsyEagle on September 27, 2012, 06:28:28 AM
Can anyone explain to me what the supply/demand info on slide 16 is saying.  I have seen this many times but fail to understand what it means or how to read it.
Title: Re: FTP.to - Fortress Paper
Post by: FrankArabia on September 27, 2012, 08:39:39 AM
this is the only investor presentation for investors i have ever seen that didn't have financial performance included
Title: Re: FTP.to - Fortress Paper
Post by: gokou3 on September 27, 2012, 10:43:44 AM
Can anyone explain to me what the supply/demand info on slide 16 is saying.  I have seen this many times but fail to understand what it means or how to read it.
The bottom areas show the cumulative supply of various suppliers over time (left axis, in kiloton).  The blue line on the top shows the overall utilizations of the total supply (right-axis).  The red dotted line shows the theoretical utilizations without the chinese suppliers.  As you can see, without the high-cost chinese suppliers, util> 100% meaning there is not enough supply to meet the demand.  Since commodities are priced at the margin, the slide shows that the equilibrium DP price should be higher than the marginal supplier cost, which are the chinese at cash cost of >$1k/ton, to meet the marginal demand.
Title: Re: FTP.to - Fortress Paper
Post by: OptsyEagle on September 27, 2012, 11:09:01 AM
Thank you for that, however, I am still a little confused at what part of this is the demand.  I see the supply of all the producers and then I see utilization percentages, which I am guessing is the % of their capacity (perhaps I am wrong), but where on this chart is the demand.  Or is the utilization the demand?  This is where I am confused.
Title: Re: FTP.to - Fortress Paper
Post by: gokou3 on September 27, 2012, 12:28:17 PM
Thank you for that, however, I am still a little confused at what part of this is the demand.  I see the supply of all the producers and then I see utilization percentages, which I am guessing is the % of their capacity (perhaps I am wrong), but where on this chart is the demand.  Or is the utilization the demand?  This is where I am confused.

Demand is not shown explicitly on the chart but you can infer it by using demand = supply capacity * util

Util = industry utilization.
Title: Re: FTP.to - Fortress Paper
Post by: FrankArabia on September 27, 2012, 01:37:26 PM
inferring demand = supply*capacity is a recipe for disaster...just cause you build it doesn't mean they'll come.
Title: Re: FTP.to - Fortress Paper
Post by: gokou3 on September 27, 2012, 02:38:03 PM
inferring demand = supply*capacity is a recipe for disaster...just cause you build it doesn't mean they'll come.

You took it out of context
Title: Re: FTP.to - Fortress Paper
Post by: tombgrt on September 27, 2012, 09:20:59 PM
inferring demand = supply*capacity is a recipe for disaster...just cause you build it doesn't mean they'll come.

Not quite what he meant... It seems that you assume and speculate plenty yourself btw. From the Jim Chanos / DELL topic:

businesses will continue buying PCs and INTC and PC makers will see a lift in demand when businesses eventually do an IT refresh....imagine doing financial modelling on a tablet? that's like eating with your feet.

or INTC topic:

your thoughts on this?

I got in at $24.75 and $24.00.

I think we're in for some pain in the near term but overtime they should gain momentum on the mobile side as the PC side takes off from IT refresh.

Can you put some numbers behind the claim that an IT refresh is due? Don't tell it's just because of Win 8 coming out? It's possible but hardly certain. Even if the IT refresh occurs in force in the next couple of years, how sure are you that INTC and current PC makers will be the one having the demanded technology? Maybe the shift has (partly) taken place to other devices. Too many variables... And will INTC gain momentum on the mobile side or are you just guessing that? Actually I know for a fact that you are at least partially guessing. But no judgement, I have made the same mistake in the past. ;) Just trying to making a point here because... :

In the same way, people here have a thesis on future demand for DP and other alternatives because cotton (and food) prices will experience increased pressure because of loss of acreage, increase in demand because of population growth (and wealth!), environmental issues, ... Grantham and others support this theory and it's unlikely that enough alternatives will be found to avoid future crises. Yet, it's hardly a given.

The fact is that there is always some speculation involved in such theories. You can't be sure. The trick is to get that speculative aspect for free when buying a stock. For FTP that seems to be the fact lately, at least to some.

In the end, a lot depends on trust in management when you are looking at companies with major acquisitions in the works. And in that regard, I have a lot more trust in Chad that in Michael Dell. Not saying Dell isn't a bargain, it's damn cheap!

You called Mega Brands a cigarette butt as well. Maybe it is, maybe not. LUK's investment in JEF seemed odd as well to you considering it is only 'second tier'. You seem to have a natural tendency to run away from any possible deficiency. Just an observation, no judgement. Most value investors like dirty work where it looks like the shitstorm won't end.  That's is where you get the best bargains. I have been buying FTP again lately, we'll see whether it's toast in a couple of years.
Title: Re: FTP.to - Fortress Paper
Post by: FrankArabia on September 28, 2012, 04:44:58 AM
we should move the discussion of INTC to INTC thread. I think your points have been addressed by myself and other posters there. INTC is a bit different in at least one basic sense, it has a decent dividend that has gone up over time by quite a bit.

on FTP, just take a look at the numbers. take a look at the industry. the company is not yet profitable and in fact has been bleeding cash and raising money. what type of cash you expect them to rein in when it does? what ROE figures you think are coming in? do you have a company/peer that is performing at levels you're expecting FTP to perform at.

 If i had to take something in the sector, i think I would go with Domtar for now.

Title: Re: FTP.to - Fortress Paper
Post by: jeffmori7 on September 28, 2012, 05:29:49 AM
Thanks Tom for your post!

Frank, I won't go into this debate again, the investment thesis has been exposed here, if you don't agree, fine. But the questions you keep asking have all been adressed in this thread, so...anyway, let's watch and see!
Title: Re: FTP.to - Fortress Paper
Post by: tombgrt on September 28, 2012, 11:20:11 PM
we should move the discussion of INTC to INTC thread. I think your points have been addressed by myself and other posters there. INTC is a bit different in at least one basic sense, it has a decent dividend that has gone up over time by quite a bit.

on FTP, just take a look at the numbers. take a look at the industry. the company is not yet profitable and in fact has been bleeding cash and raising money. what type of cash you expect them to rein in when it does? what ROE figures you think are coming in? do you have a company/peer that is performing at levels you're expecting FTP to perform at.

 If i had to take something in the sector, i think I would go with Domtar for now.



I have been up for more than a full day so I'll keep this brief.

As Jeffmori7 said, it's all in this topic and it's not so hard to make some estimates and raw calculations. 2 of their 4 divisions are works on progress, another one was shut down for several months. What exactly do you think you are going to find in the current financial statements that is going to give you a complete and correct view? If more investors were like you, shunning away from anything that isn't profitable at this very moment, there would be some insane opportunities in the market all year long.  :P

Anyway, here is a new article on Chad and FTP, maybe it helps: http://www.vancouversun.com/business/industry/Fortress+Paper+creates+value+from+Canada+pulp+mills/7316897/story.html

Quote
In a Sept. 10 note to clients, Quinn said he has faith in the management team but is “frustrated that they over-promise and under-deliver.”

+1. But except the higher producing costs, cost overruns have little impact over the long turn. At least we get a 50%+ share price discount because of it. I do hope Chad learned his lesson on over-promising, no matter who made the original fault. In the end, he is responsible.

Quote
In 2006, Fortress made its first acquisitions, an orphaned wallpaper mill in Dresden, Germany, and banknote printing business in Landqart, Switzerland. The wallpaper mill, which former owner Mercer International was selling because it wasn’t a core asset, has been a cash cow. The Swiss banknote mill has been less so. Costs in the banknote business have been hit by the escalating Swiss currency, and a key order was delayed earlier this year, causing the plant to shut down temporarily. The order has been reinstated and the mill went into production in July. It is expected to be in positive territory in 2013, Wasilenkoff said.

Bold statement... We'll see. I actually believe that Landqart could be worth something over time (no silly $15-30m). It's a very interesting niche business with high barriers to entry. I disagree that they should sell it asap just to relieve management from it. If they get it to break-even, why would you want a few bucks after they just spend tens of millions on an upgrade? 
I'm actually more worried about Dresden. How long will they be able to attain current margins? What are competitors doing and how fast can they breach the little moat Dresden has?
Title: Re: FTP.to - Fortress Paper
Post by: Liberty on October 01, 2012, 06:50:38 AM
http://www.marketwatch.com/story/fortress-paper-announces-electricity-supply-agreement-with-hydro-quebec-2012-10-01-8173350

Quote
Fortress Paper Ltd. ("Fortress Paper" or the "Corporation")  announced today that it has signed, through its wholly-owned subsidiary, Fortress Global Cellulose Ltd. ("Fortress Global"), an electricity supply agreement with Hydro Quebec for the sale of green electricity to be produced at the Fortress Global Cellulose Mill's cogeneration facility upon its re-start. The agreement was entered into in connection with Hydro-Quebec Distribution's Power Purchase Program for electricity derived from forest biomass, which was launched on December 20, 2011.

Under the terms of the agreement, Fortress Global will provide up to 34 megawatts of green power to Hydro Quebec commencing no later than June 1, 2014, at a price of $106 per megawatt hour, indexed to the consumer price index over a 25 year term.

Chadwick Wasilenkoff, CEO of Fortress Paper, states, "The signing of the electricity supply agreement represents a key component in achieving our business plan at the Fortress Global Cellulose Mill, which includes the restart of the cogeneration facility to produce green electricity that in turn will reduce production costs. Generating green energy exemplifies our commitment to sustainable development and we believe that the results of this partnership with Hydro Quebec will be beneficial to the environment and the community, as well as to Fortress Paper."
Title: Re: FTP.to - Fortress Paper
Post by: FrankArabia on October 01, 2012, 07:08:19 AM
Tom, I think you should recognized that there is a bit of a "hope" here that FTP does what it sets out to do....just recognize that.

How much of your net worth do you have in this thing? For me, if i can't put 20% of my net worth into it (not saying I would in all cases) you shouldn't bother.
Title: Re: FTP.to - Fortress Paper
Post by: tombgrt on October 01, 2012, 08:35:01 AM
Of course there is hope that management does what it says it will. Isn't there hope in the same way in many technology companies facing problems, like Dell? FTP has one business that does great, another that has potential imo over the longer term and one division with two major assets (DP) that require a leap of faith and a certain macro view. I think it's all more than priced in and have over half my net worth into this. I could be wrong but I'm 23 and should turn out oke even if I lose everything. My current net worth is insignificant compared to my lifelong earnings.
Title: Re: FTP.to - Fortress Paper
Post by: keerthiprasad on October 01, 2012, 05:24:42 PM
Tom, I think you should recognized that there is a bit of a "hope" here that FTP does what it sets out to do....just recognize that.

How much of your net worth do you have in this thing? For me, if i can't put 20% of my net worth into it (not saying I would in all cases) you shouldn't bother.

I understand why that there is some element of speculation in this company, however it