Posts Tagged ‘Chadwick Wasilenkoff’

GLOBE AND MAIL: “Fortress Paper: Outside the Box, Crazy Like a Fox”

Posted: Wednesday, September 1st, 2010

Deep-value investor Chad Wasilenkoff continues to surprise

The first time Dan Buckle walked into the headquarters of Fortress Paper Ltd., he didn’t know what to make of it.

Located above a McDonald’s in North Vancouver, the dark, small office has no interior walls and features a pool table in lieu of a boardroom table. The first thing to greet visitors is a five-foot-tall wooden statue of Buddha.

“I remember walking in, ‘What the heck is this place?’ ” said Mr. Buckle, first an auditor of the company and now its finance director.

The operation, whose value has more than quadrupled to $360-million in the past year, is the brainchild of 38-year-old Chad Wasilenkoff, a deep-value investor who has made his latest fortune in Canada’s most unloved sector – forestry.

He’s in the midst of pulling off his biggest deal yet – resuscitating a dead pulp mill in Quebec. Scraping through the corners of the global bargain bin, he has a dozen more potential deals on the go, from Canada and China to Russia and South Africa, all in a mission to get his company to $1-billion in market capitalization.

Like other deep-value investors, Mr. Wasilenkoff searches for overlooked assets selling at great discounts. But deep-value investing can be a siren’s call: What looks like a deal can be a disaster.

So far Mr. Wasilenkoff has avoided missteps. When he started Fortress four summers ago, he spotted potential in pulp and paper, an area most investors shunned because of concerns over global overproduction. As a result, assets were available cheap.

“If [anything’s] 98 per cent off, I want two,” said Mr. Wasilenkoff in an interview over wings and beer at East Side Mario’s, a favoured haunt. He acknowledges it takes confidence to operate in areas most investors regard with alarm. “I can’t tell you how many times I’ve been called crazy. The more times I’m told I’m wrong, the more I know I’m right.”

He gets called crazy less often now. Joel Lusman, head of New York hedge fund Lusman Capital Management LLC, first heard of Mr. Wasilenkoff in early 2010. When the Quebec deal was announced, he quickly bought hundreds of thousands of Fortress shares. “This is one of the smartest deals I’ve ever seen,” Mr. Lusman said.

Mr. Wasilenkoff first made his name as a broker at investment bank Canaccord Capital in Vancouver, where he led a group of investors that took over a junior gold miner shortly before the price of gold doubled. He had another hit when he acquired a uranium asset when the price for that commodity languished.

After cashing out of uranium when its price spiked, Mr. Wasilenkoff started Fortress in 2006, putting up about $2-million of an $8-million private offering. His first moves at Fortress were to buy a banknote and security paper mill in Switzerland and a specialty wallpaper mill in Germany, both of which he viewed as poorly run, niche assets available at near fire-sale prices.

Within a year, he took Fortress public in a $46-million offering. But the stock languished – and then was sunk by the market crisis. By spring 2009, the price had fallen by nearly half from its IPO level.

Fortress’s decline was the kind that makes investors question an unconventional manager like Mr. Wasilenkoff, who favours ball caps and blue jeans as his working attire. Irwin Michael, head of a Toronto money manager that owns about 10 per cent of Fortress, fielded calls from his own investors about his stake in the company.

“You hear all these very descriptive four-letter words,” says Mr. Michael, who manages about $900-million at I.A. Michael Investment Counsel Ltd. “But we hung in. We had a lot of faith in Chad. [He’s] a workaholic, very methodical.”

By this past spring, when operating profit had doubled at the two mills, the stock too had doubled. And it was then Mr. Wasilenkoff sealed the Quebec deal. For $1.2-million, he bought a bankrupt pulp mill in Thurso, Que., a small town 50 kilometres northeast of Parliament Hill. The mill had once turned hardwood pulp into photographic paper, a business done in by digital cameras.

He saw another possibility. He has been a long-time believer in the potential of rayon, a fabric which is enjoying growing demand in Asia as a substitute for cotton, whose global production is in decline. Rayon is made from dissolving pulp and Mr. Wasilenkoff plans to make that dissolving pulp in Thurso.

“He’s not interested in the typical commodity game forestry usually falls into,” said analyst Daryl Swetlishoff at Raymond James. “He’s extremely driven, a very aggressive risk-taker, a grinder. Focused on value. And he’s not pretentious at all.”

Mr. Wasilenkoff figured he needed about $150-million to re-tool the mill. So he lined up veteran Quebec forestry executive Pierre Monahan to connect with the Quebec government. They eventually convinced Investissement Québec, an economic development company, to provide a low-interest loan of up to $102-million, allowing Fortress to make its plan work while putting up just $15-million of its own money.

In the five months since doing the deal, Fortress shares have doubled. Mr. Wasilenkoff’s original $2-million investment in Fortress is worth roughly $80-million today. He remains the company’s biggest shareholder.

He’s convinced more gains are ahead, but analysts at TD Newcrest say Fortress’s valuation might be stretched and worry about the pitfalls of trying to grow too quickly. RBC Dominion Securities said this month it is “very impressed” but added the share price now reflects the value Mr. Wasilenkoff has uncovered.

Mr. Wasilenkoff has always had an eye for value. In elementary school, he scooped up lost golf balls at a course near his childhood home in Calgary and resold them, soon buying and selling everything from Atari cartridges to Robert Bateman prints. He made enough to buy a used Porsche 911 for $15,000 in high school – which resulted in him being accused by a vice-principal of dealing drugs.

An investor since youth, Mr. Wasilenkoff initially wanted to get into property development. He ended up as a broker after getting a two-month temporary gig at Canaccord stapling stock receipts.

His early forays blew up, as he chased gold stocks in the Bre-X era, then got hammered by the tech-stock crash. Chastened, he embraced a deep-value philosophy in which he tried to build deals, rather than simply buying stocks.

What’s next is more deals – but Mr. Wasilenkoff , who previously insisted that he would only be at Fortress for a few more years and eventually start again from scratch, now gives some thought to sticking around longer. “There’s no guarantee that I’ll stop,” he said. “I am having a lot of fun.”

By Dave Ebner for The Globe and Mail. August 25, 2010.

The Globe and Mail: “Fortress Paper: Outside the Box, Crazy Like a Fox”

The Ottawa Citizen: “Sniffing Out Hidden Value”

Posted: Wednesday, August 18th, 2010

For contrarian Chad Wasilenkoff, a nose for overlooked potential led him to a pulp mill in Thurso. Bert Hill reports for The Ottawa Citizen.

OTTAWA — From golf courses to art auctions and old mill towns, value can hide in unexpected places.

Just ask Chad Wasilenkoff, the 38-year-old chief executive officer of Fortress Paper Ltd.

When he was a child in Calgary he built a savings account fishing golf balls out of ponds and buying and selling video games, BMX bikes and other popular products he found in want ads.

He learned market timing. He and a friend snapped up Robert Bateman prints for a few hundred dollars each at a deserted auction in the middle of a Calgary snowstorm and sold them for more than $1,000.

That might seem a long jump from Fortress’ latest coup — a mothballed pulp plant in Thurso that, for generations, was the bane of the capital region because of its smelly rotten-egg emissions.

The mill, which stood empty for a year because of the forest industry collapse, is now back in production. The 300 employees are producing hardwood pulp, suddenly profitable because of a strong — but likely temporary — increase in demand in Asia.

Early next year, it will start producing dissolving pulp to feed the developing world’s demand for rayon used in clothing.

Though Thurso has yet to produce the new pulp, Wasilenkoff said he got “multiple overtures” during a recent business trip to China from investors who wanted to buy the whole mill or a minority stake.

He said textile industry customers are lining up to negotiate for the specialized pulp with starting offers he considers surprisingly high.

With all the production likely to be committed soon, he is looking to convert other mills. There are no other suitable mills in the Ottawa area, but “we are searching the planet for more of these opportunities,” he said.

Wasilenkoff said he plans to stay in dissolving pulp, unless an attractive offer comes along.

“We are in this for the long haul. But money talks and at the right price, everything is for sale.”

Fortress shares have quadrupled this year as investors discovered the magic of a tiny profitable player in an industry still covered with red ink. The firm just snapped up $44 million in a new stock offering.

Trading at $28 this week, the company now has a market capitalization approaching $400 million.

Wasilenkoff owns 23 per cent of the Vancouver-based company.

The rapid acceleration of the stock from below $10 in January has some analysts worrying.

TD Newcrest analyst Sean Steuart downgraded the stock to “hold” from “buy” this week, although Fortress beat his sales and profit forecasts for the June quarter.

With the price up 31 per cent in less than a month since he put on the buy recommendation, Steuart took action because of concern that the stock valuation is running ahead of underlying business.

“Management has earned our benefit of the doubt, but there are several major projects on the go right now.

“We would prefer the company deliver on current capital expenditure plans before looking at additional expansion opportunities.”

Wasilenkoff says he is a contrarian. When the investing public is chasing the latest hot stocks and investment ideas, he looks elsewhere.

It was a philosophy he learned the hard way: He read weighty analyst reports during the technology boom and lost heavily when prices collapsed.

It is a philosophy that has allowed him to benefit from buying gold, copper and other assets when prices were deeply depressed. It takes nerve and patience to stay away from the herd.

He also learned never to fall in love with an asset. If his analysis said the prices had passed sustainable levels, as it did with uranium and a stake in Cameco, he sold and the market eventually followed.

Now he has embraced the pulp and paper industry, a business loved today only by bankruptcy lawyers.

Canada is rapidly shedding a world-class industry that for 90 years supported tens of thousands of jobs and billions of dollars in global sales.

Governments, which rushed to bail out the auto industry, are taking a hands-off attitude to the forestry industry, its unemployed workers and underfunded pension funds.

Mills across Ontario and Quebec that would cost billions to replace are selling today for a few million dollars each. An empty Thunder Bay mill recently sold for just $100,000. Production machinery is being sold for scrap or shipped abroad.

“There are a lot of smaller mills that were considered too uncompetitive to survive against the big mills,” Wasilenkoff said.

“But markets have changed. Now there is opportunity and good profit margins in the small mills with the right products and technology.”

He doesn’t see the traditional newsprint, photocopying or related pulp markets recovering soon in North America.

But mills with profitable specialty products have a future.

He tried to buy the former Concert Industries mill in Gatineau, which makes air-laid paper used in diapers and incontinence and feminine hygiene pads. Glatfelter, a small specialty Pennsylvania producer of everything from labels to tea bags, won the asset.

Fortress owns a wallpaper plant in Germany and a bank-note plant in Switzerland, where it is investing to expand production.

Wallpaper must be due for a turnaround because it has been out of fashion so long, particularly in North America.

But in eastern Europe demand continues to grow though assets are depressed.

Fortress bought a mill in Germany that makes dry-strippable paper, a profitable niche.

“We spent less than $5 million but now it is generating $3 million a month in business.”

The latest coup was the former Fraser Pulp kraft mill in Thurso, originally a key part of the old James Maclaren and Noranda empires.

It makes hardwood pulp, a market commodity that has been losing ground steadily to softwood pulp.

The mill closed in June 2009 when Fraser Pulp tumbled into bankruptcy protection, laying off hundreds of employees.

It appeared headed for the scrap heap, like other older mills in Ottawa, Gatineau, Cornwall and Portage du Fort.

Fortress bought the old mill — with buildings, land and machinery worth $45 million — for just $3 million.

It embraced a plan, promoted in the local community,

to generate electricity from biomass for sale to Hydro-Québec.

Fortress will spend $153 million converting the mill to dissolving pulp production. Investissement-Québec is providing a $102.4-million loan, to be combined with

$25 million in federal tax credits and other incentives. When it opens, it will be second-largest of its kind in the world, behind only a plant in Brazil.

Wasilenkoff got a great deal on the enormous digester tubes and other sophisticated equipment needed to make dissolving pulp. They will arrive by barge next month.

Russia shut off exports of pulp logs in a move that stranded a Stora mill in Finland.

Fortress bought the machinery for $3 million, or less than 10 per cent of replacement costs.

The company is also enjoying the luck of a sudden pick up in pulp demand and prices. Global demand has snapped back from the 2008-2009 recession. With production permanently reduced by many permanent closings, prices have jumped 50 per cent in the last year.

When Fortress hired 300 former employees and started production in late May, it caught the new market demand.

Wasilenkoff does not expect the prices to hold because the global industry is only profitable one or two years every decade.

But he believes the prices will hold up until it completes the conversion next year.

With a strong push from the Thurso products, Fortress adjusted profits jumped almost 60 per cent to $4.3 million in the June quarter and sales rose 22 per cent to $60.5 million compared to a year earlier.

The Ottawa Citizen: “Sniffing Out Hidden Value”

Globe and Mail: “Quebec Mill Sees New Life In Rayon Market”

Posted: Friday, August 6th, 2010
fortress accumul 788601gm a 300x237 Globe and Mail: “Quebec Mill Sees New Life In Rayon Market”

The first shipment of industrial equipment, some of which is seen here being taken along a road in Finland, is scheduled to arrive in Thurso, in western Quebec. SOURCE: The Globe And Mail

For the town of Thurso, Que., a shot at economic renewal is literally arriving on massive barges in the Ottawa River.

Next month, the first shipment of bulky industrial equipment from Finland is scheduled to arrive in Thurso, in western Quebec. It will be used to transform the town’s hardwood pulp mill into a facility that makes a key ingredient used in the manufacture of rayon, which is seeing big spikes in demand in Asia and elsewhere.

“We’re looking forward to seeing those barges arrive,” said Thurso Mayor Maurice Boivin.

Vancouver-based Fortress Paper Inc. (FTP-T24.880.532.18%) bought the three digesters and other specialized processing equipment from Finnish company Stora Enso Oyi Cellulose Inc. as part of its bold strategy to convert the Thurso mill from pulp used to make paper – a declining market – to dissolving pulp used to manufacture rayon, a product with a bright future.

The man behind the strategy is Fortress chairman and chief executive officer Chadwick Wasilenkoff, a 38-year-old contrarian investor who seeks out opportunities in overlooked or depressed sectors, like the forest products industry.

“There isn’t enough dissolving pulp to feed the market demand for rayon,” Mr. Wasilenkoff said in an interview.

Rayon is a substitute for cotton (it has similar characteristics but is more breathable and absorbent) and is well-positioned because of the shrinking global supply of cotton as growers switch to less-expensive crops, he said.

“Everything just aligned” to make the conversion of Thurso possible, he said.

Fortress, which also makes banknotes and security papers as well as wallpaper, paid $1.2-million to financially beleaguered Fraser Papers Inc. for the mothballed Thurso mill. It is up and running again, producing hardwood pulp until the conversion to dissolving pulp is completed in about a year.

Fortress is investing $153-million in the transformation of the mill, including the building of a co-generation plant. Investissement Québec is providing a $102.4-million loan, and there is another $25-million or so in federal credits and other financial incentives under the green infrastructure program.

Mr. Wasilenkoff said he just returned from China, where he was overwhelmed by the demand for dissolving pulp from rayon producers.

The Thurso mill, which employs 300 people, is expected to produce 200,000 tonnes a year of dissolving pulp and he anticipates very tidy margins, given that the spot price for the commodity is in the $1,650-a-tonne range and total cost for production and delivery should come in at about $600.

“I like sectors that are out of favour – that are older, more mature – so I can get these kinds of opportunities,” says Mr. Wasilenkoff. In 2006, he bought Swiss-based Landqart AG, a venerable security-paper firm that is the exclusive maker of the Swiss franc and also provides euros to 10 European Union member states.

At the same time, he had been on the alert for a pulp mill in the financially strapped forestry industry, looking for something he could buy cheaply and then convert to take advantage of the booming rayon market.

A bargain-hunter, he said he bought the 12-year-old Finnish equipment for $3.8-million.

BY: Bertrand Marotte for The Globe And Mail. Tuesday, July 27, 2010.

Globe And Mail: “Quebec Mill Sees New Life In Rayon Market”

Fortress Paper CEO Nominated For Ernst & Young Entrepreneur Of The Year

Posted: Friday, July 9th, 2010

Chadwick Wasilenkoff, CEO and Director of Fortress Paper has been nominated by Ernst & Young for Entrepreneur Of The Year 2010.

The firm recognizes high-achieving entrepreneurs who make a difference in the global economy Canada’s most successful entrepreneurs improve the quality of life for people across the globe.

“This year’s exceptional Pacific finalists all share a commitment to innovation, an inherent ability to spot opportunities and the perseverance to keep trying,” says Fred Withers, Director of the Entrepreneur Of The Year Awards for the Pacific region. “They have the ability to help drive the economic rebound and propel growth throughout Canada and beyond.” According to a recent Ernst & Young publication, A world of opportunity: Entrepreneurial perspectives on the impact of globalization, entrepreneurs have been quick to seize opportunities presented by the opening of new markets.

Fortress Paper CEO & Director Chadwick Wasilenkoff did just that when he formed a new company who jumped on an opportunity to transform a near-bankrupt pulp mill in Thurso, Quebec into a specialized pulp mill that will begin making dissolving pulp and targeting the textile industry (dissolving pulp is used to make rayon) by 2011.

In the meantime, however, the mill has continued to make NBHK pulp, and at precisely the right time.

“The NBHK market, which was in a severe downturn, turned up because of factors such as the Chile earthquake and a strike in Sweden,” wrote Tony Wanless in an article for BC Business. “Suddenly, the plant that was closed because of low NBHK prices was turning a profit that will continue during the conversion.

In addition to forming this new company – Fortress Specialty Cellulose – Fortress Paper remains a world leader in specialty and security papers.

The Entrepreneur Of The Year award recognizes high-achieving entrepreneurs in Canada and around the world who drive growth, transform industries and build communities.

The names of the Pacific winners will be announced at a gala banquet in Vancouver on September 28, and the overall winner will represent the region at the national banquet in Toronto on November 17.

Ernst & Young celebrates Pacific finalists for Entrepreneur Of The Year 2010

Leaders Magazine: “Making Money and Wallpaper”

Posted: Tuesday, June 29th, 2010

An interview with Chadwick Wasilenkoff, Chairman, Chief Executive Officer, and Director, Fortress Paper Ltd.

Editors’ Note: As Fortress Paper’s Chairman, Chief Executive Officer, and Director, Chad Wasilenkoff oversees the company’s production of security and other specialty papers. Most recently, Wasilenkoff was the Chief Executive Officer and Director of Titan Uranium Exploration Inc. from July 2004 to July 2006 and an independent private equity investor from October 2002 to January 2004. From 1997 to 2002, Wasilenkoff was an investment advisor and financial planner at Canaccord Capital Corp. He has a Bachelor of Arts degree from The University of British Columbia.

Company Brief: Fortress Paper is a leading international producer of security and other specialty papers and pulp. The company operates three mills: the Landqart Mill in Switzerland, the Dresden Mill in Germany, and the recently acquired Fortress Specialty Cellulose Mill in Thurso Quebec, Canada. Fortress Paper’s security paper includes banknotes, passport, and visa papers and its specialty papers include non-woven wallpaper base products and graphic and technical papers. Its specialty pulp business currently includes NBHK and the mill is undergoing a conversion to dissolving pulp for the textile industry in Asia. As an extension of its security papers business, the Landqart Mill has been actively developing and marketing innovative paper-based security products.

What did you see in the market that made you feel Fortress Paper would be successful?

My background is as more of a contrarian investor, so I always start from the bottom up. I was looking at the forestry sector – everything else was taking off, but this was still in a steady decline and had been for 12 to 15 years. So I evaluated pulp companies and commodity paper companies, and found these two niche paper mills that were world class in what they did. They had growth industries in both of their core products, but what they lacked was a strong and focused management team and growth capital. So that’s how we built the company.

What is produced at each of the mills?

Our German mill, located just outside Dresden, specializes in a non-woven wallpaper base. Most wallpapers are traditionally made from a regular kraft pulp, and that is what leads to the problem of trying to remove the paper. Because of that, the industry was going through challenging times. It had been in about a 10 to 12 decline, it has since steadied and been fairly stable and mature. The reason for that stability is because the industry got together and created this non-woven product where we put synthetic fibers into the paper. With those synthetic fibers, we get the strength characteristics and it becomes dry-stoppable. So now, once you’re able to pull a corner away, it comes off in one pull. While the overall wallpaper market is stable, this non-woven product is growing within it at about a 15 to 20 percent per annum growth rate, and we currently represent 50 percent of the world production of non-woven wallpaper.

The other mill is our Landqart mill, based in Switizerland, and it specializes in high-security paper. What we’re best known for is the banknote side of things. We’re the sole maker of the Swiss Franc, which is the industry standard – it is the currency by which all international banks measure themselves. It has more security features than any other currency in the world and one of the lowest counterfeit rates. It has never had a professional counterfeit attempt against it.

We also make the Euro for about 10 different countries, passports for dozens of countries, the entry visa sticker for India and China, and brand protection for companies like Rolex.

Our latest acquisition, Fortress Specialty Cellulose, was a shut down NBHK Mill in Thurso Quebec, Canada. We put together a plan to purchase the mill and convert it to a higher margin product, dissolving pulp, which is primarily used for producing rayon in Asia. Most of the financing for the $153 conversion was provided by the Quebec government.

What impact is new technology having on counterfeit issues?

Probably the biggest change in the global counterfeiting market has been the advancement of color photocopier standards. Now anybody can go onto eBay and buy regular home officer equipment and do a half decent job of counterfeiting. A lot of money goes into research and development and new technologies to try to make it as difficult as possible for these counterfeiters. Unfortunately some of these products are too successful and they get commercialized. For instance, the hologram that you typically find on a banknote, you can now buy holographic wrapping foil, and with a fairly rudimentary stamp, create your own hologram with that denomination on it. So while it was a spectacular feature when it began, it is slowly losing ground. They are now continuing to work on holograms to try to improve them, to make them a lot more complex and difficult.

What are your key priorities over the coming year to make sure the growth continues and the brand remains strong?

When I bought the company, I had a three-stage long-term plan: stage one was to change and focus on hiring and retaining good management; the second stage was dealing with internal or organic growth, and leveraging off our existing assets; the third stage was going external, so now it’s more of a focus on mergers and acquisitions.

In our industry, especially on the banknote side, cost is probably fifth or sixth on the list for national banks. It’s reputation first and foremost. It’s and industry that is not going to shift over to low-cost production regions. It’s just too important of a product worry about coming from a low-cost environment. So it’s about reputation, quality, new innovative products, high-security measures, and staying ahead of the counterfeiter. It’s such an important product that they’re willing to pay for a new world-class innovative technology and security feature. We’d like to find small companies that have these great products but can’t break into the banknote industry because it is so conservative. A lot of the printers or papermakers have been around for more than 300 years, so nobody wants to take a chance on a little supplier. We can take a small company that has a world-class product, and acquire it or do a joint venture or at least enable the security of that particular product, and we can launch it under our umbrella, giving it the reputation.

Do you see yourself in this business for the long term?

We have a lot to accomplish with Fortress Paper and one of our biggest challenges today is our share price. While our stock is currently undervalued, we are working to ensure that our shares trade closer to the industry averages that will enable us to make creative acquisitions that increase our reach and technological acumen. At some point in the foreseeable future, I am likely to relinquish the CEO title but stay on Chairman and a happy shareholder.

From Leaders Magazine, Volume 33 Number 3.

BC Business: “Outside The Box Business Strategies”

Posted: Tuesday, June 29th, 2010

When life deals you pulp, you make cellulose. Learn how to recognize business opportunities, then reach out and grab them.

Any business needs a coherent strategy if it hopes to succeed. However, in a climate where marketplace and financial changes are becoming ever more rapid, clinging mindlessly to a strategy can be a recipe for disaster. Simply put, companies today must be more agile in their thinking to take advantage of business opportunities that may present themselves.

The Problem

North Vancouver’s Fortress Paper Ltd. has carved out a good and growing business niche since it began in 2006. That’s when CEO and chair Chadwick Wasilenkoff bought separate paper mills in Germany and Switzerland to produce specialty papers: security paper used in banknotes, passports and visas; and specialty papers such as non-woven wallpaper-base products and graphic and technical paper. But in 2009, the crushing downturn in the overall forestry industry threw an opportunity at Wasilenkoff that would move the company in a completely different direction. He had to decide: should Fortress stick with successful execution of a strategy or take advantage of an opportunity?

The Solution

Wasilenkoff has always approached business as an investor instead of as a manager, and so he applied solid investment principles in order to reach his decision. One of the primary ones, he believes, is that “it’s better to be lucky than good.” 

When Toronto’s Fraser Papers, which made printing and publishing papers, became a victim of the recession and filed for creditor protection in June 2009, Wasilenkoff started looking at its assets, especially Fraser’s shuttered hardwood pulp mill in Thurso, Quebec. The mill drew Wasilenkoff’s interest because it had the perfect technology for an idea he’d been playing with for some time: the conversion of hardwood pulp to dissolving cellulose, a commodity that was being sought by Asian textile producers. As the price of cotton soared, Asian textile companies wanted to replace it with rayon, which is derived from dissolving cellulose. 

Wasilenkoff decided the opportunity was too good to pass up and went for it. He formed a subsidiary that obtained the Thurso mill for the fire-sale price of $1.2 million. After a $153-million conversion, it will switch from producing northern bleached hardwood kraft (NBHK) pulp to dissolving cellulose. 

Wasilenkoff brought Quebec on board by providing jobs for union workers who had been laid off since the mill closed. The Quebec government was only too happy to lend him the funds needed for the conversion. Also, the Quebec and federal governments were willing to help fund a green 25-megawatt co-generation power plant fueled with wood waste and other biomass. 

The mill will begin turning out dissolving cellulose in 2011, but in the meantime Fortress also got lucky. The NBHK market, which was in a severe downturn, turned up because of factors such as the Chile earthquake and a strike in Sweden. Suddenly, the plant that was closed because of low NBHK prices was turning a profit that will continue during the conversion.


• Get out of the groove. People tend to get caught up in groupthink. Wasilenkoff could see an opportunity because he takes a contrarian and long-term view of his and other industries. 

• Think like an investor. Fortress earlier moved into wallpaper because a new method had appeared that made it profitable. Wasilenkoff determined that the Thurso mill was low risk and high return. 

• Don’t drink the Kool-Aid. Look at everything around you from many angles. Wasilenkoff was able to make his decision because Fortress wasn’t a typical forest products company, which is usually concerned more with cost-cutting than its product mix.

By Tony Wanless for BC Business. July 7, 2010.

BC Business: “Outside The Box Business Strategies”

Pulp Growth Ain’t Pulp Fiction – Embracing New Opportunities

Posted: Monday, June 28th, 2010

While “pulp fiction” may resonate with the hearts and minds of people, the wood pulp business sector sometimes results in a “hollow” response. While readers would not be able to turn the pages of their pulp fiction books or enjoy their cotton and rayon clothing without their wood pulp brethren, the pulp sector is often looked upon as sleepy.

Yawning all the way to the bank

While the pulp sector may appear quiet, the market players are “yawning” all the way to the bank. “Between 2002 and 2006, world exports of wood, pulp and paper products grew at an average annual rate of 10.6%,” reports Inc., a business economics consultancy. Despite the volatile economy, the upward price trend in market pulp continues across the world.

“The fundamentals of the pulp market continue to be very strong,” reports PulpWatch, a leading provider of business information and consultancy services to the international pulp and paper industry. “Pulp prices increased by $30-50/t in May, and are set to reach new records in Europe and North America in June. Producer inventories reached record lows in April, and consumer warehouses are similarly bare. European paper demand and order books have improved and prices for most grades are moving upwards, albeit at a slower pace than fiber prices.” This is currently a temporary cyclical high, but we will be getting out of this old product in approximately one year.

As a contrarian investor, I keep focused on industries widely considered to be depressed with an eye on purchasing world class assets at deeply discounted prices. My company recently paid $1.2 million to Fraser Papers for a facility in Quebec with an insured replacement cost of $851 million in assets. We are converting this operation into a specialty dissolving pulp operation. Dissolving wood pulp is chemically refined bleached pulp composed of pure cellulose fibers extracted from trees. Dissolving pulp is the major source for the natural cellulose used in the production of rayon.

Rayon – a very promising future

I believe rayon demand is at a tipping point around the world. The declining global production of cotton is insufficient to meet global textile industry demand; particularly with the rapidly expanding middle class in China and India. Industry analysts indicate that the rayon market has grown at 7% globally and over 10% in China for the last 5 years. Rayon is typically blended with other fibers and can logically displace the cotton shortfall. Rayon has high uniformity which leads to significant improvements in productivity in spinning and textile plants.

Rayon demand has revealed a gap in supply. Total dissolving pulp capacity in late 2007 was 2.4 million tonnes according to the CCF Group (China Chemical Fibers & Textiles Consultancy). Expansions and conversions with plants in Brazil, South Africa and Canada added 0.6 million tonnes of dissolving pulp capacity in 2008, but closures of many higher cost dissolving mills resulted in limited capacity to fill the increasing demand.

A specialty producer

Driven by overall textile demand and increasing preference for rayon over cotton, over one million tonnes of additional rayon capacity (dissolving pulp customers) was built in China in 2009 and an additional 0.5 to 0.7 million tonnes in China is planned to start-up in 2010. There is a current shortfall of approximately 0.5 million tonnes in annual rayon supply which is expected to continue during the next several years.

Rayon, derived from wood pulp, is a textile made from cellulose whose future is looking very promising which is why we sought to invest in this sector. With our Quebec facility, we are transforming an asset which was previously underutilizing its potential by operating as a high cost producer into a specialty product producer which is low-cost and globally competitive. Over 90% of the existing mill equipment is ideally suited to produce high quality specialty cellulose for the rayon textile industry.

The consumer advantages of rayon are clear as it is woven into soft, absorbent and comfortable fabric which supports vibrant colors and wears well. Rayon is one of the most widely used fabrics in the world which can be blended with man-made or natural fabrics. For many centuries, people have relied on plants and animals, such as silkworms, sheep and buffalo, to provide the materials needed for clothing. In our 21st century world, we look to technology and chemistry to create our fabrics. Rayon, dubbed “laboratory’s first gift to the loom” is widely considered to be one of the most versatile and economical man-made fibers available.

–Chadwick Wasilenkoff, Chairman & CEO of Fortress Paper Ltd.

RISI: “Pulp Growth Ain’t Pulp Fiction – Embracing New Opportunities”