Posts Tagged ‘Fraser Papers’

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”

Pulp and Paper Canada: “Thurso’s Future Secure with Fortress”

Posted: Wednesday, June 2nd, 2010

There’s a new kid on the block and he’s playing by a different set of rules. Brimming with confidence, enthusiasm, and steadfast resolution to succeed, Fortress Paper offers a fresh perspective for Canada’s pulp and paper sector.

With its recent acquisition of the idled Thurso pulp mill located in the Outaouais region of western Quebec, Vancouver-based Fortress Paper plans not only to make a splash on the market, but a significant profit, too. By ditching the production of northern bleached hardwood kraft pulp in favour of manufacturing dissolving pulp, the company is confident it won’t fall prey to the relentless profit losses so many Canadian forestry companies have witnessed.

“We’re expecting to generate $60 million (EBITDA) but could potentially see profits in the order of $200 million,” says Chad Wasilenkoff, president and CEO of Fortress Paper, with a confidence not often heard in this industry.

Wasilenkoff refers to himself as a “contrarian” investor, as he keeps a punctilious eye on industries widely considered to be depressed, only to pounce on opportunities to grab world class assets at heftily discounted prices. For his $3 million* purchase price, Wasilenkoff pocketed $85 million worth of assets in buying the Thurso facility from insolvent Fraser Papers.

Fortress Paper currently owns and operates two pulp mills in Europe — in Germany and Switzerland. With an emphasis on specialty papers, the company’s product portfolio includes non-woven wallpaper base products, graphic papers, and technical papers. Fortress officially incorporated in 2006, with the intention of taking a closer look at investments in the forestry sector. The company was not specifically seeking to invest in Canada, but had been observing the dissolving pulp market for a number of years. When the Thurso pulp mill came on the market, the timing and price were compelling.

The acquisition is also welcome news to the 320 people formerly employed by the mill, who will, with only a few minor exceptions, be back on the job in June 2010.

“The Quebec government was very interested in getting people back to work,” Wasilenkoff confirmed. “We were informed that not only does the mill provide work for 320 people, but an additional 2900 indirect jobs are supported by the operation, as well.” The provincial government’s motivation to see the facility up and running translated to a cash infusion of $102 million, in the form of a 10-year loan.

It’s money that Wasilenkoff anticipates no difficultly in repaying. “We’re extremely comfortable with the underlying fundamentals,” he says, explaining the overall growth in the market his newly purposed mill will be supplying. “Asia will be our biggest market, and the textile industry there is very strong. As more and more people move into middle income brackets, research indicates consumption of clothing increases, and yet, cotton is an expensive material to produce. Rayon has very similar characteristics to cotton but is more absorbent and breathable, and is less expensive to produce. As a result, the finished product almost always trades at a premium compared to cotton. We consider this to be a very, very low-risk and high-return venture.”

Fortress has two additional multi-million dollar goodies in its bag: the company is entitled to $10 million from the federal Green Transformation Program, as well as $15 million from the Green Infrastructure Fund. Both are initiatives designed to encourage green energy generation and environmentally-friendly production upgrades. Fortress’ decision to construct a biomass-based cogeneration plant at the facility to produce green electricity positioned the company to benefit from these grants.

The mill won’t be making an immediate switch from NBHK production to dissolving pulp, however. Thurso will continue to churn out kraft pulp for another full year before producing its new product line starting in June 2011. Once the transition is over, the mill will produce 200,000 tonnes of air-dried product annually. The company plans to capitalize on bolstered demand for NBHK first. Wasilenkoff expects the restructuring to be a smooth process, however, as it requires very little in the way of retrofitting. Much of the equipment currently in the mill will be suitable for the production of dissolving pulp as it shares much in common with the process of manufacturing NBHK.

With a secure and reasonably priced fibre source (the company has a 50% Crown allocation), a ready-made labour force, and strong market fundamentals, Fortress appears poised for success. Coupled with Chad Wasilenkoff’s unstoppable “can-do” attitude, Canada’s pulp and paper sector may have a new market leader, and mentor, for the future.

* After price adjustments, Wasilenkoff notes, the final price paid for the Thurso facility may be in the order of $900,000.

By Heather Lynch for Pulp and Paper Canada. June 2, 2010.

Pulp and Paper Canada: “Thurso’s Future Secure with Fortress”