Posts Tagged ‘rayon’

Future of Canada’s Forestry Sector is Renewable

Posted: Wednesday, July 6th, 2011


Push aside dated notions of our global forestry sector as dominated by lumberjacks focused solely on logging trees and processing the wood. Today’s forests are increasingly high-tech with employees skilled in biochemistry, genetics, computer modeling, satellite imagery, and digital processing.

Today’s bio-economy is a dynamic global market that mirrors a paradigm shift to products that originate from natural renewable sources. Mills that have focused on processing timber and pulp are beginning to diversify into bio-energy, bio-chemicals and bio-materials which include wood fibre and biomass that is converted into renewable fuel, food additives, non-toxic chemicals, solvents, plastics, textiles, and other products.

The International Council of Forest and Paper Associations, (ICFPA), which represents the global forest and paper industry, champions the role of our global forest sector as a central, thriving player in our new bio-age. The international forest and paper industry is committed to the principles of sustainable development and ensuring that the environmental, social and economic benefits of our natural resources are available to current and future generations. Studies have shown that by repurposing the chemicals and bio-materials extracted from trees, we can tap into a potential global market estimated at around $200 billion.

The global forestry industry is a vital benefactor to our world’s sustainable development. The worldwide forestry sector supports thousands of communities as a supplier of millions of jobs across the globe. The forestry sector prides itself on its use of renewable raw material and record of sustainable forest management and application of cleaner technologies in an increasing number of mill operations. More and more mills across the world are converting their wood residues into heat and power for their own operations with most of the sector’s energy coming from waste biomass with some facilities already acting as net sources of green power. With its strong reliance on biofuels, maximum recycling rates and the storage of carbon in its wood and paper products, our global forestry sector is at the forefront of the renewable era.

The forestry sector is finding new life in innovative and creative solutions that are not only helping the once struggling industry turn around, but also helping to usher in a green movement. After two years of work by FPAC, FPInnovations, and the Canadian Forest Service (CFS) of Natural Resources Canada, a new program called the Bio-pathways Project was set into motion this year with the goal of revitalizing the Canadian forestry sector. The project looks outside of traditional uses for wood, lumber, pulp and paper in an effort to create new jobs and sectors with a more sustainable future for the country and its citizens. New, innovative products include bio-active paper – paper towels than can indicate contamination; nanocrystalline cellulose composites that can replace materials in aircraft; wood-based textiles (such as rayon); and cross-laminated timber – a technology that produces strong beams and panels for construction products.

As the CEO of a security and specialty pulp and paper company, we are in the process of transforming Quebec’s Thurso mill from a traditional pulp mill to a specialty dissolving pulp operation. Dissolving pulp, a chemically refined bleached pulp of pure cellulose fibers extracted from trees that are used to produce rayon, is a popular cotton substitute in China and other markets. With our Quebec facility, we are transforming an under-utilized asset which struggled for market-share in the low-value add commodity marketplace. The evolution to dissolving pulp from traditional pulp metamorphoses the mill into a globally competitive, low-cost producer with a sustainable and profitable long-term future.

The future of the forestry sector is here today and it offers a bold, innovative, profitable and environmentally conscious path for the industry. Our global concern to reduce greenhouse gas emissions leads us through the forest to invest in renewable energy technologies that use wood fibre. As more forestry firms invest in technologies to increase their reliance on biomass for fuel versus fossil fuels, we drive the future of the forest sector to develop new biotechnologies, new jobs and greener prospects.

As our global forestry sector expands and leads the way to produce new and innovative bioproducts, we will experience greatly enhanced employment opportunities and financial returns than from traditional stand-alone mills. By incorporating new technologies into existing mills, we can ensure that these integrated operations will utilize all parts of the trees and extract the most value possible to ensure an environmentally friendly, sustainable, and profitable future.

About the Author:
As Fortress Paper’s Chairman, Chief Executive Officer and Director, Chadwick Wasilenkoff, oversees the company’s production of security and other specialty papers. Based in Vancouver, Canada, Wasilenkoff is an established entrepreneur with extensive capital markets experience specializing in the resource industry and currently serves as a director with various publicly listed companies.

Vancouver Sun: “Future of Canada’s Forestry Sector is Renewable”
The Windsor Star: “A Renewable Forestry”
International Forest Industries: “Future of Canada’s Forestry Sector is Renewable”
The Post-Journal: “Future Of Global Forestry Sector Is Renewable”

THE OTTAWA CITIZEN: “The Future Looks Fluffy”

Posted: Wednesday, September 1st, 2010

Driven by the imperatives of globalized economics and digital technology, Ottawa’s pulp-and-paper heritage has been reduced to a remnant.

The forestry industry that built the Ottawa-Gatineau economy appears to be on its last legs.

Hammered by the Internet’s growing grip on personal communications, the rich Canadian dollar and intense competition, the forestry industry continues to slash operations in the hopes of finding a smaller, profitable core.

The industry, which employed 5,000 people just 20 years ago, today has dwindled as Domtar-Eddy mills in Ottawa, an AbitibiBowater mill in Gatineau, a Smurfit-Stone mill at Portage, and Domtar mills in Cornwall slashed staff and finally closed. Fewer than 1,200 jobs remain, focused on a few niche markets far removed from the newsprint and lumber products that drove the industry for 150 years.

Next to go could be 200 jobs at Papier Masson, a newsprint operation in the east end of Gatineau, which was founded James Maclaren, a pulp and paper pioneer, and later owned by Noranda.

White Birch Paper of Connecticut, Papier Masson’s current owner, has hired Lazard Freres, the New York private banker that helped sell Nortel assets, to find new owners for three mills in Quebec and one in the U.S.

White Birch, operating under bankruptcy protection since February, opened the doors to prospective bidders last month.

The threat is there will be no bidders and that some mills will close in a major restructuring, adding to the thousands of lost jobs in the industry.

Certainly, the relentless march of the Internet into every corner of human communications is destroying demand for newsprint, telephone directories, copying paper, books, magazines and glossy printed advertising across the Western world.

The result is that mills that employed thousands and drove the industry for more than 80 years are being sold for less than $3 million each.

One huge AbitibiBowater mill in Thunder Bay sold for just $100,000 because of environmental cleanup issues.

The recently upgraded machinery in four former AbitibiBowater mills sold for just $5 million — not much more than scrap value.

The real value now is in the land, including about 40 acres controlled by Domtar in the heart of Hull across the Chaudière Bridge and Chaudière Island into Ottawa.

However, while the Ottawa regional industry is in deep trouble, new profitable product lines are emerging and demand for older products is rebounding, at least temporarily.

The trouble is that most of the Ottawa regional mills are too big or too old to be revived. With governments taking a hands-off approach — after spending billions bailing out GM and Chrysler — bankruptcy courts will decide the fate of underfunded pension plans, unpaid severance and struggling suppliers.

The federal government finally rolled out a $170-million investment program this week, too late for most Ottawa companies.

“The forestry industry employs more people in more places across Canada than the auto industry, but governments have turned their backs,” said Kim Ginter, a vice-president of the Communications, Energy and Paperworkers union.

“Many mills are competitive, but need investment. We still have the best source of fibre in Canada, but, once the mills go, it will be very hard to get them back.”

For the few survivors, there could be light at the end of the tunnel.

After years of declining sales and heavy losses, sales of many forestry products companies rebounded in the last six months.

It wasn’t much, just two per cent in the case of Domtar and other companies, but it surprised analysts and had business leaders and bankruptcy monitors scratching their heads. They had expected declines of at least two per cent.

Sales of AbitibiBowater rose 2.6 per cent between April and May, though the wounded newsprint giant is mired in bankruptcy.

Even before it shut the huge Gatineau mill this spring, AbitibiBowater had slashed newsprint production by 3.4 million metric tonnes or 32 per cent since 2007. It also sold off $940 million in assets, including $615 million in a Quebec power company.

A surprised bankruptcy monitor reported last month that White Birch sales were not significantly hurt despite the stigma of defaulting on loans and pension obligations and seeking court protection from creditors.

Sales at Papier Masson were 18 per cent higher than the monitor predicted for the June quarter, and the White Birch cash burn was 70 per cent lower than forecast.

The reason is basic economics: Deep, permanent cuts to production mean that prices jump with the smallest improvement in sales. While demand for newsprint continues to fall, the deep production cuts of the 2008-2009 recession were deeper than immediately necessary.

The result is the price of pulp was more than 50 per cent higher in the June quarter from a year earlier, and Domtar is running hard in a bid to keep up.

Domtar chief executive John Williams told an industry conference: “If you look at tissue, if you look at toweling, if you look at printing and writing, in the geographies where we are selling, those markets are actually growing. So we see a long-term pretty positive trend for pulp.”

His company converted a Massachusetts mill from newsprint pulp to fluff pulp.

“We currently sell 150,000 tons of fluff pulp, (and) we’ll move up to 444,000 tons (by December 2010.)

“If you take fluff pulp, it’s largely used in diaper markets and in the incontinence marketplace. That’s a very fast-growing market both in developed economies and developing countries because of the demographic.”

Fluff pulp doesn’t have the brawny feel of the traditional products like lumber and newsprint that defined the industry and Stompin’ Tom Connors is unlikely to add a new verse about fluff pulp or air-laid superabsorbent paper to Big Joe Mufferaw, his ballad celebrating the Ottawa Valley logger and raftsman, but fluff pulp is immune to the Internet.

Glatfelter, a Pennsylvania specialty paper producer that makes tea bags and labels, bought the Concert Industries plant near the Gatineau airport in January for $246.5 million. It employs 285 people making super-absorbent paper sold to companies like Procter & Gamble and Johnson&Johnson.

It is primarily used in feminine hygiene products, a market that is growing about five per cent annually as the combination of growing prosperity and a huge young population opens new markets.

Farther east in Thurso, the moribund Fraser Pulp mill, once owned by James Maclaren, is being revived after it was closed a year ago. Fortress Paper is converting the mill to produce cellulose used in rayon, a cheaper, more environmentally-sound alternative to cotton.

“The forest products industry will continue to decline and there will be more pain,” Fortess founder Chad Wasilenkoff said.

“But there are still specialty niche production operations available at attractive prices which can yield good profits.”

While buying the Thurso pulp mill makes sense, he said that buying newsprint mills in North America did not. “This is still an industry that is profitable only about one year in 10.”

The share price of his company has quadrupled in the last year in part because of two profitable mills in Europe that produce paper for the banknote and wallpaper industry.

Better still is the Kruger Products mill on Rue Laurier next to the Museum of Civilization. For much of its 70-year history, it had a water tower with a White Swan logo that made it a landmark.

Today it is the sole survivor of the E.B. Eddy-Domtar mills, which, for 160 years, stretched from the Museum of Civilization site to the Chaudière Bridge and onto Lebreton Flats.

Three Kruger papermaking machines roar around the clock, turning out Spongetowels, Scotties and White Swan industrial towels.

Kruger employs 475 people at the mill and another plant in Hull that processes and packages the material.

It is spending $4.8 million with Quebec government assistance to capture lost steam, reduce operating expenses and reduce the carbon footprint of machines that have been running for 60 years.

With backing from governments, companies like Domtar are investing in new technology to make operations cleaner, greener and more efficient.

Domtar is investing $32 million in new technology to create nanocrystaline cellulose used in optically-reflective films, high-durability varnishes and bioplastics.

The biggest problem for the North American newsprint mills is they are situated in the wrong places.

There is growing demand in developing countries, but newsprint is heavy and expensive to ship. This spring, Canadian newsprint sales to Asia tripled, with two-thirds of the business in India, as buyers stepped aggressively into markets to rebuild inventories depleted during the recession.

No one expects this trend to continue, however. The newsprint industry is still bracing for reductions averaging four per cent annually in demand.

“The paper industry is not going to die,” says Martine Hamel of the Pulp and Paper Products Council. “It faces major challenges, which will mean it will continue to get smaller and focused on different products.

“But the decline will eventually level off and we will still have an important industry and significant employer.”

By Bert Hill for The Ottawa Citizen. September 1st, 2010.

The Ottawa Citizen: “The Future Looks Fluffy”

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”

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”

A New Lease on Life for the Outaouais Cellulose Pulp Mill—Québec Government Loan Enables Fortress Specialty Cellulose Inc. to Convert its Thurso Mill

Posted: Friday, March 26th, 2010

Thurso, March 26, 2010 – Québec Premier Jean Charest and the Minister for Transport, Minister responsible for the Outaouais region and MNA for Papineau, Norman MacMillan, announced today a $102.4 million interest-bearing loan to Fortress Specialty Cellulose Inc. (FSCI) for its Thurso facility, formerly owned by Fraser Papers Inc. Awarded through Investissement Québec, the financial assistance will be used to convert the former pulp mill for cellulose production.

With a total estimated value of nearly $175 million, the FSCI initiative is designed to convert the Thurso mill from a facility that manufactures kraft pulp for paper into a cellulose pulp production facility and to set up a cogeneration power plant. The plant’s new product targets the viscose fibre (rayon) market, which is showing strong worldwide growth. Viscose fibre is most often blended with cotton, wool and polyester fibre to produce textiles and knits for the apparel industry.

“Putting the Thurso mill back into production is good news for the forest industry and part of an industrial development strategy that focuses on high value-added products,” declared the Premier. “The success of this operation will no doubt serve as a model for the forest industry’s future,” he added.

On the employment front, the outlook for the conversion project is bright. In addition to enabling the facility to call back 290 employees who worked for Fraser Papers, it will also help maintain some 1,500 direct and indirect jobs in the forest industry and throughout regional businesses.

“I am very pleased with today’s announcement, not only for the region but also for the forest industry. Fortress’s project proves that it is possible to find promising new solutions to help stimulate the forest industry and the Outaouais region’s economy,” said Minister Norman MacMillan.

“We are pleased to receive the Québec government’s support for the conversion of the Thurso mill. Fortress is confident that this undertaking will be a success, given Québec’s favourable business environment and the positive outlook for world markets,” affirmed Mr. Chad Wasilenkoff, President and CEO of Fortress Specialty Cellulose and Fortress Paper.

In addition to converting the mill for an industry that offers greater potential for long-term growth, the project will keep the city of Thurso’s water treatment plant in operation with no additional investments. In fact, all the necessary equipment can be found at the mill.

The Thurso facility was mothballed in June 2009, resulting in layoffs for 330 people in the single-industry municipality. The closing also had a major impact on the forestry activities of some 30 Québec companies.

About the Ministère du Développement économique, de l’Innovation et de l’Exportation

The department’s mission is to support economic development, innovation, export trade and research by fostering coordinated and concerted efforts by stakeholders representing the economic, scientific, social and cultural arenas. In so doing, it seeks to promote job creation, economic prosperity, scientific development and sustainable development.

In addition, the department portfolio encompasses various government corporations, agencies and funding bodies, including Investissement Québec.

Investissement Québec: “A New Lease on Life for the Outaouais Cellulose Pulp Mill—Québec Government Loan Enables Fortress Specialty Cellulose Inc. to Convert its Thurso Mill”

The Globe and Mail: “Rayon is Fortress’s True Story”

Posted: Tuesday, March 23rd, 2010

Most investors cringe and run when they learn that the company they’ve invested in is abruptly changing course.

Chadwick Wasilen 547962gm a 300x168 The Globe and Mail: Rayon is Fortresss True Story

Fortress Paper President and CEO Chad Wasilenkoff. Source: The Globe and Mail

That explains why Fortress Paper shares were bruised last Friday, after the company announced that it was buying a pulp mill from a bankrupt operator in Quebec.

Fortress is a smart little company that literally makes money. To be precise, the company makes bank notes for Switzerland and euros for 10 countries. It also makes passport and other security papers. Plus it makes high-end wallpaper. It’s been a great little investment, returning more than 100 per cent since it started trading less than three years ago and 300 per cent since it bottomed in the market crash a year ago.

At first glance, the pulp purchase looks like a change of strategy. While Fortress is technically in the paper business, it’s nowhere near pulp on the food chain. No one wants pulp, which explains how the mill ended up in bankruptcy protection.

But this is not a change of strategy. It fits in very well with how Fortress has made such gains for investors, and analysts have figured it out, which is why the stock was up so much yesterday. If it works out – and CEO Chadwick Wasilenkoff told me yesterday that he thinks this is the best deal he’s ever done – the stock has lots of room to rise.

While it’s true that pulp demand is in decline as we consume less paper, demand for rayon is climbing briskly. Rayon is a substitute for cotton, and according to the U.S. Department of Agriculture, cotton production is dropping, down by about a sixth in the past four years. The economics don’t make sense for farmers who can make more by growing food or ethanol feed stocks.

Demand for cotton, meanwhile, is growing. But there isn’t enough of it, so demand for rayon is climbing at about 7 per cent a year, according to Fortress.

What does that have to do with a pulp mill in poor old Thurso, Quebec? With a healthy investment, the mill can be converted to produce what’s called “dissolving pulp,” which is what they use to make rayon among other things. And that’s what Mr. Wasilenkoff intends to do.

Fortress is paying all of $3-million for the mill. It has to invest $153-million to convert the plant – $91-million for the actual conversion and another $62-million to build co-generation, which produces electricity. Once up and running, the refurbished plant will, analysts figure, be a cash cow.

Why? Well, since there’s a shortage of production capacity out there, dissolving pulp is changing hands for $1,500 a tonne – that compares nicely to the $800 a tonne the mill’s pulp product fetches now.

What’s more, Mr. Wasilenkoff arranged for attractive and cheap government financing for much of the acquisition. Fortress is putting up equity of only $15-million in total. The risk to shareholders is limited.

The analysts whose reports I looked at show, on average, a doubling of earnings before interest, taxes, depreciation and amortization over the next two or three years. The new price targets are twice as high as the stock price today, which may seem ambitious and may even be ambitious but isn’t ridiculous.

Meanwhile, Fortress’s other divisions – wallpaper and security paper – also show promise. The wallpaper mill is one of the lowest-cost mills in the world, and Fortress has about half of the global market share of coated and uncoated non-woven wallpaper.

And the banknote business is also stable with room to grow, although Fortress needs to make investments to modernize the works. Fortress’s EBITDA grew 125 per cent from 2006 to 2009.

The truth is that this deal fits in perfectly with what Mr. Wasilenkoff has been doing all along: being a contrarian, buying cheap, seeing opportunities others overlook, allocating capital intelligently and being patient – the sorts of things only CEOs who own a lot of stock (23 per cent in this case) do.

Asked what is most challenging about his job, Mr. Wasilenkoff says “the stock price. We think it’s lower than it should be and that’s frustrating.”

While small companies bear risks that bigger ones don’t, like concentrated customer sales, I think he’s right. The stock does look cheap, especially given that he’s demonstrated an ability to make money for not only central banks but investors as well.

By: Fabrice Taylor for The Globe and Mail. Tuesday, March 23, 2010.

SOURCES: The Globe and Mail: “Rayon is Fortress’s True Story”.

Fortress Paper