Fortress Paper CEO in talks to buy another pulp mill in North America and one in Europe in line with his strategy to resurrect shuttered mills by converting them to dissolving pulp production, might focus solely on that market within three years
July 12, 2012
(Industry Intelligence Inc.)
– Chad Wasilenkoff, CEO of Fortress Paper Ltd., is betting big on the dissolving pulp market and currently is in talks to acquire two more unprofitable pulp mills that he will revive by converting them to dissolving pulp production, reported Bloomberg News on July 11.
Within three years, Fortress might consider producing only dissolving pulp (DP) and spinning off its wallpaper and banknote paper businesses, said Wasilenkoff.
The plan in the interim is to start up its newly acquired mill in Lebel-sur-Quevillon, Quebec, and show that Fortress Paper can consistently generate profits, he said, Bloomberg reported.
Wasilenkoff believes idled paper-grade pulp mills can be transformed into DP. However, that has not yet proven to be true at Fortress Paper’s mill in Thurso, Quebec, which was originally expected to cost C$153 million and be completed by mid-2011. The mill finally came online last December and the project cost escalated to C$210 million, according to a June 12 research note from Toronto-Dominion Bank paper and forest products industry analyst Sean Steuart.
The delay and cost overruns have helped create a “tight” cash position for Fortress, said Steuart. Fortress Paper’s market value has declined 56% in the past year, Bloomberg reported.
The company on July 10 said it had sold 7% debentures in order to raise C$69 million for construction of a power plant at the Thurso mill and to finance the restart of the mill at Lebel-sur-Quevillon.
The move should quell concerns about Fortress Paper’s liquidity, said Royal Bank of Canada industry analyst Paul Quinn, in a July 11 research note, reported Bloomberg.
Wasilenkoff is defying the popular belief that the Canadian forest products industry’s decline cannot be reversed, and he faces a global expansion in DP capacity, said Brian McClay, founder of pulp industry consultancy Brian McClay & Associates Inc.
“He’s a larger-than-life character, a good talker, and a dealmaker,” said McClay, noting that he has a positive outlook for DP that is based on “a lot of reasons,” Bloomberg reported.
But McClay noted that by 2015, global DP capacity is expected to rise 36%, to about 8.1 million tonnes/year, which will contribute to an oversupply of viscose stable fiber, used to make rayon fabric.
Meanwhile, the price in China of commodity DP has likely fallen at this time to $950/tonne, down from $1,500/tonne a year ago and $2,650/tonne when it peaked in April 2011, McClay added.
The primary source of this article is Bloomberg News, New York, New York, on July 11, 2012.