David M. Gandossi - Chief Financial Officer, Principal Accounting Officer, Executive Vice President of Finance and Secretary Jimmy S.

H. Lee - Chairman, Chief Executive Officer, President, Member of Environmental, Health & Safety Committee and President of Merc Acquisition

Richard E. Kus - Jefferies & Company, Inc.

Fixed Income Research Bill Hoffman - RBC Capital Markets, LLC, Research Division Andrew Evan Shapiro - Lawndale Capital Management Mark Kennedy - CIBC World Markets Inc., Research Division David Quezada - Raymond James Ltd., Research Division Paul C. Quinn - RBC Capital Markets, LLC, Research Division Mark Friedman John Pace - Stone Harbor Investment Partners LP

Thanks, Laura. As usual, we will begin with formal remarks, after which we'll take your questions.

Please note that in this morning's conference call, we will make forward-looking statements similar to those that were made in the press release. According to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, I'd like to call your attention to the risks related to these statements, which are fully described in the press release and with the company's filings with the Securities and Exchange Commission.

Relative to the fourth quarter, average NBSK pricing was up marginally in all markets, however the stronger euro more than offset these price gains. Demand was seasonally strong in China during the quarter as buyers returned to the market following the Chinese New Year holiday, while in Europe demand was steady.

Relative to Quarter 4, sales were up approximately 21,000 tonnes. The mills ran reasonably well in the quarter and sales essentially matched production.

As a result, our finished goods inventory was up only 5,000 tonnes relative to Q4. Pulp prices remained low when current market metrics are considered but demand and low customer inventories did create some pricing momentum in the first quarter with average prices up about USD 30 per tonne.

List prices ended the quarter at USD 840 and USD 700 per tonne in Europe and China, respectively. As you will see in our press release, we reported a net loss of EUR 0.4 million for the quarter or a loss of EUR 0.01 per basic share compared to net loss of EUR 5.2 million or loss of EUR 0.09 for basic share in Q4.

Our Q1 2013 net loss includes a net unrealized gain of approximately EUR 4.7 million related to our noncash gains on the mark-to-market valuation of our fixed interest rates swap, offset by a small noncash loss on our pulp swaps. Before these noncash items, basic earnings per share was a loss of EUR 0.09 per share.

We recorded quarterly EBITDA of EUR 24.3 million or approximately USD 32.1 million. This compares to EUR 21.3 million or about USD 27.6 million in the fourth quarter of 2012.

The most significant impacts on our EBITDA this quarter was not having any major maintenance in Q1 and higher pulp and energy sales volumes. However, our results were negatively impacted by higher fiber and energy costs as cold weather limited the availability of wood in Europe, as well as increased our natural gas usage.

Switching to cash flow. Overall, our cash position is EUR 6.4 million higher than at the end of Q4, sitting at approximately EUR 111 million or USD 143 million.

Quarterly working capital movements increased cash by approximately EUR 6 million on a net basis, primarily due to an increase in payables and a decrease in raw material inventories which was partially offset by an increase in receivables. Capital expenditures drew approximately EUR 11 million during the quarter.

Off this, about EUR 9 million was spent o Stendal's Blue Mill Project, while the remaining EUR 2 million was spent on higher return capital projects at Rosenthal and Celgar. In addition, Stendal made a scheduled principal repayment of EUR 20 million on its debt facility.

During the quarter, Stendal submitted documentation for EUR 4.4 million of government grants for the Blue Mill Project, of which EUR 0.7 million has been received before the end of the quarter. In total, we expect to receive EUR 12 million of government grants on this project.

Our working capital movements in the 12-month period ended March 31, excluding cash and short-term debt, decreased cash by approximately EUR 9 million with working capital up from EUR 138 million at the end of Q1 2012. The increase is primarily due to higher receivables and finished goods.

In terms of our liquidity, at March 31, we had approximately EUR 26.2 million of undrawn revolvers available at Rosenthal and approximately CAD 22.3 million available at Celgar. Celgar's credit facility is set to expire in May and we have negotiated a multiyear extension.

Our EUR 111 million of cash at March 31 is comprised of approximately EUR 52 million for the restricted group and EUR 59 million at Stendal. Net debt-to-equity on a consolidated basis at March 31 is up slightly from Q4 but remains a little over 2x equity while the restricted group's net debt-to-equity is essentially unchanged at approximately 0.5x equity.

I want to again remind everyone that many of our competitors report using IFRS and as such, account for major maintenance using a different method than we do. In accordance with U.S.

GAAP, we expense all nonmajor maintenance costs in the period they are incurred. While those -- for those reporting under IFRS, noncapital major maintenance costs are capitalized as property, time and equipment and then amortized over the period ending with the next major maintenance through the depreciation line.

As a result, financial performance comparisons to many of our competitors using certain metrics such as EBITDA are no longer on an apples-to-apples basis. Although, we did not incur any major maintenance in Q1, we expensed almost EUR 14 million in 2012, the majority of which would have been eligible for capital treatment under IFRS.

That ends my overview of the financial results, and I'll now turn the call over to Jimmy.

Thanks, David. Good morning, everyone.

We are generally satisfied with our first quarter results given the current state of the market. And we're encouraged by the modest pricing momentum experienced in the first quarter.

On the production side, overall, our mills ran reasonably well with production up slightly relative to Q4, after allowing for Stendal's Q4 annual maintenance shut. In addition, our electricity and chemicals sales were also up compared to Q4.

Our energy and chemical revenue in Q1 exceeded our interest expenses by approximately EUR 5 million, which is noteworthy given the slow recovery of pulp prices. Put another way, out of our byproduct sales, suppressed our debt-carrying charges by almost 40% this quarter.

Equally important, our debt-carrying charges continue to trend down as we paid down the Stendal debt. While our byproduct revenues are expected to continue to grow with the completion of Stendal's Blue Mill Project.

In the first quarter, average NBSK list prices rose in all markets with the European quarterly average list price rising USD 29 to USD 832 per tonne, and the Chinese quarterly average list price rising USD 16 to USD 678 per tonne. I will talk a little more about recent pricing developments in a moment.

But first, let me comment on the mills production. Celgar and Stendal both experienced some unplanned downtime this quarter.

However, Rosenthal continue to benefit from its Q2 recovery boiler upgrade, achieving near record production. In total, we approved -- we produced approximately 361,000 tonnes of pulp this quarter compared to approximately 350,000 tonnes in the fourth quarter and approximately 380,000 tonnes in the first quarter of 2012.

Our first quarter production was broken out as follows: Stendal produced 156,000 tonnes; Celgar produced 114,000 tonnes; and Rosenthal produced 91,000 tonnes. In addition, the mills produced approximately 424 gigawatt hours of electricity in the quarter compared to 406 gigawatt hours in the fourth quarter and 436 gigawatt hours in Q1 2013 -- I mean, 2012.

Turning now to the -- turning back to the pulp market for a moment, we believe that the NBSK pulp market is continuing to slowly improve from the lows of Q3 2012. Currently, March NBSK producer inventories are at 29 days, unchanged from December but down 2 days from February.

At these inventory levels, the NBSK market is considered to be imbalanced and historically led to price increases. In addition, hardwood pulp inventories are unchanged from February at 41 days, which is also considered to be low.

Demand from China was down approximately 9% compared to Q1 2012 but we believe that customer pulp inventories are also low. Currently, the Chinese market is unsettled as producers have announced price increases in China, up USD 30 per tonne for April.

But so far, it appears that the market is resisting this increase. In Europe, the USD 30 price increase announced in January is still not fully implemented as Europe continues to struggle with weak paper demand and slow economic growth.

However, we believe that producers will continue to push for small price increases. Europe continues to suffer from weak economic growth, which has resulted in weak paper demand.

Weak demand for paper has led to certain integrated mills curtailing their paper production and selling those pulps as market pulp. Consequently, we continue to believe that the supply-side reduction would accelerate the upward pricing momentum.

However, new production in Russia is scheduled to come online in Q2 and though we believe this incremental production will be offset by incremental demand, it may take a quarter or so for the markets to rebalance. However, it appears purchasers are taking a wait-and-see approach to this incremental capacity, especially in China, as evidenced by low purchasing activity levels in Q1.

Our pulp sales volume totaled approximately 357,000 tonnes in Q1 compared to 335,000 tonnes in the fourth quarter of 2012 and 385,000 tonnes in Q1 2012. We believe customer inventories are low so expect this pent-up demand to be realized in Q2.

We also believe that supplies of NBSK will be lower as producers begin to take their annual maintenance shut, which should add to the pricing momentum. In addition, we're announcing unusual dynamics where softwood pulp is selling on par with hardwood, which should add to softwood demand as paper markers adjust their recipes to take advantage of the cost savings benefits of additional softwood.

Overall, these factors lead us to conclude that modern pricing momentum in Q2 will remain. We believe that the Chinese market will continue to grow at or near historic rates and that additional demand will come from other growing companies in the medium to long term as consumers increase their use of tissue-based products.

We're not alone in this belief, as many of our customers are investing heavily in new paper and tissue capacity in anticipation of this expected incremental demand. For example, 2 large tissue producers have publicly announced plans that when combined, will add a total of 50 tissue machines at various sites by the end of 2015.

These announced machines equate to approximately 2.3 million tonnes of incremental tissue capacity. Let me now take a moment to discuss developments in the wood markets.

The European fiber markets tightened significantly in Q1, poor weather conditions in Germany severely restricted harvesting and increased demand. Aggravating the supply-side issue was the shortage of short-load truck drivers.

Overall, we have seen whole log and chip prices increase. We anticipate that we will see German fiber costs continue to rise in the short term but it is too early to determine how significant that increase will be and for how long before the markets get back into balance.

Though at a minimum, we're expecting hardwood cost in Germany through Q3. We're also expecting that we'll be able to continue to source the fiber we need to run our German mills but we will, of course, continue to monitor the markets and our inventory levels closely.

In British Columbia, our fiber costs were up slightly in Q1 relative to Q4, primarily due to the weakening Canadian dollar on our U.S. chip purchases.

However, with high harvesting rates and saw milling activity in Celgar's fiber basket, we expect Celgar's fiber cost to trend down through Q2. We are currently satisfied with Celgar's fiber inventory but as always, we will continue to monitor them closely.

We continue to look for new sources of fiber and we're currently working with the British Colombia government and our suppliers to develop greater efficiencies in processing residual fiber harvest waste, otherwise known as burn pile [ph] . We remain hopeful that we will be able to find both technical and procedural solutions that will allow us to more effectively access this resource.

Last January, we announced our Blue Mill Project at Stendal. We're excited about this project because it will create an additional 30,000 tonnes of pulp production capacity and includes the installation of new 40-megawatt turbine.

We expect to invest approximately EUR 40 million in this project, with EUR 12 million of that coming in the form of nonrefundable government grants. Overall, we're anticipating this project will pay for itself in about 2 years.

We also expect to benefit from excess energy-generating capacity going forward, as each incremental future investment in pulp production will also increase our energy capacity. This project is on budget and remains on schedule to begin producing electricity in late Q3.

We regularly get questions about the timing of our annual maintenance shuts, so I'd like to highlight that our 2013 shuts will be as follows: Celgar will have its annual shut in Q2; Rosenthal in Q3; and Stendal in Q4. With respect to our NAFTA claim, we've been working with our advisors to move this process forward.

Based on the current schedule, we continue to expect our case to be heard in mid to late 2014, with the decision several months after that. We will continue to provide updates as we move through the process.

If I can close with a few remarks on the observations of the NBSK market, it seems to appear that it's unsettled as it waits for new production to come online. We don't believe this incremental challenge is significant enough to materially affect the market, especially when the supplies are relatively low due to the seasonal maintenance shuts.

Statistically speaking, the market is imbalance based on producer inventory levels and customer inventory levels are low. So we remain optimistic that the pulp market will continue to strengthen despite the incremental production that is coming online.

We believe that NBSK prices will continue to slowly climb through Q2. We also continue to be very optimistic about the medium- to long-term NBSK supply demand fundamentals, which we foresee as being driven by increasing economic standards of the emerging markets.

That is the conclusion of my prepared remarks. And I will turn now the call back to the operator, so we can open the call for questions.

Thank you.

Firstly, a procedural question. Would you guys mind giving us what the sales were by mill?

Yes. I can do that, Richard.

So the sales volumes for Rosenthal were 91,500; Stendal was 157,300 and Celgar was 107,900 for a total of 356,700.

Great. I appreciate it.

And then question on the fiber situation in Germany. Can you talk a little bit about how much you guys think that contributed on a per tonne basis maybe versus the fourth quarter?

And then I'd be curious to hear how you feel about the fiber cost situation there over the medium term, given the different factors that you're experiencing.

I think in terms of the actual numbers, David's just finding them now. The impact of the fourth quarter in the first quarter, of course, would not be as significant overall because of course, it was only in the first quarter that we've started to experience the wood situation arriving from very severe winter conditions.

In terms of an EBITDA difference between the fourth and the first, for all of the operations, because of course, the Canadian costs were slightly higher, too. They equate it to roughly about a 4 -- just over EUR 4 million impact.

Okay, okay. And then how do you see this situation developing over the course in the next couple of years?

Well, I think, like in prior years, whether we've had higher wood costs as a result of adverse winter type of conditions, we tend to peak out over the year and then we go back to more kind of normal conditions as this kind of interruption or this kind of unusual event filters through the system. So we're expecting that we'll have higher wood prices but then gradually coming down to more of the prices that we've seen in the past.

Okay. And then just with regards to China, you guys spent a little bit of time talking about the inventory situation there, at least how you see it.

It doesn't seem like shipments have been very robust there and I would say maybe that's reflecting economic growth on the ground. What are your customers saying about that?

Well, I think, it isn't really reflecting directly all of the economic conditions. I think it's also to do with the degree of the anticipation of additional capacity coming in, especially from Russia.

I think many of the traditional trading entities in China, which of course provide a significant outlet for market pulp, had been reducing their inventories over the last few months in anticipation of Russian capacity coming online and realizing on values that of course, they have locked in by buying pulp in the earlier periods at a much lower price. So you're seeing that type of movement which clearly is impacting the, I guess, the demand side right now and lower shipments.

We know that the Russian capacity was longer or later in startup than people had expected and therefore, I think the inventory levels certainly and our customers probably reflect that reality that maybe they're probably sitting on far lower rent inventory than they would have probably expected if the Russian production had been on schedule.

I wonder if, David, you can just talk a little bit about the outages you got in Celgar and Rosenthal, whether they're normal this year or anything different?

To which, Bill?

For both Celgar...

Production problems were -- it's actually unexpected. Normal equipment type of issues, nothing that we thought were substantive.

But of course, in a large production facility like Stendal and Celgar, we will, of course, have these unusual, unexpected equipment failures.

No. That's -- I was actually asking about the planned outages whether they're normal...

Oh, yes. The maintenance shutdown schedule is actually as pretty much more as normal compared to the normal maintenance schedule.

Celgar may be a little bit shorter because we are implementing a little bit more efficiencies and then prior shutdowns, but nothing substantive.

Okay. And then with regards to Ilim and their -- the capacity.

I'm assuming these guys are preselling that into the market. So I'm a little bit surprised that you're still seeing customers uncertain about that capacity.

Well, I think if you look at the actual startup date, which was from their announcement, April 24 or so, I think the original anticipation of this volume was much earlier than that. And there's been several delays in terms of the actual announced anticipated startup dates.

And therefore, I think they may have contracted but contracts are 1 thing. You have to actually have the physical volume to deliver.

So clearly, the commitments may have been there, but the volume certainly was not being produced. That's one.

I think, there is also several closures which have occurred, as you know, in Canada and that of course, has to filter through the system because of course, there's still inventory working the way through. And also there's the uncertainty of the CAFTA production.

Our expectation is that sometime in June, as they announced, certainly the CAFTA mill could go down, which of course, would rebalance the capacity to actually less. In fact, there will be no incremental supply growth.

In fact, there'll be an incremental supply reduction if CAFTA actually does close.

Okay. And then just -- I wonder if you could just comment a little bit -- obviously, Paper Excellence is in process of buying the Skookumchuck mill.

And then NBSK [indiscernible] obviously, these guys have been buying mills up in Canada historically. Any thoughts on how that might change the dynamics of the market up there?

Well, I think, clearly, Paper Excellence is part of, I guess, the APP group. Certainly, a very big growth ambition in terms of the tissue market in China.

As you know, based on announced projects, in terms of expansion on their tissue side, it will require a significant amount of softwood supplies and therefore, I guess, it fits into their strategy of assuring availability of those supplies for the future.

Finally, any strategic thoughts at this point, Jimmy, just with regards to -- last year, you look to Fibrek but there's obviously other mills out there?

Well, I think at this point, we're focusing in terms of, of course, reducing our debt if possible and also of course, strengthening our balance sheet and honing on the efficiencies of our operations and looking for additional income. I think at this point, we're really focused on, of course, our own issues right now.

Questions here. Regarding the maintenance and downtime.

Regarding your unplanned downtime that you mentioned you had in both Celgar and in Germany. Can you take a shot at quantifying the estimated impact that unplanned downtime created in Q1?

Yes. In terms of the -- in comparison to the fourth quarter comparison, the impact of this unexpected shuts was positive because of course, you have the Stendal maintenance downtime.

So it's difficult to kind of factor in how much of the -- the lost tonnages we have. I think another number in there.

I'll have to look that up for you.

Right. Because you mentioned that the reduced -- you mentioned specifically that the reduced production at Celgar also contributed to reduced energy.

And so...

Yes.

In that respect, there's lost tonnage and there maybe some of estimate of lost energy. It'd be useful to kind of quantify that.

With respect to the Q2 maintenance for Celgar, I think I've seen some press reports that discussed it, so that made me think that perhaps it's already started and maybe perhaps it's been completed. What's the timing for it and if it's been done, di every -- is it back up and running at a full capacity?

It's in process right now.

It just went down, so it's not started up yet.

All right. So it's expected to be back up at around when?

Second week of May.

Okay. You mentioned how Blue Mill is on track, scheduled to be up and running by September 30.

Can you speak or explain a little bit about the power contract pricing and its similarities or differences to the enhanced energy prices we enjoyed at Celgar? We got some subsidized or enhanced pricing on the prior German power generation.

Do we get to enjoy that or is that program over and where do the power rates we're going to get in Germany on the new incremental capacity stand?

Well, we believe that the new generation will qualify under the existing EEG, renewable electricity generation program. So of course, we will get the higher feeding rates that are available to the biomass to energy cogent with producers.

It will be slightly lower than the overall kind of number that we have on the first because there is certain additional benefit that we derived. The first, a very small incremental amount of generation but it will be similar in the overall magnitude because it is qualified, we believe under the EEG program that it exists today.

And then on the NAFTA claim, are there interim milestones that trigger the sides potentially having a mutually agreeable settlement talks?

I guess our feeling, Andy, is the closer or the further along we get, the more tension there is. Things like discovery, hundreds of thousands of documents where it's being required to produce these things and be examined on them and stuff.

So it's becoming very real for both the Canadian and provincial haircuts [ph] that are managing this process. We've also got an election in British Columbia that could produce a new way of thinking within the government.

At least we hope that will happen. If it's the same government, there might be different leadership principles applied and if there's a change in government, then, that's an opportunity for a fresh discussion.

When is that election?

It's this month, May 14.

Okay. With the current prices that are going on and the limited profitability that we see from plants that are modern and low-cost, are there plants other than CAFTA and out there where the mills are running red ink that you see at potential risk or, for Mercer, opportunities for supply reductions?

Well, I mean there is a few mills that we know that are even at today's type of prices, probably are still experiencing some kind of red figures but we cannot comment on those. What we do know is that, of course, there is 2 production facilities which have announced and have taken closures.

As example, one of the lines at [indiscernible] as an example, which again is produced from more sawdust so it's not really strictly the same type of quality. But it is a softwood and we know that coupled with those 2 in Canada and the CAFTA announcement, as I earlier mentioned, this incremental increase of 0.5 million tonnes is a result -- actually will not really occur.

In fact, you have a small capacity decrease of, say, something in the order of about 200,000 tonnes or so, roughly.

Great. Just 2 more here.

Based on the substantially narrowed spread between softwood and hardwood, and also in light of the new tissue capacity and other paper modernization capacity that's going on, is substitution between hardwood and softwood finally or possibly to Mercer's benefit now going on at these levels?

Well, I mean, if prices certainly in China, are such that hardwood prices are at or close. In fact, in some instances above that of softwood, then of course it makes sense for many of the producers to use more softwood because of course, the production efficiencies would improve their run rates, et cetera.

And therefore, there is likelihood that probably the recipe will be adjusted to use more softwood because of the efficiency gains that they would experience as a result.

Right. And can you provide some insight to your views from this heavily deintegrated point already as to the risk or opportunity from deintegration or reintegration of softwood pulp from these integrated paper players?

Are you seeing more paper capacity coming out in the risk of increased deintegration? Or is it the headwinds are gone and there's a prospect of any tailwinds and when that might occur?

Well, I think the European side, especially in terms of the printing and writing grade. It's very clear that there's a significant weakness.

There is further anticipation of consolidation and possibly additional paper capacity closures. So we think that clearly the European situation has not returned to normal, but we don't think at the same time, the closures are going to be as deep or as significant as what has already occurred.

So what additional new capacity that may be shut will not be as material clearly, and therefore, the impact in terms of nonintegrated or deintegrated pulp going into China won't be as significant in terms of the growth year-over-year as we've seen. Certainly, we've seen a big amount of that really coming out of more of the Scandinavian area in terms of actual growth based on the reported numbers.

And we don't think that, that type of growth rate in terms of the incremental increases year after year is going to be comparable. So we think that the real big impact of the nonintegrated pulp into China is probably already being felt.

There'd be probably potential for additional, but that could reverse if CAFTA clearly shut down because, of course, there was some in incremental tonnages coming from Norway into China. And therefore, if that mill shuts then, of course, that will benefit us in terms of this nonintegrated pulp coming into China.

Okay. And lastly, David, what's the roadshow/Investor Conference agendas for the coming quarter or month?

We've got Barclays coming up shortly. And then there's a CIBC mini-conference in London to meet some potential European equity investors.

We're presenting at Sidoti, June 9, I think, it is, Andy? And then Jefferies later in August.

First of all, just with regard to the maintenance shuts coming up this year. Can you just give us a guide as to the expected tonnage outage for each of those?

Sure, Mark. Rosenthal will tonnes be about 11,800.

Stendal would be 22,400 tonnes. Obviously, it's the bigger mill.

And Celgar is expecting 16,000 tonnes.

Okay. Great.

And Jimmy, I guess, I'd like to get your perspective on an issue. If we can look through NBSK markets, say, after the next 12 months once the Brask [ph] mill has started and that tonnage has been absorbed into the marketplace?

I don't think there's another new NBSK greenfield mill being built anywhere in the world right now. And if we get 1 or 2 more mills that convert into dissolving such as -- Terrace Bay is going to do that at some point and there's even some speculation that Paper Excellence might be thinking of converting Skookumchuck to dissolving at some point.

What factor is really going to lay out the path for NBSK when we look out 1 to 2 to 3 years?

Well, that's why we've very optimistic in terms certainly the medium- to long-term supply and demand type of situation because even if you take the CAFTA potential closure, there won't be an increase. At the same time, we know that based on -- even the continued decline in paper consumption in North America and Europe, we know that on a global basis, the softwood demand has continued to grow and albeit at a very low rate.

But because of the growth in tissue and other paper products in the emerging markets, the demand for softwood is increasing year after year. So -- and we don't see anything that will change that view.

And in fact, in terms of the tissue market, we know that the incremental capacity increases in China are just mind boggling. And therefore, a lot of that requires softwood.

Even if you take a 30% type of proportion of soft and hard, it means many hundreds of thousands of tonnes that is going to be in new demand. And there is new no capacity and yes, every mill will have a little bit of incremental production capacity growth because of efficiency, et cetera.

But the scale of the demand growth is such that we do believe we'll have good supply-demand balance so that we will enjoy very good capacity realization once we get through this transitioning of the even capacity. And so we are optimistic.

The only thing that analysts clearly point to is the significant capacities of the hardwood side coming towards the end of this year in South America. Now, in prior type of correlations indicated -- actually, there is no direct correlation between price movements and capacity increases today.

So yes, you can point to the capacity increases but certainly, studies by other analysts seems to indicate that there is no direct correlation as to the capacity coming on and actually the price movements. So I think it's indicative that really yes, you can point to that and be negative, but I don't see certainly, from an NBSK softwood perspective, why that will have an adverse impact in terms of the demand for us.

Yes, pricings have been much higher for softwood versus hardwood for an extended period of time. We've had periods where we had many, many months of price gap of about USD 200.

And that was in a time frame where there is 2 brand new hardwood mills.

Right. Coming on.

So I think you can point to the capacity growth on hardwood but I don't necessarily agree that this is going to have an immediate impact in terms of price because prior studies don't seem to indicate that. And at the same time, you cannot directly correlate hardwood and softwood because we've seen the extended period of times where there has been a disconnect and good premium on softwood for a long period of time.

And we've also seen periods where for whatever reason, softwood prices actually being cheaper than hardwood for a reasonable period but actually, not for too long. Technically, those situations tend to correct much faster than the other where you have a continued high premium of softwood against hardwood.

Just a quick question. You mentioned the -- I think it was 2.3 million tonnes of additional tissue capacity coming on in China.

Do you have any idea of how much NBSK pulp demand that would translate into? Or even pulp demand in general?

We typically say, look, a typical recipe would give up 30% softwood in tissue and the rest would be hardwood. So -- and that would be kind of a -- probably, generally a reliable figure I mean some guys use less, some guys use more.

And it also depends on the type of tissue product clearly, but 30% is a pretty decent kind of ballpark figure to use.

And is it about 1:1 then for pulp input tissue output?

Yes, roughly.

And David, just remember, that's just 2 customers, that's Hanging an EPP [ph] . But if you add up all of the announced tissue capacity today, that's between 2012 and 2016, that's 5.6 million tonnes.

Just wanted to try to further break down or solidify my model on the addition of Blue Mill. So you stated that it's coming up the end of September.

What should we look for in terms of additional tonnage at all in '13 and will the extra 30,000 tonnes start to come in into Q1 '14? And then actually...

So I'll try to help and maybe Jimmy can add. So big part of the -- of what is going to produce the incremental tonnes was completed at the end of probably December timeframe.

So you're starting to see the impact of that in the first quarter. We're saying Stendal is going to do about 645,000 tonnes this year.

It will do about 650,000 tonnes to 660,000 tonnes the next year all depending on shuts. In a year when Stendal doesn't have a shut, we think its capacity is up at 670,000 tonnes right now.

So if that's a difficult thing to quantify for you on this call. On the energy side, in our disclosure previously, we've indicated it's about 100,000 kilowatt hours of power per year incremental based on today's growing rates.

So it's going to depend on what we ultimately negotiate with the EEG for that power but if it was EUR 60 a megawatt hour, you'd be 60x 100,000 kilowatt hours roughly. To give you a feel, you're in the $7-ish million, $8-ish million range, annual and incremental.

Okay. That's very helpful.

And then just a higher-level question on geographic shift. If we look back 5 years, given that you're running the exact same mills that you were at that point, how have you switched into your customer base over that period of time?

Obviously, you're trying to grow over that. But can you sort of give us some rough outlines of where your selling your pulp into the major end market?

Yes, I mean, if you look at the what has been occurring on the European side, what is clearly noticeable is paper demand, certainly in Europe, has been weaker in the Western European market but stronger in the Eastern European market. So the emerging Europe, as such, paper consumption, tissue consumption, et cetera is strong.

In terms of the Western Europe, Germany, France, et cetera, et cetera, you're having weakness. Tissue, not as bad, but certainly the printing and writing grade.

And therefore, if you look at our percentages, we've had a slight decline in terms of the volumes to the developed Europe and a slight increase to the emerging Europe. Nothing of real significance but that's a trend.

In terms -- and again a little bit more into China, depending on the U.S. dollar exchange rates because it is sometimes more favorable to ship into China than it is to ship to the peripheral European markets.

In terms of the Celgar operation, we all know that there is overcapacity of premium quality NBSK in North America and therefore, we have been essentially been more focused on the China, as well as the Asian markets. So you're shifting from probably more tonnage out of Celgar than ever before into the Asian and China markets.

And we see that trend continue unless we are able to have a fiber quality strategy which will be as good, if not better, than the premium qualities clearly on the market in the U.S.

Great. And then just now that -- well, I guess Blue Mill will soon be done, what's your -- what's the next project after Blue Mill?

Well, we look at the byproduct of 3 mill's [ph] very significant for us and therefore as you know, Rosenthal also produced tallow oil. It has traditionally shipped whole pulp to the Stendal facility for processing.

We don't essentially have capacity now because of the Blue Mill expansion, et cetera, et cetera. And therefore, Rosenthal will be investing in its own tallow oil processing facility.

And of course, we will generate additional income as a result of that. We will also pursue additional wood-based chemical strategies.

So I think that it's really the incremental stuff will not be on the, strictly, on the pulp side but really more in terms of this byproduct stream. So enhancing more of the chemical recovery processes and upgrading of the chemicals and pursue that line which, of course, will have good margin benefits without significant capital type of outlays.

Just a quick couple of questions here. Number one, just sort of to get a feeling for the incremental cost on the maintenance outage in 2Q.

Do you expect the cost of that Celgar outage to be similar to what it was in 3Q last year?

Hard to say. We're doing some things differently this year in Celgar to try to reduce the costs and improve the efficiency.

We've designed some different approaches to the length of the ships, for example, to improve some efficiencies. It's doing things a little bit different from a BC labor perspective.

We're optimistic it will bear some fruit for us and help us reduce our cost. And on the equipment side, we've been reasonably pleased, the early -- they've been down since, I guess, 4 or 5 days so far.

The early reports are that we haven't really found anything, any big surprises yet, our fingers are crossed here. So without any big surprises then we really could possibly do better than we did last year.

And was last year -- was what? $6 million or $7 million roughly?

Yes. With Celgar, last year would have a little bit above that.

This year, we're kind of targeting around the $6.5 million range.

Got it. And as far as the -- just looking in the 3Q, at the Rosenthal outage, would that be similar to sort of $4.5 million you had last year?

Rosenthal is actually budgeted to be quite a bit lower this year. Last year we had a..

We had an extensive shut.

An extensive shut with the turbine revision and so on. So we're -- our budgets are in the EUR 1.7 million to EUR 1.8 million range for Rosenthal in Q3.

Great. And then just talking about fiber cost.

Did you say earlier that fiber costs had a negative $4 million sequential impact to the cost in 1Q versus 4Q?

That's correct. Yes.

Company-wide, okay. So based on where fiber cost is today, run rate.

How would 2Q look versus 1Q? Should we get lower Celgar but still elevated Europe at this point?

Probably the continuation of these levels.

All right. So sort of flattish then basically?

Yes.

Okay. It's good.

And then, also in terms of your labor contracts, when did annual raises kick in, sort of cylindrically speaking? When should we see a bump in your labor costs sequentially?

Well, I don't know quite how to answer because we do some fancy amortization and prefunding and things like that. So I don't -- you're not really sequentially going to see anything material one the announce.

Okay. It's a pretty smooth throughout the year then, basically is what you're saying.

Yes.

Okay. All right.

And...

Other than the Stendal I guess it goes up. Stendal will have a 2% increase, I think, something like that.

I'm just not sure, John.

Okay, great. And then, probably not that big anyway.

And then finally, just want to circle back to the unplanned outages that you saw in the first quarter. Was there a cost number associated with that?

Not that we've calculated after this call. No.

Okay. Or -- and I think you said earlier, there was no -- you don't have a tonnage impact that you calculated, right?

Yes, we do.

We do. We just don't know the number at the top of our heads.

Okay. Can you give the total number of days you lost between the 2?

No, I don't know that, John. On the top of my head, it wasn't 1 single event.

We had a number of different things so the mill would go down and come back up and then down and up. I should know it but I just don't have it with me and sitting in a room with a bunch of paper around me in Berlin.

Okay. We can circle back on that.

Yes.

Well, okay. Thank you again for everyone attending today's conference call.

And we look forward to making further progress certainly in terms of our productivity and efficiency and keeping our fingers crossed that the markets will continue to improve for the coming quarters. Thank you, and bye.

Thanks.