Oct 28, 2016
Executives
David Gandossi - President & Chief Executive Officer David Ure - Senior Vice President Finance & Chief Financial Officer
Analysts
Hamir Patel - CIBC Capital Markets Sean Steuart - TD Securities Andrew Kuske - Credit Suisse Andrew Shapiro - Lawndale Capital Management DeForest Hinman - Walthausen & Company Dan Jacome - Sidoti & Company West Swanson - RBC Capital Markets
Operator
Good morning and welcome to Mercer International’s Third Quarter 2016 Earnings Conference Call. On the call today is David Gandossi, President and Chief Executive Officer of Mercer International and David Ure, Senior Vice President Finance, Chief Financial Officer and Secretary.
I will now hand the call over to David Ure.
David Ure
Good morning, everyone. As we typically do, I will begin by taking a few minutes to speak about the financial highlights of the quarter, and then I’ll pass the call to David to discuss the markets, our operational performance, and our outlook into Q4.
Please note that in this morning’s conference call, we will make forward-looking statements. And 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 more fully described in our press release and in the company’s filings with the Securities and Exchange Commission.
In Q3, we achieved EBITDA of $47.9 million compared to $34.7 million in Q2. Our Q3 results reflects steady pulp demand and lighter levels of scheduled annual maintenance and continued progress on fiber cost.
Pulp sales were up almost 30,000 tons and electricity sales were up 18,000 megawatt hours relative to Q2. Pulp sales realizations were flat compare to Q2 with marginally higher prices in Europe offsetting a modest price decline in China in the early part of the quarter.
Overall our mills run well and our production was up roughly 24,000 tons which was the major contributor to our higher sales volumes. We reported net income of $11.9 million for the quarter or $0.18 per basic share compared to a net loss of $4.2 million or $0.07 per basic share in Q2.
Our Q3, interest expense was stable at $12.8 million, but down modestly from last year and reflects the benefit of our 23 million repurchased of our 2019 notes in Q1. Income tax expense in the quarter was $5.1 million, of which approximately $1.8 million was current.
We continue to have significant tax assets to shield cash taxes, but certain tax jurisdictions limit their use which will continue to create a modest current tax expense going forward. Turning to cash flow.
Our cash balance increased by about $28.8 million in Q3 compared to a reduction in cash during Q2 of $17.2 million. The principal contributors to the sequential change in cash flow in the quarter was stronger operating results and lower demands on working capital, including the timing of interest payments.
In addition, we temporarily grew about $8 million on Celgar revolver over quarter end to assist with cash management activities. This balance has since been fully repaid.
Capital expenditures grew approximately $9 million during the quarter, the majority of which was spent on high return projects at the Rosenthal Mill. And finally, our cash outflows in the quarter also included our quarterly $7.4 million dividend payments.
Our liquidity remains strong. Our consolidated cash balance was approximately $149 million at September 30, 2016.
And we had about $133 million of undrawn revolvers between our three mills. Combined, our total liquidity is up almost $24 million to $282 million from the prior quarter.
Our $149 million of cash at the end of Q3 includes approximately $8 million of restricted cash. These are funds that have been set aside to act as collateral for our Stendal interest rate swap.
The collateral amount is contractually based and as the interest rate swap balance declines so will the collateral amount, subject to certain minimum requirements. This balance is down from $10 million at the end of Q1 and the balance will continue to decline when our next scheduled settlement payment is made this month.
I'll also note that, the interest rate swap matures in October 2017. On a trailing 12 months basis, our net debt is about 2.6 times EBITDA.
And as you’ve seen from our press release yesterday, our board has approved an $0.115 dividend for shareholders of record on December 22 for which payment will be made on January 4, 2017. In addition we are pleased to both S&P and Moody's have in the last two weeks announced credit rating improvements for Mercer both raising their ratings by a notch.
Both rating agencies have cited our stabilized earnings and liquidity as grounds for their upgrades. The upgrades for our S&P corporate rating at DD- and the Moody's rating at DA3.
We also recently refreshed our shelf registration statement with the SEC. For those of you that have followed us for any length of time, you will know that we have traditionally maintained a shelf prospectus to allow us to issue bonds or equity quickly should the need arise.
Our five year shelf recently expired and we decided to refresh it as it would -- and it was subsequently filed at the end of September. The filing doesn’t indicated a pending intention to raise capital only a step to make the registration a little quicker, should we decide to do so in future.
And my final comments today before I turn the call back to David is to point out that we intent to change our stock ticker symbol in Canada to MERC.U, an option that was recently made available to us by the TSX to move us from the traditional three letter ticker so common in Canada to the same four letter MERC symbol used in the U.S. markets.
We are pleased to make this change which will be effective on November 1st. And so that ends my overview of the financial results.
And I’ll now turn the call over to David Gandossi to discuss market conditions, our operational performance and strategic activities.
David Gandossi
Thanks, Dave and good morning everyone. Overall we had a good operating results this quarter, our wood cost continue to trend down and NBSK demand remains steady through what is traditional a slow period.
Out results were also positively impacted by us having only 10 days with major maintenance downtime in Q3 compared to 21 in Q2. The quarter-over-quarter EBITDA benefit of pure maintenance shut days was almost $14 million and we're also able to increase sales volumes of both pulp and energy relative to Q2.
In terms of the pulp markets demand has been good and our order books are full. We expect these balanced conditions to continue for some time.
Pulp prices today reflects some creep [ph] capacity that has come on new volumes of southern softwood in the market and the impact of the stronger U.S. dollar.
Growth in global NBSK deliveries continues to be steady at 2.6% year-to-date and china in particularly remains solid at 4.3% growth when compared to the same nine months period in 2015. Currently we expect steady demands in both the European and Chinese markets.
September NBSK producer inventories were at 30 days this is up two days from the previous quarter, but inventories at this level are still considered to be well balanced. The quarterly average list price in Europe increased slightly to $810 per ton from $798 in Q2, while the quarterly average list price in China went down to $595 per ton from $617 per ton in Q2.
Looking forward the October NBSK list prices in Europe and China are consistent with September, we continue to believe that the global tissue and specialty paper markets growth will remain steady into the forcible future. Moving to operations, overall our Q3 production was much improved over Q2 the improvement of roughly 24,000 tons was primarily due to the timing of a scheduled to annual maintenance shuts.
In Q3, we took 10 days of scheduled downtime at the Rosenthal’s Mill compared to a total of 21 days in Q2 between Celgar and Stendal. Our only remaining 2016 annual maintenance shut was completed at Stendal during the first 12 days in Q4.
The shut went reasonably well, we are pleased with it and I'm expecting strong production level in Q4. In total, we’ve produced approximately 362,000 tons of pulp this quarter compared to approximately 338,000 tons in the second quarter and approximately 369,000 tons in the third quarter of 2015.
And as we would expect based on our stronger production, our pulp sales volumes we are also up significantly in Q3 and totaled approximately 360,000 tons compared to 330,000 in Q2 and 390,000 in Q3 of 2015. Turning to our energy sales.
The mill sold approximately 208 gigawatt hours of electricity in the quarter compared to 190 gigawatt hours in Q2 and 215 gigawatt hours in Q3 of 2015. We continued our steady progress on our fiber costs, which were down again this quarter, while we were benefitting from reduced market pressure we are also beginning to see the impact of several strategic wood cost reductions projects.
The most impactful of which has been our import program in Europe. One of the more exciting projects also for us at this time is the commissioning of our new fleet of high volume log rail cars, these rail cars are designed to increase the hauling capacity of a train by over 40% and this obviously reduces our per unit transportation cost, but also creates strategic benefits by expanding our fiber market reach.
We have also been investing in a new log acceptance area at Rosenthal’s so we can efficiently unload different assortments of log. In Europe, we've also recently entered into a wood purchasing joint venture with Mondi [ph] that we expect will allow us to access markets that we're previously uneconomic.
This new organization which we call wood2M is still very new and will need some time to ramp up. But we're optimistic it will be a real positive influence on our wood cost.
In British Colombia, our small log harvesting project continues to ramp up. The objective of this program is to increase the volumes of low grade wood that are taken out of the forest and processed into chips.
So summing up relative to the second quarter our German fiber prices were down again continuing what has been an ongoing trend over the past few quarters. In British Colombia our Q3 fiber prices were essentially flat this quarter relative to Q2 and we are currently forecasting that Celgar's Canadian dollar fiber prices will come down slightly in Q4.
Deliveries of wood are steady this quarter and we have healthy inventory levels all three mills going into the winter. Regarding our CapEx plans we currently expect to invest about $50 million in our mills in both 2015 and 2017.
The focus of our CapEx programs continue to be a balance of maintaining the mills while improving reliability and reducing costs. With respect to our NAFTA claim, unfortunately I don’t have any new information, no updates at this time, but we continue to expect a decision shortly.
So to wrap up, as you know from our press release we've approved a quarterly cash dividend of $0.115 per share as David mentioned and we’re pleased to be continuing with that program. So I think I'll stop there and hand the call back to the operator to take any questions.
Thank you.
Operator
[Operator Instructions] Your next question comes from the line of Hamir Patel from CIBC Capital Markets. Your line is open.
Hamir Patel
David, can you talk a little bit about what sort of magnitude, the various cost, fiber saving projects you have in Germany and how meaningful that might be to pass in 2017?
David Gandossi
It's difficult to put a number on things. One of the programs is import logistics.
So basically what we do is we buy a slightly higher cost log and bring it into Germany and that takes the pressure off the German domestic market which has the effect of generally lowering the prices. Harvesters, you can move to wood and if we don’t hit their price and bring it in somewhere else than sort of quarter-over-quarter they just keep ratcheting it down and it's sort of been a steady downward pressure we've been putting on the market.
For Rosenthal’s log acceptance project, that -- we’ll be commissioning that in December. So next year Rosenthal will be able to reach further than it used to for fiber and so with local traditional suppliers to the mill are not hitting our price than we can bring the volumes in by alternative means without disrupting the local market.
The rail car -- the new fleet just operationally if you run it in the traditional way that we have, it's about a €2.5 million cost savings on a transportation component of those logs, but it also has -- it has another impact which is that you can go further into Poland, further into the Czech Republic and buy cheaper logs and bring them into the German market, having that import impact that I was mentioning. For the Canadian mill, we've had lot of healthy supply as saw mill residuals, we've been a little worried about what happens in those saw mills when a saw milling market is weaker and for those who’ve been with us for a long-time you’ll remember years where if we got behind the eight ball on fiber available from saw mills, we used to run in the quite bit of upward pressure on fiber for that mill.
The small log program is -- it’s a strategic program that was intend to mitigate that risk because we can process. The harvest logs that the saw millers can't use, we now have access to them and we bring them out of the forest.
We either get the contractors to bring them to us or we can go in and get them. We have mobile shipping plants that we can use to process them into usable fiber for us.
So we’ve eliminated that strategic balance if you like in the fiber basket and it’s hard to put a number on that obviously, but it’s one of the very important things that we've been working on for quiet sometime to maintain a steady upper hand on the fiber cost at that mill.
Hamir Patel
Sure enough, that's a helpful, but -- I appreciate it, I guess it hard to quantify it, but could you may be -- any idea when you expect to sort of be capturing all these on a run rate basis. Is it 12 months or 18 months?
David Gandossi
It’s a progressive things here. I mean it's -- you know I think that you've seen a steady downward movement on our fiber cost and some of that is the market itself.
You know the demand for fiber in Europe is demised, a lot of the particle board guys has packed up and moved East, the pellet guys have had -- this is -- it had two terrible winters -- two warm winter which is terrible for their business and so there is all the pellet storages are full and people aren't really using their pellet stoves much these days so. It’s a -- that’s has a positive impact for us.
And generally we’re expecting things to continue. I guess the only thing on the horizon for next year that’s hard to qualify is the some softwood lumber dispute and unfortunately some of the big operators in our area aren’t really all that exposed to the U.S.
market. So I think Celgar will be fine, but again we've got than small log program to mitigate that.
So I can't forecast what fiber cost will be next year, but I’m expecting them to be lower than they are this year.
Hamir Patel
Fair enough, and then David I guess just on the pulp markets, I guess we saw the announcement this week from Stendal [ph] delaying capacity you think there is some other big projects out there that we're going to see push out both on the hardwood and softwood side?
David Gandossi
I don’t know Hamir. I mean -- I’m pretty certain [indiscernible] is going to finish their [indiscernible] project on time and that’ll come into the market.
We're trying to do a little more work on that. I think the market might be misunderstanding exactly how much fiber is going to be coming out of that mill and softwood that is.
I think there may be some campaigning plans they've got there and may be just market miss -- I don’t think it as big as what we think. That's one thing and I really don’t think we're going to see those tones in the market in any big way in 2017, maybe some ramp up upgrade stuff and you know if they hit their target of starting to ramp up in Q4 really you won't feel any kind of new pressure on the market until '18 and you know we don’t know what all the others will be thinking about either creep capacity or closures.
Hamir Patel
Right okay and just the final question I had was could we get the mill production numbers for the quarter?
David Gandossi
For the quarter? Yeah do you want to do that David?
Hamir Patel
Yes.
David Ure
Yes sure. So in thousands of tones in Q3 Rosenthal mill produce to 81.6, Stendal produced 169.1, and Celgar produced 111.1 thousand tons.
Hamir Patel
Great, thanks. David that's all I had.
I'll turn it over.
Operator
Your next question comes from the line of Sean Steuart from TD Securities. Your line is open.
Sean Steuart
Couple of questions. David with balance improving steadily here, any updated thoughts on potential strategic growth initiatives either M&A or organic CapEx -- discretionary CapEx at the three mills?
David Ure
The capital plan, I've just outlined that in my notes at the beginning of the call. So we are going to -- we’ll spend about 50 million U.S.
in the three mills next year. It's basically high return improving our production, the reliability, increasing our tons, lowering our cost those kinds of initiatives and I think that's a good healthy number we won't be doing that continually, we don’t see a like a big blue mill project on horizon right now or those -- we really got our mills built out to their potential here in Europe by March and so there is the mill where we see 50,000 or 60,000 tons of improvement over the course of the next couple of years which will really make a difference to its earnings capability.
On the M&A front there is -- being a public company you can't disclose anything that isn’t disclose able we're always thinking about our future and working on initiatives, but there is nothing to disclose at this point.
Sean Steuart
Got it, and then just a follow-up question on NBSK markets. The one long-term trend we are seeing here is widening discounts in spot markets and in China.
Can you give just thoughts on how you expect spreads between what's prices in Europe and transaction prices in China to trend over the mid-term?
David Ure
Europe, I think the discounts are going to widen probably 2% to 2.5% this year going into 2017. Those are the signals we're hearing in the market, those discounts all kind of get solidified during [indiscernible] and pulp week which is the week after next, so we’ll know more than.
But that's a very general expectation and then how list price interplays in that, sort of, you have to combine that with currency, like the U.S. dollar keeps moving in the direction its going, this list price may move but mills [ph] might stay the same or it will be more or less flattish.
This is our -- from a realization perspective [indiscernible] next year is what we’re thinking. And similar at China, the demand is really strong there.
Everybody fights over nickels, but everybody -- you’ve got lots of orders and no challenges moving pulp at this price levels. So I don’t see much change there.
Sean Steuart
Okay, thanks David. I'll get back in the queue.
Thanks guys.
Operator
Your next question comes from the line of Andrew Kuske from Credit Suisse. Your line is open.
Andrew Kuske
I guess the question continues along with the line of some of the capacity additions in the marketplace and just David what are your expectations for changes in the cost curve from producer stand point. How do you think that will change when the new capacity eventually comes online in the market?
David Gandossi
Well, one of the things that’s always attracted the Mercer management and board to this industry is the steep cost curve. Like the fourth quartile mills in this industry are really different than our mills in a lot of ways.
They have low pressure boilers, so they don’t produce much electricity, they have to buy power. They typically don’t produce any byproduct chemical revenue, they have large maintenance and safety non-discretionary maintenance of business capital they need to spend.
Their maintenance cost are high and they're small, so they're pretty unique production costs are high and some of them are located in places where it's challenging to operate and challenging to get to the market. A lot of these Canadian mills that used to serve East Coast, U.S.
are now trying to get all the way over to China. So there is some -- and there is some low -- smaller low cost mills in the Finland.
I guess you know, I got to believe there is going to be some closures over the course of the next couple of years.
Andrew Kuske
Okay that's very helpful commentary then may be just more specific on Germany there has been a lot of changes in the German power market recently with the large utility spending add power, arms and obviously there is some controversies that have gone on for years in the power market there. Do you see any impact to your business from a power sale standpoint in Germany?
With just the changes that have gone on that market place?
David Gandossi
Yes well there is -- the EEG legislation is in the process in being sort of renewed and notification of the EU are occurring. So our expectation is a prolongation of the EEG as it relates to us.
It will be some diminishment over time, it won’t go on forever. But for now it’s business as usual.
Andrew Kuske
Okay, very helpful. Thank you.
Operator
Your next question comes from the line of Andrew Shapiro from Lawndale Capital Management. Your line is open.
Andrew Shapiro
A few follow up points and then one or two questions if you could. I think in the past you've mentioned about modern higher volume machine capacity build up from China or frankly may be in any developing country requiring an increased mix of softwood pulp furnish.
Can you expand a little bit about that or update us on what you're seeing? Annually there is the Chinese pollution abatement measures, but I think even on the last call you mentioned that that’s just a one factor in the mix, but that there were a variety of factors and are you seeing some tangible evidence of this increased mix of softwood pulp furnish that's needed?
David Gandossi
Yes, great question. There is -- first of all in China there is what we call old China paper industry and a new China paper industry and the first wave was new China build up, but old China kept running.
Old China is typically agricultural based raw material going into make -- it’s all the way -- it's integrated all the way into the paper products that get produced and sold locally and as you mentioned China has been shutting these facilities down and it's been a program that's been ongoing and I think last year was something like 2.5 -- 2016 was another 2.5 million tons roughly that was reported two have been enclosed. So I think that’s a lots difficult to trace, specifically that contributes to more domestic demand on the guys that have the modern machines and the modern machines need good wood pulp fiber.
And that's kind of the -- modern machines around the world is kind of the new theme. The new tissue machines in specialty grades they are all wood pulp.
One of the things that kind of interlays with all thing is the recycle fiber market and as I've discussed in previous calls we've been seeing an ongoing trend of a real deterioration of the quality of recycled fiber. And what drives this is, there is not as many newspapers anymore.
That used to have some long fiber in them, now a day's not so much. But there is -- even at that recycled fiber basket we use to turn over there is less and less newspaper collection, so there is less of that.
There is less magazines and at the end, the long fiber that we have, lot of it ends up in grates, so it’s not recoverable like tissue and decor papers or thermal papers and things like that. So the proof in the pudding is when you see paper machines or tissue guys in Europe for example that use to make tissue out of recycle fiber switching over to virgin fiber because they just can't keep going with the diet that they had previously designed their machines to be on.
So this is a long-term sort of a sloppy trend things, but its continuing and I think kind of accelerating and I think that bodes well for us.
Andrew Shapiro
Alright, and then a follow-up on the few questions either in your script and few questions that were asked on the CapEx. Basically, you had stated I think on a recent call, there was still lot of room for improvement on power generation coming out of I think Celgar in particular and also we had the big maintenance shut in and then extra work done in Celgar.
Have things now here we are through the third quarter and now the beginning of the fourth quarter. Have you seen intangible evidence in the Celgar, moving forward towards, I think it was maybe was 500,000 goal?
David Gandossi
The mill is running quite well right now. It took a beating in the second quarter as everybody knows and that was, just to clarify, as I tried to make the point last quarter.
It was a well-executed shut. They did a ton of work, we’re really pushing that mill perform and we have some very [indiscernible].
When you start up a mills sometimes you have little things or a contractor didn’t button up a flange or you have leaks or issues. You try to avoid oversight in supervision and good programs, but you always have something.
But then that mill had just some pretty catastrophic failures, like big stock piped, the elbow broke and things were difficult to deal with. Mill is running great now and is doing really well.
We've got another chunk of work we’re going to do next year, the shut for Celgar next year will be in the second quarter. It will be a little longer than usual, so we’re planning for about 17 days, about 20,000 tons during that shut, but that in my mind is kind of the final phase of this sort of heavier focus on getting the mill to where it needs to be in that 490,000 ton to 500,000 ton range.
Which really moving from where we’ve been at the 460,000 for the past couple of years to several years, we lower its cost structure and also every ton of pulp produced is incremental power generation which is probably what you're referring to. So they become very accretive tones for us.
So we're well on our way Andy, but still a little bit of work to do it.
Andrew Shapiro
Okay and then Rosenthal you said Stendal is already done with their maintenance for Q4 I think you said and Rosenthal was this last quarter [multiple speakers]. Yes which we just completed.
David Gandossi
Yes.
Andrew Shapiro
Right so, you probably have a little bit more of visibility, the impacts of what you expected to come out of Rosenthal’s work, have you -- it’s up and doing fine now?
David Gandossi
Yes. Both German mills are producing as expected right now.
Andrew Shapiro
Excellent. Okay then I’ll move on to -- I have a capacity question here and that was, in Canada what is the status of the anti-dumping countervailing duties for sawmills situation and the expected timing for I guess the dust is settled here to know what kind of costs in particular your Eastern, Canadian part competitors might have issues with?
David Gandossi
Yes well I am done the seen camp with maybe probably even less informed a lot of the analyst on this call, but it sounds like there is going to be some duties. And you hear numbers of 20% or 30%, so I mean that catastrophic for a lot of the Eastern guys that we think.
As I mentioned our Celgar operators and much better shape because they’ve diversified away from U.S. market in a lot of cases and are not as exposed.
So it will be interesting to see what happens to the Eastern industry, as you pointed out it could be quiet challenging for them both in terms of lumber production but also fiber availability for the pulp guys.
Andrew Shapiro
Okay. And then lastly and this is a question, then follow up on this and that was, okay -- because I’ve asked this in prior calls.
You’ve now got your credit rating upgrades somewhat behind us. You got the shelf ready to go for short quicker refinancing opportunities.
On prior calls. I think we identified those 2019 senior notes which has fairly high coupon.
You were able to, you bought some back, but you are -- those become redeemable pretty soon, our callable pretty soon. In light of all of those features, going on and an expectation of we’ll call it stabilized cash flow, as you know your CapEx, I guess where you see me lead to is, the buybacks of your shares especially now that you’ve got your ratings upgrade done, the buybacks of the shares play a stronger role in your discussion in the board room now for when we might see -- I don’t know if you even can give the window of timing of when this becomes a reality or a possibility?
David Gandossi
I’ll just clarify your question Andy, you used the term buyback shares, did you mean bonds?
Andrew Shapiro
No, I actually meant, I meant that it didn’t make more sense to do a stock buyback in the face of anticipated credit rating upgrades. But now that the rating upgrades are in, you got a shelf ready to go, you have really conservative leverage situation right now and our expectations for cash flow are clicking along that at some point it would seem you have whether it's 50 a quarter, 25 a quarter, you have a bunch of money now per quarter that is just being accumulated that are net debt or debt pay down.
It is effectively a transference some shareholder -- it is a transference of enterprise value from debt towards the equity holders. Except our shareholders are not seeing this in the public market price, and if the public market price is not going to reflect this transference of value that means that discount on our stock price is ever increasing and thus it is a, higher and higher or more and more accretive use of incremental cash that you are generating, that this company is generating that should start to be dedicated to borrowing back shares.
Make sense?
David Gandossi
Yes, that very interesting. We've had our capital allocations discussions with the board and at this quarter we've not announced a share buyback program Andy and it's a lot of pros and cons on this things, it's not saying we’ll never do it, but right now we have not made that decision.
Andrew Shapiro
Right, well leading back to my question was, is the issue and this as a capital allocation opportunity or options is it taking a greater focus now from management and the board in light of these other things behind us?
David Gandossi
Yes, so I can't guide. I'm not going to project what might or might not happen unless it's happened.
There is many different elements in a capital allocation discussion like that including the direction we want to take the company and all the different options we have being very cognizant that everything we do is for shareholders. So I don’t think this is the call to have that debate.
We’ll think about it, we talked about it. But for this quarter we've chosen not to announce a share buyback.
Andrew Shapiro
Okay, and do you think your debt, do you think Mercer's debt is now rated at an appropriate level or do you think the rating could be moved even higher?
David Gandossi
Well, I think the metrics for sure, current metrics indicate we should be continuing to move up to scale. They only move a notch at a time and they worry about the cyclicality and single product nature of the company.
But we are very healthy in the bracket that we’re in and if keep doing what we are doing and it continues to see improvement I think they've signaled that they’ll continue to move us up.
Andrew Shapiro
Okay, and last thing what are the plans for investment presentations not the old road shows, et cetera in the coming months?
David Gandossi
Yes, Dave do you want to cover that?
David Ure
Yes, so we would be doing a bit of an east coast road trip in the middle of November. So probably -- we’re still working on it, but probably Baltimore, New York, Boston and then we’ll be attending -- the next conference will be in January and we'll be attending the CIBC institutional conference in Whistler at the end of the January.
Andrew Shapiro
Great. Thank you.
Operator
Your next question comes from the lien DeForest Hinman from Walthausen & Company. Your line is open.
DeForest Hinman
Hi I’ll just go off the last caller’s commentary and questions, but we've been talking about the NAFTA claim, feels like I think almost two plus year, we're getting towards a resolution there. Has that been part of the discussions with the banks and the potential changes either from monitory inflow perspective you reset that officially of the cost structure of Celgar and that would lead us to be more interested in capital transition and refilling the shelf and also building up that cash balance?
David Gandossi
A number of things in there, I'll kind of poke around on it. First of all, Celgar is a mill that we're working on it, it's steadily improving and I try to signal -- I think there is quite a bit of upside at that mill, so we're working hard on that.
The shelf is -- it’s just good housekeeping. We've always had one, the previous one expired as Dave mentioned in his comments.
So it’s just good for us to have that done and available to us. If we want to react quickly do anything.
We don’t know when NAFTA is going to be announced and we don’t know what it's going to be. So you can't really -- I don’t the rating agencies give us much credit for that.
From an option value it’s difficult for the market to give you much credit for it. And frankly in our planning we don’t think on it.
We know it’s out there, we really expect a positive result, we’re so angry with what British Columbia and Canada did to that Celgar mill, but we expect to win.
DeForest Hinman
Let’s dig into that a little bit more, I mean you have to have some monitory assessment of what you think it’s worth otherwise you’re going to spend the legal cost to pursue the claim over the two years and --.
David Gandossi
It’s a tribunal and we sued for $250 million. That was out claim and we spent 3 years building our case with the tribunal and thousands of pages of paper and testimony in person and all that kind of stuff.
We did it because we know that we have a good case. But if you speak to a lawyer about a case that is decided by human beings, he can say, well I can give you 50 plus 1 or I can give you 50 minus 1, but you don’t get much more.
There is no certainly in this things. It’s like any --.
DeForest Hinman
I understand that, but you had talked -- I think at the last call you had completed some oral arguments and now is the case under review, in it sort of a final decision? And do we have any expectation at all when that will be disclosed.
Is it a fourth quarter item or is it a first quarter next year or we don’t know at all?
David Gandossi
Well the process, we completed all of our oral -- the oral components of the process was completed in July of last year 2015 and we -- our expectations was that we would hear within a year. So when the summer came this year we were waiting to hear and we didn’t, so we had our lawyers write to the tribunal to ask if there is any information about when we would hear and we heard nothing back.
And we’ve just in the last week asked them to write again. And it might be that one of the panel members was completely consumed intellectually with a previous case that was his finishing and they haven’t finished ours yet.
So we don’t know and they have no obligation to tell us. Traditionally, our legal team has told us these things usually get settled in a -- that you usually hear within a year.
There is no appeal from the decision, more complicated ones may take longer or as I mentioned that the panel member is consumed on another matter for a while, it may create a delay in allowing the tribunal to do their process that they need to do to make a decision. So I'm just -- I'm guessing we are going to hear pretty soon or we’re not going to hear till first quarter.
I don’t think we’ll be hearing over the Christmas season, that's all we know.
DeForest Hinman
Okay, and then also on the capital structure. Has there been any discussion with the executive team and the board about the window for refinancing potentially closing?
You seem to me to be in a position where you have excess cash, you have some debt that has some call provisions and those are stepping down, they’re getting more attractive as time progresses. But is it something along the lines if our ratings aren’t good enough, the rate we're seeing potentially on the debt from the banks is not high enough because it’s just similar to the last call, because it just seems odd to need to have -- if it works out, you have over $2 of sharing cash on a similar or recent stock.
David Gandossi
Yes, I guess I could answer the question maybe this way that, we are very aware of what our option are. We do the work continuously and we have assistance from guys who would love to take us out and do a bond issue with us, a tendered or refi.
But today the net present value of doing that just isn’t in a money yet. So you have a cost to tender or to bring in the old bond and you will issue the new bonds at a lower coupon, that's for sure.
But there is a -- you can do a net present value calculation that says is there any need [ph] in this and that calculation changes quite rapidly as you move through time and we've just given ourselves a leg up on the rating change, that moving up a notch kind of reduces the cost to money by about 75 basis points on average, so that helps the calculation. But today it's -- we are not in the place where we’re certain we would do anything with the 2022s, it would just be too expensive and on the 2019s it's -- we've got some options around that and certainly we’ll work on it, but it's not something that's going to happened this year.
DeForest Hinman
Okay, thank you.
Operator
[Operator Instructions] Our next question comes from the line of Dan Jacome from Sidoti & Company. Your line is open.
Dan Jacome
Good to hear from you guys, interesting call so far. I think the buyback idea that Andy had makes a lot of sense.
But I also think that it’s probably going to have a bunch of holders that what you to hold on to a good chunk of cash given that cycle worsens. And that’s what I wanted to touch on.
Current pulp cycle versus past cycles and keeping in mind what you guys have touched on regarding shut in China or changes in recycles or virgin. In Europe, what would you guys say, if I’m looking at the current cycle versus the last two pulp price peaks in the last decade?
What are one or two kind of larges differences between the current cycle and the past cycle? If you could just remind us again of that.
David Gandossi
Well I guess, the last big build out of capacity was probably the late 80s, early 90s in Scandinavia and in that time frame they added a full one third to the global capacity of NBSK. And you know it was a steep cost curve at the time and these guys were I think arguably first quartile producers.
And it just -- it took forever for mills to close because there -- it was a marginal business most of the time, and every now and then there would be one really great year and then it would be a bunch of normal years. And it wasn't until 2006 that a couple of million tons of capacity finally said Uncle [ph] and in 2009 that was the big flush out.
On a net basis probably 3.5 million tons of capacity left the market and we’ve been very balanced ever since some of the new things in the world is this whole recycle fiber story in evolving fairly rapidly the changes to the economic living standards of massive hundreds of millions of people in China and other countries in the Middle-East and the rest of South East Asia and so on. The internet -- buy your stuff and have it shipped in a box, boom.
Packaging label products, customer interface media that, so much has become packaging, it’s becoming such an important element. So the world is just changing so quickly Dan.
It's almost like it’s not even comparable to where we were 10 years ago. It’s a fact we see guys think this is a great business, so guys who have building capacity where they can.
But the mills that didn’t close down in the last cycles are now 10 years older and I was saying earlier, I think its quiet an interesting time to watch what some of these real old timers are going to have to do. So it's a bit or lot less, but you know from my way of thinking there is lots of positive indicators here, it’s going to be interesting to watch.
Dan Jacome
Okay.
David Gandossi
It will be different than what most people expect, is my view.
Dan Jacome
Yes looking forward to it. Okay thanks a lot.
Operator
Your next question comes from the line of Frank Duplak [ph] from Prudential. Your line is open.
Unidentified Analyst
My question have been asked and answered. Thank you.
David Gandossi
Thanks Frank.
Operator
Your next question comes from the line of West Swanson from RBC Capital Markets. Your line is open.
West Swanson
Just had a quick one on NBSK mill evaluations. I think last quarter on the conference call you mentioned that valuation we still in the frothy side.
Is that still the case and if so do you see them coming down in the future here as new capacity hit the market?
David Gandossi
The mill valuation from [indiscernible]?
West Swanson
Yes.
David Gandossi
I think what might I have been trying to say is that NBSK capacity today as a good mill would be very expensive. Like nobody is going to give up a softwood mill easily it’s a competitive mill.
The replacement cost of these assets is enormous, to build a modern mill today is well north of the 100 -- or €1 billion. So it's -- is that answering your questions.
There is two different kinds of performers out there. There is the good mills and then there is the junk.
And companies like ours wouldn’t pay a nickel for the junk and the chances of somebody selling a really nice mill are pretty slim.
West Swanson
Yes, I was just kind of coming at it from the perspective of inorganic growth opportunities. I think you had mentioned that’s something that you might be interested in.
But I under the impression that valuation just the [indiscernible], things were too expensive. So I just wondered if that’s [multiple speakers].
David Gandossi
No that's a true statement. Maybe I was misunderstanding the way you asked.
The growth potential for us is limited because we would not see buying on an expensive NBSK pulp mill as the right thing to do at this stage for our shareholders. If somebody -- if we can make a fantastic deal, we'd be all over it.
But I think there will be a good deal out there for us.
West Swanson
Great, okay thanks for that.
Operator
There are no further questions in the queue at this time. I turn the call back over to Mr.
David Gandossi.
David Gandossi
Okay, well thanks Julie, and thanks everyone for all your questions and your interest. And Dave and I are also available offline for investors questions, if you have any don’t hesitate to reach out us and otherwise we will look forward to speaking to you all again on our next call.
Bye for now.
Operator
This concludes today's conference call. You may now disconnect.