Feb 10, 2017
Executives
David Gandossi - President and CEO David Ure - SVP Finance and CFO
Analysts
Sam McGovern - Credit Suisse Sean Steuart - TD Securities Dan Jacome - Sidoti & Company Paul Quinn - RBC Capital Markets Andrew Kuske - Credit Suisse Andrew Shapiro - Lawndale Capital Management Anthony Young - Macquarie Hamir Patel - CIBC Capital Markets Kasha Copetek - TD Securities
Operator
Good morning and welcome to Mercer International's Fourth 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. Please go ahead.
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 Q1.
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 Q4, we achieved EBITDA of $57.8 million compared to $47.9 million in Q3 2016. Our Q4 result reflects steady pulp demand, favorable foreign exchange movements, and the reversal of a wastewater fee accrual at our Stendal Mill, all partially offset by an increase in the level of scheduled annual maintenance.
Our pulp sales were down about 15,000 tons and electricity sales were down 29,000 megawatt hours relative to Q3 primarily due to Stendal's 12 days scheduled maintenance downtime. Pulp sales realizations were essentially flat compared to Q3 with strong demand mostly offsetting the downward price pressure from the rapid appreciation of the U.S.
dollar. However, the stronger U.S.
dollar did help reduce our euro and Canadian dollar costs when translated to U.S. dollars.
In terms of significant items impacting our results when comparing to Q3, the scheduled maintenance shut at Stendal is notable. Including direct costs, lost production and reduced energy and chemical sales, we estimate that our Q4 EBITDA was negatively impacted by approximately $7.2 million relative to Q3.
After taking consideration, the major maintenance downtimes, our mills ran well in Q4 with total production similar to that of Q3. In addition to the tailwind provided by a strong U.S.
dollar, Q4 also benefited from the reversal of $13.6 million of previously accrued wastewater fees at Stendal. Wastewater fees are attacks on the industrial use of water at Germany and are payable at the end of three-year assessment periods.
The fees could be waived if the company can demonstrate lower effluent levels as a result of emission reduction capital expenditures. U.S.
GAAP requires that we accrue these fees until the regulatory authorities validate that the capital project we undertook has accomplished its emission reduction goals. In this case of the Stendhal project, we received regulatory approval in Q4.
This accounting treatment creates an unusual EBITDA effect of accruing the $13.6 million of fees during the previous three years only to reverse it all at the end of that period. We reported net income of $18.5 million for the quarter or $0.29 per basic share compared to net income of $11.9 million or $0.18 per share in Q3.
Our Q4 interest expense was stable at $12.9 million and was roughly the equivalent of two-thirds of our energy and chemical revenue which means that our debt carrying costs are comfortably covered by our byproduct revenue. Income tax expense in the quarter was $5.3 million of which - about 0.8 million was current.
Current taxes reflect our continued use of tax assets to shield cash taxes. Turning to cash flow, our cash balance decreased by about $8.5 million in Q4 compared to an increase in cash in Q3 of about $28.9 million.
Our Q4 operating results were comparable to Q3 but this is more than offset by negative working capital movements and scheduled interest of derivative payments. Despite the high demand on working capital this quarter, our free cash flow is about $15 million in Q4 compared to just under $28 million in Q3 when working capital movements were significantly more favorable.
In addition, our year-to-date free cash flow was a solid $96 million. Capital expenditures grew about $14 million during the quarter, the majority of which was spent on high return projects.
Some of the more notable projects include the expansion of Rosenthal's lime kiln capacity and Stendhal is working on the first stages of some debottlenecking projects, as well as a modest expansion of its tall oil plant. Our cash outflows in the quarter also included our quarterly $7.4 million dividend payment.
Our liquidity remains strong. Our consolidated balance sheet was approximately $141 million at December 31, 2016 and we had about $133 million of undrawn revolvers between our three mills.
Combined our totally liquidity remains over $270 million. Our $141 million of cash at the end of Q4 includes approximately $4 million of restricted cash.
These are funds that are being set aside to act as collateral for our Stendal interest rate swap. The collateral amount is contractually based and as the interests rate swap balance declines, so will the collateral amount subject to certain minimum requirements.
This balance is down about $9 million at the end of 2015 and the final settlements of this instrument will be made in April and October of this year. On a trailing 12 month basis, our net debt is about two times EBITDA which is consistent with that of Q3.
And you'll have seen from our press release yesterday, that our Board has approved an $0.115 dividend for shareholders of record on March 28 for which payment will be made on April 4, 2017. And finally, we recently completed an issue of $225 million of senior notes.
The new notes have a coupon of 6.5% and mature in 2024. We were able to take advantage of our credit rating improvements from the fall to raise capital at favorable rates for the purposes of redeeming our 7% senior notes due in 2019.
In effect, we've extended our senior notes by five years at a favorable rate and maintained our financial flexibility to deploy capital. That ends my overview of the financial results.
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 solid operating quarter including an ambitious 12 day plan maintenance shut at our largest mill.
Compared to Q3, the strengthening dollar had a large positive impact as well on our results as at the reversal of the wastewater fee accrual at Stendal. In terms of the pulp markets, demand has been very steady to the point that we're having to say no in fact to certain spot pulp sales request we've been getting.
We expect these balanced conditions to continue well into 2017. Demand has been strong enough to offset new capacity that entered the market in 2016.
NBSK producer inventories finished the year at 32 days and have been near this level all year. 32 days is up two days from the previous quarter but we believe inventories at this level remain balanced.
Growth in global softwood deliveries continues to be strong at over 3% year-to-date, that's roughly 700,000 tons and China in particular was very strong at about 13% growth when compared to the same 12 month period in 2015. We believe China's strong demand is consumer driven but it's also the result of the closure of highly political Chinese agricultural based pulp, along with the diminishing supply of quality recycle fiber.
In addition, the Chinese paper industry continues to advance its capacity with new highly efficient paper machines to require a certain amount of premium NBSK to run efficiently. The quarterly average resi list price in Europe was unchanged at 8.10 per year compared to Britain compared to Q3 in 2016.
Similarly the quarterly average list price in China remained at $595 per ton compared to Q3. This is remarkable as it occurred during the period of conservable U.S.
dollar appreciation. Looking forward in China we implemented a $20 per ton increase effective January 1, is a $20 increase in early February.
Mercer announced $40 in fact in February, so the March price will be 650. In Europe we recently announced a $20 increase effective February 1.
These recent price increases reflect the strong market fundamentals and our belief at the global tissue and specialty paper markets continue to grow at a steady pace. Moving to operations overall our Q4 production was comparable to Q3, the decrease of roughly 12,000 tons was primarily due to the timing of our scheduled maintenance shuts.
In Q3 we took 10 days of scheduled downtime at Rosenthal compared to a total of 12 days in Q4 at the larger Stendal Mill. Our 2017 annual maintenance shuts are as follows; in Celgar will be Q2, that will be a fairly large shut summer between 15 to 18 days and will include the completion of a number of capital projects that are designed to improve the mills reliability and output.
Stendal will also have a short three-day shut in Q2. In Q3 Rosenthal take a 12 day shut and again then in Q4 Stendal will be down for another short three-day shut.
In total we produced approximately 350,000 tons of pulp this quarter compared to 362,000 tons in the third quarter of 2016 and approximately 367,000 tons in the fourth quarter of 2015. As you would expect based on our lower production, our pulp sales volumes were down slightly in Q4 and totaled 345,000 tons compared to 360,000 tons in the third quarter and 352,000 tons in Q4 of 2015.
Turning to our energy sales, the mill sold approximately 180 gigawatt hours of electricity in the quarter compared to 208 gigawatt in Q3 and 204 gigawatt hours in Q4 2015. This reduction in Q4 sales was primarily due to Stendal shut.
I’m very pleased with our fiber costs which were down slightly again this quarter continuing what has been a fairly steady trend for three years. Market factors have worked in our favor but we're also seeing the impact of our strategic wood cost reduction initiatives.
Celgar has benefited from around with procurement strategies. We now also have our full fleet of new high-volume railcars - log railcars in Germany, these railcars are designed to increase the hauling capacity of a train by 50% which reduces our per unit transportation cost but also creates strategic benefits by expanding our fiber market reach.
We have also started to commission a new railcar log on loading facility at Rosenthal so we can efficiently unload different assortments of logs delivered by rail. We continue to be excited by European wood purchasing joint venture with Mondi that we expect will allow us to access markets that were previously uneconomic.
We call this new organization wood2M and we've already had some - seen some of the expected benefits from this new organization. Our German fiber prices were essentially flat in Q4 during the period that traditionally sees wood price increases.
Looking forward, we're expecting Germany wood prices to trend up slightly in Q1 mainly due to the current severe winter conditions. In British Columbia, our Q4 fiber prices were down slightly this quarter relative to Q3.
We're currently forecasting that Celgar's Canadian dollar fiber prices will rise just slightly in Q1. Many of you are likely aware of what appears to be another softwood lumber agreement dispute looming between Canada and the United States.
We currently believe that our Celgar Mill will not be significantly impacted should this dispute escalate. Overall we are satisfied with our mills wood markets and with our fiber inventory levels.
Regarding our CapEx plan we currently expect to invest close to $50 million in our mills in 2017. The focus of our CapEx program continues to be a balance of maintaining our mills on improving reliability and production cost.
These high return spending projects will be spread evenly overall three mills. I’m very pleased with the recent refinancing of our 2019 senior notes.
The demand for the new notes was very strong and is a nice endorsement of our financial health. I'm also happy that we're able to refinance at a favorable rate while maintaining our flexibility to grow the company.
With respect to NAFTA, we do not have any updates at this time but we continue to expect a decision in the near future. Finally, I'm pleased to note that our Board has again approved a quarterly cash dividend of $0.115 per share effective for holders of record on March 28 That's the conclusion of our prepared remarks.
And I'll now turn the call back over to the operator to open the call for questions.
Operator
[Operator Instructions] Your first question comes from Sam McGovern with Credit Suisse. Your line is open.
Sam McGovern
Hi guys, thanks for taking my questions. Just regarding the maintenance downtime schedule that you guys laid out, can you give us a reminder in terms of the year-over-year cost impact that you guys had, I know you guys had a slower start-up on Celgar last year I'm just trying to figure out what we should expect in terms of what won't be in the numbers this year.
David Ure
Well I guess the - from a competitive point of view, thing to think about in 2017 is there won't be a large shut for Stendal which there was in 2016. We'll have two mini shuts, Stendal is an 18 months rotation so that's one of the differences.
The other is Celgar will have a 15 to 18 day shut this year in 2017 which is a fairly large one and it has the extension - has to do with some of the larger capital times that we need to do. In 2016, in the second quarter Celgar had a normal shut expected to be 12 days but then we had three unrelated interruptions immediately following the shut which essentially took Celgar out of production for the full month of April and we don't expect that to happen again.
Sam McGovern
Okay, got it. That's perfect.
And I know we just talked two weeks ago with the bond offering but also can you just update us in terms of how you guys are seeing the price hikes go. Are those being well received or any sort of push back?
David Gandossi
So maybe just, for Europe it's up 20 and this is the month of everybody trying to settle accounts at 840 and I think it's a steady market, it's still under discussion but it's a steady tight market so I'll - maybe leave it at that. In China it's really strong market.
Our team are over there right now, I was just talking to them earlier this morning. Lots of interest, lots of demand, paper guys are busy so I think the 630 for February is happening and 650 for March is looking pretty good.
Sam McGovern
Great. Thanks so much, I’ll pass it on.
Operator
Your next question comes from Sean Steuart with TD Securities. Your line is open.
Sean Steuart
Thanks. Good morning, everyone.
Couple of questions. Dave just wondering if you can go into a bit more detail on the pulp market and I'm interested in your views on customer inventories as you mentioned 32 days at the mills isn't really tied by a historical standards but we've clearly got really strong momentum in early 2017.
What are you seeing in terms of buyer inventories right now?
David Gandossi
Yes, my feeling is inventories at the buyer level are low and I think that's both softwood and hardwood. You know some of the real strength - as an example some of the real strength you saw on hardwood at the back end of the year was everybody's then going just in time for a couple of years and then expecting all this pulp to come on and then it's delayed and I mean there was panic in Asia, guys were behind the eight ball and I think that's why you saw that price escalation.
Going back to November in China we had customers repeatedly asking us for spot tons and we kept telling them listen we're done, we can put something on the vessel for you in January but we just - we don’t have any more, it's uncommitted and you can see the concern on the customer side and that was when we went up 20 effective immediately and if the market is, the market I think buyers have been used to adjust in time and like I've always said as soon as they know the price is going to go up, then everybody wants more before it does and so you get this flurry. So we're just in the middle of that kind of frenzy just at the moment.
Sean Steuart
Okay, thanks for that. And on the NAFTA claim, you mentioned you expect something soon, can you put some goalpost around timing there and does the administration change affect anything with respect to that claim?
David Gandossi
Okay. First of all, like normally these like so we finished our in-person hearings in Washington last July of 2015.
Okay, and so we would have expected within a year normally to get the answer but then we learned that the President of the Tribunal had two other very large files, he has been working on in front of ours. So, our view or lawyers view is that the delay is a work load delay like this guy has to rate these decisions and so he is got the other two out of the way now and our assumption is that, they are working on ours, it hasn't been a procedural problem or necessarily lack of - I think it's just a workload thing and we're 18 months now, so my feeling is it's getting embarrassingly late.
So we're expecting it reasonably soon. In terms of rhetoric or changes to NAFTA the announcement that it would be renegotiation with Canada and Mexico, I don't think that has any impact looking backwards.
Those protocols are all in place so I think that's more forward-looking trade, trade concern.
Sean Steuart
Okay. Thanks very much.
That's all I had.
Operator
Your next question comes from Dan Jacome with Sidoti & Company. Your line is open.
Dan Jacome
Can you just give us a little bit more color on all the initiatives you have been doing on the wood procurement side. I know you discussed a little bit, I'm just – it's something I get asked about a lot.
I’m just looking for couple more like on the numbers, like how much you say you reached to saw log and fiber is expanding and then your unit cost are coming down probably, because I think you're putting 50% more wood volume on every trade. What is exactly that doing for your cost and then how much did you reach change by - I'm just looking for like a Delta percentage change.
David Gandossi
Yes, so I guess the main - when you look at it from the top down, our strategy in Germany is to relieve the pressure on the domestic wood market and this strategy started back in the days when bio-energy, home heating with pellets was and community heating was sort of a new craze, it came in very quickly and pellet demand was greater than pellet supply and that drove wood cost up. So, our strategy was, we got to bring more wood in to take pressure off the markets so we put a lot of effort into things like rail infrastructure, sightings, we entered into long-term arrangements for port facilities.
We have a port in Rostock for example Northern Germany where we can bring one million meters of wood year end from the Baltics and from Russia. And when you organize solid logistics with rail and ports all of a sudden what there was too far away before for the German market becomes competitive with the German market and then more you bring into the German market, the more you push the wood down.
And then also the other - we've had some benefit from the market as well because what was the shortage of pellet supply back in those early days is now completely the reverse that there is low barriers entry to the pellet business, anybody who wants - any sawmill that wants to utilize this pins and shavings has got a pellet plant beside it, there is pellets coming in from North America that are getting EN certified and so there is - it's not as bigger force in the market. So we've just been able to - combination of these factors just steadily drive down the market price of wood in Europe and if you can move the roundwood down then sawmill residuals follow.
We also invested in our mills and receiving capabilities, automating, unloading activities those kinds of things to help bring unit cost down and the trains themselves carry 50% more wood relative to what the old trains did. And we Mercer leases all these cars as we control them and that gives us opportunities to do other - we're ready to expand our activities into merchandising complete harvest, moving saw logs around for customers who traditionally were limited to local truck access, those kinds of things.
In Canada we are really - we’ve been very successful expanding the roundwood availability which is a similar sort of a concept. We are not limited to taking saw mill residuals anymore, we can take roundwood residuals from harvesting and process those ourselves at a very efficient cost.
So this is a logistics equipment related endeavor that improves the supply volumes to the mill which helps to keep a lid on prices.
Dan Jacome
Okay. That's a lot of color, definitely appreciate it.
And then I’m sorry if I missed it, did you guys gave kind of an update on the hardwood capacity swings you're expecting in this year.
David Gandossi
I haven't talked about it on this call Dan but there is - I mean I think that's the right question for the hardwood guys there is - our understanding is, [indiscernible] is coming on and I think they're going to try to run it hard and I think they’re going to try to knock out some of the high-cost operators, that seems to be what's coming there - there is lots of strong solid demand growth in hardwood but there is a big chunk of capacity coming over the next two or three years. So I think there is going to be a rationalization, I'm expecting lower hardwood prices, I'm expecting some of the high-cost guys to shut down and there is a lot of that including our agricultural based up it still runs in places like Vietnam, others spots in Southeast Asia but we've been seeing in China I think some of that fibers going to go away and probably some of the North American hire cost, I’m sure fiber mills as well.
Dan Jacome
That's interesting. When you say the high-cost - are those guys in the higher cost currently, is the lack of good fiber procurement capabilities part of that do you think?
David Ure
Well you're competing on a hardwood side - if you're competing with plantation ground wood in mega mills, theorem fixed cost per ton are so low. It's just - it's a new dynamic that you know a typical small North American and European hardwood noses, it could have a really tough time competing with, my view.
David Gandossi
The point to mention the foreign exchange elements and some of those locations as well right, that’s good point too Dave.
Dan Jacome
Okay. And then lastly, not a beat a dead horse but on the NAFTA I’m kind of seeing out there in some publication, maybe by April 1, so you guys said near future - was that kind of April 1 near future be kind of - in the same kind of ballpark?
David Gandossi
It's just a guess Dan, as I mentioned earlier in my comment I just - I don't know - we won't know until it happens like they'll just make big decisions. It will be a big huge written conclusion and they'll release it when they're finished, I mean they don't tell you when that’s going to be.
Dan Jacome
I can't wait to read it.
David Gandossi
Same here.
Dan Jacome
All right guys. Thanks a lot.
Have a good one.
Operator
Your next question comes from Paul Quinn with RBC Capital Markets. Your line is open.
Paul Quinn
Hi, thanks very much. Good morning, Dave.
Good morning, Dave. Just a question on follow-up on this wood cost, you mentioned that three year trend in downward cost, maybe you could - and you did a great job detailing all the work you done around it.
Can you quantify what that cost reduction has been over that three-year period?
David Ure
Well I got to be careful I don't talk about much more that's in our MD&A Paul.
Paul Quinn
Or maybe you can point me to where it's found in the MD&A so I can add it up or?
David Gandossi
I don't believe...
Paul Quinn
Maybe why you work on that or maybe why you get, David Ure to work on that may be?
David Gandossi
Well Paul maybe he will just help so he is just pointing to a recent investor presentation where we showed our U.S. dollars per ton average fiber costs Q1 of 2013 at around 350.
Paul Quinn
Yes.
David Gandossi
And it's down now in the – it's just a little above 250 call it maybe 260 in Q1 of Q3.
Paul Quinn
Okay, so it’s quite material.
David Gandossi
Yes.
Paul Quinn
Then maybe you could help me with the 13.6 million wastewater reversal I mean, I just basically back it out of EBITDA but I think that's probably pretty crude, do I just take that over the 12 quarters, spread that over the 12 quarters going back would be the way to treat that?
David Gandossi
It's three years going back Paul – so these are three-year windows.
Paul Quinn
Like three-year 12 quarters?
David Gandossi
Yes. We accrue in the costs, the wastewater fees and during that timeframe we developed a concept review that with the authorities and the concept is, we can spend some capital to reduce the effluent emissions of a – particular parameters and get them to buy in.
Then we engineer and we build and then we have to test and if you can prove that you’ve reduced the effluent emissions in accordance with the plan that was outlined initially. Then you get a waiver of needing to pay the wastewater fees.
So if you don't do the capital spend you have to pay the wastewater fees in cash at the end of the three-year period. If the capital spend achieves the objectives then you have that reversed or waived and it's when we receive that final clearance from the authorities – the fourth year after the beginning of period – it's just a one-time reversal that goes to earnings because it was recorded as a cost in the previous three years.
Paul Quinn
Okay. So thanks for that.
So just trying to understand the benefit to you if I back that out of Q4 2016 because I think it's the one-timer, how do I give you – do I take that 13.6 over the three-year period as a credit for you in your EBITDA on those – during that period.
David Gandossi
Yes, that is right.
Paul Quinn
Okay.
David Gandossi
You got it back evenly over the whole period.
Paul Quinn
Okay. Then just on the refi and you mentioned the 12.9 million interest in the quarter, what’s the effect of the refi on your rate going forward?
David Ure
Well it’s a 0.5% on 225 million.
Paul Quinn
Okay. And just lastly, mentioned you know strong shipment volumes on the software side up 3% globally up 13% in China I think you're probably referencing at PPPC data?
David Ure
Yes, that right in PPPC.
Paul Quinn
Right so that doesn’t take into account – other countries that aren’t covered by that. I’m just wondering what your feel is on what that total China increase was in 2016 and the sustainability of that – do you have any color into tissue capacity adds going forward or on the capacity shut side for pulp within the country?
David Ure
Yes, I don't have a better data, but that 13% in softwood for China that's about 800,000 tons in that market that's huge and – on the ground what you see is even the printing and writing guys are much happier now than I’ve seen them for I mean as long as I've been going over there. They’re 80% or more utilized I think there is a lot more domestic business for them some of that’s coming from the closure of the highly polluting in regional China the agricultural waste products it get pulped and turned into paper in an integrated way.
And that's been closing down to the tune of 3 million to 4 million or 5 million tons a year in some cases over the last five or six years pretty big numbers. What was overbuilt earlier in the decade is now getting busier.
They have also interesting most of the guys are saying they’ve had some reasonable success with export business. They’re starting to make some money shipping paper out of China so – they’re not all sitting on these big overhangs of paper anymore.
On the tissue side, it's been really significant growth a few years ago there were some huge announcements and after a year of those announcements the companies’ that made them pullback their expectations. And so we’re not canceling our plans we’re just delaying them and – so that – what would have been so call it a three-year build so it will become may be a five-year build.
So it’s still, China is still chugging along adding capacity on the tissue and the specialty side fairly significantly big demand draw for hardwood slightly less for softwood on average 30% to 40% softwood more to the hardwood depending on the grades. But it's – when you add it all up 800,000 tons of incremental softwood demand in China in one year is – just gives you an indication of how quickly things are changing over there.
Paul Quinn
Great so thanks a lot of guys.
Operator
Your next question comes from Andrew Kuske with Credit Suisse. Your line is open.
Andrew Kuske
Thank you good morning I really appreciate the commentary on the pulp markets, but may be just a little bit more granular on just the last month the data that we saw and there is a pretty meaningful follow off in European shipments on softwood, but then as you stated pretty big increase on China just in that month of data. To what degree – was that a little bit of trying to get ahead of the Chinese New Year and could you just give us a bit more color on the commentary on why?
David Gandossi
Yes, my guess – is whether equipment related.
Andrew Kuske
Okay.
David Gandossi
I think, for us for example we struggled at the end of year to get everything out – some of the container availability in Europe has been relatively low those kind of things. So I don't think the data is reflecting anything in the market it’s probably really more around the shipment side of things.
Andrew Kuske
Okay. So then on the shipment data maybe that just foreshadows of what mid data at the end of the year for Europe and then Europe bounces back.
And then do you anticipate any pullback in the data on the Chinese numbers just given the Chinese New Year when it fell?
David Gandossi
Yes, look Chinese New Year you know nothing, can be received in a report there – everything gets scheduled so that it doesn't show up and there is nobody there to receive it and then stuff will start rolling in pretty quickly and everybody gets back to work. I mean Eric Heine is over there right now as I mentioned I was speaking to him this morning he said things are happening, it’s a tight market right now.
So we’re expecting shipments to continue and consumption to continue and that should carry on as long as we don't have too much pulp brought on all at the same time from a capacity point of view which is the risk that we’re all thinking about for the back half of this year and into next year to see how that plays out.
Andrew Kuske
So, on the near-term are you thinking has your fiber costs have been, you keep wrestling them downward for the most part there is a good trend there as you’ve talked about. And you’ve got a price increase in front of people right now it seems like the market is reasonably balanced.
Do you see a good opportunity for margin expansion just on a near-term basis before – there may be a capacity concern later on in the year?
David Gandossi
Yes, I think so I mean, all the metrics are moving in a good direction for sure.
Andrew Kuske
Okay. And just one final one just on balance sheet management – obviously there is - the maturity extension on the data and the coupon so how do you think about just the balance sheet management and how that positions you.
Really for an extended period of time now and just the benefits that gives?
David Gandossi
Yes, so we want to be - we’ve been delevering for an extended period of time. We took on a lot of leverage to build our mills, but we felt it was manageable leverage.
We had guarantees from the German government for example it's hard to explain that to a North America capital markets but – we felt comfortable with the leverage but we’ve been jumping away at it steadily improving the balance sheet. And I think where we’re positioned today – we’re very comfortable with our leverage – it’s had a very healthy liquidity it can withstand anything the world may throw at us I’m touching wood.
And we’ve always committed to maintaining our dividend and we’ll continue to pay down debt where we can and when the conditions are right and we continue to maintain some optionality. We do as I think the market is aware reading our materials.
We do see now it's time for Mercer to continue to expand its activities and continue to seek more of these lower capital, higher return type of initiatives that you've seen us doing and we will continue to do that in more and having some strengthen and healthy cash positions will help us do that.
Andrew Kuske
Okay. Thank you.
Operator
Your next question comes from Andrew Shapiro with Lawndale Capital Management. Your line is open.
Andrew Shapiro
Hi, following up on the prior question and your prior answer. With all of your debt now refinanced to the lower rates extended out another five years, that's over lower overall levels with your cash and your cash continues to build up in excess of your ex needs.
When does the common stock buyback and/or an increased dividend policy gain importance in your board discussions?
David Gandossi
Well, we do - we talk about that every quarter Andrew and at the moment we’re staying the course on the dividend and we don't have a share buyback announced as you know.
Andrew Shapiro
No, I’m asking when does this gain greater importance since all of the other items that were on the checklist have now been actually successfully been taking care by now.
David Ure
Capital allocation is done in consideration of lots of variables, lots of activities everything of which is announced in the market and so I can't say when it takes greater importance, it does take great partners always, that's why we're here but at the moment we have nothing announced.
Andrew Shapiro
Okay. That part of obvious I just didn’t know if it's like – that’s the next thing you guys will turn to us an item its, the other things on the checklist now that are out of the way.
What are the plans for your investment presentations non-deal road shows et cetera in the coming months?
David Gandossi
Nothing as far as formal conferences for the next couple of months Andrew but we are working on a couple of - to little bit fluid but we are working on a couple of road shows - we're hoping to line up something on the West Coast and something on the East Coast in the next couple of months. And then as the season - as a conference season comes a little bit closer I think will be in a better position in our April call to talk a little bit about what our plans are for formal conferences and they will start to pick up in the late spring.
Andrew Shapiro
Okay. And you know, I’ve been an investor as you know for a very long time in varying sizes but for a very long times so I've seen the company and its days of extreme leverage based on the German government guaranteed loans.
The build out of Stendal, paid for with hundreds of millions of dollars of government grants, the buildout or refurbishment of your other facilities with government grants and under GAAP those grant values are a reduction of your PP&E and thus your book value – you've stated book value doesn't really reflect the replacement cost of these plants and facilities. Periodically, I don’t think it was annually or at some point you have maybe disclosed the unamortized value of those grants in other words the underappreciated amounts of those grants.
Will your 10-K that's going to come out in the next few weeks provide such an update so one could understand the estimated or adjusted book value of your plants or is that something you could either provide now or plan to provide us in the future?
David Gandossi
Yes Andrew, my understanding is it's in the K and will be in this K - has been historically as well.
Andrew Shapiro
Okay, good. So we’ll be able to see that because you know we are just trying to understand and want to the rest of the street to understand how deeply undervalued the stock market valuation might despite approaching recent year highs.
David Gandossi
Yes, it's a great point, I would draw your attention to the capital expenditure section of our case and you know I don't know this year's amortized amount but in gross terms it exceeds US$0.5 billion of government grant value that's gone into our mills in the last 12 years.
David Ure
And that's not reflected by any means in your stated book value because it's a reduced depreciation over remaining.
David Gandossi
Yes, it gets recorded as a reduction against fixed assets and then gets amortized on the amortized against the depreciation line.
Andrew Shapiro
Exactly. Okay.
The stated current market yield of your dividend is again something that's very attractive and when you guys do consider the aspect of doing a stock repurchase, does that play a role in your analysis that for every share you buy back that's actually cash flow on dividends that you don't have to pay out?
David Ure
Well that's how it works.
Andrew Shapiro
Good, all right. Well thank you.
Operator
Your next question comes from Kasha Copetek with TD Securities. Your line is open.
Kasha Copetek
Hi, good morning, it's Kasia. Would you be able to provide the mill by mill breakdown for shipments as well as production in Q4?
David Ure
Yes, we can do that, so in Q4 the production at our Rosenthal Mill - just the shipments?
Kasha Copetek
No both if you could.
David Ure
Both, okay, I will start with production. Production in Q4 to Rosenthal Mill was 89.4 these are in thousands of tons, Stendal 142.5, Celgar 118.4 and sales volumes Rosenthal 85.9, Stendal 140.4 and Celgar 118.9.
Kasha Copetek
That's great, thanks very much. That's all for me.
Operator
Your next question comes from Anthony Young with Macquarie. Your line is open.
Anthony Young
Good morning guys. Thanks for the question.
Really just on capital deployment, I guess you guys touched upon this and David you mentioned the investments which you guys have been making and are happy to continue making. I was just wondering on M&A side, you guys have talked about in the past things being expensive and given the firmness and the increasing pricing environment we are seeing, I mean are things starting to look cheaper or more attractive or are we going to just continue to ship away the balance sheet?
David Gandossi
Yes, I mean we're always actively looking for ways to enhance value, I said in the past we're not - I don’t want any investors to think we are looking at big pulp mills or anything like that, nothing overly material certainly not going to be issuing stock at these levels. But we do continue to look at things that are attractive to us in our areas where we have core competencies and we just keep doing that, it's been difficult with valuations as I mentioned but there are things that we see that we evaluate we think are interesting and we do hope to get something done this year at some point.
Anthony Young
And I mean just reading between the lines and it seems like it would be more of a bolt-on acquisition and if you guys were to pursue anything, you're looking more bolt-on and like you said in other mill or something else transformative?
David Gandossi
Well bolt-on, I guess that would be a reasonable term, yes. Our focus is lower in - lower capital intensity, higher return, more of a opportunity to create growth in an area that's in an area of our core abilities but wouldn't necessarily be NBSK pulp.
So I mean I can't say too much because we didn’t announced anything but it's just something that we're actively thinking about that we've got a strong balance sheet and we've got a strong team and continue to grow Mercer where I think could create value for shareholders, we are working hard at that.
Anthony Young
Okay. Definitely good luck with that.
And then maybe just last month on the -- you guys have bonds which are callable in December, do you still envision calling those in similar fashion to that ones you get few months ago, couple weeks ago now I guess.
David Gandossi
Yes, I don’t know I can't answer that, the call in the 2019 was an opportunistic call, we got strong tailwinds from the pulp market, have strong bond market and we’re moving into a period where there is some capacity coming. So, we felt we should get it done.
We’ll have to make our assessments on 2022s as the time approaches, probably no rush on those would be my guess for now but will just evaluate it as we measure the conditions at the time.
Anthony Young
Okay. Thanks for the question guys.
Operator
[Operator Instructions] Your next question comes from Hamir Patel with CIBC Capital Markets. Your line is open.
Hamir Patel
Hi, good morning. Dave based on the various projects that you guys have underway can you speak to what sort of level of shipments you’re targeting for 2017.
David Ure
Yes, I hardly answer that, we would - we’ll expect to be at around 1.5 million tons or grater may be 1.5, 2.5 something like that. The main improvement area for us will be Celgar which closed the year at 426,000 tons which was disappointing, it had a lot to do with some of the equipment issues we had back in the spring, looking to get that mill up more in then north of 480.
Stendal was close to 650 in 2016, maybe in a aggressive stretch target for that mill would be 675 and the Rosenthal Mill we would hope can hit its maximum capacity which is around 365,000 tons.
Hamir Patel
Great, thanks. That's helpful and just final question I had was, I saw reporting resi, this week that seem to suggest that some paper project in the South is going back to as a fluff mill.
Have you heard anything about that?
David Ure
Not specifically but it was originally thinking - they originally were thinking fluff and then they were thinking dissolving. So having said that the fluff market's been reasonably strong, good growth there so they might be rethinking it but - these things aren't always exactly what the company is thinking, so I don't have any specific knowledge of it.
Hamir Patel
Fair enough, thanks. That's all I had.
Operator
And there are no further questions at this time. I will turn the call back over to Mr.
Gandossi.
David Gandossi
Okay, thanks. Thanks everyone for taking the time to be on our call today.
I appreciate all your support and if you have questions that you want to contact either Dave or I that would be fine and otherwise we look forward to speaking with you again on the next quarter.
Operator
This concludes today's conference call. You may now disconnect.