FFHWatcher

My $1000 price reference was US$, convert to Cdn$ explains the difference ($1,000 US $ = $1,039 CAD$).

Chart on page 6 shows quarterly avg. price @ $1,000 ($1,020-July, $990-Aug,$990-Sept). I think I heard the CEO mention that it was the tightest spread that they have had (FBK selling price vs. published NBSK price).

Possible Convert Option - $25M current cash balance - $10-15M cash generation per quarter, all factors remaining constant (which I can guarantee you they won't) - some cost savings via lower financing charges ($1M+/q) and lower wood chip cost ($2.5M/q) and higher production (if they can sell it) at NBSK - offset by weak US $, softening but not collapsing NBSK pricing, Nov. NBSK shutdown, etc. - Hopefully, the above plus and minus factors offset each other - Trying to be conservative and say $10M free cash from each, ... Q4, Q1 2011, Q2 2011, Q3 2011 = $10M x 4 = $40M - Add to $25M currently sitting in cash adds up to $65M - To be safe, start using ABL Credit Facility for receivables and inventory as permitted which should raise cash balance even further to beyond the $65M - Estimated use of ABL Credit Facility @ $25M by Q3 2011, pushing cash balance from $65m to $85M - Use $52M from $85M cash balance to pay off Converts, leaving $33M in cash and $25M balance owing on ABL Credit Facility - Go back to generating $10-15M/q of free cash to pay down ABL Credit Facility - Could also use half shares (let's not do a rights offering again, ok?) and half cash to pay off Convertible Debt of $52M, depending on current share price A lot of things would have to continue to go right for FBK for something similar to the above scenario to occur. My point is, there is a way to do it that won't further dilute the crap out of the shares outstanding and won't lock the company into another 5-10yrs of interest payments and debt covenants in a cyclical industry.

Did you read the 29 page quarterly report? Full report is here. http://www.fibrek.com/static/en/pdf/rapports_de_gestion/2010_3Q_MDA.pdf The first report I read was shorter and less detailed. Look to page 22 as copied below.... Fibrek’s quarterly results (including sales volumes) also vary from quarter to quarter as a result of the scheduled outages for major maintenance performed at the Mills. Scheduled outages at the Saint-Félicien Mill are performed semi-annually, usually during the second and fourth quarters of each year. As for the Fairmont and Menominee Mills, each mill conducts three scheduled outages during the course of the year. Each year, Fibrek normally spends approximately $6.0 million in major maintenance work at the Saint-Félicien Mill, including approximately $2.5 million which is allocated equally between each semi-annual outage, and a total of approximately $4.0 million at the Fairmont and Menominee Mills on a combined basis (see “Liquidity and Capital Resources – Capital Expenditures”). The sales reduction from the second quarter of 2010 to the third quarter of 2010 is mainly due to lower pulp inventories available for sales. The Company’s RBK pulp inventory was approximately 14,000 tonnes lower when entering the third quarter of 2010 compared to inventory at the beginning of the second quarter of 2010. As well, Fibrek’s NBSK pulp inventory was approximately 4,000 tonnes less when entering the third quarter of 2010 compared to inventory at the beginning of the second quarter of 2010. In addition, the Company’s NBSK pulp inventory increased at the end of the third quarter of 2010 to prepare for the regular major maintenance shutdown in November 2010. Labour relations is also detailed in the long report.

I hope that the guy who was not an investment analysis who got on the conference call and asked questions was not from this board. Questions like, what interest rate do you pay on your debt and how many shares do you have outstanding and how much do you have in converts were a waste of time. Who asks questions on a conference call to the CFO and CEO who hasn't event taken the time to read the quarterly and annuals reports? No wonder companies don't let anyone other than analysts ask questions. Vent over. Dec. 2012 for power generation. 24 months away still.

From what I can see, FBK produced the pulp, they just didn't sell it. Almost $10M was added to inventory from June 30th and perhaps a lot of that is NBSK (I don't think they break down NBSK vs. RBK inventory). They are planning some down time in Nov., so inventory will likely be reduced at that time, depending on customer demand. They did mention that customers tend to wait/delay orders when prices are falling. As prices aren't falling too fast or as fast as first thought, orders may pick up in Q4? Who knows. I guess they could have dumped it as 'market pulp' instead of selling to regular customers, but that would just help to depress prices further plus open them up to the possibility of being caught short in Q4 if demand grows during planned downtime.

I would add the following; 1/ EBITDA margin increased to 15% (from about 13.5%) in Q2 2/ Surpassed 90k tonnes/quarter in production of NBSK and RBK. 3/ LT debt (excluding debs) is about the same as inventory 4/ Adding >10% production capacity at St. Felicien and should be ready to roll on Dec. 1, 2010 at new production level 5/ $10M in lower wood chip cost via Abitibi works out to $27/tonne at St. Felicien (370,000 tonnes / $10,000,000). Significant.

Are you suggesting that FBK try to float a $50M bond to repay converts and not use cash, that may or may not be on hand and not to issue more shares? It likely makes sense and may make even more sense after a couple more quarters of profit but the clock will start ticking on the convert as soon as 2011 rolls around. I would love to see a couple of sharp management moves in the near future. Anything to show us they show up to work each day. You know, kinda pull a rabbit out of the hat trick, a la Mr. Watsa.

Nice 15% pop in Mercer's share price. Wow, major leverage with over $1B in debt and approx. that much in annual revenue. Interesting. Mercer is generating approx. $10M/quarter from energy sales. I wonder how much from Celgar Mill in B.C.? St Felicien is about 70% the size of the Celgar Mill. Perhaps their energy revenue is a similar percentage as Celgar's? From Mercer website remember Mercer's Celgar Mill (500,000 mt capacity) vs. approx. 360,000 MT at St.Felicien Energy Producer (Mercer) In addition to our core business of market pulp production, we produce significant quantities of renewable electricity, generating over 1.4 million MWh of electricity in 2009. In 2010 we will focus further on energy production and sales through an energy project at our Celgar mill in British Columbia, Canada. The Green Energy Project is an approximately C$55 million investment in the mill's power production capacity. Upon completion, the project is expected to permit Celgar to meet all of its energy requirements through self-generation and allow excess electricity to be sold to power utilities, resulting in zero net energy costs for Celgar and significant electricity sales revenue. In the fall of 2010, Celgar's new 48 MW turbine is expected to result initially in exports of up to 30 MW of surplus electricity in the summer and up to 25 MW in the winter. The mill already produces up to 7 MW of electricity for sale on any given day. This surplus energy is a by-product of pulp production, and there is opportunity with this new installation to achiever further incremental increases in electricity exports. Has anybody tried to calculate an estimated revenue number from Fibrek's deal with the gov't to produce green power? I remember trying but it but energy and electricity is over my head. News Flash : Fibrek has a new website up...although it looks to be somewhat temporary as well. An improvement, none the less.

Runoff had pretax income of $115.2M in the third quarter, so even if we back out the GFIC gain of $85.9M, runoff still generated income of $29.3M from July to September. (page 26 in the Q3 report) Btw, when Fairfax aquires GFIC below book, it seems only natural that the book of Fairfax should increase similarly. Here they naturally choose to put that $85.9M gain in runoff. Seems fair to me. Another thing is the way the deal is financed, I agree it looks complicated ::) Cheers! Does everybody remember when runoff was costing $25M/quarter, if my memory serves me correctly?

Shareholders can always vote with their feet and just walk away/sell their shares. Let's see how that works. Frank Stronach has historically taken absolutely huge compensation from Magna. Earlier this year he agreed to eliminate his dual class share structure in return for a token payment of $800-900M. Price before announcement was $65. If you didn't like it and thought it was yet another rip off and sold your shares to show your displeasure, you would have lost...large. Current price 5 months later is over $90 for a cool 40% gain. Ooops. (I think Stronach got a bunch of shares too, so he is likely up over $1B on that move... not bad). Selling or simply not investing in these types of companies feels like the right thing to do but it may not be in an investors financial best interest. Dilemma not solved.

I didn't think my comments justified a new SD topic but I just wanted to vent a little on how CEOs use company's as their personal piggybank. It is a sad state of affairs where corporate America has deteriorated and shareholders and regulatory bodies have allowed certain compensation practices to occur. Prem and FFH set the bar so high, that it puts most other CEO's at the other end of the spectrum. I know Prem likely gets lots of personal perks from FFH but it is a fraction of others, when you compare the value that Prem brings to the table each year and then you see what he gets, it is hard to say that it is lopsided in his favour. In fact, I am going to start a rumour that Prem uses he own personal long distance calling card to make long distance calls from the office ;D. That can not be said about other CEOs, which brings me to Tom Ward, CEO of SandRidge a major holding of FFH. I have been reading the SD proxy statement and have included a few of the notable excerpts, keeping in mind the following historical information, 1/ Tom Ward was one of the original founders of Chesapeake Energy and was their COO until about 2006. 2/ Ward is or was worth in excess of $1-2B, yes, Billion, dollars. 3/ Left CHK in early 2006 and in May 2006 purchased a controlling stake in Riata Energy from Mitchell Malone (the founder) that represented approx. $500M purchase for 29M shares @ $17.25. It would seem that he used debt to finance that purchase and used his new shares as collateral, and perhaps used his CHK shares as collateral as well. Mr. Mitchell will retain 22M shares after the transaction. 4/ After taking over Riata, he changed the name, changed the directors, cleaned house, changed the strategic direction of the company and began a very large acquisition spree that issued hundreds of millions of shares and billions of debt. Also started an executive management well participation program, similar to CHK where the executives are allowed to buy into and share costs in the working interests of wells with the company they work for. 5/ Dec 2007 IPO @ $26/share and T Ward purchased another 4.1M shares 6/ March 2008 T Ward announces his intention to purchase up to $100M shares in the open market. Price was about $39. in March 2008. 7/ By May 2008, T Ward was still purchasing at $48 and up to $56 or so now holding close to 37M shares (personal + trust shares, I believe). 8/ Oct 2008, SD cancels management well participation program and pays out $60M to T. Ward (and others ?) for their portion. 9/ Dec 31, 2008 - T Ward had to sell $50M worth of shares at $5.62 (8.9M shares). 10/ April 2009 - T Ward sold 3M shares from an entity he controls at $7.46 (now back down to about 27-28M shares in total) 11/ Dec. 2009 - T Ward sold 2M shares @ $8.85 (down to about 25M shares) 12/ Jan 2010 - T Ward sold about 100k shares at $10 to raise about $1M 13/ July and Oct 2010, sold another 6M shares at under $6. to bring his total holdings down to about 21M shares. * I may be mistaken, but I believe that all share sales are related to margin calls/using SD shares as collateral for loans that were originally used to purchase SD shares. Summary of Wards Total Comp. 2009 $13.7M 2008 $19.3M 2007 $15.5M Interesting Notes in the SEC Filing... Perquisites and Other Personal Benefits. We believe that the total mix of compensation and benefits provided to our executive officers is competitive and generally, perquisites should not play a large role in our executive officers’ total compensation. As a result, the perquisites and other personal benefits we provide to our executive officers are limited. Under the terms of each named executive officer’s employment agreement, we will pay the fees and expenses related to one membership in a club in the Oklahoma City, Oklahoma area. The terms of Mr. Ward’s employment agreement provide for accounting support from certain Company employees for his personal investments. Mr. Ward reimburses us for half of each such accounting support employee’s annual salary and cash bonus. We have also agreed to provide access to an aircraft at our expense for the personal travel of Mr. Ward and his family and guests who accompany him or them. Mr. Ward pays all personal income taxes accruing as a result of aircraft use for personal travel. In addition, from time to time, the Company provides personal security to Mr. Ward and his family. And it goes on to state; (b) The amount reported in this column for Mr. Ward in 2009 includes (i) $764,767 for costs related to accounting support from our employees for Mr. Ward’s personal investments; (ii) $194,169 for costs related to aircraft usage; (iii) $102,245 for personal security provided to Mr. Ward and his family; and (iv) $12,246 for club membership dues and fees. Accounting support costs include 50% of the salaries and bonuses paid to the employees primarily engaged in providing these services and 100% of the costs of the benefits the Company provides to these employees. The amounts attributable to aircraft usage and personal security are based on the incremental cost to the Company. Incremental cost for aircraft usage is based solely on direct operating costs, including fuel, airport fees and incremental pilot costs, of Company owned aircraft (excluding capital costs of the aircraft) and costs attributable to leasing aircraft not owned by the Company (based on hourly fees), and incremental cost for Mr. Ward’s personal security includes the cost of equipment installation and maintenance and salaries and fees for security personnel. The amounts reported in this column for 2008 and 2007 include $759,611 and $463,973 for accounting support costs, $193,184 and $144,039 for airplane usage costs, and $3,387 and $5,906 for club membership dues and fees. Summary: I am not making a judgement as to whether Tom has added more or less value than what he is receiving from SD. I guess my comment is regarding why he has (other than the obvious answer...'because he can') set up SD to give himself the compensation that it does? He controls the board, the executive, etc. and let's face it, he controls the compensation, just as Prem does. What Tom says, goes. What Prem says, goes. Yes, Prem does have multiple voting shares but it has never come down to that. T. Ward only owns about 5% of the shares of SD now, but I gotta think, what Tom says, goes. How do these CEO's get away with this? I am also not suggesting that it is just T. Ward. I don't think he is abnormally compensated, especially put in the context of the rest of the Nat Gas CEO's from Oklahoma and Texas. I am just saying, he is a significant shareholder and takes an excess amount from the company. Why not accept the fact that he is fairly paid at a few million dollars per year as the CEO and why not accept that the remainder of his compensation should come in the form as the rest of his shareholders do, which is in the form of an increased share price or dividends? Why let the company pay all those personal expenses when he makes millions per year and is or was a billionaire? $100k for personal security? $764k for accounting support for his personal investments? $194k for personal aircraft usage? That is over $1M in perks from a company that can't even pay a dividend and that has gone from over $50 to $5 ? He may end up adding a lot of value to shareholders in the long run but why not participate like his fellow shareholders? Why does he have to get paid today for something that may or may not end up helping the company? In previous years, Ward states that executives should be paid their bonuses and restricted shares in full because they were able to raise $1.5B. Ok, what if that debt ends up bankrupting the company? My point is, why get paid today for results that have not occurred? In the end, a lot more compensation should be significantly deferred after fully weighing the true economic impact of managements decisions. What is better than basic share ownership? Those 1.5M shares that Prem started off with at something like $5 or $10. has served him well over the long run.

Is it just me or has the velocity of the pulp price declines been less dramatic than forecast? A 2.5% decline in 2 months is negligible if you were to compare it to any other commodity or compared to NBSK on the way up. Generally, price declines seem to have a lot more velocity vs. increases but that has not been the case with NBSK, so far. Lots of other moving parts too, such as the US/CDN/EUR, cost of wood chips, deferred capex, lower output, future I/T expense re:website ???, etc. But still...it is what everyone is looking at right now and a lot seems to hinge on China's demand. Date NBSK in the U.S. (USD) NBSK in Europe (USD) 26-Oct-10 974.78 963.01 19-Oct-10 974.78 963.81 12-Oct-10 974.78 967.70 5-Oct-10 984.78 969.83 28-Sept-10 990.00 972.91 21-Sept-10 990.00 973.12 14-Sept-10 990.00 970.55 7-Sept-10 990.49 971.33 31-Aug-10 999.78 974.19 24-Aug-10 999.78 975.37 17-Aug-10 999.78 975.63

A bit of positiveness for NBSK. Perhaps I am grasping at straws? http://www.cisionwire.com/ext/rottneros/rottneros--interim-report-january-september-2010 ... Several leading pulp market observers consider that this price reduction is less than previously anticipated, which may be due to a combination of a weaker dollar rate, an increase in purchases from China and increased paper production in Europe. These observers expect that pulp prices rise again after the turn of the year, at least in dollars. If the downward trend in NBSK pricing subsides, which it seems it may have, certainly the velocity of the decline has subsided and has been quite less than I expected, then FBK should be increasing their estimated fair value each month that NBSK stays over $900/tonne. That also assumes the Cdn $ doesn't continue to appreciate (much) beyond par.

Twacowfca, How is your strategy 180 degrees from this thread? If you had a chart accompanied by an investment thesis from a value guru (ie. Mohnish, WEB, FFH team, etc.) and attached to that investment idea there was a chart or table that showed a 50% decline after they purchased/recommended it, wouldn't that actually perk your interest and get you to take a closer look, such as USG (WEB), KG (Chou), Star Gas (Mohnish), HNR (Monish), SFK-un (FFH), ICO (FFH) and on and on ..... Most of my best ideas have been dug up the same way as you (although, not with your success) and I look for steep drops after key value investors have purchased. A chart would not hurt my process. I am not looking to rank contributors over the short term, besides, how many have purchased a stock and it seems to always take a pretty big haircut within a short time frame after we purchase it? Always. We never get the exact bottom but we also typically don't go all in from the start. A chart/graph would not hurt me in trying to turn up good ideas at even cheaper prices. If Mohnish determines that $10. is a good price to start buying and I can start buying at $4-5., than perhaps I should take a closer look? Yet another way that a chart/graph would help assist others. I just can't see how it would hurt the process of finding value. If you want to keep your investment ideas a secret, don't want any scrutiny (positive or negative), than you shouldn't really be posting your thesis for others to examine.

Ok, perhaps you can post your prospective chart when you post your idea? ;) I understand that value investors look to their calculation/estimation of fair value and the current stock price differently. I get that. I am not suggesting that we post a chart of the past stock movement prior to an investment idea is presented but from the date it has been presented until the present. This will provide a graphical or numerical reference as to whether the stock has moved towards or away from the estimated value of the company. If the stock has declined, it may suggest that there is even an greater return potential, should the stock eventually return to the estimated fair value. On the other hand, a lower stock price might suggest that something may be incorrect in their thesis. Maybe something was missed or maybe the market is simply still missing it. If the stock price has increased and is now close to the estimated fair value, then perhaps the value has been realized and the future return potential, based on their estimates of fair value have been realized or perhaps the company continues to execute and their estimated fair value should or could be increased. On the contrary, I believe a chart starting from the post-date forward can indeed show you how to make or perhaps preserve your money. Perhaps not on that particular stock but perhaps with future similar situations. It is all about learning for me. History can indeed teach us something. If you read a particular 1 year old write up on an investment idea, you agree with the writer and see the value in the company and then view the stock chart over the next 12 months and watch it go to zero and then a Chapter 11 shortly follows, you can go back and look for what you missed. Perhaps there was a write up on NetFlix in 2008 or a really old one on Apple in 2001, perhaps you didn't see value in those write ups and then you go back and look at the chart and think to yourself, What did I miss in that write up that I shouldn't have missed and that I don't want to miss in the future? You may also be able to identify a particular method of analysis or a particular type of company that seems to be more or less successful than others. Perhaps an accompanying chart will help you see successful or unsuccessful analysis more easily? That was my thought.

Just check their website.... ???

It may be a bit premature or be too complex or be too time consuming or be inaccurate due to multiple purchases at various prices, but has anyone considered including a graph or chart that tracks the performance of the ideas from when they are first presented in the new Investment Ideas section?

It sounds like we are virtually all in agreement with the direction you are suggesting.

Ok. You have made your point. Move on. Perhaps start a new thread called unintended consequences (please use quotes) and if someone is interested in going down that road with you, then great.

Chou Associates Fund up 4.36% in Cdn $$ terms for the week based on King Pharma buyout from Pfizer. Up 12.22% Cdn $ YTD (US$ version is up 16.25% YTD)

Q3 is already closed and not reported. Current flying loonie will affect Q4, if it continues. For every cent that the loonie increases, it has a $2.9M negative impact on Fibrek's net earnings. For Q3 2010, comparing to Q2 2010 (QOQ), there was a minimal, perhaps even positive impact by the loonie on their net earnings. YOY is still an overall negative because in Q2 2010 they were comparing to an 85 cent dollar in Q2 2009. In Q3 2010 we will be comparing to a 91 cent dollar, which is less worse to compare against. Q2 2010 averaged 97.3 cents while Q3 2010 should average just under that in the mid 96 cent range by my estimates. At most, that equates to a $2.9M per year improvement divided by 4 quarters = $0.725M or insignificant. As for the price of NBSK and RBK, comparing Q2 to Q3, there should be minimal changes, if any. NBSK started Q2 at $960 and finished at $1020 for an avg. price of $993. For Q3, NBSK started at $1,020 and finished at $990 and therefore averaged somewhere around $1,000. Not sure about RBK? If I assume it has had similar characteristics as NBSK, then let's assume it hasn't changed significantly. Overall, I estimate that Q2 and Q3 should be somewhat similar to each other. There will likely be some one-time debt restructuring fees and perhaps some downtime over the summer that should result in lower volumes, lower revenues but also lower expenses/cost of production. What are others thinking? Maybe a similar EBITDA of $20M, perhaps lower at $16-18M? And net earnings of $5-10M? Going forward, interest expenses should be lower, hopefully operating margins continue to improve by their new efficiency initiatives, etc. Perhaps a word regarding their labour negotiations? Are there any other moving parts here, such as website development costs that I am excluding? :-)

lol They are obviously also thinking, 'If we accept this offer, we are out of a job.' and since none of us own any shares, that really isn't in our ... I mean the shareholders...best interest. note: I have no idea if the executive own a lot of shares or if the BOD does...but I doubt my guess is far off. They make for off of their income and board fees than they do off dividends and share appreciation. Of topic : Why do we shareholders allow non-shareholders to be directors? Dumb.

Munger's comments on China are quite frankly disgusting. I watched the clip. What was disgusting regarding what Munger said about China? Did I miss something or is there some deeper fundamental meaning there or do you have some sort of personal connection to China? Munger was complimentary to how China is managing their growth using a combination of Communism and Capitalism. IMO, nothing in the clip that Charlie said struck me as "...frankly disgusting." What am I missing? Is it a human rights issue, communism issue, suggesting that China is doing a better job than America or do you hate engineers :)

At this point, I doubt Francis cares what his annual rate of return is on that particular stock was? I don't mean that disrespectfully to Francis as I trust him with about 20% of my net (investible) assets (not to be confused with my GAAP Net Worth) but I am pretty sure that Francis will be pretty darn happy to see a King get taken out at a 40% premium which equates to about a 4% pop in his fund in one day. I know he is pretty much a purist when it comes to value investing but you gotta take the good with the bad, take the cash and redeploy it somewhere else...or don't tender the shares or sell them on the open market and wait for a higher price (like all of us did with ORH, kinda). If he has held it for 10 years, his investment thesis likely didn't turn out as he had hoped or his time line was off? Either way, my personal experience has been that when you hold many, many stocks, you tend to look at things as a portfolio. This is a nice pop to his entire portfolio and he has outperformed his group avg. by about 2% points in the past 12 months and has outperformed the group avg. by about 5% per year for the past 10 years (GlobeFund comparison so don't quote me and compare him to something else...compare him to whatever you want too). Overall, nothing to get too upset about and King Pharma will increase those numbers a bit. That's my take...maybe he wants to add to this Fibrek investment? :-)