SharperDingaan

Very nice - ABH needs another 1.6M shares to top the 50%+1, & it is now very clear that the only way they can get it is to bid up. To avoid losing the control block it is now in the Steelhead interest to outbid ABH for everything that comes on the market. And it is the ABH interest to up their offer ASAP to spike this virtuous spiral. And each new round of docs is more demand for the pulp ;)

Agree ABH will need to issue more equity, but suspect they would go with a cash heavy bid for FBK - Maximum power to a knock-out bid - Paying in cash versus paper is cheaper (no uncertainty premium) - Cheap equity goes to ‘safe’ hands (averaging down private placement to the lock-up group) - Pay for the PPA via a convertible deb/pref. CF can easily service it through conversion - Additional improvement/ability (convertible deb?) in the financial ratios - Minimal ‘after-the-fact’ share price disruption (spike unhappy folks dumping) - Better class of shareholders. Some of us FBK shareholders may smell too much! Nothing that a good scrub couldn’t fix

Shush!

We're inclined to agree with T&T; Steelhead does not tender to either ABH or MERC at this point. We don't see Steelhead tendering to ABH for a loss, & we suspect that the buyer on a lot of the trades over the last few days was also Steelhead (if only to ensure that ABH didn't get them, & negate the power of their control block ;)) While the lock-up was in place we agree that Steelhead & ABH were acting in concert. Following the legal opinion, & expiry of the lock-up, we think they are now independent - & more so if thier interest actually is the US mills, & they needed to get their operations people in asap. If Steelhead doesn't tender, it's highly likely that ABH comes back with a higher 'satisficing' bid.

We will be tendering to MERC as well. There is no reason to leave the $0.40 on the table.

Game the system for severance. They have nothing more to teach you. Corporate financial analyst for 2-3 years. CFA at night. MBA school. Lessons learned. Selling glamour is selling dung. But if enough fools buy it - glamour sells! Limitations of 'wonderboy'. Move laterally & you will be forever branded a loser Brains to ask. It only took you ONE year to recognize this isn't for you - for most of your collegues it will be 5-10 yrs, if they recognize it al all.

The lock-up group tendered enough shares for ABH to meet it 46%+ acceptance requirement, which permits ABH to make a follow-up 2nd stage bid for the rest of ABH. However, ABH did not get the 50%+1 they need for control, because their bid price is inferior. We expect Mercer & Steelhead will eventually tender to ABH, but they will work together to force ABH to increase its bid. If ABH underbids, Mercer could marginally raise its bid above the ABH offering, Steelhead would tender to to it, & ABH would be forced to either bid up or sell into Mercers better bid. Both ABH & Mercer have incentive to keep bidding up, to maximize the losers gain on capitulation. The virtuous spiral that ABH is petrified of. The reality of course, is that this is no different to auction bidding on a storage locker. To spike the spiral - the strategically minded would throw out their best bid, & make it high enough that Mercer & Steelhead would appear to be chiselling if they contested it. To cave - Mercer gets a gain of the (bid price - their cost) x the number of shares + the 8M break-up fee. Steelhead gets the (bid price - their cost) x the number of shares + whatever they make on the US Mills (assumed). FBK shareholders get the higher price - & most would assume that will include the lock-up group in some form or another ;) We live in interesting times.

Step out for a day or so, & the whole world simplifies ;) Very nice move by Mercer to bump to $1.40. Indicates willingness to change, willingness to sell into a superior bid, makes it more difficult for Steelhead to refuse, & gives the Court of Quebec the opportunity to smear ABH. The opportunity loss on the Mercer placement, now becomes everyone’s gain - as Mercer forces up the price of a superior bid. ABH is now clear to make a 2nd stage offer. New ball game, & they need a price high enough for BOTH Steelhead & Mercer to tender. If ABH does not include the PPA - Mercer need only marginally top the ABH bid - to give Steelhead the argument not to tender their control block to the inferior ABH bid. Must be very hot in the ABH kitchen. Management will be expected to end this, & do it quickly; to concentrate the mind – a bonus if they get it done, find a new job if they fail? The strategic response is a knock-out high bid that kills the gaming, & soothes the resistance. Of course if it is still the Marx brothers running the show ... we know strategic sense is limited!

P(ABH bid gets control of the 46%): 100%. P(ABH actually pays the $1.00, etc): <25%. There is a big difference between beneficial ownership vs actual ownership, & we find it very unlikely that the lock-up group will sell at $1.00 when we know that they refused an offer at $1.50. We think the tendered shares will go to a trust, & the trust will release the shares to ABH at whatever the final price turns out to be. P(Steelhead tenders to ABH at the current $1.00): < 10%. Steelhead holds the control block, & control blocks go for a premium because they decide the winner. At present the Mercer offer takes it, but we would expect that Steelhead is expecting better; probably > $1.50. P(ABH walks away): <20% . This is about St. F. Combine it with the chip plant & the power generation & it will be one of the lowest cost mills in the country. Sell the US Mills, plus the power generation, & you will get St F for a net cost of close to nothing. Ego investment, reputation, & job security, are further incentive to keep bidding – and win. P(ABH re-prices the bid): >90%. There is no try again later - ABH has to top Mercer by enough to satisfy Steelhead, & it is in the Steelhead interest to demand that the firmer PPA be priced in – by either ABH OR Mercer. The dilution thing is moot were ABH to put up a real offer that the FBK board can agree to. FBK can drop its Supreme Court appeal at any time. No-one, other than Steelhead, knows what they will do - all we know is that they will act in their best interests. There interest would have best served if they had bought a control position in FBK, successfully bid for the US mills, re-packaged/re-sold the mills to someone else, & agreed to pay with a combination of cash & FBK stock. The more FBK sells for, the better they will do.

Lessthan: We beg to differ. The dilution is a major problem. They would fail to make the 45.7%, the lock-up group would be defrauded out of $.30/share - & the lock up groups fiduciary responsibilities will force them to sue. Best ABH can get is an external acceptance of their bid, but no physical shares. At < majority, ABH is not legally required to make a 2nd stage bid; we all have to take ABH's word for it, AND believe the dilution will not go through. Steelhead does not need to see the PPA right now, or operate the US mills. Steelhead could very easily take the US mills (tommorrow) for their FBK stock + cash + a sale adjustment if the bid price goes up - & resell (on the same day) to someone else. The new buyer is in the mills next week, Steelhead is done with the Marx brothers, & they get out with their reputational damage repaired. ABH is going to have to put up, & no amount of legal is going to change that.

The independent valuation of $1.25 to $1.45 is meaningless if there is a PPA. As most would expect the PV of the PPA to be around 130M, we need to see $2.25 to $2.45. Simply adding the expected PV of the PPA to the Mercer bid produces $2.30. A bid at $2.30 for all of FBK (assume a 2nd stage bid) will kill the dilution issue. ABH would have the better offer, & Mercer would appear to benefit from regulatory lagresse, as well as the break-up fee. But ABH would need assurance that the PPA is there, & that a new 20% of FBK stock is not going to suddenly appear. It is the regulator that called the 'secret' meeting, & we know that ABH (& possibly Steelhead) was a participant. We have repeatedly suggested that Steelhead's target is the US Mills. We have also highlighted that if there is a new owner for those mills, they need to be assuming operational control right around now. If the consideration is Steelheads FBK stock + cash, there are only 124M shares o/s & the bid could be 5% higher

Secret meetings are rare, but not that unusual. Almost always it is either to read the riot act & break skulls, or inform (not discuss) as to what you are going to do next (i.e. US Fed/BOC calls all the nations bank chairmen to a meeting, & tells ...) Suspect there was some of both. ABH tried to exploit regulatory arbitrage, made both regulators look bad, & there is a PPA in play; not appreciated. They may then have 'agreed' to next steps; probably a precedent setting 2nd stage bid where they do not have majority. Most would think this is definately not what the lock-up group signed up for.

Every PM will disagree, but value-investing as a career makes zero sense. Basic risk diversification - have multiple careers, but don’t mix the two together. Or don’t P*ss in the pond you drink from. I do a renovation, I go to Home Depot/Lowes to buy the materials. I research a stock I go to the 10Q’s, financials, etc. It’s just a data warehouse trying to sell me something. Dressing it in a glamorous wrapper is marketing. Most <30’s like logic. Get the algorithm out of a book, have an Ivy league B-school teach you, program it, & you’re an instant high class wizard; simple, easy to get, everybody benefits. Can’t apply worth sh*t though, because B-school didn’t teach you how. Wisdom is realizing there are many ways of application, & learning it on someone else’s dime. More right brained. If you can ‘read’ people, headlines, etc. well – a great poker &/or bridge skill - go for it. You don’t have to be able to recognize too many ‘manias’, in order to get rich betting against the media line. The less fortunate need to troll the 10Q’s & financials, etc. Most experienced investors can tell < 5 minutes if an investment is for them. They get there through experience, intuition, & logic – not an algorithm, & we call it their value proposition. Sadly, for most folks, a mutual fund offers a better value proposition. ... really sad when you recognize that you also need to clip 3.0.-4.0% off the funds return for inflation, management fees, & the one-year risk free equivalent (i.e. 1 yr GIC for the retail trade) – to get to the risk adjusted return.

The proven reserve estimate is essentially an independent engineering appraisal of what the firm has in the ground, that is commercially viable at a price of X. Same kind of thing as the 3 yr actuarial appraisal of a P&C firm. Importance is because proven reserve x the prices used equals the collateral, against which the bank may lend up to 50-60%. If you can still service the debt, but no longer have the collateral the bank will not call in the loan - but it will be very nervous. It IS an ol'boys club, so expect forced sales on the newer, vs established, operators to reduce the banks total exposure. Ya dance with the ones that brung ya. Lot of physical/technical factors. The majors are formation characteristics, flow rate, presence of distillates (wet/dry gas, etc), age & type/efficiency of well (i.e: fracked with newer technology, & when). Most wells produce mixed flows - water, gas/distillates, oil, etc. in different quantities, & are sensitive to pressure. The less pressure the less flow & higher the heavier (& less valuable) distillate mix. For a porous formation, at high pressure (& heat), & high commodity prices (financing tertiary extraction) you may retrieve 75% of all the pay zone within a 50-150' radius of the well. Horizontal drilling in the formation increase the pay zone. Fracking increases porosity & the extraction radius. Low commodity prices knee-cap the ability to extact the oil/gas commercially, & effectively reduce both the extraction radius & the recovery potential (from 75% to maybe 55%). You get hit twice - & the less porous (shale) the formation, the more vulnerable you are. Proven reserves collapse, & banks start selling assets. Buying a shale field is really a long term play. You buy cheaply today, but recognize that the oil/gas is still in the formation. When prices improve later (West Coast LNG terminals), the higher prices increase proven reserves (through tertiary production) & hopefully more than offset the interim depletion - with NO additional drilling required. Buying the field, versus individual producers, also alows you to maximize formation pressure & extract as efficiently as possible. Drilling still takes place but it largely changes to infill water/gas injection to drive up formation pressure. The risk changes to timing the selling of the oil/gas, versus finding it in the first place. Studied to be a petroleum engineer in a previous life ;)

If proven reserve is 100, the banker is lending up to .5 D/E, & they are 35 in debt - they look good. Cut the proven reserve to 60 (i.e. uneconomic gas prices) & the bank is suddenly forcing you to sell 5 of your depressed reserve. If you borrow to drill the banker will force you to sell > 5 of proven reserve. KKR is there because it will become cheaper to buy versus drill in the shale fields once banks start selling collateral, & they hope to be selling entire coy's for > the reserve value. If you must own gas wait untill the banks start selling.

lessthaniv: we think our glasses just see further out. There is only one reason for lowering the threshold, & Steelheads dissassociation. ABH must have a hurdle (related to the lock-up agreement?) tied to a 2nd stage offer - they aren't trying for majority at this point; just a formal vote that their offer has been accepted - & the lock-up group will give them that. At only $1.00, no one unrelated is going to vote for this. A 2nd stage offer will be a new ballgame, & the firmer PPA & Mercers competing offer will be up front parts of the equation. Maybe this time they'll bring the real "A" team, & leave the ego behind. Folks are happy to sell but they will get paid for it. Most would also expect a 'peace' premium for putting up with the abusive BS over the last 5 months.

Bulawayo, Zimbabwe -> London, UK -> Calgary, AB -> Toronto, ON. The Zulu name for Bulawayo is GuBulawayo or "the Place of Killing". The local tribe is Matabele, essentially one of Dingaans old regiments, with a kraal just south of the Matopos. Same place that CJ Rhodes was buried. http://en.wikipedia.org/wiki/Dingane_kaSenzangakhonaregiments. Sport in this part of Africa has a different take. It's all who are we going to kill, who are we going to eat, etc. with much smashing down of heavy clubs maybe two centimeters from your head. Then when the game is done - you pass the beer around :D

We highly doubt that ABH will cut bait. ABH has little choice now but to put up a better bid that includes something for the PPA - or add a significant economic loss from their chip plant (i.e. Mercer refuses that plants production untill they renegotiate the price) to their existing costs. The lock up group also has a fiduciary duty to their shareholders to push ABH, & maximize the value of their FBK holdings. If they have any strategic sense at all, they will not try to cheap out this time. SD

- Steelhead cannot refute that they've been buying > the ABH bid price, or that their average cost is > the ABH bid price. Seperating themselves from ABH strengthens ABH's legal arguments. - They may also have a deal for the US plants - but no access unless they step away from ABH. Per the Q4 financials those plants are now coming back on line. They may well also be fed up with the Marx brothers, & at the end of their agreement. 5 months to do a simple takeover ?, it is STILL not over, costs are mounting, & ABH may be hitting them up for cash. Good for them.

NA gas is cheap because of shale production (high supply) & nowhere for the gas to go (low demand). Fundamentals that will materially continue untill new west coast LNG facilities are built (i.e. 5 yrs plus). Shale production will continue so long as wet gas can be produced & the distillates sold off as bi-product (i.e. only a moderate reduction in new gas supply over time). To government, the real costs of solar & nuclear are roughly the same. Nuclear in the private sector only looks cheap because government absorbs the nuclear liability risk (i.e a Fukushima). Median to long term solar is materially cheaper - primarily because of industrial policy generating new industry/jobs, & reducing unit cost through higher production & next generation technology (i.e. common IT experience). Nuclear is here to stay, but the mining through production and waste disposal technology needs updating - no different to the technology difference in todays IC engine versus its 1930's counterpart (i.e. years away) All kinds of literature available, but spun.

We might add; - Sharp elbows, thick skin, and a sense of humour. - Common touch, speak your mind, & fair dealing. - Compete hard - all is fair in love & war! - Find a mentor to polish you up. No one is going to give you a break - but maybe 1 in 15 will tell somebody else "you have to see this guy to believe it". Maybe 1:5 of those will then give you a try - just to see if you screw up. You're in! http://en.wikipedia.org/wiki/Pygmalion_effect Good luck

This is really telling you that PHX is a 2nd Tier player. Suppliers to the 1st Tier drillers. PHX is still one of the names, but at the 2nd Tier level all players experience magnified volatility. You might want to look at where the near term gain probabilities are, & an option strategy to match.

Your biggest asset starting out is your chutzpah, youth, & willingness/ability to take on risk. Your ask should not be "Please Sir, give me a job in your company". It should be "I've come to work for the best, I'm hands on, I'm here to learn, & we're all getting old - what can we do to make it happen? Your chair is safe for now - but dont get too comfortable". Doesn't play well in bank culture. To the senior operational people that matter, this is gold. They will grille you 10 ways to Sunday, & own you if you pass, you will be given opportunities during your stay far better than you could possibly imagine - so much so that the banks just are not competitive. You'll work a 50hr+ week on a regular basis, & not even notice it. If you want the invesment world, do a year or two in an I-Bank as an analyst for that sector - before doing the MBA. Your operational experience in that sector, senior level contacts, & progress on the CFA exams should put you in the top 1/3 of all candidates. Keep in touch with those in the company that brung ya, & when it's over - go back to work for them. You'll probably find yourself running a division, LOB, or something else equally challenging. We've nothing against working for banks, just not in the early stages of an entrepreneurial career. Good luck with your pitch!

Toronto, Ontario .... but originally from Zimbabwe!

The flag that should go up is whether they lose people faster than their day rate increases. The patch is busy, & principals are going to be making offers to all the good people that this company can find. For the next 3-6 months are they more a headhunter, or a driller ? Break-up may benefit them for March-April but it doesn't last forever. SD