doc75

I find this continued use of fear and crisis and name-calling by our leaders to be very disheartening. I'm a fairly left-leaning fellow, but I am annoyed by this type of behaviour across the entire the political spectrum. Politics is inherently divisive and always has been. It just feels like today there is an over-eagerness to pit one group against another, with measured, well thought-out political discourse being almost entirely marginalized. I can barely watch 5 mins of the mainstream news channels. Is our current political situation a response to the apparently volatile state of world affairs? Have things changed from even 15 years ago? Or are politicians/media simply giving us a bigger serving of what the average Joe is demanding? I assume that the use of fear/crisis for political gain has a well-established history. Naomi Klein's book "The Shock Doctrine" may be a good read on this. At least her work is well researched, even if you disagree with her conclusions.

It's for these reasons that I continue to hold. I'm not a hardcore pessimist on the company. SD: I don't believe Q2 numbers will be worse than Q1. I truly believe and hope that the discounts have lessened and they haven't had too much downtime. That alone should make Q2 numbers solid. But Mr Market isn't pricing the company based on Q2 alone --- it's worrying about what comes after that, when pulp prices inevitably turn. I think there's good reason to wonder about management plans for a high cost operator that has been quiet on their performance/outlook. Most of us are probably in this thing because the business is so incredibly undervalued that we'll do alright if they can make *any* money at it. Cheers!

Precisely - I intended to raise that issue in my original post. There was nothing in the Q1 report that rationalized the mediocre results versus the quickly improving operating conditions; in particular, no discussion regarding the nature and longevity of the substantial pricing discounts they seemed to have in place; and no interim guidance since, even around the rights offering. I got greedy on this one and let that outweigh my more rational instinct to sell at a couple points post Q1 results. No question the assets are heavily undervalued, but management should be doing far more to address their high cost structure and indicate their plan (if any) to change it. I hope their plan isn't simply to keep people employed while they wait for the dollar to sink to 0.85. Unfortunately it's now a difficult decision whether to increase my stake via the rights offering. If pulp prices begin to turn quickly, then even stellar Q2 numbers will have little effect on valuation. The nightmare of 2008/2009 is too recent in mind.

The general feeling seems to be that pulp prices have now peaked. See, for example: http://www.paperage.com/2010news/06_15_2010market_pulp_db.html Aside from the rights issue and general market wonkiness, I assume most are simply concerned (based on previous quarters' precedent) that Q2 numbers will be an unspectacular improvement from Q1, and the prevailing thought on pulp prices and the $ implies results will trend downward from there. The fact is that SFK couldn't make money with pulp in the $850-$900 range and the dollar just under par. So I can see why the market wouldn't be wildly optimistic about the value of their business going forward. I imagine the share price would be soft even without the rights offering - it just provided another reason to sell.

I've been keeping an eye on Catalyst Paper. I think Cardboard had some money in Catalyst, and I took up a small position recently. Just a couple comments and a question. The question first, since it is of a general nature: Third Avenue has a large stake in this company (33%). They bought large chunks at $3.30 and $0.75, and a smaller recent position at $0.09. A look at the insider transaction summaries also shows a lot of buying/selling in very small pieces, and much of the selling is at very low prices. However, the designation for these sales is "Third AVenue Management Separately Managed Accounts". Does this mean that individual/smaller investors have accounts with 3rd avenue, and for whatever reason are buying/selling within these accounts? As Cardboard mentioned earlier, it seems strange that 3rd Avenue would take up a huge stake in this company and then trade around their position in such small pieces. Thanks for any input. Now the comments: Newsprint/paper sure seems like a bad business to be in these days... and newsprint in particular looks like it's suffering from a structural changes. Catalyst Q1 results were ugly: volumes down, bad pricing, restructuring costs from severance packages, and a couple million dollars to get the second line of pulp running at the Crofton mill. It's unclear what the master game plan is for this company. (Perhaps it includes prayer?) The BOD is now full of restructuring experts, and it's a bit difficult to get a grasp on what they're doing on the labour front --- that is, are they union busting, or just trying to prudently manage costs? The previous CEO, Richard Garneau, who oversaw a lot of restructuring over the past 3 years, has just resigned... apparently to spend more time with his family, though 3 days after resigning he found himself a position on Abatibi's BOD. In any case, I've been trying to get a handle on Catalyst Q2 EBIDTA. The Q1 report indicates - severance costs should be lower in Q2 than Q1 - newsprint price hikes implemented in Q1 should be fully realized in Q2 - significant specialty paper price hikes were to be attempted in May/June - both pulp lines at Crofton will be operating through Q2 (though they still seem to have a small amount of pulp capacity curtailed, for reasons unknown to me) From little bits and pieces of reading it appears as though the paper demand situation has improved, and newsprint prices have been rising for a while now (not dramatically, just slow and steady). After running a few numbers based on the sensitivity analysis in the Q1 report, it looks like Q2 could be a big improvement on Q1. I just thought I'd share these observations on here in case anyone has also been poking around and has any comments. Doc

Looks like another pulp price this week. Some of you may also find the prices and pulp/paper market commentary at http://www.foex.fi/ of interest. It's from the European standpoint, but gives a brief summary of what's going on.

I am ever-more-nervously hoping for good/smart things from Fibrek. But to be the devil's advocate here: The average exchange rate thus far in Q2 is 0.975 US = 1 CAN, marginally higher than the 0.96:1 ratio for Q1. So, unless markets and the CAD$ continue to slide through the rest of June (they've been trading in lock-step), I think we're looking at a Q2 average FX rate roughly equal to that of Q1. That said, in Q1 the CAD$ was going up in value as the price of pulp increased, whereas since late April CAD$ has moved down from April highs as pulp has increased. So even if the CAD$ stabilizes at current levels there should be a positive impact, but I can't see an FX windfall in Q2. I wish the folks at Fibrek would provide more guidance on things such as their discount rates (seemingly very high), input costs (wastepaper and fiber), and expected down time. Where they see them heading and how they plan to deal with these. On that point, I've found it difficult to get an accurate picture of wastepaper and fiber prices just from noodling around on the web. I found a few links to rather pricey pay services, but that's about it. I believe the RBK mills depend on sorted office paper. From all I can gather, prices are high and have continued to rise into Q2, and are expected to fluctuate between high and very-high for the foreseeable future, provided the economy doesn't go to hell. Does anybody have any real insight here? I found very little info on fiber costs, aside from the general feeling that they are elevated and also expected to remain so. It will be interesting to see if market optimism for Fibrek begins to build near the release of the Q2 numbers. Given the results from Q1, I suspect enthusiasm will be somewhat muted this time around, and of course very dependent on where pulp prices go in June/July. We can talk about net asset value all we like, but if they can't knock it out of the park at these pulp prices and a Canadian dollar near par (where many expect it to be for a while), then it's hard to imagine what conditions would be needed to see the value realized.

I'm confused. It seems like you're not saying the same thing at all. And I thought this issue was settled (by finetrader) through direct contact with SFK's IR dept. Finetrader: Did you not hear directly from SFK that the 20% discount applies to everyone? SD: It looks like you feel the 20% only applies to FFH because this discount is only mentioned in the standby commitment. I see where you're coming from (ie. why not define the pricing methodology earlier in the prospectus?), but no pricing scheme whatsoever is mentioned outside the standby commitment. So if all words of the standby commitment are for FFH only, then the prospectus says only that the regular shareholders get a subscription price of X, where X is some as-yet-undefined number that is not necessarily linked to the 5-day or 40-day VWASP. I can't see how you can pick out the 20% discount from the standby and say that that is the only part that specifically applies to FFH. My feeling is that the term "Subscription Price" refers to only ONE number throughout the prospectus, and we learn more about its calculation in the standby agreement. This meshes with the information I thought we received from I.R., though I do feel that it would make more sense to mention the pricing methodology separately.

This is what I am also (naively) wondering. It seems pretty clear that if our friends at FFH are steering the ship, then they aren't setting this up as a short term proposition. Perhaps they have an eye on assets (e.g. wood chip supply) that would lower production costs long-term. Personally I'd be okay with some more short-term thinking while pulp is at $1000/ton.

I've been reading a few articles lately that suggest waste paper prices are up for the simple reason that paper use is down far below pre-recession levels. These same articles state that the CEOs of the major paper companies do not expect paper markets ever to return to early 2008 levels. I personally find this type of "market has peaked" call a little questionable, particularly just after (or in the midst of?) a nasty recession, but I think they're basing their claims on the ongoing trend towards electronic media. There certainly seems to be a ridiculous amount of excess capacity out there. The recycled paper game is interesting, because demand seems to be held "artificially" high due to the environmentalists' desire to have the recycle logo on every piece of paper (a situation which is, of course, impossible). I'm all for protecting the environment and eliminating waste, but it's purely a political game to insist on using recycled fibre even when it's measurably more environmentally costly to do so. Speaking of paper in general: I've been investigating Catalyst (TSE:CTL), particularly after their nasty Q1. Their restart of the second pulp line at the Crofton mill will help them in Q2, and paper prices have continued to slowly edge up, but there's still so much curtailment (particularly newsprint/directory) and they really have to get some costs own. Has anyone else done any noodling into this one? The last paper company I invested in was Fraser Papers, so that gives you some idea regarding the accuracy of my analysis. :) What are the board members' thoughts on newsprint? In particular, who is going to survive? What a brutal business over the past couple years!

Agreed - this one may just putter out of steam. I'm in it mostly because I made an error at higher prices and didn't get out of it soon enough. I added a little more at the lows as a pure speculation on Seth's ability to generate some positive cash flow, but I'm not heavily invested and don't intend to be. I was mostly curious to see if any others (aside from Francis Chou!) made my mistake. All that said, I do think there's room for this type of retail player in Canada. I question the point of Dollarama more than I question the point of LQW. Every time I go into a dollar store and see little made-in-China ceramic/glass figurines of frogs/birds/children/puppies selling for $1, I end up picturing these objects in a landfill and then find myself momentarily depressed. Even the cheap chocolate bars can't cure the malaise. When LQW was working right, they had some very reasonable inventory (amidst lots of crap, admittedly). As a student I used to find great deals there. But this all fell apart in the past couple years. The stores became a nightmare; no inventory, etc. I think this was partly due to bad management decisions, and probably also partly due to the increased presence of places like Winners / Home Outfitters. It will be interesting to see whether they land on their feet. It seems the inventory is improving, though the general disorganization of the older stores is still a little hard to swallow. Calogeno: What do you mean by "the numbers don't jive with...". Are you hearing good or bad things about the new stores? We don't have any of the new or renovated stores where I live, and the manager of our local store is flat-out nutty, so I can't see first-hand what's going on.

I borrow a lot of my ideas for large-caps from this board, so no need to mention those. I also hold small positions in a handful of tiny-caps that made it through the past couple years with respectable balance sheets. I'm looking at building some of the positions. I think the risk/reward is pretty solid but things can definitely go bad quickly so I'm hesitant to really load up. Hyduke Energy Services (TSE: HYD) is one I've liked for a while. Management kept too many people on payroll during the downturn, underestimating it's duration, but they got themselves sorted out and didn't dilute to do so. They've now had a couple of profitable quarters, currently have a reasonable order backlog, and management is cautious. Highly dependent upon drilling activity. It was originally focused on Western Canada but lately they've been making inroads internationally. In the junior oil/gas sector I also like Twin Butte (TBE), though I'm down significantly on my position. A couple tech tinies that are also interesting are Sangoma (STC) and C-Com (CMI). Does anybody here follow Liquidation World (LQW)? It's a Canadian liquidation retailer that has been around for years, but it has floundered and was taken over early in 2009 by some folks involved in Big Lots. An interesting turnaround story if they can pull it off. Seems to me it should be possible with the right management. It looks like they're making progress but the jury is still out.