New FBK

[alertmeipp]

Too cheap to sell, but man, it's frustrating.

Trading in substantially discount to peers.

 

Will add some more soon.

[Alekbaylee]

Yep, very frustrating. Prices are steady however in NA...

 

9-Nov-10 969.64 958.37 870.00 617.72

2-Nov-10 972.33 959.31 870.00 627.84

 

http://www.paperage.com/foex/pulp.html

[gordoffh]

well finally some mangement buying of shares

 

Nov 12/10  Nov 12/10  Ducharme, Patsie Liette  Direct Ownership  Common Shares  10 - Acquisition in the public market  23,600  $1.040 

Nov 12/10  Nov 12/10  Ducharme, Patsie Liette  Direct Ownership  Common Shares  10 - Acquisition in the public market  1,400  $1.030 

Nov 11/10  Nov 11/10  Côté, Pierre Gabriel  Direct Ownership  Common Shares  10 - Acquisition in the public market  9,000  $1.040 

Nov 11/10  Nov 11/10  Côté, Pierre Gabriel  Direct Ownership  Common Shares  10 - Acquisition in the public market  16,000  $1.050 

 

[Uccmal]

Finally, that's something!  Nice catch Gordoffh 

[gordoffh]

looks like the entire mangement team is buying now - did someone give them a nudge or are they reading this board? is there light at the end of the tunnel?

 

Nov 15/10  Nov 15/10  Benoit, Jean-Pierre  Direct Ownership  Common Shares  10 - Acquisition in the public market  10,000  $1.030 

Nov 15/10  Nov 15/10  Paradis, Dany  Direct Ownership  Common Shares  10 - Acquisition in the public market  6,700  $1.050 

Nov 15/10  Nov 12/10  Paradis, Dany  Direct Ownership  Common Shares  10 - Acquisition in the public market  3,300  $1.020 

Nov 12/10  Nov 12/10  Ducharme, Patsie Liette  Direct Ownership  Common Shares  10 - Acquisition in the public market  23,600  $1.040 

Nov 12/10  Nov 12/10  Ducharme, Patsie Liette  Direct Ownership  Common Shares  10 - Acquisition in the public market  1,400  $1.030 

Nov 11/10  Nov 11/10  Côté, Pierre Gabriel  Direct Ownership  Common Shares  10 - Acquisition in the public market  9,000  $1.040 

Nov 11/10  Nov 11/10  Côté, Pierre Gabriel  Direct Ownership  Common Shares  10 - Acquisition in the public market  16,000  $1.050 

Aug 12/10  Aug 11/10  Côté, Pierre Gabriel  Direct Ownership  Common Shares  10 - Acquisition in the public market  18,300  $0.970 

 

[Myth465]

I will take what I can get. This is definitely a good sign.

[Grenville]

Where do you guys go to find these insider buys? I didn't see them on Sedar. I know you can find them on canadian insider, but where is the original filing location. I know in the US, you can find them on the sec.gov site.

[gordoffh]

info from canadian insider

[nodnub]

Where do you guys go to find these insider buys? I didn't see them on Sedar. I know you can find them on canadian insider, but where is the original filing location. I know in the US, you can find them on the sec.gov site.

 

SEDI is the original.   The system kind of sucks though, hence the popularity of Canadian Insider.

[triedtestedand]

Grenville:

 

 Check out www.sedi.ca

 

Hey Sharper:

 

 Looks like Dundee Securities slapped a sell rating on FBK ... Is that a contrarian buy signal??

 

 

All:

 

 NBSK pricing down $2 in the past week ... www.paperage.com/foex/pulp.html ... but then again, the CDN$ is down 1.3 cents today as well

 

 

 

[Grenville]

Thank you all! That's what I was looking for.

[FFHWatcher]

FFWatcher, This was in the same report you referenced:

 

The NBSK pulp sales volume totalled 73,920 tonnes in the third quarter of 2010, a decrease of 20,919 tonnes when compared with 94,839 tonnes for the corresponding period of 2009. The reduction in sales volume was mainly due to a strong recovery quarter in 2009 and an increase in world supply in 2010.  Around page 15  I think.

 

I believe I read the report hence my disbelief. 

 

I dont want to keep harping on it but 20000 at 1000/tonne is 20 M in revenues missing.  

 

My concerns remain that fbk will get a certain amount of debt paid down before the real gravy hits, and then end up running up debt again, when the world pulp prices drop.  And then the birth of a value trap.  The reduced fibre costs should help.  

 

Too bad they cant get rid of those RBK mills.  Thank their predecessors for that gift that keeps on giving.    

 

Uccmal, I agree about the US Mills.  At this point, it seems like a good asset to let go...or rather, an asset that would have been nice to never have purchased in the first place?  Anyways, that is history, Fibrek owns it and it seems they are trying to make the best out of a poor situation.

 

My main reason for replying to your post is to reflect on the lost opportunity of selling $20M extra in NBSK in Q3 that we have all addressed.  Let's face it, an extra $20M would have been nice to sell and it could very well have meant the share price sitting at $1.30 right now vs. $1.03.  I have been taking a closer look at their inventory and their explanation as to why they didn't sell that extra $20M of NBSK and here is what I have.

 

I have to make many assumptions and hopefully most of them are reasonable. My assumptions are that inventory is generally split evenly between NBSK Mill and RBK Mills given they have similar monthly production volumes.  My other assumption is that Fibrek tends to trend around $80M in inventory at the end of each quarter (see below).  Therefore, based on almost $80M of total inventory, NBSK Mill might have as much as $40M of NBSK inventory but of that $40M of inventory, not all of it would be finished pulp product and therefore, not all of the 'normalized' $40M of NBSK inventory is even available for sale.  A portion of it must be unfinished goods such as chemicals, wood chips, etc.  I don't think it is even fair to guess how much is unfinished vs. finished but what if we guess at $30M is finished and $10M is unfinished (ie. 75%/25% split).  Please see the ending quarterly numbers for inventory below in dollar terms.  

 

Inventory Level

 

Sep 30, 2009 - $85.2M

Dec 31, 2009 - $79.6M

Mar 31, 2010 - $78.0M

Jun 30, 2010 - $70.4M**

Sep 30, 2010 - $79.8M

 

Someone else did the math and estimated that FBK avg. $880/tonne for NBSK in Q3 in actual selling price.  As discussed above, let's continue to assume that half of the inventory is NBSK.  As shown above, on June 30, 2010 their inventory fell to $70.4M or almost $9M lower than normal.  In the Q2 2010 MD&A, FBK explained the decline as follows... " Total inventories decreased by $8.6 million, mainly due to the reduction in pulp and wood fibre inventories, partly offset by an increase in wastepaper inventory."  Therefore, if wastepaper increased and if wastepaper is related only to their RBK Mill, than most of the decline in inventory was from the NBSK Mill.  From the FBK explanation, it is in fact possible that NBSK inventory is down $10M and that RBK Mill inventories are up $1.4M (or some combination that nets out to $8.6M decline).  If my assumptions are correct or at least in the right ballpark, then it is possible that at the end of Q2 NBSK 'normalized' inventory of finished and unfinished goods were at $30M and not the regular $40M.  

 

If NBSK inventory was down to $30m or so, then it is possible that only $20-25M of finished NBSK pulp was available in inventory to sell going into the first day of Q3.  Given that FBK is selling approx. $20-25M per month in NBSK Pulp, had they sold that extra $20M in Q3, they would have entered Q4 with an even lower inventory level than they entered Q3 with.  Doing that with knowing that they are shutting down the plant for 8 days at about 1000 tonnes/day in lost output could put FBK in a precarious position.  I am not sure what happens to FBK if they are late in delivering on their fixed contracts but perhaps they didn't want to find out?  Either way, it seems to me that FBK sold some of their inventory that would normally carryover into Q3 in Q2 and they had to rebuild their inventory level during Q3, before entering Q4.  It is also possible, that some late Q3 NBSK orders would not be delivered until (early) Q4 (and therefore FBK can not show the revenue until the product is delivered) awaiting lower potential prices in Q4.  In Q4, I will be looking to see a more normalized sales pattern of around 80-90k tonnes sold, even with the 8 day shutdown (fingers crossed).

 

Summary : Although selling the extra 20K tonnes @ $880 = $17.6M would seem nice on the surface, I think the reality was 3 fold.  1/ they sold extra NBSK in Q2, left their inventory lower than normal and had to replace it in Q3, and 2/ I believe that customer orders in Q3  that under normal circumstances would be delivered and booked as revenue in Q3 were deferred with hopes of lowered pricing and will be delivered and booked as revenue in Q4, and lastly #3/ Q3 2009 was a tough comparable for Q3 2010 because in 2009 inventory levels at FBK/SFK were at all time highs (all time high in tonnes, not $$ value), prices were quickly recovering (up almost $100 US per tonne from the Q2) which lead to much higher than average sales (94.8M tonnes), not to mention that SFK was desperately needing CASH.  When you put all the pieces together, it has lead me to conclude that FBK really didn't have the extra 20k tonnes available to freely sell in Q3 2010 and that management are operating the company responsibly.  The one caveat I will mention is that I will be taking an even closer look at NBSK sales volumes in Q4.

 

Note: if you go back and look at inventory levels, keep in mind they are shown in Cdn dollars, not US$ and not in tonnes.  You must take the current expected selling price x volume (ie. $70M of inventory in early 2009 does not equal the same volume/tonnes of inventory of $70M in mid 2010 due to the drastic price change).  I am not an accountant, so please feel free to correct my numbers, assumptions, etc.  With so many assumptions, it is possible that I am completely off base here but I have put a lot of effort and thought into this and I believe the overall analysis is mostly accurate.

[finetrader]

I think you probably nailed the dynamic concerning NBSK inventory during the past few quarters.

 

thanks

 

[finetrader]

Btw,

 

I spoke to IR this morning, and they told me that they now have the ability to repay the debenture with cash. Before, under the previous loan, they had covenant that restricted them in doing so.

 

I really think that with 25M$ in cash on hand, an unused line of credit, and significant FCF, they should be able to repay the debenture with cash in 2011.

 

At this point, diluting equity with share price around 1$ would be a very bad move for shareholders.

 

[SharperDingaan]

 

The sell rating and concurrent insider buying is probably not wholly accidental.

 

SD

[FFHWatcher]

http://fibrek.com/static/en/pdf/nouvelles/2010_0329_PEPP.pdf

 

As most other Fibrek shareholders are aware, Fibrek and many other pulp companies meet most or all of their energy needs via Biomass energy production.  Basically, they burn a byproduct (black liquor) in the pulp production process, that produces steam which turns a turbine producing energy that the pulp company uses to meet their energy needs.  Any surplus is sold back into the grid.  Pulp companies have been doing this as early as the 1930's and in recent years there has been a surge by companies and gov't who have identified this as an opportunity to produce surplus energy/electricity and they are selling it back into the grid as an additional source of energy.  In Canada and in other countries, gov'ts are providing credits, grants, etc. to encourage this 'green' energy source.  Here is a good excerpt from Mercer Int'l website.  

Approximately 45 per cent of the wood fed into the mill becomes kraft pulp. The remaining 55 per cent of the wood is converted to a biofuel known as black liquor, and is burned in our modern high pressure recovery boiler to make power. More specifically, lignin and hemi-cellulose are extracted from wood fiber, which becomes a source of fuel in boilers to make steam which in turn makes power. As a renewable resource, wood is considered carbon neutral and energy produced from wood is therefore labeled 'green' as opposed to the 'brown' energy produced from non-renewable coal, for example.

 

First off, I am no expert in electricity or green energy but I am a shareholder in FBK and I want to get a better understanding of how this will affect Fibrek/pulp companies.  

 

It seems to me that energy production is becoming a significant financial component to many pulp companies (likely because the core pulp business kinda sucks).  The other pulp company that I have reviewed is Mercer Int'l.  They own 3 pulp plants, 1 in B.C. and 2 in Germany.  Mercer is now billing themselves as a Pulp and Renewable Energy company.  In the near future, Mercer's 3 mills will be producing 260MW of energy, some used for their own operations and the remainder sold into the grid.  Their Celgar plant in B.C. is expected to produce a surplus of 25-30 MW to be sold to B.C. Hydro which should add an additional  $20-25M/yr of revenue to Mercer's operations starting next month.  Celgar was already producing 7MW prior to the recent upgrade.  Fibrek has agreed to produce 9.5 MW for Quebec Hydro.  Perhaps Fibrek's production is about 1/3 of Celgars?

 

Here is the math that I had a friend of mine prepare.

 

There are 365 days/yr x 24 hours = 8760 hours per year

9.5MW  x  8760 hours/yr = 83,220 MWh, or 83,220,000 kWh in a year

They produce surplus power at a rate of 9.5MW an hour.  

9,500 kWh x $0.112/kWh = $1064.00 per hour

$1064.00/hr x 8760 hr/yr = $9,320,640.00 per year.

 

But there's losses and down time so maybe $7.5Mil to $8.0Mmil per year.

 

That's assuming they have enough black liquor to run close to max output.

 

Have others run some numbers yet?

 

[finetrader]

agree with you on the revenue side

but what are the expense associated with this additionnal energy production?

 

Without more info , I'm assuming that the 20,9M$ in credit is the value of this thing.

 

 

 

[SharperDingaan]

 

The incremental cost is depreciation on the new equipment, & maybe a few extra people directly associated with the additional generation. Assume a 22M/cost over a 10yr amortization - somewhere around 2.5M/yr +/-. Net contribution to EBITA will be roughly 5M/yr.

 

SD

 

 

 

 

[Uccmal]

FFHWatcher,  Awesome work!  I cant dispute your inventory comparisons.  We will have to see on a go forward basis how this shakes out. 

 

I agree that they likely hold inventory for long time reliable clients for times such as the shutdowns.  Better to maintain those relationships than try to capitalize off short term spot price fluctuations. 

 

I have bought some shares just above at 1.03/1.04.  I guess the idea isn't killable.  If FBK is having trouble keeping up investories then sales must be pretty good.  And each day they are building cash and the ability to build cash is compounding as the debt/debentures get paid down.  We are 5 weeks from the end of the Quarter and prices have hardly dropped.  At the same time they are dropping a little which should dampen new or reentrants into the market.

 

Management is at least willing to do lip service to share ownership although only the CEO has more shares than me. 

[triedtestedand]

Hey ... check this out:

 

http://business.financialpost.com/2010/11/22/domtar-to-boost-dividend-and-buyback-shares-analyst/

 

Sounds like a familiar story ... pay down debt ... be disciplined with pricing ... except FBK is rated a sell, and Domtar a strong buy ... ahh, the joys of being a contrarian.

[cwericb]

Here is a little better news - "Raymond James Raises Fibrek Inc to market perform from underperform"

[FFHWatcher]

Yep, very frustrating. Prices are steady however in NA...

 

9-Nov-10 969.64 958.37 870.00 617.72

2-Nov-10 972.33 959.31 870.00 627.84

 

http://www.paperage.com/foex/pulp.html

 

First positive move in NBSK pricing in quite some time.  The price is certainly not collapsing and indeed did a very, very modest uptick this week.  That combined with some support and firming of the US $ will certainly help this quarters numbers.  FBK should be accumulating cash and adding value.

http://www.paperage.com/foex/pulp.html

 

            NBSK in the U.S.(USD) NBSK in Europe(USD) BHK in Europe(USD) BHK in Europe(Euro)

23-Nov-10 968.00 955.13 870.00 636.24

16-Nov-10 967.91 956.29 870.00 634.53

9-Nov-10 969.64 958.37 870.00 617.72

2-Nov-10 972.33 959.31 870.00 627.84

26-Oct-10 974.78 963.01 870.00 624.37

19-Oct-10 974.78 963.81 870.00 617.50

12-Oct-10 974.78 967.70 870.00 627.07

  5-Oct-10 984.78 969.83 870.00 633.83

28-Sept-10 990.00 972.91 870.00 648.67

21-Sept-10 990.00 973.12 870.00 666.16

[doc75]

Here is a little better news - "Raymond James Raises Fibrek Inc to market perform from underperform"

 

And they've gone out on a limb and raised their target price to $1 from $0.90.  Let the good times roll!

 

Interesting move, actually.  They just downgraded FBK a couple weeks ago.  I wonder why the upgrade now, since nothing material has changed except that the macro situation looks even muddier.  Not that a target change from .90 to 1 is material anyway...

 

 

[lessthaniv]

Here is a little better news - "Raymond James Raises Fibrek Inc to market perform from underperform"

 

And they've gone out on a limb and raised their target price to $1 from $0.90.  Let the good times roll!

 

Interesting move, actually.  They just downgraded FBK a couple weeks ago.  I wonder why the upgrade now, since nothing material has changed except that the macro situation looks even muddier.   Not that a target change from .90 to 1 is material anyway...

 

did you read the disclosures carefully? maybe they have a new investment banking relationship! lol ;D

[FFHWatcher]

http://www.paperage.com/foex/pulp.html

 

 

Date          NBSK US$ NBSK Euro(US$) BHK US$  BHK Euro

30-Nov-10 968.16 953.29 869.99 657.84

23-Nov-10 968.00 955.13 870.00 636.24

16-Nov-10 967.91 956.29 870.00 634.53

9-Nov-10  969.64 958.37 870.00 617.72

2-Nov-10         972.33 959.31 870.00 627.84

26-Oct-10 974.78 963.01 870.00 624.37

19-Oct-10 974.78 963.81 870.00 617.50

12-Oct-10 974.78 967.70 870.00 627.07

5-Oct-10         984.78 969.83 870.00 633.83

28-Sept-10 990.00 972.91 870.00 648.67

 

NBSK firming up, not declining.

Cdn $ at about 98 cents (95 cents would be better but 98 is better than par!).

It also looks as though there has been good price increases in the products that (NBSK) pulp is used for.

 

How did I miss this headline of the Canfor $10/tonne price INCREASE?

 

SAN FRANCISCO , Nov. 23, 2010 (RISI) - Canfor Pulp has informed customers across Asia that its northern bleached softwood kraft (NBSK) pulp prices will rise, effective December 1 until further notice, industry contacts told RISI.

http://www.risiinfo.com/pulp-paper/news/Canfor-Pulp-to-raise-Dec-1-NBSK-UBK-pulp-prices-10tonne-in-Asia.html