Mercer International, Inc. (NASDAQ:MERC ) Q1 2022 Earnings Conference Call April 29, 2022 10:00 AM ET

David Gandossi - President, CEO & Director

David Ure - EVP, CFO & Secretary

Hamir Patel - CIBC Capital Markets

Andrew Kuske - Crédit Suisse

Andrew Shapiro - Lawndale Capital Management

Matthew McKellar - RBC Capital Markets

Kasia Kopytek - TD Securities

Good morning, and welcome to Mercer International's Fourth Quarter 2021 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.

Good morning, everyone. I would like to remind you 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.

This quarter, we achieved record revenue and near-record EBITDA due to strong sales volumes and robust pricing for all of our products. Similar to Q4, we did not have any major maintenance in Q1, and our results also benefited from having the Rosenthal turbine running for most of the quarter.

Overall, our mills ran well this quarter, although our Peace River mill lost some production due to limitations of rail service to certain regions. To mitigate this issue, we've had to use extra trucking, which has the effect of increasing our freight and warehousing costs. As expected, we also experienced higher costs for several of our major inputs, including wood, energy and chemicals.

Our near-record EBITDA in the first quarter was almost $155 million compared to EBITDA of about $165 million in Q4 last year. As a reminder and to put our Q1 results into perspective, our record Q4 EBITDA result benefited from the recognition of almost $32 million of business interruption insurance proceeds related to the Peace River mill's recovery boiler repair.

Our pulp segment contributed quarterly EBITDA of roughly $114 million, and our wood products segment contributed near-record quarterly EBITDA of $44 million. You can find additional segment disclosures in our Form 10-Q, which can be found on our website and that of the SEC.

On average, softwood and hardwood pulp prices in Q1 were higher than Q4 in all of our major markets. The most significant increases were in China, where the Q1 average NBSK net price was $899 per tonne, up $176 from Q4. European list prices averaged $1,330 per tonne in the current quarter compared to $1,302 per tonne in Q4. NBSK remains at a considerable premium to hardwood with the average Q4 net eucalyptus hardwood price in China at $668 per tonne, up $106 from Q4. In total, average pulp sales realization movements positively impacted EBITDA by almost $17 million compared to the prior quarter.

Despite the railway restrictions, pulp demand was solid in the quarter, which led to higher sales volumes compared to the previous quarter and much lower finished goods inventories. Our Q1 sales totaled 555,000 tonnes, which was up about 39,000 tonnes from Q4. We had no planned major maintenance downtime in either Q1 or Q4. But as I had mentioned, our Peace River mill reduced production by about 35,000 tonnes due to continued limitations on the CN rail system. In Q2, we are planning for 39 days or about 51,000 tonnes of major maintenance downtime at our pulp mills.

Our lumber realizations remain strong but mixed this quarter compared to Q4. In the U.S., we experienced significant price increases. The Random Lengths' benchmark for Western S-P-F #2 and Better averaged $1,274 per thousand board feet in Q1, which was up $563 from last quarter. Our average European sales realizations were down approximately $90 per thousand board feet compared to Q4. Since the end of the quarter, U.S. pricing has come off noticeably, and the benchmark lumber price in the U.S. is currently about $1,040 per thousand board feet.

Our wood products segment continues to perform well. We sold about 110 million board feet of lumber in the quarter, which was up slightly compared to our Q4 sales volumes.

Our electricity sales reflect our strong generation and elevated prices in Europe, where prices in the range of $200 per megawatt hour are twice those of a year ago. Exports to the grid totaled about 219 gigawatt hours in the quarter, which was up relative to Q4 due to the return of our Rosenthal turbine to service after being down for all of Q4.

We reported net income of $88.9 million in the quarter or $1.35 per basic share compared to net income of $74.5 million or $1.13 per basic share in Q4.

Cash generated in the quarter totaled approximately $65 million compared to cash generated of about $7 million in Q4. Our cash generation in Q1 was the result of strong EBITDA being partially reduced by working capital movements, primarily in the form of higher accounts receivable balances, a consequence of some improvements in logistics channels which began to open up late in the quarter.

We invested roughly $33 million of capital in our mills this quarter. We are on target to invest about $175 million to $200 million in our operations this year. David will provide an update on our CapEx program in a moment.

At the end of the quarter, our strong liquidity position totaled about $692 million, comprised of $411 million of cash and $281 million of undrawn revolvers. Our liquidity position will support our planned working capital movements, along with our ambitious 2022 high-return capital spending program.

And as you will have noted from our press release, our Board has approved a quarterly dividend of $0.075 per share for shareholders of record on June 29, 2022, for which payment will be made on July 7, 2022.

That ends my overview of the financial results, and I'll now turn the call over to David.

Thanks, Dave. Our solid Q1 operating results were essentially an extension of our Q4 results. Our mills ran well, and we have benefited from particularly strong market conditions for pulp, lumber and green energy. Although we experienced considerable cost inflation pressures, particularly in natural gas and shipping, the diversity of our products, our locations and end markets, along with solid cost control measures, allowed us to take full advantage of the strong pricing conditions for our products. Our mills' strong production this quarter, combined with overall steady demand for our products, were key factors in our Q1 results.

Global pulp supply demand fundamentals remained tight through Q1. And as a result, relative to Q4, average pulp prices were up in all markets with the largest increase coming in China. Chinese demand continues to be negatively impacted by pandemic conditions. In other markets, demand has been steady, and logistics bottlenecks in certain regions have created extremely tight conditions. In addition, supply reductions due to the finished pulp and paper industry strike recently announced reductions in NBSK capacity, along with the commencement of the traditional major maintenance season, continue to support price increases that have continued into Q2.

European hardwood pulp supply will also be negatively affected by the sanctions-related reduction in supply of Russian birch wood. We believe that pulp consumers have low inventory levels, forcing some producers to use additional NBSK in their furnish or slow their machines.

Lumber markets also remained strong in the quarter. U.S. lumber pricing approached the near-record levels of 2021 before weakening again late in Q1. And while average lumber pricing in Europe weakened modestly during the quarter, both markets remain at historically high levels.

The midterm backdrop for U.S. lumber pricing conditions remains positive with relatively low housing inventory, strong housing expectations supported by recent statistics and constructive homeowner demographics. At the same time, the current market volatility is the result of a number of factors, including rising borrowing costs, construction being constrained by inflexible supply chains, labor and home construction supply shortages and inconsistent lumber supply from Canada. Looking ahead, positive homebuilder sentiment remains despite the expectation that mortgage rates will rise further in 2022, which is consistent with our view that despite these short-term factors, we will continue to see strong lumber demand based on expected steady U.S. home construction.

European lumber prices, which often lag those of the U.S., moderated in Q1. But with the expected strength of the U.S. market, we believe pricing conditions remain favorable. We will continue to optimize our mix of lumber products and customers. In Q1, 42% of our lumber sales volumes were in the U.S. market with the majority of the remainder of our sales in the European and Japanese markets.

Although we feel our logistic strategies put us at a competitive advantage to many of our competitors, we experienced some freight cost increases in Q1. This is primarily the result of increased use of trucking, along with higher warehousing costs in North America, caused by pandemic and extreme weather-related shipping delays which continue to negatively impact the availability of railcars, particularly on the CN network. While we expect this condition or situation to ease over time, the lack of railcar availability will likely persist in the near term as the railway works through its shipping backlogs.

Our turbine generator at Rosenthal was put back into service in mid-January, and our Q1 results reflect having this asset back online. The current -- these current conditions highlight the benefits associated with our modern assets.

Fossil fuels are a relatively small source of energy for us, primarily used in our lime kilns as part of our chemical recovery process. While we have been impacted by higher prices for natural gas, our ability to sell electricity at market prices, which have increased significantly, acts as a powerful hedge against rising gas prices.

Our wood products segment achieved another solid production result, producing almost 116 million board feet of lumber in Q1, up 5 million board feet compared to Q4. We're also making great progress on our value-add strategy, employing modern transfers, grading, trimming and sorting equipment.

In Germany, we continue to see strong demand for both pulpwood and sawlogs. Demand for pulp logs is being driven by pallet producers as high European energy prices are creating more demand for wood-based heating solutions, which is creating upward pricing pressure. While sawlog demand and supply appear to be in balance, we are expecting modest upward pricing pressure for both pulpwood and sawlogs in Q2.

In Western Canada, as expected, increased harvesting activity and fewer COVID restrictions helped ease pricing pressure, and we expect only modest upward pricing pressure in Q2.

As Dave noted, we're off to a good start on our 2022 CapEx program, which could approach $200 million, the majority of that being on high-return projects that will drive new product development, ESG advances, productivity improvements and input cost reductions.

We expect our 2 new woodrooms at Celgar and Peace River to be completed in the second half, and we will be making additional investments in our German wood procurement infrastructure that will add to our competitive advantage.

We have one more sorter to add at our Friesau mill to maximize the benefits of our new planar by allowing for even greater grade differentiation. And while most of the Stendal740 pulp expansion project is complete and running as expected, we will complete the final element, some modest modifications to the pulp machine wrapping line in 2022.

Now in keeping with our carbon reduction strategy, we are developing a lignin development center as we expect to commence construction of a lignite extraction pilot plant, a leading-edge technology and team that will allow us to look at commercialization of derivatives of lignin.

And of course remain committed to our approach to solid wood products expansion, we are developing an investment strategy for our mass timber plant in Spokane that will expand that mill's product mix and profitability. While full ramp-up of the plant will continue for several more quarters, we are progressing well with our long-length finger joint material, and we have delivered our first CLT project. On the human resource side, we've been very actively building out our business development, engineering and design teams to take advantage of the continued growth in the mass timber space.

As we think about climate change and the rapid shift occurring regarding carbon products like lignin, mass timber, green energy, extractives, lumber and pulp, are all products that will play increasingly important roles in displacing plastics and carbon-intensive products, products like concrete and steel for construction, plastic packaging, fossil fuel-generated electricity and synthetic fragrances and flavors, even synthetic textiles. All products that are releasing carbon are ending up in our oceans or our food chain.

Fundamental to our strategy is to operate modern facilities and encourage innovation. As you may have seen from our recent press release, our carbon reduction initiatives were recently validated by the Science Based Targets initiative, the leading evaluator of sustainability performance. We're looking forward to the pending release of our 2021 sustainability report which will be published soon.

Our 2022 annual maintenance schedule will be significantly less intensive than 2021 due to the Peace River recovery boiler rebuild being behind us. We did not have any planned maintenance downtime in Q1. The timing of our scheduled downtime for the remainder of the year is as follows: In Q2, Stendal will take a 3-day mini shut, Celgar will have its regular 15-day shut, Peace River will have a 15-day shut, and Cariboo has a 6-day maintenance shut. In Q3, Rosenthal has its regular 14-day shut plan. And in Q4, Stendal has a 14-day maintenance shut scheduled. In total, we are planning for about 67 days of major maintenance in 2022.

And now before I turn the call over for questions, I'd like to take a quick moment. On a personal note, as many of you know, I am retiring effective May 1 as Mercer's CEO and President. I'm excited about this next chapter in my life, and I'm looking forward to spending more time with my family. I leave Mercer with a very strong management team, and my successor, Juan Carlos Bueno, is a proven leader in our space. I believe the company is well positioned for future growth. I'll be watching its progress closely, albeit from a distance. I would like to thank our Board, my management team and all of the Mercer employees for their support and dedication.

Thanks for listening. Be safe. And now I'll turn the call back to the operator for questions.

[Operator Instructions]. Our first question comes from the line of Kasia Kopytek from TD Securities. First question comes from the line of Hamir Patel from CIBC Capital Markets.

David, first off, congratulations on your retirement.

David, I wanted to ask about lumber prices in Europe. Hoping you could comment on how they've evolved since the conflict in Ukraine began and what level of pricing improvement you might be expecting in coming months as pricing terms are reset.

Yes, hard one to call just at the moment, Hamir. I mean, as -- I don't think there's been anything really dramatic yet as a result of the conflict. In my, I think, maybe history, ignoring the conflict, I mean, history has shown us that the European market tends to follow the U.S. market, both up and down but maybe with less volatility. That's a bit of what we've been seeing in the recent past. There will be a shortage of lumber and certain types of products in certain sectors. But with our main customers in Europe, I don't think we're seeing direct impact just yet.

Okay. Great. And David, I know Mercer has been pushing for the reopening of the rail line near Rosenthal and Friesau that was -- I think it was cut off almost 70 years ago. What type of cost savings could that represent if you're able to get that reestablished?

That's another question I don't have a specific number for you, Hamir. I mean, I think it -- we're already in a low-cost freight environment, but this will be primarily a carbon saving and a site cost reduction being able to go on rail as opposed to by truck.

Next question comes from the line of Andrew Kuske from Credit Suisse.

David, I guess your Monday morning is going to be a bit different than Monday mornings in the past. But maybe just on the business positioning that you're leaving and you think about the CLT business and just the broader positioning within a decarbonization theme. As you get greater build and scoring towards lead status focused on the carbon cycle and mass timber, how do you think about Mercer's positioning with the CLT business? And just sort of more broadly, how big could it become for Mercer itself? And then how big do you think the market opportunity is to sort of overall?

Yes. Well, I'll start by saying I'm really excited for Mercer with mass timber. That plant in Spokane is a very large plant. It's really well invested. It's got more than $150 million worth of brand-new equipment in it, all kinds of grading and sorting and planing capacity similar to what we're familiar with. It was designed to be just a CLT production facility initially, and we're going to change that. We're going to be making glulam and other engineered wood products there because we've got the whole machine around the requirements to make additional engineered wood products. So CLT will continue to be a significant component of that, but we'll be producing what we call catalog products of engineered wood that will keep the plant busy and profitable. And we'll be using the CLT to upside the margin as and when those projects come in.

We're building the team out now. We've been very successful. We're very, very pleased with both our marketing project execution, our engineering service individuals that have joined -- are joining Mercer. We're going to have some high-return capital we're going to spend in the facility over the coming couple of years, but I think it's going to be just a steady ramp-up and improvement in profitability. And I believe it will be very noticeable within a couple of years. That will be a significant platform for us. And with the team that we're building, we'll -- we intend to continue to grow it opportunistically.

Got it. That's helpful. And then, I guess, philosophically, do you see that CLT businesses having maybe a lower volatility than we see in pulp markets, and then you get a higher baseline steady amount of predictable cash flows or more predictable cash flows over a period of time to draw higher multiple?

Yes. I don't know about the volatility piece. I mean, it's going to be a bit like the lumber business. Like the plant will be busy making catalog engineered wood products, and it will be making big CLT panels, either catalog channels or custom design panels, all depending on where the margins are. But the vision we have for it is by having this whole range of products -- like a good example is long-length timber 2x4s today is an engineered wood product. You have railcars of lumber coming into the plant. They go through sorting and planing. They get finger-jointed, and we're selling, on average, 28-foot long-length finger joints as a product going out in railcars.

And we'll have a whole -- like a number of other products like that, including glulam, beams of various sizes and dimensions that builders buy off the shelf, if you like. Like it's a -- it will become like a high value-added lumber product. So it will follow the market and will be -- it will track the inputs. Like as lumber costs go up and down, the value or cost of engineered wood products will go up and down with it. But we'll be a really big player in the space, and so we'll have that competitive advantage throughout the cycle.

Very helpful. And if I may, just one final one. Given what's happened in Europe with power prices in Germany in particular and your exposure there, do you think about engaging in a longer-term contract or just a contract to lock in cash flows?

Well, the -- we do have our tariff still on Stendal, the green tariff, we call it the EEG. But we can flip off that when the market prices are higher, and so the EEG tariff is our floor. And when spot prices are higher, we take advantage of that. We're not intending to lock in any kind of forwards on that at this point in time. The world is just too unclear to us. But we believe that having the very modern and expansive generating capacity that we have means that we don't buy power ever, other than in start-up, and we enjoy very high electricity prices when the conditions are as they are now.

Next question comes from the line of Andrew Shapiro from Lawndale Capital Management.

Just a few questions. On the Rosenthal turbine business interruption insurance claim, which there wasn't enough visibility on in the last call, are you able to provide a range of the claim size at this time yet?

No, Andrew. I don't think I can. We've filed with the insurance company. I think we did that in early April, and we haven't heard back. And we don't know what their position is going to be, so it would be premature of me to give guidance on that.

Okay. Including even a range?

Yes, yes. We're not going to provide...

And the 35 tonnes of pulp logistically delayed from Canada to Asia in the fourth quarter that went out the door in Q1, can you approximate the amount of revenue shift into the first quarter of '22 that we benefited from this?

Yes. No. It doesn't really work that way. What Dave was saying is that during the first quarter, we needed to slow the Peace River mill down because we didn't have enough freight equipment -- enough equipment to move the pulp to customers. So that was about 35,000 tonnes that we left on the table.

Okay. And lastly, with the transition occurring, I wanted to say, first off, it's been a real pleasure working with you and engaging with you for well over a decade, I think, that we did from when you were CFO and all and going to miss you. And at some point, we're going to get the opportunity to meet Juan Carlos. Do you or David know what the present plans for virtual or in-person IR activities are going to be in the coming months and when -- and what the kind of the rollout will be with the new CEO?

Well, there's -- we've got a pretty extensive transition plan for Juan Carlos, obviously, getting around and meeting all the employees and touring the mills and getting up to speed. I'm supporting him, along with the other senior members of our team, in the transition. Dave's got continuing investor relations activities. And to the extent that Juan Carlos can participate is really yet to be seen. Just a little too early for the 2 of us to commit him, but he'll be getting up to speed very quickly, I'm sure.

Okay. Well, very good, and I hope we can stay in touch during your retirement. Going to miss you.

Great. Thanks, Andrew. You, too.

Next question comes from the line of Sven Carlin [ph], a private investor.

Davids, I got 3 questions. One is you talked about downtime at the mills being less than last year, substantially less than last year, but you didn't give me the 2 numbers. This year, expecting downtime of -- did I hear 67 days?

And last year, it was over 100. What was the number?

Dave's just flipping. We had the recovery boiler built in there which was obviously expensive. Remember, things got a little cloudy since because we did get the business interruption insurance for the downtime on the recovery boiler repair as well.

Right. I am aware of that.

It is -- I think the point for listeners is it's a lighter maintenance year this year than last year.

Okay. The second question is your CLT hiring ramp-up that's been going on now for 4, 5 months. How much money did you spend in the first quarter that impacted the EBITDA number? I mean, you didn't have any revenue. You talked about your first delivery just took place, so I assume that was in April. So with no revenues, what were your costs at that plant in the first quarter?

Yes. Well, actually, I think it would be fair to say we, more or less, broke even in the quarter. And what we've been doing is we've been -- the first step of the ramp-up was to get the long-length finger-jointing going, so buying box cars of lumber, #2s, #3s, and producing the engineered product, which is, on average, a 28-foot long-length finger-jointed product. And so we've, more or less, been covering our costs doing that. The CLT project was a small one on its own. I'm not going to disclose the margin from that.

But again, what's really exciting is, as we make further investments in the facility and as we -- like we'll build up our CLT volumes, but we're also going to build up our capacity to do glulam, and that will result in the plant being -- when we're finished, the plant will always be busy, regardless of how much CLT business we have. And then as we bid on those jobs, we'll bid on higher-margin jobs and produce catalog components.

The whole industry is evolving along the lines of like imagine modular housing, modular buildings where the floor plates are -- they're like an item in a catalog. It's like a 2x4 floor plates, whatever the dimension is. And as builders get more comfortable with those kind of products, then we'll just be producing them, putting them in inventory, selling them as the orders come in. And it's really exciting. The CAGRs in this industry in North America look like they're going to be north of 25% for the next 5 or more years on demand.

Great. And the third question is what was the currency impact on your income statement and your balance sheet in the quarter?

Well, it was positive. We haven't disclosed it, Sven. But I can tell you, in general, we are -- our sensitivity to foreign exchange rates for every penny change, for any penny increase in the value of the Canadian dollar -- against the Canadian dollar, it's about $7 million a year. And against the euro, it's about $5 million a year.

Okay, okay. And just the last comment, David Gandossi, I just want to thank you for your efforts over the years. I think your leadership style has been incredibly effective, and the company has been very well-run. So thank you.

[Operator Instructions]. Next question comes from the line of Paul Quinn from RBC Capital Markets.

This is Matthew McKellar on for Paul Quinn. First, I was wondering if you could share your thoughts on the sustainability of pulp pricing here. We've seen pricing move higher. It sounds like you're expecting continued upward pricing pressure based at least partially on low inventories. What sort of things might potentially bring balance back to the markets? And to what extent might we be seeing some of that already with the return of some European supply and reduced demand from China?

Yes. Well, there's quite a few drivers in the market. It's a lot of different things going on. One is, obviously, demand in China is particularly weak right now, all the pandemic lockdowns and so on. But it's also difficult for Chinese paper companies to get pulp because the ports are just so congested. So they're having a difficult time. As I mentioned, those customers that use hardwood are having difficulty getting hardwood product, particularly the birch hardwood.

The European market is supported -- paper markets are supported by the inability of Chinese paper companies to export to Europe, so there's very little import competition, so things are particularly strong in Europe.

And then there's a whole bunch of takeaways on pulp. There's mills around the world that are going to struggle with access to chemicals, access to human resources to conduct maintenance, access to parts, critical spares and things like that, that we always took for granted. Just-in-time deliveries all of a sudden may not show up. And then there's -- some of the old-timers are really starting to show their age, and we've seen a few mills shift from bleached to unbleached as a result of that. So a lot of different things going on.

I personally am quite bullish about the future. I think the -- there's still quite a bit of old capacity running. I think fiber scarcity is really -- we're going to see that big time with climate change. Old-growth deferrals in British Columbia, Fires throughout the boreal and Russia and other places. The war in Ukraine is a big takeaway for fiber in certain regions, so -- and hopefully, this pandemic problem in China will end. And consumption -- demand and consumption of paper products will start to grow again, and things will unwind and get back to normal.

So I don't know if that helps, but those are all the big factors. Well, I guess one more thing we're always conscious of is the recycled fiber basket continues to diminish in quality and quantity. Less and less of the end-use products for long fiber are recyclable. Things like toilet paper, tissue papers and all those sorts of things don't end up in the recycled basket. It's more hardwood and other recycled furnishes that continue to diminish in quality over time, so I think virgin displacing recycle will become a strategy for many papermakers going forward in the future for paper products as well as for packaging.

So basically bumpy for a bit, but -- and a lot of different things going on. But generally, for the next quarter, I feel pretty good about it. And for the long term, I certainly feel great about it.

Great. That's really helpful. And then maybe just -- can you talk a bit about Canadian fiber costs? It sounds like you're seeing strong demand there and expecting fiber costs to increase again in the second quarter. Could you elaborate just a bit on the dynamics you're seeing there? What kind of progression we should expect quarter-over-quarter?

Well, for us, it's -- I think it will be modest. And there's -- for our Celgar mill, there's lots of fiber around us. Our roundwood fiber costs are a little higher than residual costs, and that's what the investment in woodroom is all about. We're going to make a significant step change in our own processing costs, both transportation and processing, better yields and so on.

Other parts of Canada, I think, are going to struggle a little bit more. Like I know there's pockets where fiber is very scarce, and there's much more competition, and that will drive higher prices. So it really depends on where you are in Canada and on how much inflation you're going to see on fiber. For us, it's going to be modest. It will be very much like what we've got going on right now in the first quarter.

Next question comes from the line of Kasia Kopytek from TD Securities.

It's Kasia filling in for Sean. Just going back to the chemical shortages, we are hearing that some suppliers declaring force majeure as a result of sodium chloride shortages. Can you give some context where Mercer is positioned? Are you guys able to secure supply? And what potential magnitude of cost inflation are you looking at for this cost bucket?

Yes. Well, chloride has been a challenge, and I think it will continue to be for the next 3 weeks to a month probably. Our feeling at this stage is we don't see -- we don't believe we're going to run out. I think we've got line of sight on enough deliveries that will be okay. There is obviously cost pressures on all chemical supplies. But again, our energy is a great hedge against all of those. And yes, so fingers crossed, we're going to be good. We think we are. But I know others are struggling as well, and we'll see some pulp downtime as a result, I'm sure, in certain parts of the globe.

And do you see any limits on -- I mean, as I understand, a lot of the chemicals are produced in Western Europe. I don't know if some of those volumes that were previously shipped to Russia are now staying domestically. Do you see any benefits from that to your domestic production base or not much?

I can't comment on that. I don't know.

Okay. Fair enough. And just turning to Friesau, just wondering if you could provide context where that facility is running now. I think about a year ago, you had guided to Friesau running at about a 500 million to 550 million board foot pace over the subsequent 6 to 9 months, and I think we're still a bit short of that. So how do you see those volumes evolving at that facility in the near term or midterm over the next year?

Yes, yes. Well, I think on 2 shifts, that's a 550 million board foot mill. We've been doing quite a bit of construction at it. We slowed down a little bit to do some work on the log sorting line. There's just -- we've kept the mill running throughout all of these different phases of construction. So what you're seeing, anything below 550 million is really, in my mind, is just a result of some of these logistics issues.

What's cool about that mill is if we ran 3 shifts, that would be up over 700 million board feet. The challenge with 3 shifts is labor, finding all the right people and training them and ensuring that they're able to work at the capacity that we need them to. This is a very modern facility, very advanced technologies. And we're working on a third shift, developing people, but it's going to take a little while. I don't even want to hazard to say how many quarters it will take. But there is -- there's a couple of hundred million board feet of further capacity in that facility constrained only by labor.

We have no further questions at this time. Please continue.

Well, if there's no further questions, I just want to thank everybody for attending the call. And it's been my great pleasure to be Mercer's President and CEO, and I'm very proud of this management team. It's -- the company is in good hands, and Juan Carlos Bueno comes to us with many, many years of experience in our space, and I'm sure it's going to be a really nice next chapter of growth for all of us. So thanks for listening, and have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.