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Mercer International Inc (MERC 0.75%)
Q4 2020 Earnings Call
Feb 17, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to Mercer International's Fourth Quarter 2020 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. Please go ahead.

David K. Ure -- Senior Vice President Finance, Chief Financial Officer, and Secretary

Good morning, everyone. I'll begin by reviewing the fourth quarter's financial highlights, and following my remarks, I'll pass the call to David, who will comment on our ongoing response to the COVID-19 pandemic, key markets, operational performance, progress on our strategic initiatives along with our outlook for the first quarter of 2021. Please note 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.

Our fourth quarter EBITDA was up when compared to Q3, primarily due to improved pulp demand and pricing, record operating results from our Wood Products segment, solid operating performance from our mills along with lower wood costs. These positive influences were partially offset by the impact of a weaker U.S. dollar and a slightly heavier annual maintenance program in Q4 when compared to Q3 and reduced government wage subsidies at our Canadian mills.

We generated EBITDA in the fourth quarter of about $49.5 million compared to EBITDA of about $45.6 million in Q3. Our Pulp segment contributed EBITDA of $34.8 million and our Wood Products segment contributed record quarterly EBITDA of $16.4 million. Our Wood Products segment results reflect high lumber sales prices in the U.S., strong sales volumes and the benefit of low sawlog prices.

As usual, you can find additional segment disclosure in our Form 10-K, which can be found on our website and that of the SEC. Average quarterly softwood and hardwood pulp prices were up in almost all of our major markets compared to Q3. As a result, our average pulp sales realizations were up almost $30 million -- or $30 per tonne this quarter, positively impacting EBITDA by about $18 million compared to the prior quarter. Pulp demand also improved noticeably in Q4, allowing us to sell our quarterly record 563,000 tonnes, which was up about 93,000 tonnes from Q3 and about 39,000 tonnes above production.

Our wood products business continues to perform well. We sold about 104 million board feet of lumber in the quarter, which was down about 14 million board feet from our sales volumes in Q3, primarily due to logistical restrictions during the Christmas holiday season.

Electricity sales totaled 251 gigawatt hours in the quarter, which is up relative to Q3, primarily due to strong production at all of our mills in Q4 and Celgar's Q3 30-day curtailment. Our Cariboo Pulp joint venture, which was accounted for using the equity method contributed another 7 gigawatt hours to this total. The Cariboo production is down due to unscheduled maintenance on one of its turbines that will keep it down until mid-February.

We reported a net loss of $13 million for the quarter or $0.20 per share compared to net income of $7.5 million or $0.11 per share in Q3. The decrease in income reflects stronger EBITDA being offset by a decrease in other income line of our income statement, including the negative impact of the weaker U.S. dollar on certain U.S. dollar denominated assets.

Cash generated in the quarter totaled almost $16 million compared to $42 million in Q3. Our cash generation in Q4 was primarily driven by solid EBITDA generation, which was partially offset by increased capital spending and a modest increase in working capital. We invested about $19 million of capital in our mills this quarter and David will speak more to our spending expectations in 2021.

As a result of prudent cash flow management, our liquidity is improved in Q4 and at the end of the quarter totaled about $628 million, comprised of $361 million of cash and $267 million of undrawn revolvers. In Q4, our planned maintenance shuts included a successful five-day shut at Peace River and the final 11 days of a two-week shut at Rosenthal compared to Q3 when we successfully executed a short seven-day shut at Celgar and the first three days of Rosenthal shut. The impact of the Q4 maintenance days including lower production and higher direct costs reduced Q4 EBITDA by about $7 million compared to Q3.

As a reminder, our competitors that report their results under IFRS are permitted to capitalize the direct cost of their annual maintenance shuts, while we expense our costs in the period of shut completion. I am pleased to note that in January, we completed an offering of $875 million of senior unsecured notes that will bear interest at 5.125% per year and mature in February 2029. The net proceeds from this offering were used to redeem both our outstanding 6.5% 2024 senior notes and our 7.375% 2025 senior notes with the remainder being used for general corporate purposes.

Subsequent to this transaction, Mercer's earliest senior note redemption is now 2026 and our annual interest expense will be approximately $12 million lower than previously. And as you have noted from our press release, our Board has approved a quarterly dividend of $0.065 per share for shareholders of record on March 31, 2021, for which payment will be made on April 7, 2021.

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

David M. Gandossi -- President, Chief Executive Officer, and Director

Thanks, Dave, and good morning, everyone. Let me begin by saying that despite what is looking like the early stages of a global economic recovery, the COVID-19 pandemic remains a major concern. While National vaccine programs are gaining speed, infection rates remain stubbornly high due in part to new and more infectious mutations of the virus and as a result, we remained focused on our protocols to ensure the safety of our employees and the ongoing operation of our plants.

I would like to thank all our employees for continuing their efforts to keep themselves, their families and our colleague safe. I'm pleased with our operating results this quarter. Our mills all have done well, resulting in strong production, which allowed us to achieve record annual production of pulp, lumber and energy. Our fourth quarter results also benefited from increasing pulp demand and prices. Combined, our pulp mills set a sales volume record in Q4.

NBSK pulp prices in Europe rose steadily through the quarter and prices in the U.S. rose modestly late in the year, while prices in China rose significantly late in Q4. The upward pricing pressure in China at the end of the quarter was due to a number of factors that included low paper producer inventories, unusually high pulp producer downtime and a global shortage of containers that has limited the volume of pulp into China, combined with a relatively high Chinese currency.

This upward pricing pressure in China ultimately pushed prices up in all markets and looks to continue through the first quarter of 2021. In China, the Q4 average NBSK net price was $637 per tonne, up $65 from Q3. European list prices averaged $880 per tonne in the current quarter compared to $840 per tonne in Q3. The average Q4 net hardwood price in China was $480 per tonne, up almost $40 from Q3 and the hardwood list price in the U.S. market averaged $868 per tonne in Q4, which was flat compared to the prior quarter.

Despite the ongoing challenges created by the pandemic, global economic activity has been buoyed by the rollout of vaccines and indications of ongoing governmental economic support globally, in turn this has begun to reduce the level of economic uncertainty. Currently, we believe NBSK fundamentals have improved with low producer inventory levels and a weak U.S. dollar supporting pulp prices.

We expect demand to continue to increase through the winter, but we also expect some Chinese market moderation through the Lunar New Year celebration. In addition, we believe we will see moderate demand increases from certain end uses, including printing and writing as countries continue to slowly reopen their economies. Adding to the positive pulp market fundamentals, we expect that planned pulp mill conversions will positively impact pulp supply and virgin pulp demand is getting a small boost from an increase in the percentage of virgin fiber going into certain packaging products at the expense of what is becoming a degraded recycled fiber supply.

Overall, we expect the pulp markets to continue their steady recovery in 2021. The current speculation driving NBSK price is up on the Shanghai Futures Exchange may take a slight step back late in Q1, but we remain optimistic that the previously noted supply and demand factors will support future strengthening of the pulp markets from the pandemic-related slowdown.

December market statistics reflect steady strong demand with both NBSK and hardwood inventories down significantly. With regards to our wood products business, the European lumber market remained steady with modest upward pricing pressure being driven by the strong U.S. market share, historical peak pricing late in the quarter and strong demand pull. Our Q4 average lumber sales realization was $467 per thousand board feet compared to $453 in Q3.

As Dave noted earlier, this enabled our wood products business to achieve a second consecutive quarterly record level of EBITDA in Q4. The historically higher lumber prices in the U.S. despite some volatility, continue to be driven by a solid housing market and steady home renovation-related demand. The U.S. market supply demand dynamics are expected to remain favorable through 2021 as the largest American home building companies are all predicting strong sales this year due to low home inventory levels in many areas of the United States and what are widely expected to be sustained low borrowing costs.

The Random Lengths U.S. Benchmark for Western S-P-F #2&Btr, averaged $700 per thousand board feet in Q4, which was down $68 from last quarter. U.S. lumber prices were down mid-quarter before continuing a rapid increase late in Q4 that has been sustained so far in 2021 compared to Q3, which included record lumber prices. The benchmark lumber price is currently close to $945 per thousand board feet.

In Q4, 37% of our lumber sales volumes were in the U.S. market with the majority of the remainder of our sales in the European market. As we move through Q1, we expect the European lumber market to remain steady with some modest upside as some European manufacturers move inventory to the U.S. market. Despite this, we expect the U.S. market to stay strong.

Our mills ran well this quarter in spite of all the pandemic-related challenges, including our Cariboo joint venture, we produced almost 524,000 tonnes of pulp, up 44,000 tonnes from Q3. The increase was primarily due to strong production at our pulp mills and the absence of Celgar's Q3 curtailment. Excluding the Cariboo mill, our strong pulp production allowed us to produce 568 gigawatt hours of power, up 39 gigawatt hours from Q3.

Our Wood Products segment continues to perform at a high level, producing 111 million board feet of lumber, which is up 14 million board feet due to Q3 production interruptions required to tie in new equipment related to our Phase II expansion project. In Germany, our wood costs, particularly for pulp wood, remained at historically low levels due to the abundance of beetle damaged wood. We expect this log supply dynamic to last well into 2021.

In Western Canada, pulp wood suppliers improved due to sawmills running full out to take advantage of the strong U.S. lumber market. We expect fiber prices to modestly decline, but remain at historically high levels into Q1 2021.

We have a significant annual maintenance program planned for 2021, the majority of which is due to the Peace River recovery boiler rebuild and Stendal will take 23 days of downtime compared to six days in 2020 due to its major maintenance being on an 18-month cycle. All of our major maintenance shuts carry significant risk as a result of the pandemic and the large number of contractors required in the mills. We have developed strict safety protocols to mitigate these risks and based on our information today, we believe that all this maintenance can be completed safely and effectively.

Our 2021 maintenance schedule is as followed -- follows, in Q1, Celgar will take a 20-day annual maintenance shut, in Q2, Stendal will take its 18-month shut that will last 21 days, as well Cariboo will take an 11-day shut, and Peace River will begin at 64-day shut. This extended downtime will be used to rebuild the mill's recovery boiler. You will recall that this shut was deferred from last year to the -- due to the inability of contractors being able to guarantee the availability of skills trade people during the early stages of the pandemic. In Q3, Rosenthal has a 15-day shut planned and Celgar will take a four-day mini shut. In Q4, Stendal has a two-day mini shut planned.

In Q4, we invested roughly $23 million in high return projects at our mills. Our planned 2021 capex program is expected to be about $150 million. Our more modest 2020 capex program was focused on the completion of the Friesau Phase II expansion project along with some smaller high return productivity and cost reduction initiatives. We also began early work on the production expansion project at Stendal, which will complete in late 2021 with -- when it will increase the total capacity of the mill from 660,000 to 740,000 tonnes per year.

As we begin to look forward into 2021, I remain confident that the effective execution of our strategy will continue to bring us success. We will remain focused on our world-class assets and our sustainable operations will continue to serve us well as we continue to focus on optimizing our fiber handling and logistics and controlling our costs.

I've discussed previously that financial prudence required us to put the growth ambition -- aspects of our strategy on hold, however, as we look forward to strengthening pulp markets and reduce economic uncertainty, with our balance sheet in good shape and with excellent liquidity, we will begin to refocus on adding shareholder value through growth. And as I've stated previously, any future growth will be in areas where we have core competencies, while maintaining the integrity of our balance sheet and our liquidity -- managing our liquidity.

Now, these three projects I prepared to talk about today, we have -- our Board has approved the pushing forward with the Stendal sawmill. The project hasn't been approved per se, but the engineering to take us to the next level of getting the permits secured and any subsidies applied for has happened and we'll be taking that back to the Board late summer, early fall for a final approval.

We also have approval in principle for two woodroom projects, one at Celgar, one at Peace River. These are projects that will change the way we debark the smaller diameter logs, currently much of that is done with remote chipping in the bush or in satellite yards, we'll put a sixth flail in at Celgar and a batch rotary debarker in at Peace River, reconfigure our truck fleet to -- in Alberta to be a 10 axle cut-to-length, which will allow us to increase the weight on the trucks from roughly 66 tonnes per truckload to almost 88 tonnes per truck which is close 40% to 50% improvement.

The rotary debarker and centralized chipping at Peace River will result in reducing our wood requirement for the same volume of pulp by about 8.5%. So this is thus breakage less loss of white wood. So it's a really fantastic project. The cost reduction for both mills is around $20 million per year, which will occur throughout the cycle regardless of pulp prices.

The Celgar capital cost is -- the woodroom itself is around $18 million. There'll be some trucks and mobile equipment associated with that. And the Peace River woodroom is about $40 million, again with trucks and mobile equipment associated. Both have about a $20 million EBITDA impact. So -- and there are various carbon-related government grants associated with both projects. So better than two year payback on both of those. I'm very pleased that the Board has prioritized those and will be making final decisions at the end of this month when the engineering gets to the plus or minus 10% level and both woodrooms should be up and running by March of next year.

Finally, as you may have seen in our press release earlier this morning, I'm very pleased to welcome Janine North and Alice Laberge to the Mercer Board of Directors. Both these women have tremendous experience, both in forest industry along with other corporate board experience, and CEO, and senior financial position experience. So we're all very excited that they've agreed to join the Board, and I'm looking forward to working with both of them.

So this completes our prepared remarks. Thanks for listening, and I'll now turn the call back to the operator for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] And our first question comes from the line of Hamir Patel from CIBC Capital Markets. Your line is open.

Hamir Patel -- CIBC Capital Markets -- Analyst

Hi, good morning. Dave, could you comment on the sort of M&A environment for lumber and how attractive that opportunity set is looking versus a potential greenfield?

David M. Gandossi -- President, Chief Executive Officer, and Director

Well, there is a few situations out there, but it's that time in the cycle where valuation expectations are very high. So it's unlikely that we'll be chasing M&A sawmills at this stage in the cycle. We are pretty keen on the Klausner One in Florida. We thought that would have been a great deal for us for a bunch of different reasons. But as you know, we stepped away from the auction when it got heated. So yeah, I think for us the next step in lumber expansion will be Stendal and I think that will be a tremendous project for the company.

Hamir Patel -- CIBC Capital Markets -- Analyst

And then, Dave with the Friesau expansion work being completed this year, what level of lumber output are you targeting this year?

David M. Gandossi -- President, Chief Executive Officer, and Director

Yeah. Round about 500 million board feet of lumber there, maybe a little bit more, we haven't decided to put on the third shift at this stage. It's -- stresses things a bit when you push that third shift from a maintenance perspective. But it's -- we're very pleased with the grade improvements that we're seeing and the profile of the wood coming out. So a little bit of tune-up to do with edge trimming and those sorts of like precision and trim on the new planer, those kind of things but generally, everything is working as we had expected.

Hamir Patel -- CIBC Capital Markets -- Analyst

Okay, great. Thanks, David. That's all I have.

David M. Gandossi -- President, Chief Executive Officer, and Director

Thanks, Hamir.

Operator

Thank you. Our next question comes from the line of Sean Steuart from TD Securities. Your line is open.

Sean Steuart -- TD Securities -- Analyst

Thanks, good morning. A couple of questions. David, I'd be interested in some further context on your take on pulp momentum right now, it's spectacular run off I guess a low base for the commodity. These are mill inventory levels that -- while they've fallen dramatically from the peaks, we saw last summer would not normally support this type of a price momentum. And I guess you mentioned the Shanghai Futures, you mentioned currency shifts and the impact on the cost curve. How much of that is playing into what we're seeing right now and how do you think about the momentum relative to where inventories are through the system?

David M. Gandossi -- President, Chief Executive Officer, and Director

Well, first of all on the Shanghai Futures, my view is that if you didn't have the fundamentals right and the supply demand physical side, the futures exchange would be a speculative sort of a thing and more likely a bubble would heat up and cool off, that kind of thing. But I think physical markets are tight, hardwood in particular is really tight when you think about the length of the supply chain from most of the hardwood notes to their actual markets. So I think that's the really tight side right now.

Softwood is balanced. But having said that, there is quite a bit of supply risk with all the maintenance that's going to happen, there is no new supply coming. Most customers are expecting prices to continue at elevated levels and possibly increase. So everybody is chasing pulp, that nobody wants to get behind, everybody wants more than they can get. And so, it's just -- it's driving itself is really my view unless something happens that really significantly impacts demand and I can't see that, it feels like a sustainable sort of a rally here.

I mean, it's -- the markets are balanced to tight, inventories are low and demand is strong. And as I was saying earlier, the printing and writing side is coming back off the floor as countries open and there's any kind of travel, improvements or school forms or just generally people getting back to work will drive some recovery in printing and writing, which is all incremental on top of where we are today, so.

Sean Steuart -- TD Securities -- Analyst

Okay. A couple of questions on capex. So I understand correctly, the two woodroom projects, those aren't Board approved yet, but they are in the $150 million budget for this year, is that the correct read?

David M. Gandossi -- President, Chief Executive Officer, and Director

No, they're not in the $150 million, they're -- they will be incremental to that.

Sean Steuart -- TD Securities -- Analyst

Okay, OK. And as we think about a Stendal sawmill, what sort of capex budget are you thinking about for a project like that?

David M. Gandossi -- President, Chief Executive Officer, and Director

Yeah. All then to completion would be around a EUR185 million. Our current thinking is to do it in phases. We haven't established exactly what that looks like, but there's elements of it that will -- you do first and get lumber production going and then, thinking some of the log sorting equipment in lines may come later as step two just to -- it's just a logical way to -- they're -- sawmill is not like a pulp mill, you don't just build a sawmill and then start it up, you have to start it up in sections and so, we're working on what that looks like, but we'll have a lot more to say about it in the summer.

Sean Steuart -- TD Securities -- Analyst

Understood. That's all I have for now. Thanks very much.

David M. Gandossi -- President, Chief Executive Officer, and Director

Okay. Sure.

Operator

And our next question comes from the line of Andrew Kuske from Credit Suisse. Your line is open.

Andrew Kuske -- Credit Suisse -- Analyst

Thank you. Good morning. I think the question is for David, to drill just on the pulp markets. And if you could just give us maybe some color and context on structural end market changes that have happened that you've seen really pre-COVID till where you are now? And then, your thoughts on really the return to normal and you alluded a little bit of just with the paper and writing coming back, but color on that would be appreciated.

David M. Gandossi -- President, Chief Executive Officer, and Director

Yeah. Well, I think, the at-home tissue is obviously been very strong. The away-from-home has been weak, but that tends to be more a recycle not as heavy to virgin chemical fiber. Printing and writing is down significantly. Lot of the packaging grades are doing quite well downside and is really strong, I reported those kind of things. We see hygiene issues driving more towels and napkin production in time, particularly in areas where it hasn't had great penetration.

So we've talked before about saying goodbye to all those forced air hand dryers. I don't think people are going to be satisfied with cloth towel hand dryer systems in restaurants and hotels and things like that. So I -- my view is the hygiene side will drive the towel and tissue side even more significantly than we've seen in the past.

The general view is printing and writing has been -- I think the graphic side has been declining at some significant percentage per year, 6%-7% and with COVID, it slightly dropped three years in a row all at once, boom, boom, boom. And demand, as the economies open up, some of that will come back, not to the level that was here pre-COVID, but I -- it will come back to some level and then just to continue a slight decline from there, which is fine, because the growth in specialties and other tissue products will eclipse the decline in graphic's grades, I mean, it's -- is becoming a less and less important market for us on the chemical pulp side.

Andrew Kuske -- Credit Suisse -- Analyst

That's very helpful. And then, you mentioned also earlier on the supply side risks that you see on NBSK and a lot of that really being in relation to outages. With your own experiences, with just the COVID protocols, what have you learned about doing maintenance turnarounds? Obviously, there's an element of increased costs that just comes from an outright basis on the COVID protocols, but also to what degree are the productivity losses and then what have you learned...

David M. Gandossi -- President, Chief Executive Officer, and Director

Yeah.

Andrew Kuske -- Credit Suisse -- Analyst

Coming through this?

David M. Gandossi -- President, Chief Executive Officer, and Director

Well, there is, I mean, there's so many things. But one of the front-end challenge is making all those arrangements, so your contractors can travel, like making sure that you fully understand what restrictions are at the border, what they're going to need to do to get across and how you test them and certify that they don't have COVID, how you keep crews apart so you could imagine these -- that's -- it's all kinds of tent infrastructure, separate washroom facilities, canteens, mobile canteens, those kind of things so that we don't have any cross contamination between crews and we certainly keep all our people separate from our contractors and keep our contractors separate from each other. And it's just lots of regular assessments, lots of rules that need to be followed, lots of sanitization protocols. Obviously, masks and sometimes double masks required if people are working closely together in any kind of circumstances, that kind of things.

So far, we think we've got all the border issues well identified and all our plans in place so that the shuts that are coming up in the coming months, I think we're -- we got a clear line of sight on everything we need to do and should be able to conduct our shut safely, but the risks are changes at the border or that are unforeseen surprises or contribute any kind of a serious transmission in the mill could slow things down or shut things down for a period of time. So it's not going to go perfectly for everybody. And that's -- I mean, it's a lot harder than it --normal conditions to conduct these outages safely as others have found. So yeah, it's just -- I think the risk is on the supply side more than a reduction of demand at this stage.

Andrew Kuske -- Credit Suisse -- Analyst

Okay, very helpful. Thank you.

Operator

[Operator Instructions] Our next question comes from the line of Andrew Shapiro from Lawndale Capital. Your line is open.

Andrew Shapiro -- Lawndale Capital Management -- Analyst

Hi, Davids, thank you. A few follow-up questions from those that were asked. You've discussed -- and this may explain that the potential incremental capex on the wood projects and I understand you want to take a cautious approach, but has the -- have the prospects of the turnaround and the returns on past recent investments giving you any clarity on when the dividend might be returned toward prior levels and what are you monitoring when making the decision that Mercer would be in a comfortable position to start dividend growth again?

David M. Gandossi -- President, Chief Executive Officer, and Director

Yeah. So Board did discuss the dividend, but in the -- with the number of very high return projects. On the table, it was decided to hold the dividend where it is and pursue these higher return projects. So financing the Stendal sawmill is going to be challenging for us. We're going to have to work hard to do that in a safe way, thinking some sort of a ring fence financing that protects bondholders and equity holders from the lever, but I'm sure that can be done. So it's just the dividend at its current level is viewed as the right level considering these other demands on our cash and short-term and...

Andrew Shapiro -- Lawndale Capital Management -- Analyst

Yes. Here, no, that...

David M. Gandossi -- President, Chief Executive Officer, and Director

Return to...

Andrew Shapiro -- Lawndale Capital Management -- Analyst

Makes sense.

David M. Gandossi -- President, Chief Executive Officer, and Director

Some of these projects, yeah.

Andrew Shapiro -- Lawndale Capital Management -- Analyst

Yeah, that makes sense. That's -- once I -- we heard that those were some of your plans, but I was just wondering what is it you're looking to so that when some of these projects, I guess, kick in and the cash flows generated and the focus on dividend growth might...

David M. Gandossi -- President, Chief Executive Officer, and Director

Yeah...

Andrew Shapiro -- Lawndale Capital Management -- Analyst

Becoming more...

David M. Gandossi -- President, Chief Executive Officer, and Director

I don't think the Board's thinking has changed that the dividend is something to grow over time, but it's always going to be decided in the context of -- with the highest return, yes.

Andrew Shapiro -- Lawndale Capital Management -- Analyst

Exactly, OK. You talked about some producers with higher costs at the tipping point for closure due to the losses in what was a declining price environment, can you comment on whether the improved pricing now takes that opportunity off the table or there are other factors that might challenge some of that supply out?

David M. Gandossi -- President, Chief Executive Officer, and Director

Yeah. It's -- I guess we've -- in the last couple of years, we've seen a couple of mills go down. There is -- as we all know, there is -- the whole fourth quartile is full of those smaller mills. Yeah, these pulp prices are certainly going to help them, help them to keep going. But in the fullness of time, these small higher cost mills will ultimately become difficult to continue to keep maintaining them. I...

Andrew Shapiro -- Lawndale Capital Management -- Analyst

And it appears -- sorry.

David M. Gandossi -- President, Chief Executive Officer, and Director

Yeah, go ahead.

Andrew Shapiro -- Lawndale Capital Management -- Analyst

You go on...

David M. Gandossi -- President, Chief Executive Officer, and Director

That's fine. I was just going to say the -- as the economy starts to strengthen, some of the takeaways, things like dissolving pulp that's been running on paper grade will -- we're already seeing a lot of that capacity shifting back into the commodity dissolving pulp side, the fluff markets are stronger. So there's really very little paper grade southern softwood coming into the market site. I think this is a combination of all of these factors that are going to contribute to the restrictions on supply on the chemical softwood side.

Andrew Shapiro -- Lawndale Capital Management -- Analyst

You've stated previously and maybe it's been several quarters ago and it's already been done but there was still a lot of room for improvement on the power generation at Celgar side, whether it was to increase the power or the by-product profitability, has that all been accomplished or is that another one of the capex opportunities here?

David M. Gandossi -- President, Chief Executive Officer, and Director

Well, no, we finalized our deal with BC Hydro and I think I talked about that on the last call. I think we're pretty satisfied with where we ended up and it's got some optionality for us going forward. So I think that is what it is, not much to do to report there.

Andrew Shapiro -- Lawndale Capital Management -- Analyst

Okay. So there is nothing more that is high on the table here for investment to enhance further cash flow?

David M. Gandossi -- President, Chief Executive Officer, and Director

Well, Celgar is always -- Celgar, I think has both of our mills, it has potential to be expanded and really it's -- it's really all about, what we call, blow tanks and larger filtrate tanks. So the Canadian mills tended to be built everything balanced. So as long as everything runs, everything just keeps running but if you have an upset somewhere in the system, there isn't really a lot of buffer storage in between, like the fiber line in the bleach plant, for example, are between the bleach plant and the dryer. So these big tanks allow if you have an upset somewhere, you can run upto 12 hours continuing to produce pulp in the digester without it go into the bleach plant, for example, or you can build up from the bleach plant before you go to the dryer.

These -- those kind of investments would allow the mill to produce quite a bit more pulp and would, therefore, lower its cost through fixed cost absorption. We haven't prioritize that just yet, I mean it's really all about getting to a really competitive wood cost for that mill and that's what the woodroom is all about. That's our first priority and that's, as I would say, seeing a $20 million cost reduction to feed the mill at its current state regardless of where you are in the cycle and its transaction like it's the processing costs is just how many times you handle the wood, how much weight you can put on a truck, what your yield is through the chipper or saying another way, using a centralized woodroom, you have less wood loss.

So it's all pretty high level of confidence that it's all going to produce the savings that we expected. And then with the -- with that lower wood cost, then we can think about whether we want to go to the next level to increase the production volume to step down the road.

Andrew Shapiro -- Lawndale Capital Management -- Analyst

You guys spoke of capex generally being net capex, but the maintenance turnarounds generally being expensed versus competitors and all that. I think it's Peace River, but there is one of your plants that's going to be doing a major rebuild of boiler work, etc. where insurance proceeds are to be paying for the bulk of it, is that Peace River? And then, when that happens, how is that going to be accounted for? Will it just not go through the expense line? Will it go through the expense line and there'll be a below the line recovery? How is it supposed to work?

David M. Gandossi -- President, Chief Executive Officer, and Director

Yeah. So the capital work is all paid for by the insurance company. And so, it won't hit our P&L or our balance sheet. And then, there is also a business interruption component. So depending on what the margins are in the months prior to the shut, there will be some business interruption recovery that would come into our P&L.

Andrew Shapiro -- Lawndale Capital Management -- Analyst

And where would you guys put that as a reduction in cost of goods sold, a reduction of SG&A, something further below the line?

David M. Gandossi -- President, Chief Executive Officer, and Director

Yeah. I'm not sure exactly. Richard Short is on the line with me or David Ure, maybe they've got a better idea.

David K. Ure -- Senior Vice President Finance, Chief Financial Officer, and Secretary

Yeah. It will match where the costs are. So it will be offset in the same line that the underlying costs are coming from. So you really aren't...

Andrew Shapiro -- Lawndale Capital Management -- Analyst

Or if it's business interruption recovery, where would that be?

David K. Ure -- Senior Vice President Finance, Chief Financial Officer, and Secretary

Yeah. So that would be in cost of goods sold.

Andrew Shapiro -- Lawndale Capital Management -- Analyst

Okay, that's it. All right. And you'll call that out in the particular quarter and amounts once it comes through, right?

David M. Gandossi -- President, Chief Executive Officer, and Director

Well, I'm sure we'll talk about it, yeah.

David K. Ure -- Senior Vice President Finance, Chief Financial Officer, and Secretary

Yeah.

Andrew Shapiro -- Lawndale Capital Management -- Analyst

Last two questions here on -- can you update us on the status of both the BioFilaments venture as well as Sentinel venture and the status, progress, timing of cash flows?

David M. Gandossi -- President, Chief Executive Officer, and Director

Yeah. The performance of BioFilaments still in the development phase through our joint venture with Resolute. And one of the leader -- there's a whole number of different applications for BioFilaments that they're working on, but they are also working on masks currently to improve the performance and help lower the cost to produce masks in Canada.

And then, the Sentinel is -- I think, I've talked before is -- it's got about another year and a half to two before we start to harvest and we'll -- basically the plan is you harvest the trees when they get to be 15 years of age and that our first rotation will be within about one and a half to two years and then we'll harvest one year with replant, harvest the next replant and carry on that way and that's when we'll start to see the cash flow from that operation. And I -- it will be a -- I mean, I don't want to provide guidance at this stage, because I can't predict what the market for the oil will be at that time. But we are very pleased with the investment we made there and I'm sure it's going to produce some nice cash flow for us once we start that harvest.

Andrew Shapiro -- Lawndale Capital Management -- Analyst

So starting in about two years when that -- there is a batch that turns age 15...

David M. Gandossi -- President, Chief Executive Officer, and Director

Yeah.

Andrew Shapiro -- Lawndale Capital Management -- Analyst

Is there a batch every year thereafter?

David M. Gandossi -- President, Chief Executive Officer, and Director

More or less, yeah, it's been -- it was laddered in the way it was developed. I mean, there's some -- some years might be slightly larger and -- or smaller, but generally, there'll be a harvest every year and it will produce the oil, put it in inventory and have a steady supply of product to the market.

Andrew Shapiro -- Lawndale Capital Management -- Analyst

Okay. And the last question I'd periodically ask, it's a little bit maybe out of, I don't know, out of place, but at least you will do it via virtually, what's the investor relations non-deal roadshow kind of calendar that you I guess plan to attend virtually in the coming quarters?

David M. Gandossi -- President, Chief Executive Officer, and Director

Yeah, maybe Dave could speak to that?

David K. Ure -- Senior Vice President Finance, Chief Financial Officer, and Secretary

Yeah. Probably, we -- for the next quarter, we got to two, I would call them a sort of organized IR events, BofA is hosting us next week on the 24th for a presentation for their investors and then we'll also be attending the Raymond James Investor Conference on March the 3rd.

And one of the things, one of the trends that we're noticing is that we've got lots of people that are just calling us and not waiting for conferences anymore. So as always, please give David or I a call any time and we can set something up ad hoc, we'd be pleased to talk to you.

Andrew Shapiro -- Lawndale Capital Management -- Analyst

Great. Thank you, guys.

David M. Gandossi -- President, Chief Executive Officer, and Director

Okay. Thanks, Andrew.

Operator

And our next question comes from the line of Sam McGovern from Credit Suisse. Your line is open.

Sam McGovern -- Credit Suisse -- Analyst

Hey, guys. Earlier on the call you guys struck a pretty optimistic tone with regard to the duration and potential strength of the pulp pricing environment. With regard to that, what's the ability for you guys to defer any maintenance to capture as much volume as possible if pulp prices remain strong for quite a while?

David M. Gandossi -- President, Chief Executive Officer, and Director

Yeah. Sam, not really much ability there. These maintenance shuts take a lot of coordination, the contractors move from mill to mill to mills. It's kind of all scheduled well in advance. So if we were to step out of that line up and run, we may have -- but we would have challenges rescheduling contractors for certain work and then there's also the regulatory and insurance issues like all these pressure vessels and pieces of equipment have maintenance requirements that need to be scheduled. And we're not really in a position to defer any of that maintenance at this point in time and that's normally the case with pulp mills there. They need to go down when they're scheduled to go down.

Sam McGovern -- Credit Suisse -- Analyst

Got it, OK. Thank you. I'll pass it on.

Operator

[Operator Instructions] Our next question comes from the line of Paul Quinn from RBC Capital Markets. Your line is open.

Paul Quinn -- RBC Capital Markets -- Analyst

Yeah, thanks. Morning, guys.

David M. Gandossi -- President, Chief Executive Officer, and Director

Morning, Paul.

Paul Quinn -- RBC Capital Markets -- Analyst

I guess I'll start on the capex side, because I think you got a $150 million for the year plus the two woodroom projects. So do we assume that it's half that $58 million in '21?

David M. Gandossi -- President, Chief Executive Officer, and Director

Say that again -- half?

Paul Quinn -- RBC Capital Markets -- Analyst

Well, I'm just wondering the two woodroom projects, are they going to be complete in '21, is that $58 million all in the '21 by the end or does that spillover to '22 and is it at...

David M. Gandossi -- President, Chief Executive Officer, and Director

Well, some of that -- yeah, some of that will spillover into early '22, but a big chunk of it will be the end '21. There's government grants against it as well though, Paul. There's -- you got $13 million of government incentives will come in funds so far. And there's some more that we're waiting on to hear. So it's not the full $58 million but -- and a chunk of it is, the trucks and the mobile equipment that will be either be -- could be company-leased or could be pushed off to contractors and recovered through rates, those sort of things. So there's lots of optionality in what we're doing.

Paul Quinn -- RBC Capital Markets -- Analyst

Okay. So on '21 capex, I should be thinking somewhere in the $175 million, including some for the woodroom projects?

David M. Gandossi -- President, Chief Executive Officer, and Director

Yeah, that's not a bad number. Yeah.

Paul Quinn -- RBC Capital Markets -- Analyst

Okay. And then, just the timing of the Stendal sawmill. If the Board approves it at the end of the summer or in the fall, is that a '23 start?

David M. Gandossi -- President, Chief Executive Officer, and Director

Yeah. Probably the equipment suppliers are -- they're up in the 18-month range right now for some of the big pieces. So if you're in the fall of '21, you got all of '22 and then, you're putting it together somewhere in '23, yeah.

Paul Quinn -- RBC Capital Markets -- Analyst

Okay, and are we investing in the same sort of the capacity that you've got to produce so -- but I know there's like when you're smaller piece of it?

David M. Gandossi -- President, Chief Executive Officer, and Director

It will be a little smaller and it will be a slightly different configuration, won't be a link mill, will be Qs I think, but probably 800,000 cubic meter input, something of that size.

Paul Quinn -- RBC Capital Markets -- Analyst

Okay. And then, you guys referenced the Rosenthal power price, it's come up and now back on market rates. If you could just help me out just understand the impact of that?

David M. Gandossi -- President, Chief Executive Officer, and Director

Well, today, market rates in Germany are -- I think it's around EUR45 a megawatt hour. And the green rate, the tariff was around -- between EUR80 and EUR85 depending on the season. So it's roughly half of what it was. Just right now, low power rates in Germany really a result of the lower economic activity. Before COVID, I would have said, yeah, within a couple of years, the market rate would be more or less equal to what the green rates tariffs were but they've fallen off as a result of the slowdown and all the industrial activity. They'll come back in time, we expect that as Germany is moving away from all their coal and lignite-fired boilers. So it's going to be a recovery in power prices and will be -- I think it's still something to look forward to. But today, it's about EUR6 million or EUR7 million hit to their P&L at Rosenthal.

Paul Quinn -- RBC Capital Markets -- Analyst

Okay. And then, you sort of referenced the German government probably bringing back incentives for green energy, do you expect to get that in the back half of the year? Are you -- should we model this as sort of half that rate in the front half and then -- and back to the full rate in the back half?

David M. Gandossi -- President, Chief Executive Officer, and Director

Yeah. I don't think you can model that, Sean -- Paul. We don't have any clarity on what's going to happen in the back half of the year at this stage.

Paul Quinn -- RBC Capital Markets -- Analyst

All right. And then, just maybe overall on pulp pricing, I mean it's been quite a rally here, it's definitely curtailing this one, it's like many of these pulp rallies in the past. But it sounds like you think it's quite durable here. What are you seeing in terms of prices in China for February and March?

David M. Gandossi -- President, Chief Executive Officer, and Director

Well, prices are going up it feels like in China. I think there -- if you're transacting today, you'd be at $860, $870 type of thing. Spot in all the markets was up in that $800 to $900 net range.

Paul Quinn -- RBC Capital Markets -- Analyst

Okay, that's all I had. Thanks very much, Dave.

David M. Gandossi -- President, Chief Executive Officer, and Director

Yeah.

Paul Quinn -- RBC Capital Markets -- Analyst

Best of Luck.

David M. Gandossi -- President, Chief Executive Officer, and Director

Okay.

Operator

And at this time, I would like to turn it back to the speakers for any further comments.

David K. Ure -- Senior Vice President Finance, Chief Financial Officer, and Secretary

Yeah. Thanks very much and thanks to everyone for joining our call today. And as Dave mentioned earlier, if anybody has further questions, please don't hesitate to reach out, and look forward to speaking with you again in another quarter. Thanks very much.

Operator

[Operator Closing Remarks]

Duration: 53 minutes

Call participants:

David K. Ure -- Senior Vice President Finance, Chief Financial Officer, and Secretary

David M. Gandossi -- President, Chief Executive Officer, and Director

Hamir Patel -- CIBC Capital Markets -- Analyst

Sean Steuart -- TD Securities -- Analyst

Andrew Kuske -- Credit Suisse -- Analyst

Andrew Shapiro -- Lawndale Capital Management -- Analyst

Sam McGovern -- Credit Suisse -- Analyst

Paul Quinn -- RBC Capital Markets -- Analyst

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