Please ensure Javascript is enabled for purposes of website accessibility

Mercer International inc (MERC) Q3 2021 Earnings Call Transcript

By Motley Fool Transcribers – Oct 29, 2021 at 7:01PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

MERC earnings call for the period ending September 30, 2021.

Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Mercer International inc (MERC 0.80%)
Q3 2021 Earnings Call
Oct 29, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to Mercer's International's Third 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.

10 stocks we like better than Mercer International
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* 

They just revealed what they believe are the ten best stocks for investors to buy right now... and Mercer International wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of October 20, 2021

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

Good morning, everyone. As usual, I'll make a few opening remarks about our financial performance before turning over the call to David to discuss our operations, our strategic capital program, the markets, and, of course, our recent acquisition. I'd 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.

We achieved record EBITDA in Q3, primarily due to solid overall production and sales, strong end-product pricing in most markets, and relative to Q2, a much lighter scheduled maintenance program. While somewhat mixed, depending on the particular market, our average NBSK price realizations remained stable and relatively high in the quarter. We also benefited from the impact of a stronger U.S. dollar on our euro and Canadian dollar-denominated expenses. These tailwinds to our earnings were partially offset by modestly higher wood costs, particularly in our Wood Products segment, along with the weakening of the U.S. lumber market.

As we reported in July, we also operated our Rosenthal pulp mill for the quarter without the benefit of its turbine generator. The absence of green electricity generation at Rosenthal during the quarter negatively impacted our results by about $12 million. We are now roughly midway through the process of repairing the turbine generator. But as expected, the largest contributor to the sequential improvement in the quarter was the absence of heavy scheduled maintenance and capital downtime that we took in Q2. You will recall that we took 105 days of downtime in Q2 to both rebuild our recovery boiler at Peace River and complete most of the work to increase Stendal's pulp and electricity production capacity.

We generated EBITDA in the third quarter of $148 million compared to EBITDA of about $84 million in Q2. Our pulp segment contributed record EBITDA of almost $130 million, and our Wood Products segment contributed solid quarterly EBITDA of $22 million.

As usual, you could find additional segment disclosures in our Form 10-Q, which can be found on our website and that of the SEC. Changes during the quarter for softwood and hardwood pulp price movements were mixed across major markets. In China, the Q3 average NBSK net price was $832 per ton, down $130 from Q2. European list prices averaged $1,345 per ton in the current quarter compared to $1,288 per ton in Q2. NBSK remains at a considerable premium to hardwood with the average Q3 net eucalyptus hardwood price in China at $623 per ton, down $144 from Q2. In total, average pulp sales realization movements positively impacted EBITDA by about $5 million compared to the prior quarter. Pulp demand remained steady in the quarter, and our higher overall production led to higher sales volumes compared to the previous quarter. Our Q3 sales totaled almost 448,000 tonnes, which was up about 87,000 tonnes from Q2.

In Q3, our mills were down a combined 44 days for capital and annual maintenance work. This is roughly the equivalent of 43,000 tons of production compared to 117 days or about 173,000 tons of production in Q2. The impact of the Q3 planned downtime compared to Q2, including higher production and lower direct costs, benefited EBITDA by $65 million. Our lumber realizations were also mixed this quarter compared to Q2. The random Lengths U.S. benchmark for Western SPF number two and better averaged $495 per thousand board feet in Q3, which was down $848 from last quarter. Our average European sales realizations were up approximately $180 per thousand board feet compared to Q2. Historically, the European market has not been as volatile as the U.S. market and generally lags the U.S. pricing trends. The benchmark lumber price in the U.S. is currently about $620 per thousand board feet.

Our Wood Products segment continues to perform well. We sold about 98 million board feet of lumber in the quarter, which was down slightly compared to our Q2 sales volumes, primarily due to the mill taking a week of planned downtime in Q3. Our electricity sales totaled roughly 200 gigawatt-hours in the quarter, which was up relative to Q2 due to less planned downtime. However, our sales volumes were held back due to the absence of the generation at Rosenthal for most of the quarter. Our Cariboo mill joint venture, which is accounted for using the equity method contributed another 20 gigawatt-hours to this total. Included in these energy sales results, East River set a quarterly sales record, and Stendal and Cariboo both achieved near record-level sales in Q3.

We reported net income of $69 million in the quarter or $1.05 per basic share compared to net income of $21 million or $0.32 per share in Q2. Cash used in the quarter totaled approximately $46 million compared to $11 million in Q2. Our cash usage in Q3 was primarily the result of our acquisition of Mercer Mass Timber, our capex spending, and working capital movements in the form of higher accounts receivable and inventory balances. The uses of cash were partially offset by strong operational cash inflow. We invested $39 million of capital in our mills this quarter, and we remain on course to invest approximately $150 million in our mills this year. We also invested roughly $51 million in the acquisition of Mercer Mass Timber, our cross-laminated timber production facility located in Spokane, Washington. David will provide updates on our recent acquisition and our capex program shortly.

At the end of the quarter, our liquidity position totaled about $647 million comprised of $339 million of cash and $308 million of undrawn revolvers. Our strong liquidity position will support planned seasonal growth in working capital, along with our ambitious 2021 and 2022 high-return capital spending programs. We continue to work on finalizing the business interruption insurance claim associated with the recovery boiler we built at our Peace River mill.

As a reminder, GAAP treats these types of insurance claims as contingent gains, which means that we won't be able to record the insurance proceeds until we have an agreement with the insurer. We believe the proceeds will ultimately be in excess of $20 million. In addition, we are now working on a business interruption insurance claim for Rosenthal's turbine downtime. As part of this downtime, we made the decision to pull roughly 50 days of major planned turbine maintenance from 2022 into 2021.

As a reminder, our competitors who report the 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 completions. And as you will have noted from our press release, our Board has approved a quarterly dividend of $0.065 per share for shareholders of record on December 22, 2021, for which payment will be made on December 30, 2021.

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

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

Good morning, everyone. As usual, I'll make a few opening remarks about our financial performance before turning over the call to David to discuss our operations, our strategic capital program, the markets, and, of course, our recent acquisition. I'd 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.

We achieved record EBITDA in Q3, primarily due to solid overall production and sales, strong end-product pricing in most markets, and relative to Q2, a much lighter scheduled maintenance program. While somewhat mixed, depending on the particular market, our average NBSK price realizations remained stable and relatively high in the quarter. We also benefited from the impact of a stronger U.S. dollar on our euro and Canadian dollar-denominated expenses. These tailwinds to our earnings were partially offset by modestly higher wood costs, particularly in our Wood Products segment, along with the weakening of the U.S. lumber market.

As we reported in July, we also operated our Rosenthal pulp mill for the quarter without the benefit of its turbine generator. The absence of green electricity generation at Rosenthal during the quarter negatively impacted our results by about $12 million. We are now roughly midway through the process of repairing the turbine generator. But as expected, the largest contributor to the sequential improvement in the quarter was the absence of heavy scheduled maintenance and capital downtime that we took in Q2. You will recall that we took 105 days of downtime in Q2 to both rebuild our recovery boiler at Peace River and complete most of the work to increase Stendal's pulp and electricity production capacity.

We generated EBITDA in the third quarter of $148 million compared to EBITDA of about $84 million in Q2. Our pulp segment contributed record EBITDA of almost $130 million, and our Wood Products segment contributed solid quarterly EBITDA of $22 million.

As usual, you could find additional segment disclosures in our Form 10-Q, which can be found on our website and that of the SEC. Changes during the quarter for softwood and hardwood pulp price movements were mixed across major markets. In China, the Q3 average NBSK net price was $832 per ton, down $130 from Q2. European list prices averaged $1,345 per ton in the current quarter compared to $1,288 per ton in Q2. NBSK remains at a considerable premium to hardwood with the average Q3 net eucalyptus hardwood price in China at $623 per ton, down $144 from Q2. In total, average pulp sales realization movements positively impacted EBITDA by about $5 million compared to the prior quarter. Pulp demand remained steady in the quarter, and our higher overall production led to higher sales volumes compared to the previous quarter. Our Q3 sales totaled almost 448,000 tonnes, which was up about 87,000 tonnes from Q2.

In Q3, our mills were down a combined 44 days for capital and annual maintenance work. This is roughly the equivalent of 43,000 tons of production compared to 117 days or about 173,000 tons of production in Q2. The impact of the Q3 planned downtime compared to Q2, including higher production and lower direct costs, benefited EBITDA by $65 million. Our lumber realizations were also mixed this quarter compared to Q2. The random Lengths U.S. benchmark for Western SPF number two and better averaged $495 per thousand board feet in Q3, which was down $848 from last quarter. Our average European sales realizations were up approximately $180 per thousand board feet compared to Q2. Historically, the European market has not been as volatile as the U.S. market and generally lags the U.S. pricing trends. The benchmark lumber price in the U.S. is currently about $620 per thousand board feet.

Our Wood Products segment continues to perform well. We sold about 98 million board feet of lumber in the quarter, which was down slightly compared to our Q2 sales volumes, primarily due to the mill taking a week of planned downtime in Q3. Our electricity sales totaled roughly 200 gigawatt-hours in the quarter, which was up relative to Q2 due to less planned downtime. However, our sales volumes were held back due to the absence of the generation at Rosenthal for most of the quarter. Our Cariboo mill joint venture, which is accounted for using the equity method contributed another 20 gigawatt-hours to this total. Included in these energy sales results, East River set a quarterly sales record, and Stendal and Cariboo both achieved near record-level sales in Q3.

We reported net income of $69 million in the quarter or $1.05 per basic share compared to net income of $21 million or $0.32 per share in Q2. Cash used in the quarter totaled approximately $46 million compared to $11 million in Q2. Our cash usage in Q3 was primarily the result of our acquisition of Mercer Mass Timber, our capex spending, and working capital movements in the form of higher accounts receivable and inventory balances. The uses of cash were partially offset by strong operational cash inflow. We invested $39 million of capital in our mills this quarter, and we remain on course to invest approximately $150 million in our mills this year. We also invested roughly $51 million in the acquisition of Mercer Mass Timber, our cross-laminated timber production facility located in Spokane, Washington. David will provide updates on our recent acquisition and our capex program shortly.

At the end of the quarter, our liquidity position totaled about $647 million comprised of $339 million of cash and $308 million of undrawn revolvers. Our strong liquidity position will support planned seasonal growth in working capital, along with our ambitious 2021 and 2022 high-return capital spending programs. We continue to work on finalizing the business interruption insurance claim associated with the recovery boiler we built at our Peace River mill.

As a reminder, GAAP treats these types of insurance claims as contingent gains, which means that we won't be able to record the insurance proceeds until we have an agreement with the insurer. We believe the proceeds will ultimately be in excess of $20 million. In addition, we are now working on a business interruption insurance claim for Rosenthal's turbine downtime. As part of this downtime, we made the decision to pull roughly 50 days of major planned turbine maintenance from 2022 into 2021.

As a reminder, our competitors who report the 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 completions. And as you will have noted from our press release, our Board has approved a quarterly dividend of $0.065 per share for shareholders of record on December 22, 2021, for which payment will be made on December 30, 2021.

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

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Hamir Patel from CBIC Capital Markets. Your line is now open.

Hamir Patel -- CBIC Capital Markets -- Analyst

Hi. Good morning. David, what level of sales would you be targeting for 2022 from the CLT plant? And should we think of the initial year as kind of being a breakeven in terms of profitability? And where would you see sort of steady-state EBITDA contribution from that plan when it's fully ramped up?

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

Yes. Thanks for the question, Hamir. Good morning. I think the honest answer is we're just going to have to wait and see. We haven't been in this business before. It's an emerging business. And we're booking our first projects for the plant and what the margins are going to be is really going to depend on things like fixed cost coverage, doing a good job of matching the wood costs with the panel quotes, and those sorts of things. And so we're working hard on those strategies.

It's a very modern facility. It's got all the electronic scanning capabilities, so the degrading and certification of the panels can be top end. And it's got a lot of horsepower, a lot of capacity. So I'm very optimistic about it. But I can't -- I really can't. I'd be kidding you if I tried to imagine what the -- how quickly we're going to have that press full and what the margins are going to be. But I do believe in the fullness of time, I believe it's going to ramp up faster than most would expect. We're seeing all kinds of inbound interest and recording on projects as we speak. And I'm expecting we'll be making panels by the fourth quarter. And I believe we'll be investing in capacity enhancements in that facility in the coming year or two as well, which will further take us down that road of generating good EBITDA levels.

Hamir Patel -- CBIC Capital Markets -- Analyst

That is fair enough. And David, just turning to the lumber side. You were pointing to some further moderation in prices in Q4. Is there a way you could maybe scale what the domestic price in Europe levels are? Or at least what sort of maybe sequential change you would expect there in Q4.

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

Yes. It's been a -- I mean it's a pretty shallow slope downwards. I mean, it's just like a softening. I don't have a percentage for you, it's nothing like the U.S. in terms of the correction. It's just a psychological feeling in the market that there should be a little more product available because there's less product going into the U.S. market. I don't know how much truth there is to that. It's more an impression that the market has, I would guess. So it's a slight downward movement, but not the big correction, would be maybe the way I'd describe it.

Hamir Patel -- CBIC Capital Markets -- Analyst

I understand. And just last question for me for David Ure. Could you remind us of the timing of major maintenance outages in 2022?

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

Yes. We haven't pinned those down formally yet, Hamir. I think probably February would be a better time, but it should be -- I can say that it will be a more normal year next year. So each mill will have a typical shut. So you'll recall that we have one or two mills that can go on an 18-month schedule. But for 2022, all four of the pulp mills will have a typical two- to three-week shut next year.

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

And Dave, I can really add. I've got a pretty good idea where they're going to fall. I think Peace River and Celgar will be Q2, and Stendal and Rosenthal will be Q3, would be my guess.

Hamir Patel -- CBIC Capital Markets -- Analyst

Great. Thanks. That is all I had. I will turn over.

Operator

Your next question comes from the line of Sean Steuart from TD Securities. Your line is now open.

Sean Steuart -- TD Securities Equity Research -- Analyst

Thanks. Good morning, guys. I want to follow up on Hamir's question on the CLT facility. Can you give us, David, some context on, I guess, how you're marketing the product? Is it all inbound calls at this point? Or is there a formal process, you're setting up to sell the product into the market. And I want to follow up on a little bit vague in terms of the response with respect to the ramp-up time frame and what EBITDA might ultimately look like. But if you're spending $50 million to acquire the asset, what are the return parameters you're focusing on over the long run for that investment? Any detail you can give us there?

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

Yes, I don't mean to be evasive, but I don't want to boast on China either, Sean. And it's -- like I said, we haven't operated this facility like this before. And in the early stages, I mean, the growth in demand for CLT is staggering. I mean the forward-looking CAGR could be in the 35% to 40% growth per year range. There's more projects in design today that have been built in the previous five to seven years.

So how these are all going to be -- how these projects will be priced by the various competitors. I just don't know. But the demand is significant and the amount of things we have to work on is significant. The way we're -- what we've been doing is building our team. We've got gentlemen with us that know everything. I believe we've got very good operations personnel. We've got very good marketing support, and we're continuing to build some of our technical sales support staff as well. There's a number of different assets to marketing CLT. I mean some of it is the custom buildings like you might think of the architect, Michael Green, and the type of buildings he would do, which are all custom, big showy architectural wonders by all stretches. But then CLT is also becoming almost like a catalog component for architects and owners, GCs that are wanting to build a building.

So certain sizes would be [Indecipherable] and designed and more or less a catalog and these engineering firms that are supporting architects will just pick out of the catalog, the different floor plates or walls or the components that they need. And when you get specified, it takes you away from bidding on every project, you become a component of a bid from a bigger -- like I -- like you're not bidding just your piece, you feed into a bigger project that's being bid to an owner type of deal, if that makes any sense.

So obviously, we're in this business to make money. And we've got a very modern facility. And similar to what we did when we entered the lumber business, we're going to build our team to win. So we're not -- we're going to expect to grow this business quite aggressively. And so we're recruiting and bringing in top talent. And we just honestly need a few quarters to really get a better feel for how it's all going to ramp up, just being honest.

Sean Steuart -- TD Securities Equity Research -- Analyst

Understood. And is the intent to break this out as a separate segment in your financial disclosures going forward?

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

Yes. I think that's our understanding is that it will need to be. It's a different order fulfillment process, different customers, quite a different business to lumber. So initially, it will be in the corporate segment. But as it becomes more material, it will be broken out on its own is what I've been told by our finance team.

Sean Steuart -- TD Securities Equity Research -- Analyst

Okay. Second question for me. Friesau this quarter, there was seasonal downtime. I think on the last call, you suggested that Q3 production would still be around 125 million board feet even with seasonal shuts. Any context on the discrepancy there? Is it just the fact that North American markets rolled over so hard, you were inclined to take more downtime than you might have otherwise? Any detail there?

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

No, there's been no reason to take any kind of market curtailment downtime. It's really just more a function of a number of factors that the maintenance is kind of a rotating outage. It's not like a potent where you take everything down all at once. In our sawmill, we would take the log input line down, then we would take a saw line down, take another saw line down work on sorters, that sort of thing.

So it's just the coordination of all of those different pieces of work. I think there was some COVID delays in there, not transmissions within the mill, but availability of contractor support. I think the average log dimension that we procured in the quarter was a little narrower than had been planned, and then that reduces the volume as well.

All in all, I would say it was a great quarter for the mill. They got all their work done. They got it done safely. Mills, they all took bill. And yes, the number here is pretty positive about the direction that lumber markets are going to go as well.

Sean Steuart -- TD Securities Equity Research -- Analyst

Okay. Thanks so much, David. I will get back in the queue.

Operator

Your next question comes from the line of Marcus Campeau from RBC Capital Markets. Your line is now open.

Marcus Campeau -- RBC Capital Markets -- Analyst

Hey. Good morning and thanks for taking my questions. I firstly, could you help us understand what you're seeing from the Chinese pull market currently, including the sectors that are most impacted, how much production is actually being curtailed? And when your customers expect the mandated curtailments to end?

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

Yes. So it's not everywhere in China, but particularly along the coastal regions where there's a lot of paper production. They're having these really provincially mandated caps on power usage. So maybe on average, paper mills might be able to run three days out of the week. So it's really a shock to their system. It's quite unusual for them to have to operate that way. And then as well as not being able to operate fully, it's also really important to understand the deglobalization of the different fiber markets right now. So like a Chinese paper producer cannot get paper into any of its export markets economically. Like there is -- the freight costs are just crazy, like 10 times what they would normally be. So they don't have the electricity to produce, but they don't have the export market to serve either.

So it's really all driven toward domestic consumption. And this is where I personally think that this China concern that is a little bit overblown. Like I made a comment in my prepared remarks that when China comes back. We've seen many times how quickly it can recover. The paper companies are not going to be sitting on massive overhangs of paper stocks. There's not going to be a lot of pulp in the pipeline for them. And when logistics normalize, which could be sometime second, third quarter next year, I'm guessing, but they will normalize. They'll be back, and they'll be back with abundant.

And so I just don't think we need to be as negative about China as we are being. And I think also in the midterm, the other markets are pretty stable because they don't have competition on the end-product side coming from imports. So that's the situation as I see it, Marcus.

Marcus Campeau -- RBC Capital Markets -- Analyst

All right. Thanks for the detail. That's helpful. Maybe jumping over to the Wood Products business, then your unit manufacturing costs stepped up pretty materially quarter-over-quarter here. Part of that is probably due to the downtime, but there's also increased usage of Greenwood in the mix. Are we through most of that beetle-damaged wood now? And should we, therefore, expect an upward shift in the cost structure going forward?

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

Yes. For the sawmill, I think that's right. A lot of our competitors in Germany can't handle beetle-killed wood, basically, like a lot of the European sawmillers don't clean and kill dry. They're producing green products. So there's been steady demand on fresh wood. And as so there is more fresh wood available. We can create a good margin with that wood. So we do buy it. We also buy beetle wood, if we can, if it's the right length and the right dimension.

For now, I'd say pulp log prices are going to inch up slightly. I think we're going to get through the spruce beetle by next year. So we'll see some pulp log cost inflation going into next summer, probably. I think we can see where German sawlogs are going. I think we're at a level of hours kind of feels comp-ish to me. But it has moved up quite a bit in the last three, call it, three or four months.

Marcus Campeau -- RBC Capital Markets -- Analyst

Okay. Great. And then maybe lastly, still on the lumber business, your average selling prices were down quarter-over-quarter. But all your European peers were also reporting higher quarter-over-quarter pricing. I know you have a bit of a higher exposure to the North American market. But is there anything else in there that help to explain the quarter-over-quarter decline in pricing?

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

No, no. I think it's primarily the U.S. market.

Marcus Campeau -- RBC Capital Markets -- Analyst

Alright. Thanks. That is all I had.

Operator

[Operator Instructions] Next question comes from the line of DeForest Hinman from Walthausen &Co. Your line is now open.

DeForest Hinman -- Walthausen &Co -- Analyst

Hey. Thanks for taking my question. First one, can you just give us a little refresher on revenue recognition as it relates to if there's product on the water and all the stuff we're dealing with on the logistics side, was there any issues with being able to recognize revenue on stuff that's floating or stuff that's on the dock as it relates to revenue recognition?

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

Yes, I think David hinted in his comments before. So if you're shipping to Asia by vessel, if the product -- if you've got the order and it's more or less committed, you recognize the revenue or the sale when the ship leaves the dock. Like it's the push-off that is the transfer of risk. And we did have, I think, about 15,000 tons on a vessel that was supposed to go in September. They got pushed into October. So it just simply gets booked like after the month-end. With rail, it's usually, your plant or the customer, depending on the customers' wishes. But a lot of times, we book it when it's received by the customer.

Marcus Campeau -- RBC Capital Markets -- Analyst

Okay. Perfect. And this is more of a big picture question. You see your share price at the current levels. You talked in your prepared comments about looking to build sawmill, knowing the costs that are out there, but you had previously purchased Friesau, invested money there.

You probably have some expectation or thought around what the value of that asset is. You put a mark on cross-laminated timber with a $50 million investment. And then you probably are thinking about replacement values for your pulp mills, and you put that all together and you have your debt and you have your cash balances. And you're weighing making a pretty substantial investment in the Stendal sawmill. But when you see your share price at the current levels and having a pretty good understanding of replacement values and having a pretty substantial amount of cash and not near-term debt maturities to worry about. Should the Board be thinking about buying back some amount of the shares?

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

Yes. Deforest, it's -- we talk about it every quarter, somebody always brings the question up and our Board, we do think a lot and hard about capital allocation. But the way we see it right now is our leverage is a little bit high for the comfort of some because of the cyclicality of the business.

So in time, our goal is to continue to chomp away at the debt levels and bring those down. They're not levels I'm nervous about, by the way, but I think bringing -- taking some capital and buying back debt or on refinancing opportunities to try to bring that down makes good sense. I think one of the challenges we have as a company in our stock is that we're a smaller-sized company compared to many of our peers. And I think a bigger market cap would provide more liquidity, which would unlock some of that liquidity discount that we believe is inherent in the stock.

I think another piece is that we really believe that this company is going to be on the right side of the climate equation. And the type of assets we operate and the way we operate them, and the way we engage with stakeholders, and all this work we do around logistics, in time is going to become recognized. And in a fiber-constrained world where people are worried about carbon and industrial players that are not on the right side of this stuff, are going to find failures, and that won't be us. And so we believe the inherent value of our portfolio of mills is significant. And I agree with you, it's undervalued by the market. But we're here to create long-term value, taking our liquidity and buying back stock, you can do the math, run an enterprise value calculation.

It psychologically, it feels like the right thing to do if you had massive amounts of liquidity, like some of the -- from some of the -- some of the companies have had, that it just makes sense to start buying themselves back. That's great. But in our case, the amount of stock we would buy back while trying to keep all of our other options open for these growth opportunities. It just doesn't feel like the right thing to do. It hasn't felt like the right thing to do so far.

So we're focusing on growth. We're focusing on maintaining liquidity. So we've got flexibility, deploying our capital in a very smart way and focusing on debt reduction as and when we see the opportunities. And that's -- that may change over time, but that's been our strategy for quite some time, and I don't see that changing in the short term.

DeForest Hinman -- Walthausen &Co -- Analyst

Okay. Just for clarity then, when you talk about debt reduction, are you thinking in terms of the mathematical of higher cash net debt falling in maintaining that dry powder or open market purchases of bonds, or do you potentially go and refinance those bonds early.

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

Well, we've got a long track record of working on our bond portfolio in transactions that make sense for us at the time. I always look for -- can we do this in a net NPV positive way, continue to bring the rate down and bringing the levels down. And I'm not trying to do something we're not talking machete stuff here. We're just talking proper financial engineering to recognize that seeing some debt reduction, I think, would be appealing to some of our investors and makes sense to me as well. And meanwhile, grow the -- continue to grow the platform of assets and ensure that they're fit for the future. And once that light bulb goes on for the market, I think the stock is going to perform really well. So -- so steady on.

DeForest Hinman -- Walthausen &Co -- Analyst

Okay. Thank you.

Operator

Our next question comes from the line of Andrew Shapiro from Lawndale Capital. Your line is now open.

Andrew Shapiro -- Lawndale Capital Management -- Analyst

Hi. Good morning, guys. A few questions here, quick ones. On the business interruption insurance claim status here. Regarding each of these large claims, is there any beyond normal negotiations that are going on between the company and your insurers? Or is this just standard stuff or disputes right now?

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

Yes. I wouldn't even call it a dispute. I mean...

Andrew Shapiro -- Lawndale Capital Management -- Analyst

Yes, it's a strong word.

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

It's a ton of work to get your clean together and then you have to get it over to factor neutral and they have to review it and be discussed and check all the assumption and it puts and all that kind of stuff. So this is just -- this is a process. The generator is a little bit unusual. We don't see any generator failures. And so how the waiting period or, in other words, the deductible gets supplied is always a question, making sure that we really get that right before we submit the claim. So yes, it's -- I mean, these are proper insurable events, and we will resolve them, I'm sure, in the next few months.

Andrew Shapiro -- Lawndale Capital Management -- Analyst

And the $20 million, was that both of them combined? Or that was just --

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

No, just Piece River business interaction...

Andrew Shapiro -- Lawndale Capital Management -- Analyst

And there's not an estimate?

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

No, I don't want to give guidance on the generator until I know what we're going through.

Andrew Shapiro -- Lawndale Capital Management -- Analyst

Okay. You don't know yet. And what's the expected timing of resolving what is owed on the Peace river? And then I guess you haven't submitted Rosenthal yet. What is the general timing after -- for you to get this together to submit and then hash it out with the insurer?

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

Yes. Our team feels that we've got a pretty good shot at getting this all into the fourth quarter.

Andrew Shapiro -- Lawndale Capital Management -- Analyst

Both of them.

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

Yes.

Andrew Shapiro -- Lawndale Capital Management -- Analyst

Good. And when it does come in and the payment comes to whatever it is, for accounting purposes, is it above the line and where will it flow through on the income statement?

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

Dave, do you want to take that?

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

Yes. Generally, they go in the cost section, the cost of sales section. So in EBITDA, in the cost.

Andrew Shapiro -- Lawndale Capital Management -- Analyst

Okay. And on the CLT business, did you say or can you say what the burn rate of operation is at present? And do you expect the burn rate to increase before starting its move toward profitability?

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

Yes. No, it's interesting. It doesn't -- it's such a modern facility. I think we've got roughly 20 employees today, and we'll be hiring probably about 10 more. Half of that on the marketing order fulfillment side and half on the operation and maintenance side. So it's not a big burn. And what we're doing today is we're making what's called longlife finger joint material.

So we buy dimension lumber in the market, two by six. Whatever length we get. And we finger joint it into long lengths. We can finger join up to 40-foot boards. So the average length that the market seems to want is somewhere around 28 feet. And there's a pretty good margin on that value add product.

So I would say it's -- that covers the overhead, more or less, plus some today. And so it's not going to be a drain, but then the real margin will come as we start loading up the press and get those higher value-added products out of the facility. So it's not a big number of people, Andrew.

Andrew Shapiro -- Lawndale Capital Management -- Analyst

Okay. And where is it optimal to source your timber for the plant? And is your lumber from Germany of the type that would ever be needed to be used and could be used if the supply cost surged again?

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

No, we don't need to buy from Germany. There's lots of local options for us around the facility in Spokane. And our procurement strategy is one of -- there's -- you need a number of different qualities to make CLT. You've always got number twos on the outside longitudinal panels, parts, and you can put number three on inside. And you've got all the finger joining capacity.

So basically, it's a strategy of local suppliers that are sort of selected based on optimizing what you're getting for what you're paying. And I know it sounds complicated but sawmills have their premium qualities and their grades that they want to ship to the market right away, and then they often have some out of profile or maybe they've got some shorter lengths or different material that needs to be discounted to move it. That's the kind of stuff we can buy and just rehand it ourselves. We create our own land stock in effect. Everything that we buy, we sort wet boards go on way, dry boards go another way. They're all electronically scanned. They go into a whole bunch of different bins. And then we dry and we plan and create our own lab stock. So it's really no reason to focus on bringing in our own product. I think we do a much better job buying from all the local mills around us.

Andrew Shapiro -- Lawndale Capital Management -- Analyst

Okay. And I asked this a few quarters ago, and your guidance was to give it X amount of tons, so I'm asking now. Is the time period for the first harvest for Santanol and the Sandalwood business still around the end of this year? And what are the metrics that will be involved? I don't know if you want to call it KPIs or otherwise, is it acres, tons of trees? Is it pounds of oil? What are -- how are we going to start thinking about this and measuring the ramp-up of that business?

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

Yes. Well, when we announced results, I mean, you've got the timing right. Next year, it will be a year where you'll start seeing some results. And we'll be describing how many hectares we harvested, how many tons of wood we processed, how many kilograms of sandalwood oil we produced, and our sales and cost of sales and EBITDA. That's all to come.

Andrew Shapiro -- Lawndale Capital Management -- Analyst

And around when might you be expected to provide an estimate of the quantity of oil to be produced and the potential price range of those oil sales and margins. In other words, kind of setting forth the business model and your expectations since the way that business seems to operate that you have like a crop each year that's going to start coming in as an annuity.

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

Yes. Well, we'll definitely be working on helping the Street understand that business as it unfolds, I'm reluctant to give guidance today on pricing or volumes.

Andrew Shapiro -- Lawndale Capital Management -- Analyst

Partially filled.

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

But in time, I think we'll be able to signal pretty clearly what that business is going to be looking like going forward.

Andrew Shapiro -- Lawndale Capital Management -- Analyst

Okay. And last, what are your plans for virtual or in-person on Investor Relations activities in the coming months?

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

Yes. I'll let Dave take that. We have a few things on the books here.

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

Yes, we'll have a pretty busy next few months. Goldman Sachs is hosting us for, call it, a client fireside in the third week of November. And then in the first week of December, we'll be attending conferences sponsored by BofA and also the RBC Forest Products Conference, an annual conference. And then in mid-January, we'll be presenting at the CIBC Industrials conference and also the Sidoti small-cap conference. So a pretty busy couple of months. If there's anything there that's of interest to folks don't hesitate to give me a call and I'll line you off with the right people.

Andrew Shapiro -- Lawndale Capital Management -- Analyst

Excellent. Thank you.

Operator

Our next question comes from the line of Roger Spitz from Bank of America. Your line is now open.

Roger Spitz -- Bank of America -- Analyst

Thank you very much. On the insurance proceeds, I just want to make sure I heard that you were not going to give an estimate of insurance proceeds you could receive? Or did you give one? I heard $20 million versus Peace River, but I wasn't sure if that was the factor.

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

Yes, Roger, David in his remarks suggested that the Peace River business interruption will be in excess of $20 million, we're comfortable saying that. We don't have the number for Rosenthal yet. The event is not over. And so we're just not going to put a guess out. We need to find out when the turbine is ready to bring back into service and then add up all the chips and make our claim.

Roger Spitz -- Bank of America -- Analyst

Got it. Of course, you did call out a $12 million headwind just in Q3 related to the Rosenthal turbine.

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

So the way to think about it is, at some point, during the event, we will be through the deductible component. And the business interruption will compensate us for everything we're missing under normal operating circumstances. It's just a question of...

Roger Spitz -- Bank of America -- Analyst

And have you...

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

Go ahead.

Roger Spitz -- Bank of America -- Analyst

Have you given the amount of the deductible, and I suspect it's a per-incident deductible, meaning there's a Peace River deductible and a Rosenthal deductible.

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

I don't think we've really talked about it. It's pretty complicated for the Street to get their head around it. Typical waiting days deductible for a turbine would be 45 days. And then as David mentioned, we -- because the generator is down for repairs, 2022 was the year we were going to do a full revision of the turbine and generator, the once every 10-year revision. We've pulled all that other work forward into this period. So that roughly that's a 50-day chunk of work. So we're just -- rather than doing that next year, we're doing it all this year, will the turbine is down anyway. So that's another factor in determining what the BI is going to be. It will be a sizable claim because at the length of time it's taking to repair the generator.

Roger Spitz -- Bank of America -- Analyst

Got it. So when you said you're going to get some proceeds in, in Q4, it sounds like that is just the Peace river component that we're speaking about, not the Rosenthal component, though, are you saying you might get kind account of the Rosenthal...

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

I can't promise. I mean if you're far enough along and you know what it's going to be, then you can book it, right? And that's just a question of how -- where we get to we might be a bit optimistic to think it will come in the fourth quarter, but it's possible that it could.

Roger Spitz -- Bank of America -- Analyst

Got it. So in terms of accounting, you said it's going to go on cost of sales and EBITDA, will that just be the BI portion of the proceeds? Or would you be also including the casualty amount that you proceeds from fixing the plant plans?

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

Yes. That's just the BI, imagine, the capital, the cost of the actual repair is actually not particularly high. It's really the downtime. In this case, it's creating the loss.

Roger Spitz -- Bank of America -- Analyst

Got it. And then shifting to the 44 days of downtime. I didn't think I heard it. Did you break it down a number of days at each of the mills that made up the 44 days?

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

I don't think we, Roger, but the primary like Rosenthal was the primary, a little bit of Peace River and sort of a bit of Stendal there could be it. Three components, yes Dave?

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

Yes, that's right.

Roger Spitz -- Bank of America -- Analyst

Okay. Got it. And have you given any -- or can you give any thoughts on what working capital in Q4 might look like in the inflow or outflow in 2022, among other things, presumably, you will need to build inventory as you -- on the CLT plant, I would think.

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

Yes. So the -- what we saw for working capital here in Q3 would certainly be the largest change in the year. So you can imagine, we're coming off of a period in Q2 with a lot of maintenance shuts. So we're building the inventory up again and at fairly high prices. So now that we're running full, again, the mills are back up, I would say the inventory in terms of the finished goods should be relatively stable. We have a little bit of inventory build for wood, just preparing ourselves for the winter. Our inventories will rise a little bit. And then depending on your view on pricing and the impact it has on accounts receivable, we might have some changes there. But I would say it's going to be more stable than material changes going forward to the winter here.

In terms of CLT, the inventory is, it's remarkably smaller than you might have at other parts of our business, for example, you don't have the wood for the large log inventories. You're maybe just you're buying lumber, different grades of lumber, so you'd have inventories there. But because the end products are generally made to order, you wouldn't have large inventories of panels, for example, going forward. So it will not be as material as you'd see at pulp mill or even our sawmill.

Roger Spitz -- Bank of America -- Analyst

Lastly for me is, is there any steer, if not guidance on 2022 capex we can put into our models? Perfect. Thank you very much.

Operator

There are no further questions. At this time, I will turn it over back to David.

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

Okay. Well, thank you, everyone, and thanks for joining our call. And as always, Dave and I were around. Happy to talk one on one if anybody wants to take the time to call us. Otherwise, I look forward to speaking to you all again on our next call in February. Bye for now, and have a great day.

Operator

[Operator Closing Remarks]

Duration: 61 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 -- CBIC Capital Markets -- Analyst

Sean Steuart -- TD Securities Equity Research -- Analyst

Marcus Campeau -- RBC Capital Markets -- Analyst

DeForest Hinman -- Walthausen &Co -- Analyst

Andrew Shapiro -- Lawndale Capital Management -- Analyst

Roger Spitz -- Bank of America -- Analyst

More MERC analysis

All earnings call transcripts

AlphaStreet Logo

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.