Changing market conditions and higher capital expenditure for the FGC project in Lebel-sur-Quévillon, together with weak first quarter 2013 results, are forcing Fortress Paper to rethink its second dissolving pulp mill in Canada.
Even though project economics reportedly continued to be attractive, Fortress Paper is rethinking the planned conversion of Lebel-sur-Quévillon pulp mill to dissolving pulp production. The Fortress Global Cellulose (FGC) mill project in Lebel-sur-Quévillon continued to advance and engineering design for the conversion of pulp mill was near completion with an updated capital expenditure estimate of CAD250m and with another CAD70m to CAD100m cash requirements for working capital, ramp-up and other items, Fortress Paper explained. As a result of increased capital expenditure the company was evaluating options for different sources of funding, including alternative financing structures, joint ventures and partnerships.
"Due to changing economics and market conditions, there is no assurance that the FGC mill project will proceed to completion as previously planned," Fortress Paper said in the presentation of its first quarter results. A decision on the final strategic direction of the FGC project is expected early in the third quarter.
Fortress Paper acquired the idle 300,000 tpy NBSK Lebel-sur-Quévillon pulp mill from Domtar in June last year to convert the site into a 250,000 tpy dissolving pulp mill. Estimated capital and start-up costs were CAD222m, with the Quebec Government financing CAD132.4m, according to Fortress Paper.
For the three months ended 31 March, Fortress Paper posted sales of CAD57.6m, up 143% compared to the same period previous year. However, operating loss in the period under review increased by 24% to CAD18.4m while the company's net loss including discontinued operations deepened by 16% to CAD12.4m against first quarter 2012.
Despite Security Paper Products segment having its best quarterly result in the past two years, the combination of the lower realized dissolving pulp prices and challenges experienced at the Thurso mill contributed to disappointing results in the first quarter of 2013, Fortress Paper explained. The Specialty Papers segment, which has been discontinued as of 30 April with the sale of Dresden paper mill to Glatfelter, had a strong first quarter, the company said.