RE:RE:RE:RE:Vision for the future.I hadn't seen any insider filings either. I'd like to validate that position all equal as it's important. If you find the filings, please let me know.
So, on high level mill economics, I worked in the sector previously. My baseline is cash conversion costs in BC are between $100 and $140 per MFBM. That's all manufacturing and salaries. The curve is asymptotic with $90 or so which is a Canfor Houston or WFT Quesnel -- giant mega mills get to that level but most are only a bit higher. Fibre is the big cost -- logs. They used to be ~$50/M3 all in, which works out to about $180 per MFBM depending on lumber recovery (3.5 M3 to the MFBM is usual though). Add in maybe ~50/MFBM for shipping and whatnot. So, it used to be cash breakeven would be maybe CAD $350 per MFBM or so. I am ignoring chip and byproduct revenue for simplicity.
Then the log costs went way up, as far as $100/M3. I'm spitballling this, but the stumpage system is dumb and lagging and based on BC Timber Sales. Prices got bid up in the boom 2 years ago, exacerbated by the pine beetle shortages and insufficient curtailments, and it pushed the prices way high. We are only seeing them subside now. If you do my math above with $100/M3 logs, you'd be $530/MFBM CAD breakeven before the duty. Lumber was US $350 for most of the last 18 months, so a tough place to be. Underwater.
We have falling log costs, a falling duty, and rapidly rising lumber prices. $450 US for lumber, so $600 CAD. I'd think the Mackenize mill has a break ever of $500 or so, so this is positive EBITDA -- by as much as $100/MFBM. It has upside, and falling log costs will help as well.
They produce 200 MMFBM, so that's 200,000 MFBM * $100 so that would be maybe $20M cash earnings in this environment. That's a welcome change from where we have been. If it really goes, we would see $200/MFBM margins even.
For the co-products going into the power plant, it is likely more than the mill produces. It's easy economics -- wood residuals go to the highest bidder usually. CFF can pay to keep the lights on quite easily, and the rates are not likely high as they don't have much competition. Or they can mill badly, to push down lumber recovery and generate more sawdust. That's an option too.
The key to this thesis is the lumber valued at zero currently. I usually value it close to zero, too. It's all upside if it breaks out. Case in point:
Scenario 1:
Power: $14M @ 10x multiple, less $60M debt
Lumber @ 0
$1.73/share. I can't fathom why this is under $1.00.... oh wait I can. Awful board and mgmt is the 50% discount to rock bottom. Once they go we have something like this, below.
Scenario 2:
Power: $14M @ 10x multiple, less $60M debt
Lumber @ $10M @ 6x multiple, no debt
$4.34/share.
The lumber is really is a kicker, if this market persists. And my take is that it will.
This is based on (1) reduced supply of wood in BC, Ontario, and Quebec which more than offsets the increases in the US SE, (2) demographic demand for housing, (3) non-residential growth e.g. CLT (https://news.ubc.ca/2016/09/15/structure-of-ubcs-tall-wood-building-now-complete/), (4) high-cost of substitution -- steel studs are not competitive, (5) longer run environ issues with concrete/steel building will push more to wood. This is the 'wood super cycle' that I bet wrong on more or less consistently since 2014. That said, as the adage foes, I am not wrong but I'm most definitely early. Some variant of this will emerge and it'll be a rising tide carrying all boats. But I am focused on those with the major upside like this, if they cash cow it and quit using my GD money (well shareholder money) for dumb and ineffectual empire building. Fire em all.
Last, I was initially dismayed with selling the US assets. No longer -- these guys couldn't run them. It's much better to have the assets they can run (I say "they" but it's the dudes in the mill, not Ken and Co., so please fire the top-level deadweight all promptly please BW and Polar -- you guys can do it). And no debt is awesome. Just run it boring and we are going to kill this return.
Only way to snatch defeat from the jaws of victory is to go private for a sheiittbag price, like +50%, based on not having done the Cash Cow strategy beforehand. The Cash Cow strategy -- $0.20/share annually (~25% yield) is a game changer. There are only 46M shares, so this is like $9M payout less than a REIT structure would mandate. it's also only 65% of the powerplant EBITDA.
In short, I want to get paid a giant return that on my cheap shares, and have the remaining mgmt made it clear this payout is sustainable and affordable, and there will be no future ambitions other than to debottleneck the mill to get to maybe 350 MMFBM or so in the long run.
In the low-interest environment cash is king. Make it happen and we instantly get a $3.00/share price. Seniors and funds will be tripping over themselves to buy something like this below $3.00/share as cash yields are increasingly expensive to buy. Like the 18x Acadian timber goes for. Guess that's worth another scenario for:
Scenario 3:
Power: $14M @ 18x multiple, less $60M debt
Lumber @ $10M @ 6x multiple, no debt
$6.78/share.