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Fortress Paper - taking a mill from bankruptcy to a bright future

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Fortress Paper - taking a mill from bankruptcy to a bright future

November 07, 2010 - 14:00

BRUSSELS, Nov. 8, 2010 (RISI) -Chad Wasilenkoff, CEO of Fortress Paper prides himself as being a "contrarian investor". Perhaps that is why he purchased a mill that had fallen on exceptionally tough times and is fully confident it will be restored to profitability in no great length of time.

Being a "contrarian" is what led Wasilenkoff into the forest products industry in the first place after investing in other resource industries such as gold, uranium, oil and gas. "Forest products was out of favor, which is a good time to invest," Wasilenkoff says. "It's only at this end of the business cycle that you can buy a mill like Thurso for $1.2 million."

The Thurso, QC, site is a former Fraser Papers mill opened in the1950s under the Maclaren banner. It produced bleached kraft pulp using batch digesters. When Fraser Papers went into bankruptcy, the mill was closed in mid-2009.

But it was a product not the mill itself that interested Wasilenkoff. And that product is dissolving pulp. "We scoured the planet looking for the best asset to convert to dissolving pulp."

What did Thurso have? A batch pulping system with good capacity; a suitable wood basket; wood species segregation in the woodyard; a paved yard so dirt issues are minimized. The mill was producing photo paper grade pulp so tolerances were already tight. Wasilenkoff claims producing dissolving pulp in a continuous digester is "not feasible and converting a sulphite mill cannot deliver a reasonable cost structure", so all Fortress wanted and needed was found in a small Quebec town about 40 km southeast of the Canada's capital, Ottawa. Thus was born Fortress Specialty Cellulose.

The timing was also right. The Quebec government was supporting the mill with heat and security. "Our first contacts were with the government, which wanted the mill re-opened. But, it was critical to us to secure the fiber," Wasilenkoff explains.

Long-term fiber issues will be critical to success of the mill. As plans stand now, 50% of its fiber will come from Fortress's cutting rights on Crown (government) land (about 400,000 m3/yr). The rest will come from sawmill residues and private woodlots. However, in the region, there are about 700,000 m3/yr allocated to projects under discussion. If these projects do not come through, Fortress will apply for this fiber. Wood species in the area include maple, aspen, birch and various softwoods.

Chad Wasilenkoff, CEO, Fortress Paper

Four-phase plan

Wasilenkoff says that he approached the Quebec government with a four-phase plan:

  • Restarting the bleached kraft pulp mill;
  • Converting to dissolving pulp;
  • Building a co-gen facility;
  • Building a biorefinery.

"When we talked to the government and visited the mill for the first time, we discovered that management had been working on a co-gen project and advanced it quite a bit," Wasilenkoff adds. "We were impressed with the work that had been done and decided to expand the scope of the investment to include co-gen."

Work has begun on the unit and Hydro-Quebec expects to receive the first deliveries of biomass-derived electrical power ("green electricity") in late 2012. Fortress will provide net 18.8 MW of power to the utility over a 15-year period.

The total cost of the transformation is just over $150 million. However, Investissement Quebec, a government agency, is providing a $102.4-million loan and there are another $25 million or so in federal credits and other incentives available under the green infrastructure program. It is one of the Quebec government's largest investments to date and it shows clearly Quebec's commitment to a diversified and revitalized forest industry. The co-gen cost is estimated at $62 million.

A contrarian view
As an outsider, Wasilenkoff was asked if the turmoil the Canadian forest products industry has gone through recently could have been avoided. “Yes, a lot of it could have been, but some, such as newsprint, was unavoidable.”
How? The assets could have been used for something better. “For a lot of companies, they have been the same product for so long, to turn around 180º is not fathomable or viable,” he adds. “But, for those like us, from the outside, we look at it like a widget and how can we improve it?”
For example, he adds, his banknote paper mill will focus strictly on banknotes in the future where margins are high. “There is always a better use for fiber and how to put value into it and how to get value from it.”

To be decided

Once the conversion to dissolving pulp is complete, Fortress will study the biorefinery concept because of the excess of hemicellulose it will have, which currently makes the recovery boiler a bottleneck. The added benefit is that it will allow the mill to produce more dissolving pulp at "good margins." It's too soon to say what the end product will be: transport fuel, pharmaceuticals, ethanol.

However, the matter at hand is the pulp mill conversion. As a kraft pulp mill, Thurso could produce 250,000 tonnes/yr. Capacity will drop to about 200,000 because of the loss of yield associated with making dissolving pulp compared with kraft pulp (40% compared with 50%).

Down for about a year, the mill restarted on May 28, 2010, producing bleached kraft market pulp. Production manager Steve Frechette says the mill was in good shape despite the shutdown and only requited a minor 4-week maintenance period to be brought back up to speed. Present production is all sold to International Forest Products (IFP), which sells it worldwide.

The conversion to dissolving pulp will take about one year with the first production expected in Q3 2011. The mill will shut for about three weeks prior to the final conversion. It will be a "very aggressive timeline," says Wasilenkoff.

One of the most interesting facets of the conversion is the purchase of many of the assets of Stora Enso's Kemijarvi, Finland, mill at a cost of $3.8 million. This was a Metso SuperBatch system. Fortress purchased the complete cooking plant that includes three digesters as well as filtrate and liquor tanks, oxygen delignification system and the screw conveyor system used the feed to digesters.

The properties unique to this equipment will help Fortress deliver a superior quality process and eliminate construction risks associated with converting the existing cooking plant while it continues to operate. The metallurgy of the digesters and tanks is "perfect for our mill", says Wasilenkoff.

The equipment was shipped from Finland in early September , arriving in Montreal later that month and then transferred to barges for the journey up the Ottawa River to Thurso, arriving there in late September.

The woodyard and conveying system do not need to be changed. The pulping process will continue to be sulfate-based. A pre-hydrolysis stage will be added.

Use of the mill's current eight digesters will be discontinued but they may be used in the future as part of the expansion into more biorefining.

The bleaching sequence now is DoED1ED. Fortress will reconfigure this sequence to one optimized for dissolving pulp. The new oxygen delignification stage will come before bleaching.

Currently a bottleneck, the mill is looking at alternative technologies for the two recovery boilers as it wants to increase capacity on each by 20-30%.

As it stands, the pulp machine has three presses with double felting on the first and third presses with can dryers followed by a Flakt air float dryer. All pulp is baled prior to shipment. Now under study is a project to upgrade the machine and make minor changes to support dissolving pulp. The distributed control system (DCS) will changed for the digesters and perhaps for the bleaching plant and brownstock washing.

No changes are needed in the effluent treatment system. In fact, the load is expected to drop given the impact of oxygen and bleaching improvements.

Fortress is now working with a Scandinavian company that is testing various configurations to use in the pulping process. "There will be a couple of different grades depending on the fiber and customer requests," says Wasilenkoff, "but it's all for viscose."

Most of the dissolving pulp will end up in Asia where, he adds, "Viscose producers are expanding aggressively."

Wasilenkoff estimates the mill's costs will be in the lower quartile globally and with current spot prices of about $1,500/tonne, the economics look good for Fortress. "Multiple consultants and the dissolving pulp team we have assembled have worked hard and we are comfortable with the numbers."

Wasilenkoff does not plan to stop with Thurso. He laughs when it is pointed out that he does not seem bound by geography. "No! We are still looking at opportunities in the forest products industry. There are nine acquisitions we are looking at worldwide producing various grades. We'll look wherever there is an opportunity, but I do like dissolving pulp and would like to expand."

Prior to the Thurso purchase, Fortress owned two mills in Europe: Dresden Papier in Germany and Landqart in Switzerland. These two mills have just gone through expansion projects and Wasilenkoff says more are in the works. They produce specialty papers including banknotes.

For dissolving pulp, Fortress has its eye most focused on China. Customers have visited Fortress corporate headquarters in Vancouver, BC as well as the Thurso operation and have been impressed. Wasilenkoff and his team have also crossed the Pacific the other way. "We know what they are looking for. All eight potential customers I met have either just finished expansions, are in the process of expanding and have follow-up expansions planned. None had yet secured their fiber needs."

The Fortress team
To get the Thurso mill into shape to produce a specialty product, Fortress assembled an experienced team of pulp and paper industry veterans. Peter Vinall, former president and CEO of the AV Group, which operates two dissolving pulp mills in New Brunswick, now holds the same positions for Fortress Specialty Cellulose.
Production manager Steve Frechette also came over from AV along with Vince Byrne as technical development director.
Marco Veilleux, who was formerly operations director at the Thurso mill when Fraser owned it, is now COO of Fortress Specialty Cellulose.
Finally, Pierre Monahan, former CEO of Alliance and executive vice-president of Bowater Canada is a member of the board of directors.

Back in Thurso

For the townspeople and mill workers, the re-opening is probably more than they thought was possible. Looking around the country, one can see numerous mill closings, most if not all of which have been permanent.

Therefore, it was an emotional and happy time for the town when Fortress made its move. Wasilenkoff gives a lot of credit to the workforce, noting that it took concessions to make the reopening a viable project. Wages have been reduced and Fortress has no pension liabilities from the former employer. Also, the pension plan has switched to a defined contribution scheme from a defined benefit plan.

"They are up to the challenge," he states. Fortress brought in high level dissolving pulp experts to help with the conversion and training. The latter was due to start in August.