Good morning. My name is Christine, and I will be your conference operator today. At this time, I would like to welcome everyone to the Mercer International third quarter 2008 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator instructions) Thank you. I would now like to turn the call over to Ms. Alex Tramont. Please go ahead ma’am.

Thank you. Good morning, and welcome to the Mercer International 2008 third quarter earnings conference call. Management will begin with formal remarks, after which we will take your questions. Please note that in this morning's conference call, management will make forward-looking statements that were made in the press release. According to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, I would like to call your attention to the risks related to these statements, which are more fully described in the press release and with the company's filings with the Securities and Exchange Commission. Joining us from management on today's call are Jimmy Lee, President and Chairman, and David Gandossi, Executive Vice President, Chief Financial Officer, and Secretary. I will now turn the call over to David Gandossi. David, please go ahead.

Thanks, Alex, and welcome everyone to Mercer International's third quarter earnings conference call. We will be following a similar format to that of the previous quarters. I will begin with some prepared comments on the key financial aspects of the quarter, and then I will pass the call to Jimmy, who will speak about the particulars of the markets, our operating performance, and some of our strategic initiatives. As well, we’d be remiss if we didn't comment on the current financial turmoil we are experiencing and what this means to Mercer. As always, we will be pleased to answer any questions you may have following our remarks. Let me begin by saying that it was clearly a difficult quarter. Despite another good quarter from a mill operating perspective, including a smooth maintenance shut at our Rosenthal mill, we experienced a fairly dramatic widening or weakening of global pulp markets, which has taken away some of the pricing advantages we have achieved in recent quarters. And as you know, currency markets have been particularly volatile in recent weeks. Jimmy will speak more about this in a moment, but first let me talk about the numbers. As you will have seen in our press release, we reported a net loss of EUR17.2 million for the quarter, or EUR0.47 per share, compared to net income of EUR10.7 million, or EUR0.30 per share in the same quarter in 2007. As you know, our earnings are sometimes heavily influenced by the mark-to-market gains and losses on our hedging instruments and foreign currency denominated debt. Our earnings in the quarter included pre-tax mark-to-market accounting losses totaling EUR17.8 million on these instruments compared to a loss of EUR1.1 million in the same quarter in 2007. Driving this is the impact of reducing short term interest rates opposite…

Thanks, David. So as David mentioned, this has been a remarkable few weeks. If he had asked me several weeks ago what I wanted to talk about on today’s call I would have said our operational performance, our safety record, or our capital expenditures. I will do that, but I would be remised if I didn’t take time to talk about the markets in considerable detail. While we were pleased with our operational performance during the quarter, the rate of deterioration in the pulp market has been a bit of a surprise. The downturn in most economies is a blunt reminder of how global our economy is. So, we continued to push through operational improvements. We will be promoting and accelerating our high return CapEx initiatives, and I will talk about these efforts here in a moment. We continue to be satisfied with the rate of improvement in productivity. The production numbers we report often need a little explanation since they are impacted by maintenance shuts and varying number of calendar days. But after taking to consideration the impact that the annual maintenance shut at Rosenthal and an extra calendar day in the quarter, we maintained our average daily production rate once again in the third quarter and achieved another one month production record at Celgar. The improved level of productivity equates to about 9,000 tons higher production in Q3 2008 than the same quarter in 2007. Year to date, after removing the impacts of the shuts, our production is approximately 23,000 tons higher than in 2007. During the quarter, we completed the annual maintenance shut at our Rosenthal mill, which was concluded without incident. And while the impact won’t be noticed until the fourth quarter, we are in the final days of Stendal’s annual shut and this has gone…

(Operator instructions) Your first question is from line of Bob Wetenhall with Royal Bank of Canada. Bob Wetenhall – Royal Bank of Canada: Hi, good morning. Thanks for taking the question. Just wanted to ask you, why is the discount between – or the size of the discount between pulp list prices in Europe and average pulp sale realizations increasing?

In terms of the European market or – basically, the list prices of course reflect the price set in US dollars, and of course, the mill met realizations are of course booked at the time that we receive the actual sales; and of course, there is currency impact. And of course, you do have increase in spot selling at Stendal, and of course, the Chinese markets tend to be weaker than the European markets. So, I think it’s the combination of underlying currency movements during the period as well as the fact that there has been slightly increased sales to, let us say, non-contract buyers. Bob Wetenhall – Royal Bank of Canada: Understood. And just to clarify, you said an incremental EUR16 million from selling on the grid in Europe from Stendal and Rosenthal as opposed to participating in the carbon credit program?

Yes, I mean that would be the estimate of the increase in electricity sales as compared to 2007. And of course, as you know, the carbon credit sales, we believe would have contributed something in the order of maybe 4 million this year and declining as we go through the period. So it is difficult to estimate what the contribution for next year would be, but the estimate in terms of the carbon sales for this year was approximately 4 million, and of course, that will come down. So, 16 million is a very conservative number for us, because of course, we can sell the Green Energy during periods when electricity prices in general tend to be weaker. So, there is not a specific time that is allocated that we need to sell it at. So we believe that the 16 million probably represents a very conservative type of revenue increase. Bob Wetenhall – Royal Bank of Canada: Fair enough. And I think that number that you guys have provided is 38 million to build out the energy facility at Celgar. And I was just curious, it sounds like you are going to get a PPA agreement in place. And how are you financing the CapEx build-out of this?

Well, I mean, we are in discussions with completing a financing with a large lending institution. And our hope is that with the conclusion of the purchase contract that we will also then have the finalization of the loan facility so that we can essentially replace the cash that we have, of course, spent to order the equipment and also to, of course continue the ongoing construction. Bob Wetenhall – Royal Bank of Canada: Great, thanks. I’ll hop back in the queue. Appreciate it.

The next question is from the line of Herve Carreau with CIBC World Markets. Herve Carreau – CIBC World Markets: Yes, thank you. David, you mentioned that the Celgar facility, which measures in May ‘09 could be extended by a year if the bank agrees. Just wondering if you are looking at other options there, or are you comfortable that the bank will be supportive?

I am comfortable the bank is supportive. We have had preliminary discussions with them and so, we are going to go through the process of an early extension. And it will – I think actually we will get a little more coverage on some of the log inventories that we have, that we have previously had available. So there seems to be a real willingness to carry on with it, I mean it is secured by inventory and receivables, so it is not one of those things that is caught up in this credit crisis. Herve Carreau – CIBC World Markets: Okay, and another question on fiber costs. You did talk about the towing and the resumption of the towing operations on the Lake. I’m just wondering what could be the impact on your fiber costs there if it’s resumed next year?

Well, it could be quite material (inaudible) towing – hauling logs by truck can be anywhere from (inaudible) and the towing costs are sort of in the $7 to $8 a cubic meter range. So, $10 to $12 a meter of wood cost for production for that component of the sourcing. Herve Carreau – CIBC World Markets: And what would that represent in terms of your volume?

Probably $400,000 to $500,000. Herve Carreau – CIBC World Markets: Okay, great. Thank you.

Your next question is from the line of DeForest Hinman with Walthausen & Co. DeForest Hinman – Walthausen & Co.: Hi, can you talk about the inventory situation with Celgar in a little bit more detail? And then just thinking about that in terms of the port, I'm a little bit confused because it seems like bulker rates are falling drastically and then also, container rates are falling as well. And it seems like there is an oversupply of those types of boats and is there a lack of customer demand or we really cannot get that inventory off the docks? That is my first question.

Well, I think the port congestion started during the early part of this year, because there was withdrawal of these bulk carrier traffic from the coast. And so many of the producers which had been reliant on bulk carriers all of a sudden shifted to the container, and of course container availability became restricted, mainly because of weather related type of reasons, and therefore the rail lines were not able to actually supply sufficient containers, one; and second, there was of course congestion at the stuffers in the sense the facilities, which take the pulp and stuff it into the containers also, and because of this mad rush in the early part of the year, there was really inability to ship out volumes that were even contracted for. And so, if you look at Q1, we started the year with something like almost 70,000 tons at Celgar. And we of course, have tried to weather this down, and in the second quarter we’ve been able to bring it down to more like the 65,000, and in the third quarter unfortunately the situation really hadn't changed although we took the initiative of chartering bulk carriers that we participated together with other producers, but mainly with hard charter that we had arranged for. And as a result of that, we have been able to maintain the inventory levels still probably in the 67,000 type of range and we have not been able to wither that down to marketably mainly because of the continued problems in terms of shipping out of the port, as well as the sudden downturn after Q2, after the summer in terms of China. So what has happened of course is the expected volumes that we thought we could sell where delayed in the Chinese markets and therefore the…

No, right now there is no real committed tonnage on the part of the vessel owners. So, presently, it is more spot. But the prices of course reflect the slowdown in the global trading activity. So, the pricing actually still is quite – you know, it is coming down to quite favorable type of prices as compared to even the container rates, which also has come down. The China market, unfortunately I would say is more complicated. You have a combination of deliveries which are contracted, but at the same time, a lot of the contracted volumes have been canceled or kind of – let’s say there has been a lack of performance, if I may say that in the sense that a lot of the contracted buyers are kind of reneging. At the same time, there is of course reliable ones which continue to take, which tends to be more the tissue and hygiene area, which we have of course focused as a producer. So the hygiene area continues to take a reasonable amount of the volume that has been committed. We are of course selling more in terms of the spot, because of course we are moving on volumes, and you know, the spot market unfortunately is deteriorating quite marketably, because of course, everybody is trying to move volume. And every time you enter into pricing discussions, the prices seem to be dropping faster than the Canadian dollar is dropping. DeForest Hinman – Walthausen & Co.: All right. And kind of a different question, I do not know if I missed this. Can you talk about those convertible debts, I guess it was due on October 15 or it is going to be due on October 15 next year? How are we thinking about that given the cash we have on the balance sheet?

Yes, so it matures in the fall of 2010. And the October 15, 2008 date is the first date where we have the right to call them, but under our trust indenture, given where our stock is trading, we don't have a carve-out for that. So today, there is nothing to be done and we will just have to wait to see how our stock performs in the future and how the world unfolds as to what our options are there. DeForest Hinman – Walthausen & Co.: All right. So at this time, we can't really do anything from a call perspective?

No, that is right. Because under the trust indenture there is a carve-out. If the stock is trading at 120% of the strike price, then there is a carve-out because the indenture anticipated that nobody would take cash, they would only take stock – indenture protecting the bondholders on their liquidity in these kind of scenarios. So there is really nothing that the company can do at this juncture. DeForest Hinman – Walthausen & Co.: All right, thanks.

The next question comes from the line of Aaron Rickles with Oppenheimer. Aaron Rickles – Oppenheimer: Thanks, good morning guys. Can you please run through on the mill-by-mill basis the shipments, production, and CapEx for the quarter?

Sure, Aaron. So, production volumes third quarter 2008 for Rosenthal were 75.6, Stendal was 162.8, Celgar 130 for a total of 368.4. Sales volumes for Rosenthal were 82, Stendal 154.5, Celgar 127.3 for a total of 363.8. And CapEx for the three mills in the quarter were EUR3.4 million for Rosenthal, EUR1.2 million for Stendal, and EUR3.7 million for Celgar. Aaron Rickles – Oppenheimer: And was Rosenthal, I guess, because of the downtime in this quarter, was that mill EBITDA positive in Q3?

Yes. Aaron Rickles – Oppenheimer: Okay. And taking a step back on the energy process for 2009, I think you said EUR16 million of incremental to what you realized in 2007, which I think was roughly EUR4 million, so you are talking about EUR20 million?

Well, no, no. Well, in 2007, Stendal was about EUR22.3 million, and Rosenthal was about EUR8.5 million, so compared to that we are adding EUR16 million on top of that, and one other feature to it is now that we will be selling under the Green Energy Resource Act, we are not at risk of lower revenues from declining energy prices in the green market in Europe. So, we have got our floor, which is a stipulated rate that we can sell our power at. So, 15 million delta from what it would have been in 2009 compared to what it will be under the new legislation could be more. Aaron Rickles – Oppenheimer: And how does that roll in between Rosenthal and Stendal?

Slightly heavier to roll up to Stendal, but Rosenthal has about 20 megawatts of incremental power to sell. Aaron Rickles – Oppenheimer: Got you. Then, in terms of the project at Celgar, I think that it is expected to kick in early 2010, is it still on track?

In the first quarter, yes.

Yes. We expect completion at the end of 2009. Aaron Rickles – Oppenheimer: Okay. And then can you just remind us of the magnitude of what you expect to realize in terms of EBITDA there?

Well, I mean we have considerably have kind of looked at Canadian 15 million as being the contribution but we know that based on the numbers that we have offered to B.C. Hydro and the expected production volumes at that time, we think that the contribution will be significantly higher than that. It will be more closer to the 20 than the 15. Aaron Rickles – Oppenheimer: Can you tell me what is the expected date in terms of locking in a power purchase agreement?

Well, what we know so far is that B.C. Hydro is briefing the government by the end of the month, and as well as their Chairman. Their Board packages are mailed at November 7 and their Board meeting is November 19 and we are told that’s the meeting where they will be making their approvals of the power purchase contracts, as recommended by Hydro. And the power acquisitions team at Hydro have told us that they would expect our contract would be signed by November 30. Aaron Rickles – Oppenheimer: As you think about trying to securitize that, I mean, is that process sort of wrapped up with the Celgar revolver in anyway, and trying to extend that, or those two completely separate –?

No, we have – it’s a separate process, and we have selected a lender. We are comfortable that we have got the right type of lender for this particular project and we are just looking through the stages of that. It is all (inaudible), obviously the power purchase agreement with B.C. Hydro, and we are told by this lender that the challenges in the present markets are not affecting this particular source of money, because it is mandated for the energy projects, and ours is a good one. So, we still remain optimistic we are going to get it done. Aaron Rickles – Oppenheimer: Is there any sort of like a firm commitment letter contingent on realizing that PPA or –?

No, it is in the final stages of term sheet negotiations at this point, there is nothing committed. Aaron Rickles – Oppenheimer: Got you. And then, I guess, maybe one last although a broader question. As you think about Celgar and the demand coming out of China and how that’s sort of shifting, what are you guys able to do strategically other than just sell to the spot market in terms of, maybe reallocating some of those conduits [ph] to other markets if anything?

Well, I mean, we have made significant progress in pushing a lot of volume into the North American markets, especially to some of the, I guess strongest consumer products type of companies. So we are making very good progress in terms of North American market. Unfortunately, as you know, also some of the paper producers in North America have closed, which of course has an impact on their original suppliers and these suppliers are of course trying to move tonnage into the nontraditional markets like into China. So, that has of course had an impact, where you know the volumes that traditionally found their homes in North America all of a sudden have shifted to the China market, and this has of course created this instability at a time when the economic activity as a whole has started to maybe also show some weakness. And that has been some of the main problems in terms of the China market. We do have very good relationship with pretty much all the big producers in China and they have been very reliable customers to us through an extended period of time, and although we talk about China as a spot market, a lot of our tons that has been sold in China was under established contract with known volumes and pricing. It is only recently that there has been a significant deterioration in terms of certain number of paper producers, which are experiencing, let’s say, their own issues, and as a result of course, their reliability has been less, but I don't think that we are reliant really on the spot selling. We have only been doing more spot selling because of the nature of where the economic activity is today, as well as some of the problems I think some of the paper makers in China are facing. Aaron Rickles – Oppenheimer: Is there any way to think about your percentage sales on the spot versus contract, maybe what you have seen in the past couple of weeks versus the average or what you saw in Q3?

Well, I think moving forward into next year, I think that you are going to see that there will be probably more of a desire on the part of the paper makers to reduce the amount of contracted volume, and build more on the spot. And that is mainly because they believe that; one, they have their own credit issues, and second, they believe that the economic activity as a whole will probably mean that prices will be favorable, so they don't believe there is going to be a tightness of supply, so they're not so worried about how the prices spike on them. So I think that moving forward, certainly in China, there is going to be a larger component of our business which will likely be not contracted, but more spot or reserve type of arrangements. Aaron Rickles – Oppenheimer: And how should we think about that in the context of where you are today and how that might have effect the business?

Well, I think clearly the volume is not going to be the issue, because I think that we traditionally have been able to move the volumes that we expect to move. I think it is more in terms of the pricing and of course, spot pricing in China tends to be much weaker. So I think that your expectation moving certainly in the shorter term, the next six months, probably indicate that we are going to have probably further price weakness, although the list price weakness may not be as severe, but the spot price weakness will be a lot more significant, and therefore, certainly Celgar’s revenue stream will be impacted more than our German operations, because the German operations are more reliant on the European market, which of course tends to be less of a spot market. We think that with the production readjustments, which will likely occur as a result of this occurring in the next few months, where high cost producers will take downtime etcetera. And some production actually essentially being shut down permanently, hopefully, but certainly shutdown for an extended period of time that the capacity to demand will readjust and therefore the second half of the year probably would be much better reflecting a balance between supply and demand. Aaron Rickles – Oppenheimer: Okay, very helpful. Thanks.

Your next question is from the line of Steve Chercover with D. A. Davidson. Steve Chercover – D.A. Davidson: Thanks. Good morning. Just a couple of quick things. The first I guess more of a request than a question. Can you please put the share count somewhere in the release, probably on the income statement, it would be helpful. And secondly, with respect to the use of beetle kill wood, does it change your recoveries due to more chemical use or in any way harm the equipment?

Steve Chercover – D.A. Davidson: It doesn't turn blue pulp or anything?

No, no. Nothing like that. Steve Chercover – D.A. Davidson: But my understanding, I used to have a map, I can't find it, Celgar was quite a bit south of the primary kill zone. So, is that correct?

Yes, it is quite south of the kill zone; but also there is of course still time in our forests and of course they have been impacted.

And Steve, remember the Arrow Lakes run from Revelstoke all the way down to the mill. That is more than a 100 kilometers from the north. So, what we have been discussing earlier was purchasing dead pinewood in the Kamloops region, moving it across to a dump on the lake and then towing it down the lake, it is quite an efficient source of fiber for us. And with some modification to the woodroom to handle small diameter logs, that will significantly reduce our lumber costs, and within volume available, and that is an area where we are working with the government to ensure that those logs, which would never otherwise be harvested, don’t attract stumpage pest [ph] issue today is that even though it is coming from somewhere that’s never going to become lumber, it’s still somehow attracting some stumpage, and so there is $8 to $9 a meter of cost there that we can eliminate if we are successful on our discussions with the government. Steve Chercover – D.A. Davidson: And sort of, was it up to Interfor to revamp the Lake?

Well, they purchase the Marine Towing division from Pope and Talbot and in the early days of their ownership, it was probably six months close process, so they really didn't have access to run it. And it is now open and logs are now flowing to our mill from that region, like 80 bundles of logs per tow that come down the Lake, is a very efficient way to do it. But we have a fair amount of inventory built up in a location called Lumbee, which is what we were doing in the interim until it was opened and we have to chip that with remote chippers and haul it to the mill. So as Jimmy was saying, it will take a quarter to work through all that, but we will see some fair degree of relief once we are through that inventory. Steve Chercover – D.A. Davidson: Is your sense of the government feels a sense of urgency that they’ve got to get rid of the beetle kill wood anyway they can, as opposed to just letting it rot or burn?

The issues for the government are that it’s a – I mean, at the leadership level they get it, at the bureaucracy level, they are slow to move; and some of the constraints that they have to study are things of the Softwood Lumber Agreement, and fairness principles to ensure that they have a fair market. So, we have got absolutely the prepped business side of the argument, which I would have liked to see more movement from what we have seen so far, but having said that, I know the minister in office is very supportive and receptive to these ideas and looking forward to getting some progress on it. Steve Chercover – D.A. Davidson: So I should think this – you said the minister wants to avoid any kind of impact on the Softwood Lumber Agreement putting through pulp mills is a great solution.

Absolutely. And so they are doing things like they’ve got some products for lump sum sales and some forestry tomorrow trial runs and so and so. I mean, we are definitely moving in that direction, taking the early steps to make sure they understand how the market will react to, but even despite that, the combination of moving the logs down the Arrow Lakes into our woodroom is going to be a significant cost reduction from where we are today.

As well as the modernization of our woodroom will significantly have an impact in terms of our cost.

And Steve, one last comment, we don't want to embarrass you, we did put the share count on page 5 of the press release. Steve Chercover – D.A. Davidson: Oh well, there you go, see, that is what sleep deprivation will do for you. Thank you. And final question, I don't know to what extent you can elaborate on it since the markets are moving so quickly, but how do you think that some of the mills that are even contemplating starting back up in British Columbia or in the Eastern US, Canada; it doesn't make sense probably to start these things back up, I guess it depends on how low things go. So, what is the fallout of this whole turmoil?

Well, you know based on what I have seen in terms of the China prices, they just recently came back, the prices today essentially are at levels where many of the high cost producers cannot make any money. In fact, it would be cheaper for them to shut down. And therefore, we are pretty close to the bottom in the sense that – I am not just talking cash breakeven, but it is at levels where many of the producers would essentially have to pay to get rid of the pulp. So at that type of pricing, it implies that after they sold whatever inventory they’ve got to grade cash, it is not likely that they're going to continue to run, because it is cheaper just to keep paying their labor and other fixed costs, than to sell their pulp.

You know, one of the bright sides Steve is that at this juncture is going to wake over to another 1.5 million to 2 million tons of softwood, probably, and it is also going to prevent about 4 million tons of hard wood getting built. So, when we come out of this there will be a much stronger fundamental than it would be if it hasn’t happened. Steve Chercover – D.A. Davidson: Agreed. And I promise this is the last one, then. You can only speak for yourself, but in terms of establishing a list price does it make any sense to cut your list price towards where spot is, or just say the spot will work its way itself through the system and list price is really not going to move that much from October, because it doesn't?

No, the list prices are starting to move down, and our expectation is that it will move down for the balance of the year, not as significantly as some of the spot type of price movement. The problem in terms of China right now is that; one, it is not an issue of over inventory of the raw materials, in fact, the inventory levels at many of our customers are still low, or no more. It is just that the paper side of their business all of a sudden has been impacted significantly. So they are sitting on a lot of finished product which they can’t sell, and the credit issue also has created shortages of liquidity and so they are not interested in buying a lot of pulp. One of the benefits we have now is the fact that we have been able to move tonnages into China. We are able to deliver smaller lots and that means, it will relieve them of the credit issues because traditionally they would have to open up a large orders, have the LTs [ph] open, and wait 30 days before the pulp got delivered. For us, we have pulp supply which is much closer to where their needs are and we can ship a much smaller lot. So, that is working in our favor. The other thing that I think is important to understand in China right now is that the hygiene side of the business is not that bad. So the tissue guys are taking advantage of this and essentially driving the spot prices down, because they are the only guys with the liquidity and the ability to essentially buy large orders, and therefore, they are essentially having the Canadian guys beat down prices to the level where ultimately they are prepared to buy, and everybody is essentially falling over each other, trying to reduce prices to get volumes moved, and clearly, they are in a position where they say, okay, at this price I am prepared to give you guys a decent order; and we are all tripping over ourselves trying to satisfy that and that is the problem. That is why spot prices are dropping like a stone. Steve Chercover – D. A. Davidson: Well I guess they haven't really changed their stripes after all.

No, but that is not an issue that – every buyer would do the same thing. If you are in a position that you are the only one which can take volume and everybody else wants to deliver, then why shouldn't they take advantage of that, and therefore the prices will drop to the level where it doesn't make any more sense. Steve Chercover – D.A. Davidson: You are fantastic. I just remember a few years ago, we thought that there needs would be more constant and they wouldn’t gain the system. Anyhow, I promise that was my last. Thank you.

Your next question is from the line of Paul Quinn with RBC Capital Markets. Paul Quinn – RBC Capital Markets: Yes, thanks. Good morning. Just a couple of questions. One, could you remind us of your geographic distribution of sales at Celgar?

Yes, I mean about half of the sales goes to Asia/China market and the other half would be North America at all. Paul Quinn – RBC Capital Markets: Okay. In terms of – there is a number of producers who have announced market related downtime. Is that something you guys are concern around this point, given the weak markets?

No, we have stated that we believe we are one of the lowest cost producers on average and therefore there is really no reason for us to take downtime. We intend to run right through this cycle, because if we take downtime and we take products off the market, all we are doing is benefiting the marginal players to continue to prolong this agony. Paul Quinn – RBC Capital Markets: You made a comment about the effect of the falling Canadian dollar has been not enough to offset the falling price of pulp; is that just specific to the Chinese market or is that true in North America for you guys?

No, that is specific to the spot markets, and I think that problem for the weaker players is that if you look at the new startups and redirecting some of the tonnage that they have lost in the North American market, a lot of it has to find a home in China, and therefore, that is really the area that is under the most pressure right now. Paul Quinn – RBC Capital Markets: Great, that’s all I have. Thanks guys.

Your next question is from the line of Rich Sherman with Oppenheimer. Rich Sherman – Oppenheimer: Hi, I think on the last call you said the only swaps you have were on Stendal, but you had a foreign exchange loss on your European debt; can you give a little color on that?

Rick, that’s the US dollar denominated debts, that is for senior notes and the convertible debentures and that’s the effect of converting them into Euro, which is our functional currency. Rich Sherman – Oppenheimer: I see, okay. Also, do you take any participation at all in the wood pulp futures market at all?

No we haven't, for various reasons. One, we do have to have the credit availability. So, only our German mills actually have the credit availability to actually execute, and the other part of it is that with the complexity of the currency issues and other type of issues, we found it very difficult really to figure out what the proper hedging strategy should be. And to date, really the amount of volume on the market, other than swap arrangements directly with certain institutions was really not available. I mean, we could do certain swaps with the large institutions, but then we would have to figure out what really is the right pricing strategy and you have got to factor the currency and other things, which are so complicated today in terms of volatility, that we felt the risks didn't really justify the rewards. Rich Sherman – Oppenheimer: If the prices are like – I'm looking there at 12 months pricing at $686 as of this morning, is that more reflective of current spot prices?

Well, I think you mean in terms of what the prices in terms of spot prices of what, I don't quite –? Rich Sherman – Oppenheimer: Well, the list price right now is, let’s say, still over $800, but the futures price even three months out is at $753, and going all the way up to $686 at year out. That is a pretty negative number relative to a year out from now.

Yes, that means that they are anticipating further weakness in terms of the pulp pricing, mainly because of the currency issues, they believe that the US dollar will continue to be strong, relative to the Euro and the Canadian dollar. And therefore, it is natural that pulp prices will start to reflect that and the other part of course is the weakening in global economic activity. So, the list prices are list, but you still have to factor in the normal discounts, which of course will widen and therefore, that prices reflect a prices after the normal discounts from the list. Rich Sherman – Oppenheimer: Is there some inflection point pricing where – I understand you are in much better shape then maybe your competitors will be, but is there a price where you guys just can't make money either on – even on a cash basis?

As an NBSK pulp producer, we believe we rank amongst the best in terms of production costs in this business and therefore there will be a lot of production which would have to suffer a lot more losses and are likely to be shut before we start to actually lose money. So it would be very difficult to imagine that amount of production curtailment without really – in the sense that there will be that much demand disruption, before we would end up with a scenario we would actually start to lose money as a whole throughout all three facilities. Rich Sherman – Oppenheimer: No, I'm just hoping that the industry doesn't go into shared destruction I mean – where nobody is – common sense goes out the window completely.

Well, I mean the only way that you would end up with this kind of scenario is if the low cost producers voluntarily in the fact reduce their own production volume, and everybody else essentially shared in the pain. And then, of course, as prices will continue to drop, because – you know, drop to the level where it is the average of everybody, rather than the cost of the weakest player. You know, if we were saying that demand destruction has been 0.5 million tons, well, you only have to destroy 0.5 million tons of production, and that is going to be the highest cost producers which represent that 0.5 million tons. You only have to run faster than the other guy, that's all. This is a relative gain it’s not an absolute gain, right? Rich Sherman – Oppenheimer: Right. Okay. There was also – you mentioned in the last call about people in Britain creating these power plants that were running on wood chips –

No, I said that in the Southern US, there is being some movement towards converting coal-based power into wood-based power. Rich Sherman – Oppenheimer: Right, I see that there is a plant though in Britain that has just gotten funded to open up in 2010 or 2011, it is going to be in northern Britain.

Well, northern England traditionally had a lot more wood residues that were not presently being consumed, so that would make sense. Rich Sherman – Oppenheimer: Then a German power giant, RWE, agreed to pay $50 million to Helius Energy for controlling stake of a 65 megawatt biomass power plant in northern England.

Yes, that was – Rich Sherman – Oppenheimer: There is supposed to be a 388 wood pulp fueled plant due to start operating in 2011. How does any of that affect, if anything at all, the problems with your basic chip costs and things like that?

No, it has no impact. I mean, the chip supply from England is not really an area that would have any impact on us because the wood transportation issue from that area is so significant that it really doesn't involve us at all. Rich Sherman – Oppenheimer: So they are sourcing primarily that would be sourced domestically for them?

Yes I mean, there is a lot of pine and other type of softwoods in northern England, in the Scotland area, and there is some milling activity there, and there has been some studies of building a small NBSK pulp mill there, which was being promoted over several years. Unfortunately, the wood availability is such that you can’t build like a modern sized mill, but more like smaller sized, more similar to Rosenthal size, but of course the same type of cost. So unfortunately, it wouldn't justify that level of investment, you know, EUR1 billion for 300,000 tons does not make a lot of sense. Rich Sherman – Oppenheimer: And lastly, you had also mentioned that you are finding other uses for the liquor coming out of the residual use of some of the pulp?

Yes, I mean we are of course looking at the various byproducts coming out of the black liquor stream. Aside from the electricity, there is already tall oil that we sell, there is the potential to upgrade the methanol and sell that as a refined bio-methanol type of product. But these are not going to be some significant revenue contributors presently. We are just of course studying what other byproducts make meaningful potential margin contributions. Electricity clearly is the easiest one and that is why we focused on that and the area that we have clearly demonstrated is going to have significant margin contributions in the very near future. Rich Sherman – Oppenheimer: Yes, thank you very much.

Your next question is from the line of Andrew Shapiro with Lawndale. Andrew Shapiro – Lawndale Capital Management: Hi, a few questions. We got dropped from the line by accident, so forgive me if I repeat one or two; I hope I don't think there will be any more than that repeated. Can you give us a feel of how you see the market progressing in the next couple of months and quarters from the perspective of the high cost guys, both in Canada and in Scandinavia closing down as a potential benefits versus obviously the offset of paper capacity and paper demand deteriorating and having, I guess you call it de-integration?

Yes, there is of course, the integration of certain facilities, but I think where we are seeing the market right now is less of a pressure certainly from the softwood producers in Southern US in the China market because of the appreciation of the US dollar, and therefore, I think they are going to be less interested in trying to sell in the spot market in China, aside from the weakness in price already. Spot prices to move volumes in China are at levels where only the very low cost producers will be able to supply without losing a significant amount of money. And therefore, I think that there is going to be additional capacity closures, because we probably have reached prices which are not sustainable for long periods of time. So I think the next six months, you will see further announcements by many producers for production curtailment as well as absolute closures of facilities, and after that period then the supply and demand balance should be in better balance again and we will start the rebuilding process of the price and that is going to be dependant a lot on where the currency exchange rate is going to be, because of course, if the dollar continues to be strong, then the cost certainly from the European and the Canadian side is going to be quite attractive, and therefore we won't get the high US dollar base prices that we have seen in the recent years, but our margins will be much more improved. That's why I think the first six months is going to be the weakest, until this kind of production adjustments go through the system and then, the balance in the second half of 2009 should certainly be more steady and better. Andrew Shapiro – Lawndale Capital Management: Okay, and then touching on that, you have touched on the currency in China and those things, a little more specific I guess is the – can you update us on the situation in Scandinavia, as we have heard already that the log supplies at pulp mills were getting to dangerously low levels; is this true and is the situation there, if the Russians implement the tariffs, capable of – I think you mentioned transport costs are just too much to disrupt European log supply for you, but are they going to have to do more capacity closures in Scandinavia?

Yes, I mean the Russian tariffs issue will have a significant impact in terms of what the supply side will be coming out of Finland. And therefore if Russia sticks with the tariff arrangements in January, which clearly we still don't know, but all indications seem to be that they are not really changing anything, and therefore if that occurs then there will be a significant amount of capacity in Finland which will likely be shut down. And the Finnish industry, as far as I know essentially is not going to make the decision as to what is going to happen until the Russian tariff situation becomes real or not real. And so, we will not know until after January 1, and after that, of course they will be in the process of figuring out which mills will be shut and I'm sure they already have and they will be entertaining discussions with government and workers and whatever is necessary, and then there will be a gradual process of essentially shutting down those facilities, but it will have a big, big impact on both the paper as well as the pulp supply demand balances. Andrew Shapiro – Lawndale Capital Management: Okay. What was the dollar euro and dollar Canadian, David, that you used in the financials and where are we now?

Well, I think it was the average – the (inaudible) 140 level and we are down now in the 124 range, so it’s moved quite a bit since the quarter, even. Andrew Shapiro – Lawndale Capital Management: So what you use is an average in your financials, right?

Yes, well it tumbles through, it reflects an average. Andrew Shapiro – Lawndale: And the dollar to Canadian dollar for the quarter ended September, what was the number there?

Well, it started at 104 for the average and then we (inaudible) $0.15 and $0.14 on top of that now, so – Andrew Shapiro – Lawndale Capital Management: Okay, and can you discuss your inventories on a tonnage basis at each of the facilities, trying just to know which ones the stable, which ones went up and which ones went down on your plans to get the inventory ton levels down?

Well, Rosenthal inventories moved down nicely, and they are actually at record low levels right now. Stendal moved up from the second quarter, they are at 58,000 tons. And Celgar moved from about 65,000 tons to 67,000 tons. So we shipped what we produced in the quarter but we did have a minor build. Celgar inventories projected for the year end are continuing to build as we work our way through these challenging China markets, but as Jimmy said, our strategy is to move our inventory over there so we can be a just in time supplier so we can avoid some of the credit issues that these buyers have, and become a preferred supplier, and we also have a big component of tissue and I call it more sophisticated buyers that we will continue to take the tons from us to preserve the relationship in the future. Andrew Shapiro – Lawndale Capital Management: And I think you mentioned Stendal is in the middle of its – the middle or the end of its maintenance shut for the Q4 already, where is Stendal’s inventory tonnage tracking now, is it already down?

It is down, but it is likely that it will rebuild in the fourth quarter to slightly less than the levels that we had in the third quarter and that is really more of a seasonal issue too, as you know, Christmas time in Europe, paper production stops, and it is a weaker period in December and therefore, although we are dropped in the inventory slightly to rebuild up to closer the third quarter type of levels by the end of the fourth quarter. Andrew Shapiro – Lawndale Capital Management: Okay. Can you clarify on this issue a little bit, where is the shipping container and storage capacity in Canada right now, is it in – is that capacity in excess or is that capacity on shortage?

Well, the problem in the Vancouver port right now is that a lot of the container stuffing capability essentially is completely full. And because the Chinese orders have been unpredictable, the shipment has not been regular. So, we’ve had a lot of volume going in for containerization and yet they are not being shipped out. So, essentially the Vancouver port is clogged. There is really little room for additional volume. We’ve been able to side step a lot of that problem because we have already had containers that we had contracted through this year, and therefore we’ve been able to move volume into China through the bulk carrier process rather than having to go through the container issues. So, right now, if there is no real movement in the Vancouver port even if the market improved in China, we couldn’t get the shipment out because there is not container stuffing availability. So, essentially it is going to be interesting what happens because essentially the port is clogged completely. Andrew Shapiro – Lawndale Capital Management: So, does that mean Canadian producers other than Mercer, which has already done an end run and has pre-positioned pulp in China, but the other Canadian producers might have to put in production cutbacks even though regardless of the pricing just because the port is clogged?

Yes. There is a logistics issue. You know luckily for us, we do have inventory there and also we have shipment which will go out in December. And therefore our ability to move product into China certainly is much more flexible than many of our competitors right now. Andrew Shapiro – Lawndale Capital Management: So, have you heard of other competitors because of the port, they basically – even if they have a decent low cost they can’t – they got to do curtailments because the pulps start – backed up down the street?

Yes. Well we don’t know whether these announced production curtailments are the result of the port congestion issues or just cost issues. But there has been on a daily basis, announcements as to some production curtailments already. So, we expect further much more larger type of announcements to come. Andrew Shapiro – Lawndale Capital Management: Okay. Few debt questions from me. You just clarified – I understood when David said that you can’t force conversion of the convertible notes until the stock price was at levels it was at earlier in the year, unbelievably where we are today. But I just wanted to confirm, does your indenture prevent you from redeeming these convertible notes than basically paying them off and replacing them with lower cost financing, if you could find it.

Yes. It does Andrew, yes. The indenture has baskets and ratios and, for example, net income basket which goes up and down based on net earnings and we just don’t under this current operating environment have room in those baskets to do anything meaningful of the converts on a reduction based. Andrew Shapiro – Lawndale Capital Management: You are saying you are limited from redeeming them as well?

Well, remember the trust indenture protects the bondholders from leakage of the system. So, it has a cargo that says that if the stock – if our stock is trading at a premium to the strike price of the convert, you can call them. You can force for deficit because you know that the convert holders will take stock instead of cash. For those conditions you have a cargo but when you are below the strike price, then you have to look to the baskets for the ability to leak cash out of the indenture. And because of our cumulative net income basket being zero right now, we don’t have anything other than the pre-determined original baskets what really are our dry powder, our safety and so we really at this stage this particular pulp type don’t have room to buy the convertibles to cash. Andrew Shapiro – Lawndale Capital Management: So, this is a trust indenture for the senior notes that is prohibiting the redemption on the converts?

That’s right. Andrew Shapiro – Lawndale Capital Management: Okay. Now that made sense. Thank you on that one. Another question on the debt side here. Can give us a little bit more guidance, I know you can’t determine the rate yet, and maybe you are not ready to disclose because it’s just term sheets on the project finance for the Canadian power. But can you give us a feel for the type of spreads that you are talking about in the term sheet to get a handle on how much relative lower cost this project financing would be to your current cost of capital and your other debt instruments?

Andrew Shapiro – Lawndale Capital Management: Okay. Excellent. And assuming you do get a deal signed with B.C. Hydro by at the end of November, what is the amount of timing that you think is necessary until you get the project financing in place?

Well, I would say that 45-day to 60-day period and maybe allowing that for Christmas. So, it will be fairly quick in the New Year I am hoping. We are fairly advanced in our term sheet. We got to the last details we need to sort out around the security side because security doesn’t attach until we have finished the turbine type of deal. So, we’ve got a little bit of a complication there, but I think we’ve ways around it. Andrew Shapiro – Lawndale Capital Management: Okay. And you mentioned the project financing was going to be a 100% of the deal. So, how much Mercer cash has already gone out the door to date that will come back as net cash back to Mercer upon closing of this project financing?

I think it’s about 9 million so far. And maybe be in the mid teens by the time we get our first tranche. Andrew Shapiro – Lawndale Capital Management: And that 9 million to mid teens Euro or Canadian.

Euro. Andrew Shapiro – Lawndale Capital Management: Euro. Okay. Only two more questions here I think if you wouldn’t mind. The debt metrics at Stendal are consolidated into Mercer even though it’s non-recourse. And it certainly has impacted Mercer’s overall perceived liquidity as evidenced by the amazing stock price that we are suffering from right now. This debt is government guaranteed. So, the German government is involved in this and when we see the German government helping others in the credit markets out quite a bit, what opportunities are there for Mercer to reify this Stendal debt to match its maturity and principal payments with, frankly, the longer duration in useful life of the facilities that the Stendal debt supports?

Well, I think one of the things that we all have to remember is that as far as – although the government of course is very supportive, it is still bound by the subsidy rules governing the whole EU. And as such, the flexibility isn’t completely there. But what we are looking at is really matching the debt principal repayment schedule more in line with the useful life of the facility. As you know the original design of the finance structure was a 15-year maturity. And principal interest being paid pretty much over a 10-year type of period, and of course that is quite short in relationship to the useful life of the facility. And it is very aggressive. And therefore we believe that there is room to look at a principal repayment schedule, which is currently more reflective of that useful life and allowing essentially Stendal to have more flexibility of the free cash flow rather than having to completely devote pretty much all of the cash generation into paying interest and principal over a very short period of time. So, that certainly we think is something that is worthwhile discussing with the banks and we think that it is supportive in light of clearly the fact that the mill is running very well. And these facilities last for decades to have a payment schedule to that aggressive and short, and such a long life asset certainly it’s not necessarily doesn’t make any sense. Andrew Shapiro – Lawndale Capital Management: And have you already embarked on this initiative and how receptive does the government seem to be?

Yes, I mean of course the discussions in terms of the government side I think is very receptive, and we had of course ongoing discussions in terms of modeling on our side what we think would be probably something that’s workable for us. And hopefully through the process of discussions with the bank we can come to something that makes sense for both parties. Andrew Shapiro – Lawndale Capital Management: Okay. Last question. You filed 8-Ks over the last three months I think once or twice, kindly providing us copies of your road shows of your investor presentations you’ve gone and done. And I want to first off to thank you and the Board for doing that. It’s been very helpful. And I was just wondering now that this conference call is – the earnings are out and the pricing is where it is, one, are there thoughts of the insiders. I felt that you bought shares a bit last time in the last open window and of course at much higher levels like the majority of us. What the thoughts are by the insider acquisitions adding some shares as well as what the next calendars late of investor road shows and updated presentations might be?

Yes, I mean. We are scheduled in the middle of November to go again to the Eastern part of US as well as to the Midwest and also into the Western parts. We try to do as many as we can so the November schedule is one clearly we have done last year. We intend to do it again this year. In terms of insider buying, I guess it’s difficult for me to comment on other people’s decision. All I can say right now clearly is that price of the shares certainly is extremely low, and fairly much lower than the prices I’ve paid only very recently. I think one of the reasons that we try to accelerate the earnings announcement of course is to get the information out there as well as give other people the flexibility that would not otherwise would be there because of the whole blackout period. But also I think one has to recognize that there is issues ongoing in the company that sometimes unexpectedly for some reasons create blackouts because of certain material discussions that would have an impact which of course is not publicly available. So, I think one has to recognize that just because the insiders are not necessarily buying at a particular time or suddenly stop buying at a particular time that it sends a wrong message. I think unfortunately there is periods of time where not just the earnings blackout period but just because of ongoing discussion of certain banks that I may be deemed to be material in nature, but which may not actually conclude, but during times like that you may end up with unexpected type of blackouts. Andrew Shapiro – Lawndale Capital Management: In terms of that, now that you raised that issue, Mr. Michael Smith a while ago when the common stock price of this company was at far higher levels came out and was, one, critical of company progress, but secondly made the comment of that Mercer are to consider maybe being sold and have a consolidation candidate and partner. Can you comment on all about the Board’s view or receptiveness to such offers if one must to be presented?

I think the Board has always offered to any constructive type of proposals. Whether they maybe from a potential acquirer or for other type of constructive type of activity that would enhance shareholders’ value. You know I think that the Board is very receptive to any of those type of concepts. And we’ve never been, let’s say, in anyway blocking any of those type of communications. Andrew Shapiro – Lawndale Capital Management: Basically no one is banging on the door even despite this low valuation.

Well, there is nothing that is of firm enough nature that I would say that we would have to take seriously. There has been really no constructive approach by any party at this point. I think one has to remember that if you look at the pulp and paper sector, it isn’t just us which actually is trading quite low. I mean, unfortunately a broad range of commodity type of producers unfortunately have suffered enormous drops in terms of their share value. Andrew Shapiro – Lawndale Capital Management: Right.

Unfortunately is more pronounced because of the overall leverage that we have to the pulp cycle. And of course we’ve been able to finance those investments because of the nature of the supports that we’ve had. But the downside to that of course is during the perceived negative market the enterprise value unfortunately, that debt wasn’t shrank, the shares shrank. So, we’ve hadn’t the kind of, let’s say, the cushion that some of the other producers who have had very little debt but more equity and of course they dropped in price, in fact probably more so from an enterprise value than we’ve had. Andrew Shapiro – Lawndale Capital Management: Right. But we have seen of course in the paper side a substantial consolidation but not much at all on the pulp side.

Yes. And I think that there is certainly room for activity in that regard, but as you know not many of the producers have, let’s say, the resources. And of course hopefully the once which do would looked at this present environment and certainly one which is attractive for consolidation in this industry. Andrew Shapiro – Lawndale Capital Management: Right. One of the largest softwood players around and we would see you make a very good fit with one of the largest hardwood players around.

Well, we are always are open to any suggestions. Andrew Shapiro – Lawndale Capital Management: Okay. I know you probably talked with them in the past but maybe pick up the phone and talk to Air Cruise [ph]. Thanks.

Okay.

Your next question is from the line of Peter Ehret with Invesco. Peter Ehret – Invesco: Hi good morning. Thanks for taking the call. Okay, so if I heard this right, you've got about EUR9 million into the Celgar electrical plant now. And you would hope to get that repatriated when the permanent financing closes?

Yes. That’s right. You go back in time when some of the discussions we’ve had on the previous calls, we have liquidity in our system to very comfortably handle this. But it is also financing opportunity to put a new piece of debt on our balance sheet that’s tied into energy generation, our Green Energy Project like this has a price level, it’s a practice. So – Peter Ehret – Invesco: Yes, sure. It’s very elastic. But just look at the balance sheet, what we are going to see we are going to see a little bit more cash go in then that cash comes back out plus about the EUR9 million that’s in there to date. That’s how you think about it, cash flow wise over the next (inaudible).

Yes. Once we are started, we will recover what’s in and then we will get funding from the facilities as a matter of couple of spending. Peter Ehret – Invesco: Okay. And I thought I understood you said earlier $20 million or Euro expected contribution. When you say contribution, does that after the financing costs at that entity?

That’s revenue from electricity sales.

And that’s dollars not Euros. Peter Ehret – Invesco: It was in dollars. Okay, $18?

Yes. Peter Ehret – Invesco: Okay, and so all right. So, that just grows top line 20 million revenues. And what sort of margin is against that, that’s obviously high margin?

Well, Pete you had those little things. So, I don’t want to talk about that too much. But we do have capital costs, depreciation and those sorts of things against it. But – Peter Ehret – Invesco: Right, okay. And what’s the total CapEx net of the sun [ph] project?

Canadian $55 million. Peter Ehret – Invesco: Canadian $55 million. Okay, so that helps us sort of –. All right. And can you just speak about capital structures and interestingly here the term sheets is about to convert and taking it out and so on. Your bonds are (inaudible) bid. So I mean that’s probably just kind of a noise type bid if you will, just somebody trolling for something that isn’t real. Many of us recognize that, but are you developing any sort of plan or any sort of interest in trying to capture that? Obviously the company is highly levered and –

That we can’t make until we know we’ve got the financing to Celgar completed. Peter Ehret – Invesco: Okay. But thus far you haven’t had any discussions with anybody how to try to capture something that will be so potentially large and so powerful enough, and it’s potential to averaging effect.

Yes. I mean today what we of course have to look at is the overall availability of liquidity moving forward. And as you know and if you look at Goldman Sachs and these guys who fairly are much larger and have had traditional access to the capital markets paying 10% on preferred – Peter Ehret – Invesco: I mean everyone should play games in a financial crisis.

Yes. We don’t basically take on additional risk. I mean it’s important that we preserve a very conservative type of structure where we – now we have more than enough liquidity to other even further downturns in the economy as well as the possibility that all of these financing if don’t happen. I mean we are confident that we will get the project financed, but today you don’t have everything until the money is actually in the bank. Peter Ehret – Invesco: I see the same thing. You obviously want the wired to rise. At $0.55 that’s a – markets can we put a level like that on the other markets, essentially saying your yield requirement is about 27%.

Yes. I mean, the leave of our share price as well as our debt price we believe is completely ridiculous, and does not really looks like the inherent strength of our present operations, as well as the overall market for our products. But unfortunately if you look at what’s happening locally and the type of shareholders we’ve had unfortunately we’ve had more hedge funds where shareholders unfortunately have their own issues. And therefore I am sure that there has been sales which had not necessarily gone because they don’t think that the business is good. But a lot of activity is the result of cash needs for leveraging. Peter Ehret – Invesco: I would agree with your assessment. We see the same thing, obviously we just get the right holder and they are getting redeemed than their fore-seller. A question about just some of the inter-cos. On the Restricted Group, you’ve got an inter-co receivable fund the unrestricted side, which you did recently. Can you explain how that works, and it there any sort of financing that can be done on the Unrestricted Group that could perhaps pay off that inter-co receivable with that liquidity that potential could go in and capture some of the deleveraging opportunity?

Yes. That basically is really the equities for the Stendal project itself. That intercompany receivable from the Unrestricted Group was really just the equity structure, if you may, in the sense that it is a subordinated shareholders' loan for the actual financing for the Stendal project. So unfortunately, it’s more like an equity rather than a loan type of structure. And it is not going to be available for us until a significant amount of the repayment, et cetera occurs on the Stendal facility. Peter Ehret – Invesco: Okay. And with the Stendal facility the amortization that’s happening there, just maybe you could just remind us how quickly will it be paid off?

Well, I mean the maturity is such that it does not mature until I think 2017. And the – of course it is like a home mortgage. So, you have both interest and principal, and of course at the later stages more principal than interest. Peter Ehret – Invesco:

Well, I think what we are looking at is the potential to essentially match more of the life expectancy or the useful life expectancy of this facility to the repayment of the principal, and certainly as you know pulp mills last for decades and when you have essentially a 10-year period where you are making a significant amount of repayment that we don’t think truly reflects the useful life of the facility and certainly should be stretched over a longer period. And certainly the value of Stendal after 10 years certainly will be much – still there because of course the useful life in many cases last more than 30 years, 40 years. And therefore we are looking at a model that we think makes sense for us in terms of giving us more flexibility and the use of cash flow coming out of the Stendal mill, and yet gives the bank the assurance that there is adequate security available for them and also allows them to maybe have even an accelerated type of repayment if the market conditions are exceptionally good, which of course in the pulp cycle as you know we’ve had some exceptional years. Peter Ehret – Invesco:

Your next question is from the line of David Post with Llenroc. David Post – Llenroc Capital: Hi, thanks for taking my call. Your NBSK list price in the third quarter was $878 and the spot is a little over $800 now, and there’s a comment earlier about the future. I am sure if the six-month future being around $750, and you may have commented lot of the competitors, and I thought it was at current prices would be losing money on incremental productions. They would sell their inventory, but they would have a real problem money making any money, i.e. losing money per production. When I look at the NBSK list price it was relatively lower than $800 or even $750 back in early ’07 and certainly before that. How does that fit with your comment where – fit with (inaudible) comment?

Well, I think if you look at China’s spot price today, to transact any reasonable volume of business you are looking at prices which are lower than $550.

Another added comment would be, you need to take the currency into account and go back and look at what the Euro list or the Canadian list is, remembering that 85% or 90% of the producers are in those two currencies. So, looking at the US list price in the previous period, you have to take into account the exchange rate and you will come back to what you will find to be forward pricing in the Euro and the Canadian terms.

But you know when I was commenting about the prices that are today at levels which are not supportive of many of the producers, right now the China market price for non-contracted volumes, spot prices are below $550, in fact getting closer to more like the $500 as the Canadian dollar weakens further. The other part is even on a contract type of pricing we think that the movement right now is more closer to the six and it’s probably going to be under that because of the strengthening of the US dollar relative to Canadian. And of course the European list prices and the US list prices are more stable and this has been of course a more traditional market. But they are also weakening. And we think that this will continue to weaken through the balance of this year and certainly into the early part of the year. So, at $550 to $500, you have to be an extremely low cost producer to make any money. In fact nobody makes money at those type of prices because that’s including the – you know you have to essentially deliver your product there. David Post – Llenroc Capital: And of your customers who are in contract in China, are they taking – putting aside the issues in the port in Vancouver, but are they basically taking the volume that they are contracted for? Or is it really just a price and they can take whatever volume they want?

No, I think you have a mix. You have the producers, which continue to take the contracted volume. Many of them are more in the hygiene area because they're of course – their business is much better. The other producers like the coated grades, unfortunately, are not taking the contracted volumes, mainly because they do have a lot of finished product inventory. And therefore, they have, one, a lack of customers on their own side, which creates their own liquidity issues to buy more raw materials. But we know that this issue of lack of buying is not driven by the fact that they are sitting on lot of raw material inventory. It’s just the fact that finished product inventory is significantly higher than what they of course wish, and liquidity is dried up. David Post – Llenroc Capital: Okay. And what percentage of your costs are fiber? And by how much have fiber costs fallen since – let’s say from your average cost in the third quarter, where your current costs are?

As we said on the prepared speech, the third quarter fiber costs really didn’t drop significantly. In fact they are pretty much the same. And that was because fiber costs at our Celgar mill continue to increase. We expect that fiber costs moving forward will start to decline at Celgar. And this will have a noticeable impact. So clearly, moving, say, at Celgar, we should have wood prices which will drop more like – it’s Canadian $335? And you know it represents more than 50% of our costs. David Post – Llenroc Capital: And I'm sorry, so by how much would they fall do you think from your costs in the third quarter?

David Post – Llenroc Capital: Okay. To a level of Canadian $335?

Approximately, per ton. David Post – Llenroc Capital: Okay. And the last question is at how much of your costs are transportation?

Well, it really depends on where the customers are. On the European side, our cost of freight certainly is much lower than our Canadian operations. David Post – Llenroc Capital: Yes, I'm really keeping a track of your costs in the Canadian operations.

Yes. If you look at our European costs, they maybe under – somewhere between EUR30 to EUR35, and if you look at our Canadian side, probably the average is north of Canadian $100 to somewhere between Canadian $120 to Canadian $140, delivered. David Post – Llenroc Capital: And when I look at various freight indices, they’ve just gotten crushed in the last month or so. Certainly down 50% or 60% versus average levels of the third quarter. Are you seeing those same kinds of freight reductions?

Well, we are seeing it in terms of container rates coming down because they did almost double, and now they're going back to where they were. We are seeing of course charter rates for bulk carriers also coming down to the level that there is a little difference between container pricing and bulk carrier prices. But we are not getting any headway in terms of like, rail. And so the rail issue, because we ship of course into North American market by rail, that hasn’t really come down. David Post – Llenroc Capital: Right. So by how much then have container prices or bulk – container costs fallen for you since last quarter, since the average of last quarter?

Well, they have only started to come down now. So, they haven’t really had an impact in terms of the freight cost yet. We think that this will gradually go through the balance of the fourth quarter and really have more of an impact next year. But container prices have come back to the levels that we used to have last year. That’s all. David Post – Llenroc Capital: Is that because you are having some kind contracts and you're not paying spot?

No, just because the container availability issue was quite acute in the beginning part of the year. And also one has to remember that as global trade start to contract, availability of container will also start to drop. So, although container prices are moving downwards at some point they are going to essentially stop because there will be less containers available. And everybody will be scrambling for the limited containers going back empty. David Post – Llenroc Capital: Okay. That's it. Thank you.

This concludes today's conference call. You may now disconnect.