Good morning and welcome to Mercer International's Fourth Quarter 2013 Earnings Conference Call. On the call today is Jimmy Lee, President and Chief Executive Officer of Mercer International; and David Gandossi, Executive Vice President, Chief Financial Officer and Secretary. I will now hand the call over to David Gandossi.

Thank you, Tracy. As usual, we will begin with our formal remarks, after which we'll take your questions. Please note that in this morning's conference call, we will make forward-looking statements according to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. I'd like to call your attention to the risks related to these statements, which are more fully described in our press release and with the company's filings with the Securities and Exchange Commission. First, I'd like to begin by reminding everyone that effective October 1st, 2013, we have changed our reporting currency from the Euro to the U.S. dollar. Our historical financial information and our annual report on Form 10-K and our earnings press release has been translated to reflect this change, as if it had been previously reported in U.S. dollars. As a result, all monetary references in today's call will be in U.S. dollars, unless otherwise noted. I should also point out, that for those who may have missed it, Mercer furnished Form 8-K on February 6, 2014, which provides quarterly historical balance sheets and statements of operations in U.S. dollars. I will now cover some of the key financial aspects of the quarter, and then I will pass the call over to Jimmy. In Q4, we achieved EBITDA of $27.2 million, down approximately $5.6 million relative to Q3. In Q4, pricing was up significantly in all our markets. However, these higher prices were offset by higher scheduled maintenance costs at Stendal, as Stendal had their major annual shut in Q4. This maintenance shut had an impact of over $10 million in the quarter. We also had slightly higher SG&A costs, primarily due to higher stock compensation costs, which are tied to movements in our share price. Overall, the German had solid…

Thanks David. Good morning everyone. Overall, our fourth quarter results were satisfactory. Compared to Q3, pulp prices were up. But higher major maintenance costs offset the price gains. In addition, we incurred an additional $2.6 million of restructuring costs at Celgar and Stendal. I am pleased with the success of our Blue Mill project, and we are already benefiting from it, in the form of incremental energy revenues, and increased pulp production. In the fourth quarter, steady demand pushed average NBSK list prices up across all markets. In Europe, the quarterly average list price rose to $902 per ton, while the Chinese quarterly average list price were up to $737 per ton. In December, NBSK produced inventories were at 27 days, up approximately two days from November. At these inventory levels, the NBSK market is still considered to be below balance. December hardwood pulp inventories are down one day from November at 39 days. As a result of this market tightness, producers have recently announced, at an additional $10 increase in all markets beginning February, which brings list prices to $1,010 in North America, $920 in Europe, and $760 in China. We are currently optimistic that this pricing momentum will be maintained through the first half of 2014, due to the increased demand, primarily from China, and low inventories at both the producer and consumer levels. We estimate that there are approximately 3 million tons of incremental tissue capacity coming on globally in 2014, with approximately 1.8 million tons coming online in China. In addition, there are approximately 1.3 million more tons of tissue capacity scheduled to come online in 2015. This growth in tissue capacity is unprecedented, and is expected to further tighten the NBSK market. As a result, we continue to be optimistic about the demand for NBSK…

(Operator Instructions). Your first question is from Bill Hoffman with RBC Capital Markets.

Thanks and good morning. Jimmy, I just wonder -- looks like, with the Stendal project done, [indiscernible] have done with Celgar. Just looking forward, where do you expect next -- with the business. Where do you want to take it?

Well, I think the most critical things that we are working on, really is in terms of the input costs, and therefore, our focus really is, in regards to of course, continuing to reduce our fiber costs back to those levels, which we had around the mid-2000s. And we believe that there is various ideas that we are working on, which we believe will have significant benefits. Unfortunately of course, its not going to occur right away, but we believe that in the medium to long term, that we will have much better control in terms of our fiber costs. This of course involves significant logistics issues and others, but we feel very confident that we have the various projects or initiatives, that we believe will make material difference, if they are successful. So that's really our focus in the meantime.

With the target to get the cash generation up to where you were, sort of couple of years ago?

Well I mean, if you look at the renewable energy issue. Of course, it had a very negative impact, in terms of fiber costs in Germany, as well as in other areas. And of course, if you look at 2005-2006 prices, you can see that there was a significant change, in regards to what was the steady state price. And of course, we do not believe, we could get to those much low levels, but we think we can make a significant impact in regards to fiber costs, that we are presently experiencing.

Okay. Thanks. And just a thought on use of free cash in 2014, especially if you continue to have these higher prices?

Yeah. I mean, we are going to have some fairly good buildup in terms of cash, and of course, our focus as always is to look at deleveraging as the primary objective. Certainly, in terms of Celgar operation, we believe that it is performing quite well now. The restructuring efforts, etcetera, and the changes in the management team I think, are showing the benefits, and of course, it has got the tailwind of the weak Canadian currency, and the continued, of course, demand in China, where of course, Celgar's major market is. Europe, as you know, is still fairly flat. But it is starting to build momentum, and we believe that the worst of the market condition is over there too, and so, we hope that we will continue to build momentum in Europe, which will further improve our overall cash generation, and of course, with a continued focus on fiber costs, that, in the medium to long term, of course, we will reestablish the significant cash generation of those facilities too.

Thanks. And maybe just last question. David, you mentioned that bank availability at the Rosenthal and Celgar facilities. Can you go through that again?

Yes about €28 million at Rosenthal and $33 million at Celgar. There is nothing drawn on either of our revolvers, its just guarantees around what purchase is, using up a bit of a availability, but they are both fully available to us.

Great. Thank you.

Yeah.

Your next question is from Richard Kus with Jefferies.

Good morning. I know that your mill is really more in Western Canada, but is there any disruption you guys have seen from the poor weather we have had here over the course of early 2014?

There has been a little bit of trickle on impact in terms of the availability of railcars really. And I think, all the Canadian producers have suffered somewhat. We are fortunate, we are not too far away from the ports that we are able to cobble together, solutions like trucking and so on. So no real negative impact on our customers I'd say. A little bit of increase on Celgar's transportation and logistics costs, but nothing significant and nothing major -- no real negative trend developing, I think, is more likely to start improving.

Okay. And Celgar has operated effectively throughout the first quarter so far, right?

It sure has. And they had a very damp [Indiscernible].

Okay. Fantastic. And just curious, on the discounts. Given that the markets are so tight, why haven't we seen those discounts tighten up?

Well, this has been a trend that has been ongoing, and I think there was a push a couple of years ago, to really tighten up those discounts. But I think, the customers like the mid-price being fairly high, and of course, the discount is not always so clear. I guess, it improves their kind of market and pricing strategy, and therefore there seems to be a resistance to really reduce the discounts, but at the same time of course, it just means that list prices are up, but its kind of meaningless at the same time. But, you know, we are trying to focus on net pricing, but there seems to be clearly not a consensus to try in that direction.

Okay. And then lastly on CapEx, what's the outlook for 2014?

Yeah, I guess in round numbers, we are expecting about $40 million. $3.5 million of that will be covered by government trails, that's the deduction at the tail end of the Blue Mill project. Some interesting components in there; Rosenthal's building its own tall oil plant. East -- transferred [indiscernible] over to Stendal, because Stendal had our first tall oil plant, but it's -- the Stendal mills become so effective, recovering its own soap, that its fully utilizing its plant on its own. So Rosenthal will get it soon, be completed by the end of the year. We are doing a chip screening upgrade at Celgar, it's a very high return project. We have seen in our other mills, has a big impact on reliability and product quality. So that's happening this year, and then, the remainder is just a whole variety of mostly high return projects. So it’s a little bit of maintenance in there. But it’s a business project, but primarily good high return projects at each mill.

Okay. And how does that break up on mill?

It will be; $18 million for Rosenthal; about $12 for Stendal and $10 million for Celgar.

Great. Thanks a lot guys.

Thank you.

Your next question is from Andrew Shapiro with Lawndale.

Yeah hi. I don't recall any prior mention on the Stendal restructuring, just its maintenance downtime for this quarter. So, is this a new development, and you've mentioned, I think, its about $1.4 million charge, maybe primarily severance. What's the assumed savings that should be coming from this?

The savings are on matter of about the same as the restructuring charge. Really what we did is, we took a layer out, five positions. But it was really, we grooved in a new managing director, got a guy over from Rosenthal. Very strong, great manager. Stendal just looked like it needed to pick up its game a little bit, so we put him in there and taken a layer out below, and restructured, and its just really -- its one of those, just invigorating the mill. Its hard to describe. But we are very optimistic and excited about those changes, and we can see it in its operations already. You could just feel, the energy in the mill has stepped up a notch. So its not really about the fixed cost savings as much as about the morale and the attitude and the engagement in the mill.

So the other positional changes are -- you don't expect them to come back and be replaced?

No.

Managerial shift and a new spots out. And I am assuming, this is partially related? It appeared that the Stendal operations from your broken out financial statements, that Stendal was operating at a loss last quarter, and was that on an operating basis, or with one time items?

That's with one time items, I guess. I mean -- I can't answer that question directly, I don't have it --

I mean, it looked like the non-restricted income statement for the quarter had negative EBITDA in there.

I mean, because of the major maintenance, it could have been slightly negative or reasonably flat. I don't have that numbers on me. But its really influenced by the --

And then, your release says the Blue Mill, and you talked about how Blue Mill is completed? While on the November call, you mentioned how you are ramping up Blue Mill as of September. So about -- what amount of a benefit, both on the pulp and energy side do you feel we saw in the currently -- recently completed Q4, and what are the full quarterly expected benefits the company should get close to, in the current Q1 that we are in?

Well, you know of course the fourth quarter, because of the major maintenance shut, you are not seeing really the full impact of the Blue Mill implementation.

Right. And we also didn't complete it until December anyway?

Well that's when we -- we have the official handover, in the sense, all the tests etcetera are finished. So that's the official time length. But of course, through September, when the turbine was on, and everything was being tested. Of course, you are generating electricity and improvement in pulp production. But because of the major shut in Q4, really, you are not seeing, really the potential of that. As we earlier said, we believe that pulp production easily will increase by roughly about 30,000 tons, and of course, coupled with that, of course, would be the power generation. And so at this point, what we are seeing is, really, higher power generations than what we originally anticipated. I think that's probably not just because of really the pulp production increase, but overall rebalancing of the turbine. So you are running the turbines much more efficiently; because clearly, we were overloading the first one, and of course with the additional cooling capacity etcetera, it improves the overall energy efficiency and power generation. So we are very-very happy with the performance to-date, and we believe it will exceed the numbers that we originally have put out there in terms of power generation and pulp generation.

So remind me again then, on an annual basis, you thought your enhanced cash flow return would be around what?

So, maybe I will answer that, even if we dispose 109,000 megawatt hours and that will produce €7 million to €7.5 million and 30,000 tons of incremental pulp and what's your normalized EBITDA per ton, maybe 150, 160 or something like that. So there is another 5-ish, so it could be in the 12 plus range from Blue Mill.

A year?

Yeah.

Euro?

Yes. Okay. And so arguably, a quarter of that, each quarter. Okay. And the tall oil project on Rosenthal, you expect to complete it by the end of the year you mentioned. Is there any feel for the cash flow, incremental cash flows that could come from that, since you already were doing tall oil out of Rosenthal, but via Stendal already?

Yeah we are expecting to -- the current pricing generated may be a couple million euros a year of crude tall oil out of that facility.

Okay. Starting at the end of the year. And then, on the naphtha claim; can you remind us the size of the claim that is being asserted, and is that amount that -- you had said in the past, does that take into account the long time process of that -- the wheels of justice take, or what has the claim amount accreted up to?

Well, when we filed our claim, we were looking back to, when we feel this discriminatory action occurred, which was in the 2008-2009 timeframe, when we were attempting to sell the power from our turbine that was under construction, and also the current power that we were producing, and that's when BC Hydro stepped in and, that really blocked our efforts, in a way -- quite different from the way they are treating other pulp mills in the province. So that was the beginning. By the time we filed their claim, we were looking back three or four years, and looking forward through the term and every year that goes back, you are looking back one more year and forward one year less. It’s a big number. You know, its in the $20 million a year range since 2008, that we feel we have been harmed. Celgar still sells a reasonable chunk of power as you know, but its only the surplus power we had -- we were required to completely consume all of our own green electricity generation in our own plant. We have no access to power in the province the way other mills have, and that's what we are fighting for.

The basis of your claim, yeah.

So its well advanced. We have been through the discovery stage and all the document trading stage, and a lot of the information has now been processed by our legal team and we feel as confident as ever. So we have made the decision to continue to the end, we have not given up. And that's going to cost us a couple of million more in legal fees, but we are very resolved in our view that we have been harmed and see what happens.

When we are dealing with a few hundred million, is that dollars or euros or Canadian dollars?

That was Canadian dollars.

Okay. And when you run the costs of the litigation through, is that going through the Celgar financials when you break it out, or its all up in corporate?

It goes through Celgar's.

Okay. I have a few more questions, but I will back out into the queue. But come back to me, would you?

Okay sure. We will do that. Thanks Andrew.

Your next question is from [indiscernible].

Hi. Could you give us kind of an overview of your thoughts on the tall oil producers in the German fiber basket, and how that demand of consumption has changed over time, and how do you see them from a competitive standpoint going forward into that fiber basket?

The pellet industry as such has been very disruptive, clearly, in regards to the fiber costs, as well as fiber demand, especially for the sawmill residuals. And unlike industrial pellets, which of course are dependent on the various state subsidies or initiatives, and of course in Germany, its more based on the carbon credits. In U.K. there is direct subsidization based on substitution. So each of these states have different kind of programs available, and the industrial pellet pricing as you see, really reflects the various component of those subsidies, equated to of course, the substitution of coal; because, primarily its more of a coal fire. You are substituting coal and using wood pellets, and of course, you have to make sure the modifications to your facility, to handle the pellets, because of dust and other things, and as a result, pricing tends to be in the range about €120, €140 per ton type of range, it's being pretty steady. Most of these end-users have long term supply commitments from the producers, and therefore pricing has been pretty flat. And the residential side is completely different, its really driven by domestic, of course, heating, and its again different in Italy, it tends to be more based on bags, rather than these bulk type of supply. Germany and Austria tends to be more automated, and you have bulk inventories at home, and of course, the distribution is different. Pricing for domestic pellets, surprisingly is not correlated to really pulp prices, which would have been kind of the normal assumption. It actually seems to be correlated to oil price, or natural gas price, and of course natural gas price in Central Europe, tends to be set based on fuel/oil equivalents, and therefore its not like North America, because the major supplier is…

Okay. And then, can you tell me what the cost for the Stendal shut was in the prior year fourth quarter?

Well I think two to four, I don't -- I am guessing a little bit, but I am going to say, this shut was a couple of million higher than the previous year. We had --

Okay. Thank you.

Your next question comes from Paul Quinn with RBC Capital Markets.

Yeah thanks and good morning guys. Just a question on your level of confidence with pulp pricing going forward. We have heard a lot of commentary from other management teams about the impending hardwood capacity coming to the market, and what they feel is going to be a softer market through 2014 and in 2015; and just wondering, what gives you the confidence to against the grant?

Well, you know, one of the things clearly is of course, the continued growth in tissue. I know that the basic printing and writing grade, of course is under pressure, just clearly oversupply and capacity in China as example. Of course, Europe has been continuing to be very weak. There is a lot of paper machine capacity taken out. But you know, there is -- also the positive side clearly is, there is growth in specialty grades in China. I am not just talking tissue now, but a lot of very specialized, whether its very light weight type of wrapping tissue or whether its liquid board or any of these other products, as well as wallpaper base and all this, which typically use a lot more strength required, fibers than basic printing and writing. And therefore, we do believe that this underlying strength in demand coming from those growth areas, underpins our market. In terms of the printing and writing grade, yes some of the integrated guys certainly have been taking machines down and shifting to market pulp. We have seen that throughout the last year, couple of years, but you are seeing that this has plateaued too. So if you look at country-by-country, you can see the impact of the exports out of Finland, etcetera, and that has grown, and clearly integrated pulp now essentially being market pulp. But you will also see that momentum has now pretty much flattened, so you are not seeing further major increase in supply coming out of Finland, etcetera. So clearly, that means that most of the stuff that is going to be deintegrated, has been done already, because of course, they have already figured out which paper machines to shut and which ones essentially are going to run, and therefore, we believe…

Interesting. Okay. Let me just ask one last question, just on [indiscernible] expansion. I understand that was a very difficult start. Just wondering if you are seeing more of that tonnage available in the marketplace, especially in China, and whether that has had any influence on the market?

No I mean, because they had such difficulty in startup, clearly you are seeing that their ramp-up has been extremely slow, which means that month-over-month, whatever increase they are actually able to do, is to be easily absorbed. As long as their ramp-up seems to be constrained, and they are predicting now, design capacity kind of run rates around the summer of this year. Well, I don't think that kind of increased month-after-month, will not be taken up very quickly; because, you are seeing also tissue capacity coming on, month after month. And so, it’s a natural kind of growth and demand, natural supply growth. So it is not going to be disruptive.

Great. That's all I had. Best luck.

Your next question is from Sean Steuart with TD Securities.

Thanks. Good morning guys. Dave, just one question for you, and I think you have mentioned these conversely, I missed this in your upfront comments. The Celgar savings are related to restructuring there, how much of that showed up in Q4 and then, if you could just reiterate, how you expect that to roll out in the results in 2014?

How much in the current quarter is difficult, because we had to sum up the severance costs in the quarter, and the movement of people out of the mill, sort of like a steady progression, if you like. I think what we said in our disclosure is, by 2014, you could expect about 80% of the benefits from that restructuring and we describe that as between $8 million and $10 million pre-tax dollars annually. So most of the stuff is done. We have got a little bit of high return capital to spend, to get the final guys out. So 80% of the $8 million to $10 million fixed cost savings will be realized in 2014.

Great. Rest of my questions have been answered. Thanks guys.

Okay Sean.

Your next question is from Mark Kennedy with CIBC.

Good morning. My question is more of a general one. So we saw NBSK pulp pricing here in the fourth quarter average about $980 U.S. list, so I would say that's sort of at or above, what I would, call mid-cycle. So when you look across your pulp asset base right now, I am just curious, do you have an EBITDA per ton, that you target or want to achieve, sort of based on mid-cycle type of pricing?

Mark, we can't really answer that on this call, getting into uncomfortable areas of forecasting. I think the first quarter is going to show you a different result from the fourth quarter. I think you will see -- in the fourth quarter we went -- we had like a $50 to $60 increase in pulp pricing. We had some current [ph] major maintenance, we had winter conditions. I think you should think of the fourth quarter as a reflection of what these pulp prices could really mean to the company. So that's how I will handle that.

Okay. Thanks.

Your next question is from Andrew Shapiro with Lawndale.

Some follow-ups; looking at your SG&A for this quarter versus the prior quarter, even the prior year. It seems like it was up in both the restricted and unrestricted, but it was up pretty sizably. What would account for the increase in the restricted group's increase so sizably?

Yeah, well there is a bit of non-cash stuff in there Andy, like stock comp that moves with the stock price. So we had a bit of a move in the fourth quarter, and that's -- we have got some little bit of professional fees and other things going on, but noting too significant. Mostly it would be the stock comp, would be my guess.

And in unrestricted, that's from the maintenance shut or anything else?

Well we do have some continuing consulting and legal costs around settlement agreements, but wrapping up all the EPC contracts and subsidy issues and those kind of things over there.

So some of these items are, in a sense, one timers?

Yeah.

Yeah, primarily one timers.

Yeah.

Oh! So when you say with that [indiscernible], is that a quantifiable number? Are we talking about a million X, what are we talking about that -- for one timers?

Well consulting fees at Stendal, in the $1.5 million range this year.

Oh, but I am talking about Q4? Its Q4 that was up, so somewhat stood up?

So I'd say it'd be 700,000 or 800,000.

Decent amount. Okay. And when you talk about a bunch of this being non-cash stock comp expense recognition, you were kind of enough to provide us the past historical quarters in U.S. dollars for the balance sheet and the income statement, but all we have for the cash flow statement, is the fiscal year ends. Is there any way you could provide, or we can be allowed to have offline, if that's not allowed. I guess what you would say is the, nine months ended September dollar number, which one can then reverse engineer with the Q4 of cash flow statements, right?

To think about. I mean, I certainly can't provide full statements offline, that would be outside Reg FD.

Do you want to be doing nine months and six months currently? But that's the only way to create the quarterlies for us to reverse engineer it, but you could even provide that on a quarterly basis in U.S. dollars, that would be great.

Okay. We will take that under advisement.

Thank you. Did you provide energy sales realizations at all?

There should be in the press release, and will be in the K that's going to come out next week as well.

Okay. So that's in the K [indiscernible]. And then, am I correct in observing both restricted group [indiscernible] non-restricted group's payables were down pretty substantially. It seems like almost more than any other time in previous years. So is that a correct observation, is there a particular reason or circumstance of that occurring?

No its just completely random. There is no management activity, particular impact on that.

All right.

And also the working capital, we said the build will be quite similar to last year. Second quarter last year, we generated quite a sizeable inflow of cash from working capital moves, and I'd expect the same thing in Q2 as well for us here. We have to build up our winter with raw material inventory. And so, it’s a combination of that, and of course, typically December, because of the holiday, you always have a larger finished good inventory, which then starts to essentially be drawn down through the first quarter and second quarter. And of course, we are being [indiscernible] drag, drawn down right through first and second, and then there was a rebuild through the summer again.

Okay. And when Mercer's ownership interest in Stendal joint venture rose to 83% with your recent equity investment. What percent did it rise from, and did this increase any trigger in your accounting treatment or presentation with the joint venture?

It increased from 75, Andy, and no, it didn't result in any change in our accounting methodologies at all.

Okay. So crossing 80 doesn't do anything?

No.

Okay. And the cause or the reason that the deferred tax assets were reduced, is this based on the projection of the current run rate over this past year in accounting principles, or any other reason?

Yeah there is, in U.S. GAAP for deferred tax asset accounting out there. The SEC has created some hardline tests, a three year test and so on. So this is just a mechanical application of what is involved in U.S. GAAP. It doesn't make a lot of sense to us. So I'd just encourage you to not get too concerned about those numbers, that show up on that deferred tax line.

Okay. Got it. Two other little ones here, very incremental [indiscernible] awarded this quarter, outside of course, of the release of the Blue Mill funds, or are there any future governmental grants opportunities that are out there, that the company is running for?

So that program is really pretty much dried up unfortunately. We do still continue to benefit through the creativity of our teams in Germany on the waste water fee issue. So every three years, we have been able to identify a high return capital project that qualifies as the waste water fee offsets. So instead of having to pay typical waste water fees every month, if we have a project that's approved by the authorities, we can avoid making those payments. We do accrue the expenses of them, and then when we complete the project and it has been audited, then we get this reversal coming through the P&L of the -- what had previously been expensed. So we have been doing that quite successfully. So we now have a project that we think going to win for both Stendal and Rosenthal. So that program continues for us. The other one is pretty much dried up.

Okay. And then finally, Now that the fiscal yearend numbers and everything are out, what are your planned road shows and conferences in the coming season?

Yeah, it will be very busy. So we have been invited to Credit Suisse, Barclays, we will do RBC again. We just did CIBC, and I expect we will be on the road a bit as well. We think it is going to be an interesting year for us, and quite excited about it. So we are going to get out there on some management road shows, and talk about it quite a bit.

Great. Thanks a lot.

There are no further questions at this time. I turn the call back over to the presenters for any closing remarks.

Okay. Well thanks everyone for attending today's conference call. And again, good bye.

Thanks so much.

Thank you for joining ladies and gentlemen. This concludes today's conference call. You may now disconnect.