Good morning and welcome to Mercer International’s First Quarter 2015 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, Chris. As usual, we will begin with formal remarks, after which we will 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 the company’s filings with the Securities and Exchange Commission. I’ll now cover some of the key aspects of the quarter and then I’ll pass the call over to Jimmy. Our first quarter results for continuation of the strong operating results we had in 2014. Our mills ran well and pulp demand was steady in Europe but off slightly in China due to the Chinese New Year holiday. In Q1 we achieved EBITDA of $61.3 million, compared to $71.3 million in Q4. The main drivers of our results in Q1 were the significant strengthening of the U.S. dollars in the quarter, which had the effect of reducing our Euro and Canadian dollar cost in U.S. dollars terms. The stronger U.S. dollar also put pressure on NBSK pricing as the quarterly average sales pricing in Europe fell to $887 per ton while the quarterly average price in China went down to $663 per ton. As well our Q1 EBITDA was negatively impacted by approximately $18.3 million as Celgar successfully completed their annual maintenance shut in the quarter. After considering Celgar’s annual maintenance shut, relative to Q4, our pulp production was up straightly this quarter as were our chemical sales, which benefited from Rosenthal’s new Toledo plant, which was commissioned in 2014. We reported net income of $13.6 million for the quarter or $0.21 per basic share compared to net income of $3.2 million…

Thanks, David. Good morning, everyone. I would like to start by saying we are pleased with our first quarter operating results. As David noted, compared to Q4 2014 our EBITDA was down approximately $10 million however, our Q1 results include $11 million of direct annual maintenance cost compared to less than $2 million of direct annual maintenance costs in Q4. Our mills ran well in Q1 and that resulted in lower operating cost in general, but we also benefited from a significantly stronger U.S. dollar, which had the effect of lowering our Euro and Canadian denominated costs. Partially offsetting these positive impacts were slightly higher source currency per unit fiber costs in both Germany and Canada. Pricing was also down slightly in Q1 and I will speak more about that in a moment. March NBSK produced inventories were at 33 days, up two days from December. We're not surprised to see this increase in producer inventories in Q1 as the Chinese New Year holiday tends to push producer inventories up. However, even at these inventory level, the NBSK market is considered to be essentially in balance. In addition, March hardwood producer inventories are up two days from December at 38 days and we have seen the softwood hardwood price gap continue to narrow. NBSK list prices in April are $980 per ton in North America, $860 in Europe and $650 in China. We're beginning to see some upward pricing pressure in China. So we believe that all of the incremental Russian pulp has now been absorbed by the market and that the Chinese market pricing has hit the floor. While in Europe the strong US dollar is pushing downward pressure on prices, but so far the price reductions have been more than offset by currency movements. Looking forward we expect…

[Operator Instructions] Your first question comes from the line of Amir Patel from RBC Capital Markets. Your line is open.

Hey good morning. Jimmy what sort of impact you expect IP and Dontar’s fluff capacity additions next year would have on the softer markets because from what I understand both mills will likely be producing SPSK at the initial stages.

Of course, they have been I guess this wild card in regards to the China market because of course the fluff pulp is sold in different format than the paper grade and of course most of the paper producers don’t have the capability of essentially handling the roles very easily. So it's really more of a component in the China market. We feel that basically what is driving the demand for hard and softwood really is the impact of really the more heightened focus in regards to environmental issues in China. And in the past of course you've heard about lot of these old kind of polluting mills being shut that was really never a real clear picture as to the capacity that was being closed and of course a lot of these mills after the inspector of the federal government represented had gone, a lot of due to prudential government allowed these facilities to restart and of course the anticipated really closures in capacity never really happened to the degree that their announcements tended to indicate. I think what we're seeing last year and certainly moving forward, the fact that both at the state as well as the federal level in China the focus on the environmental side is very, very strong. You're seeing a lot of these closures actually happen and I think that’s where the unexpected demand in regards to the both the hard and the softwood side has occurred and that’s what I see is going to continue to support demand growth. If you look at the China shipment numbers because of course the numbers being published by PPC it doesn’t really under the actual growth in China. Because it does not include the actual monthly shipment side of Russia into China. So if you look at the understatement in terms of actual shipment you are talking about the sizable number as of course it will start to ramp up all through last year. And so in comparison if you compare last year’s demand growth overall for softwood and NBSK its certainly understated and we will only see the real numbers as the global yearly numbers have been added later on of course and therefore my premise basically is the graying population, which requires a lot more dull continent type of products will easily pickup in time of this extra production of fluff. At the same time, we're seeing that the underlying growth for both hardwood and softwood pulp as a whole is certainly understated by the numbers and therefore we feel very positively that this kind of additional incremental increase is not going to have a marked impact in terms of the strength of our business.

Okay. Thanks that’s helpful. And just the final question I had for David, could you just give us an update on your CapEx plans for the year is $45 million still a good number and maybe if you could just outline some of the bigger projects planned. Thanks.

Sure, the guidance of $45 is still intact with Stendal being about $20 of that, Rosenthal about $15 and Celgar the remainder. I guess the two largest projects would be evaporation plants at both -- upgrades at both Stendal and Rosenthal, both of them are related to the waist water fee offset program that we've talked about on these calls before. To simply its really in a way it's like a grant where we were charged waste water fee on an ongoing basis so it gets accrued every month into our costs and if we can design a capital expenditure project that reduces our frontloaded we can treat that capital expenditures and offset to the fee and in fact not having to pay the fee. So we got track record of every three years on these programs of having a big release in the income from the release of these fees being offset by CapEx. So that’s the two biggest I would say other than those two it’s really just a whole bunch of high return, small high return projects a little bit of maintenance business capital in there I would say 30% to 40% at the most is and will be, which simply means in our world it’s got a return that exceeds our two to three threshold, but it would still have a return, but not the high return level.

Okay. Great. Thanks. That's all I had.

Your next question comes from the line of Andrew Shapiro from Lawndale Capital. Your line is open.

Hi good morning. Jimmy what are the debt metrics you and the Board look at when determining the timing of when you might institute a dividend?

Well I don’t think it's really the debt metrics per se that really underlines I guess. It is of course one of the facts that we look at, but I think you know of course as we transition from very restricted financial structure to one which now has changed since the end of last year and of course we took a significant amount of our cash resources to effect that and therefore right now of course we are building our liquidity position. Our assumption in regard to the market is certainly playing out and therefore the confident in terms of the stability of the market also plays a big role in that. The currency issue of course is supported our returns. And therefore of course we have to be cognizant of the potential for sudden reversal in the Euro versus the dollar as an example. Of course at Euro exchange rate today in terms of the present pricing regime for our pulp of course our margins are very attractive. Now we cannot re-price our commodity as rapidly as the financial markets we priced to currency and therefore we do have to build in, in terms of our overall assessment some form of conservative views in regards to that aspect. But I can say that as we move forward as certainly our liquidity is built and is continuing to build our confidence in terms of this year’s supply demand balance for and BSK is still very, very positive. We're looking for I think very stable type of market and therefore we are likely that in the near future some capital kind of optimize return for the shareholders probably will be considered.

With the Rosenthal oil project completed, is the production now going on according to your plan and are you still comfortable with what I think you guys said was an incremental $2 million a year number from that plant project?

Yeah in terms of the performance of tall oil in fact it has lived up to our expectations in many cases actually exceeded clearly from a production perspective our expectation. I think you have -- you don’t see it as a big impact, because of course although we were getting very attractive pricing for the tall oil in euro terms of course the decline in the euro in relation to dollar has kind of tempered that kind of increase in our revenue coming out of the chemical area.

Lastly and I’ll get out back into the queue. I have more kind of question too after that perhaps, but on the NAFTA claim you say there is a hearing mid-year then they all illuminate about this and maybe in early spring. Are there any other milestones in this process there arbitration, settlement issues anything else that might intervene like at the court house steps the day before the hearing type of thing? How do you think this may play out?

Maybe David can answer that also.

Yeah hi Andy, I don’t really think there’s much we can predict in that regard. The process is all the paper work is done back and forth back and forth. There is oral hearings in Washington this summer where witnesses are called and cross examined from both sides. And then the arbitration panel has three to nine months to make a decision. So what’s unknown to us is whether Canada will put pressure on DC to come to the table to try to find a solution with us. We don’t know one side of our brain expects that might happen, but the other half says maybe it won’t. So really can’t predict at this stage.

Okay. Great I’ll back out come back to me in the queue again.

Okay sure.

Your next question comes from the line of Andrew Kuske from Credit Suisse. Your line is open.

Thank you good morning. I know on some of the past calls, we’ve talked about you being more concerned about the pace of change with FX moves rather than the absolute change. So I guess I’m just sort of curious about your views on is there an optimal level of FX you would like to see from just the standpoint of how it impacts pricing and then how it impacts your cost structure?

Well clearly a gradual weakening euro and Canadian dollar has a positive impact on our overall performance, but to be honest euro and the Canadian dollar at these levels I think it’s very comfortable. I guess our concern clearly is that we have a rapid reversal of the existing trend and as I earlier stated of course we cannot re-price the U.S. dollar pricing as wrapped them there at the financial markets re-price the currency. And therefore there will always be significant lag and that hurts us from a margin perspective.

I guess just in saying that your margins right now are pretty robust even though the top line per unit pricing has declined your margins are good your cost structure has declined so much. What’s your outlook on just your cash cost in '15 in the current FX environment that you see?

In the current environment I think most analyst reports I said are looking for some stability and if that were to occur then our euro and Canadian base cost have dropped our revenue level has dropped all in U.S. reporting and our margins are wider. So I mean there’s not a lot of inflationary cost in our business today other than the movements in fiber that tend to be pretty modest in our view going forward. So all in all unless we have reversals of currency we’re looking at a pretty stable picture.

And you don’t really anticipate any meaningful changes on the chemical side?

No.

Okay. That’s very helpful. And then maybe one little small question I think it’s at Rosenthal one of the labor agreements is about to expire. Is there any update on the status there?

Nothing has been decided, but we’ve never really had an active strike or anything like that from the Rosenthal until now.

Okay that’s perfect.

It will just follow the European trend.

Okay, great. Thanks.

Your next comes from line of Sean Steuart from TD Securities. Your line is open.

Thanks good morning couple of questions. It seems as the balance sheet improves your focus is more on considering returning capital to shareholders via dividend. One of your competitors is at least talking about potential acquisitions and in the past I mean you’ve growth as an objective. Can you just talk about what the environment might look like for M&A right now? Has things changed at all given recent price trends any thoughts on the M&A environment?

No, of course, because you are buying like assets in a way and our EBITDA multiples in many cases are similar in that situation whether the stock market is up or down is not that relevant I think in terms of I guess the overall valuations like-to-like it’s fairly similar. So I think what really determines our interest would be really more mill specific in terms of location and the type of equipment it has. And I earlier kind of indicated if you at the landscape in regards to potential acquisitions really there really isn’t that many that’s not already essentially owned by the larger companies or that are really readily available. So of course we’re not going to be beating around the bush as to basically try to get things kind of going if of course some are offered and certainly we’ll look at it depending on the type of asset that of course is kind of offered to us. At this point I think as I earlier indicated our focus in terms of our organic growth is really are really peripheral businesses that we’re very strong in especially in regards to our wood activities in Germany. We’re the biggest kind of wood organization certainly in Germany I think we’re capable of really further improving our overall efficiencies there would really have an impact in regards to our cost structure in a meaningful way. So I think those are the strategies that we’re really focusing on rather than trying to essentially grow by acquisitions unless we see that there is specific target that fits to our long-term views of where we want to be strategically. And as I said in terms of the strategy of the company, we’re not really looking to grow revenue. What we’re looking to do is really grow margins and of course coupled with that, you will have revenue growth, but really what we’re focusing is high margin growth opportunities and that is really singular strategy above all.

Understood and Jimmy you mentioned the narrowing spread between soft wood and hard wood in anticipation of that could induce I guess some substitution at the margin. Have you started to see that in China yet. Is it your sense that’s already taking hold at this point.

Well I think what we’re seeing is that certainly the Chinese market is very surprised at the strength of the hard wood. And I think if you speak with anybody everybody will say that the demand side and certainly for a hard wood seems to have come from somewhere that nobody really can see or expect it. But the point of the matter is if you look at the inventory levels of the major hard wood producers in Brazil their production and sales essentially been very, very good and matching and therefore there is really been no inventory build as everyone would have expected. And therefore there has to be significant demand coming from the end use and typically this would be the guys who are having to use hard wood replacing whether it’s agricultural based pulp or from recycle type of papers. And therefore we see these trend continuing, because we know that China is going to further increase its type of capacities that are slated for closure and this is an ongoing thing and so it isn’t just this but next year as well, there will be significant closures of old capacity, not just in pulp and paper but also in oil industry and this bodes very well with the continued growth in terms of the living standard in China as a whole, which of course increases the demand for more premium grade paper, which is the softwood side. We’re seeing certainly in terms of the other side there is not going to be really any expansion. In fact if the conversion of the softwood to dissolving occurs in Chile by Orocco and that I think is then going to rebalance the softwood kind of capacity that is going to come in the next three type of years. And so even on the announced capacity increases for softwood, you can see that if you take into the picture of reasonable growth in demand that really the capacity increases are really not substantial, if you count the fact that 0.5 million tons from Orocco will transition out dissolving.

Understood, that’s all I have guys. Thanks very much.

Your next question comes from the line of Mark Kennedy from CIBC. Your line is open.

Good morning guys. Just a question, just curious how has Celgar operated coming out of its maintenance shut?

Actually it has started up much better than prior type of restarts. So we're seeing certainly improvements both in regards to the implementation of the maintenance shut and the restart from the maintenance. So we are feeling positive that things are gradually changing at that mill.

Yeah, it was about a year and a bit ago you did the manpower reduction there as well so. So it's coming out the other side of that now would say Jimmy?

Yeah, I think that certainly because of the manning of changes that we of course implemented there has been of course some level of disconnect as anyone would expect. I think those have now kind of gone through the system. I think that the relationship between our hourly workers is starting to improve certainly and I think overall the focus in terms of efficiency and productivity has also had a good impact in that regard and I think we are having now much better kind of performance coming out of the Celgar mill. I think we hope to continue this with additional support in regards to the management and supervisory strength, which I think is certainly needed because I think we don’t have the full kind of capacity in terms of that area and therefore we will be looking to add in regards to more the skillsets that we think will complement the continued progress of this mill.

That’s great. Thanks for the color. That’s it for me.

Thanks.

Your next question comes from the line of Sean Sauler from Redwood Capital. Your line is open.

Hey guys just a quick question on the Celgar mill maintenance shut. The $18.3 million how does that compared to historical periods and then secondly, when you think about Stendal and Rosenthal is it in the similar ballpark, the shut for the year or is it less than or greater than the $18.3 million.

Hi, Sean this is David. So to put this shut in perspective it was a big one. There was a lot of work that we had planned and we had -- as Jimmy mentioned, we had really good cooperation. We did a lot of work. It was quite successful. Canadian shut is, it’s quite different to a European shut from a cost perspective. So I would see Celgar was a bit bigger than usual, but to put in the context of a Stendal, could be may be two-thirds of that cost and Rosenthal would be about half. Just to put it round rough comparisons.

Okay, thanks a lot.

Okay.

Your next question comes from the line of Daryl Swetlishoff from Raymond James. Your line is open. Again your next question comes from Daryl Swetlishoff from Raymond James. Your line is now open. Your next question comes from the line of Andrew Shapiro from Lawndale Capital. Your line is open.

Thank you. Follow up with you debt being fairly new and I guess at a premium, there is not opportunities perhaps there, but correct me if I’m wrong but what are your plans therefore with respect to I guess, we call it non-deal road shows investor relations expanding the analyst coverage etcetera for the company's valuation?

Maybe I’ll take that one Andy. We just had a really great week with Raymond James on an ongoing road show. We saw a lot of new accounts. Saw some interesting shareholders. We’re going to do more that. We will be going out with RBC not next week, but the following week for another four days with investors meetings that they setup and we’ll continue to take every opportunity we can get from other banks who cover us. To do that we also attend most of the conferences as most of our shareholders owe and we just -- we’re going to do a lot of marketing this year because we got a great story to tell.

Great. Let us know when you are in the Bay Area.

You bet.

[Operator Instructions] Your next question comes from the line of Howard Bryerman from Penn Capital. Your line is open.

Yes, thank you. Just wanted to ask couple questions around leverage, what’s your leverage ratio, your current leverage ratio and how should we think of some sort of marginal safety around your two senior note offerings? There is only about $900 million of market cap underneath us so if the cycle should take a leg down or these demand/supply should fall out of balance, have do you guys look at the -- at your leverage now at the senior level, now that you've restructure your balance sheet.

Okay, Howard well the lever level is gross debt basis, we were down below three now on a net basis getting into the 2.5 range. One of the things that's unique about our business or is important to understand about our business is that we are very heavy working capital operation. So our comfort comes from running our business with a healthy cash balance and significant undrawn revolver capacity. We went through many cycles, Jimmy and I in this business and one of the things we know is that at the bottom of the cycle we can also start quite bit of cash out of working capital through management activities. So for the -- when we think about the quality of our revenue stream, having roughly 100 million coming from energy and chemical sales which are pretty stable and like non-cyclical revenue streams. We’ve got fixed charges in and around that level. Interest expense of 48, CapEx on the 40 to 45 range which a lot of is discretionary and then income taxes, which is something you pay in the bottom of the cycle. So we’ve got a very healthy margin office at our fixed charges and we got lots of dry powder. We would reduce leverage every chance we get, but we’ve signaled in the past, we wouldn’t be buyer upper bonds at a premium but we did structure ourselves to have a five year and a eight year series. So we’ve got the two year call opportunity on the five years which is something to look forward to, if there is no other opportunity in the mean time. We also structured ourselves to have some pre-payable debt. So we didn't draw on our revolvers modestly. We arranged a pick note on acquisition of minority interest and we retained the interest rate swap because we bet we were going to win both on currency and on rate increases before that swap matures. So we do have a little bit of pre-payable debt to focus on as well.

Okay, very good. Thanks.

Your next question comes from the line of Andrew Shapiro from Lawndale Capital. Your line is open.

Yeah hi final follow-up, last quarter there was some discussion of not really labor issue with you, but with transportation providers. And I think in end of being the short dispute. But there’s also been from time to time in our long history with your securities whether it is trucking issues at the port, ships, containers, with competition with the oil and energy side. During the quarter that just ended would you say that your transportation cost and the transportation issues were optimal or there could still have been some improvement that we might see in the coming quarters?

Well Andy couple of things in that. I think all the forest products companies in Canada on the Canadian side tend to struggle a bit with CN and CP and we’re we’ve been quite proactive about that. So we’ve created an alternative for redundancy if you like so we’ve got reload capacity to go to the end. So we got optionality and so we’re not feeling much better about our future in that regard where we can dodge and dirt around the different issues, which may arise either be it rail car shortages or weather related issues or port labor issues. On the cost side we the first quarter did have some winter conditions in it so I think things are improving. So I wouldn’t say it was the optimal logistics for us either in Europe or Canada. But nothing horrific obviously it was pretty good quarter, but we’re we still had some congestion and rail car shortage issues in the first quarter that we had to deal with.

But moving forward we’re taking various steps both in Germany as well as Canada to make sure that we have alternative means of getting both our raw material and our finished products effectively. There are several plans already that have been identified that we will be able to further improve our assurance and our ability is to actually kind of circle back disruptions and we’re better positioned than ever before. And as we go forward we will be further better position to essentially deal with these problems. So all in all we’re very comfortable with this strategies we have developed and are starting to implement, that the impact to both the rail car issues in Canada related to CT the port strike issues again are related to the Canadian port. And the winter related type of disruption in terms of the raw material or logistics, it’s going to be much better manners to moving forward, because we had identified the various solutions to that particular unexpected events.

And just to get a little bit of color maybe on the timing each of these quarters especially given your call it prognostication of stability of the cash flow generation that this company is creating and then building up like this quarter of net cash probably one up I guess or net debt went down by $50 million net cash went up by $15 million or so. And you do that again this next quarter or the quarter after et cetera you get to a point where you have already guided that the dividend or other type of shareholder value actions might occur. How often does the Board meet and do you have like this is going to be a year end discussion this is going to be a end of third quarter kind of agenda item or can you give any color for when you think the various items, which I clearly understand that company needs to get enough cushion for to tackle but can you give any visibility as to this is kind of our schedule item. It will be the third quarter or the fourth quarter or its going.

Hi, Andrew, it’s Dave. You can’t get us out in front of our Boards. So I just can’t really give you a good answer. I’m sorry about that, but our Board does meet regularly, it is definitely on the forward agenda.

Okay.

And I really can’t get any more guidance on that.

All right, thanks. We’ll ask next quarter.

Yep.

There are no further questions in the queue.

Well, since there no more question, I would like to thank everyone for coming today’s conference call and call it and end. Thank you.

Thanks everyone.