Good morning and welcome to Mercer International’s Second Quarter 2015 Earnings Conference Call. On the call today is Jimmy Lee, Mercer’s Executive Chairman; and David Ure, Senior Vice President Finance, Chief Financial Officer and Secretary. I will now hand the call over to Jimmy Lee. Please go ahead.

Thank you, Ian. As many of you know, this was the first time that David Gandossi, would be addressing you as Mercer’s President and CEO. Regret to believe David and I have been travelling for the past few days and as bad luck would have it, he has come down with a bug that will prevent him from addressing you personally. To that end, he has asked me to lead the call today on his behalf. Let me begin by taking a moment to introduce David Ure to those of you that he hasn’t had the opportunity to meet. He has worked with David Gandossi often on over above 15 years. He was David’s controller at Pacifica Papers in the early 2000 and then went on to assume that same role in the larger company when Pacifica merged into what eventually became Catalyst Paper. We are thrilled to have him join us in Mercer in 2006 as we continued our growth trend when he became our VP and Controller. He took a lead from the Forest Industry between 2010 and 2013 when he took on the VP Finance role at a tech company Sierra Wireless, but returned to Mercer in 2013. He has well over 15 years of senior financial leadership in the Forest Industry and considerable experience in the capital markets and the past best practices of large modern global publicly traded companies. He has a Bachelor’s degree in Finance from the University of BC, and is a Canadian CPA, CGA. His appointment is testament to the focus that we have as a company. We’ve been able to apply to succession planning and I am confident in the seamless transition. I know David’s experience and [indiscernible] will serve him well in his new role. Please feel free to call him with any questions or comments that you may have. As noted in our recent press release announcing these recent executive changes, I’ll continue to be active as Mercer’s Executive Chairman of the Board and in this role I’ll be continuing to be primarily focus responsibility for driving the development of our corporate strategy. I’ll now pass the call over to David Ure to cover the key financial aspects of Q2. David?

Thank you for the introduction Jimmy and good morning everyone. 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. In Q2, we achieved EBITDA of $50.0 million compared to $61.3 million in Q1. Pulp demand was strong in the quarter however currency movements put pressure on NBSK pricing and the quarterly average we see in list price in Europe fell to $855 per ton from $887 in Q1. And while the quarterly average list price in China went up to $670 per ton, it came under some pressure late in the quarter as the markets begin what is traditionally a slower period during the summer. As well, our Q2 EBITDA was negatively impacted by approximately $12.4 million as we successfully completed our annual maintenance shut at Stendal in the quarter. After considering the Stendal annual maintenance shut relative to Q1, our pulp production was down slightly this quarter. However, we were very pleased with Celgar’s reliability in the period and Rosenthal completed its most productive six month period in the history of the mill. Our energy sales were negatively impacted by the Stendal shut. However, this negative impact was partially offset by the ramp up of our new tall oil plant at Rosenthal. We reported net income of $16.4 million for the quarter or $0.25 per basic share compared to net income of $13.6 million or $0.21 per basic share in Q1. Our Q2 income includes a non-cash foreign exchange gain on intercompany debt of approximately $2.2 million…

Thanks, Dave. I would like to start by saying we are satisfied with our second quarter operating results. Our mills generally performed well during the quarter and our sales got pace. The decrease in EBITDA in Q2 compared to Q1 was primarily driven by currency movement and slightly lower pricing compared to Q1. However, as our mills run well in the quarter, this helped maintain our low operating costs in general, including our local currency unit fiber costs in both Germany and Canada. June NBSK produced inventories were at 29 days, down four days from the previous quarter end. We're not surprised to see this decrease in producer inventories in Q2 as the Chinese New Year holiday and the seasonality traditionally create additional demand in Q2. At these inventory levels, the NBSK market is considered to be in balance. NBSK list prices in July are $980 per ton in North America, $850 in Europe, and $650 in China. There has been some confusion in the reported China prices, so I will clarify our perspective on this. You will recall, the May China list price was $670, the industry announced a $20 increase for June, but didn’t get it. List for June, therefore, was effectively $670. Prices are off $20 in July, but volumes are good. However, we believe we are approaching slower level pricing in China and see the small hardwood/softwood price gap as a potential short-term NBSK pricing catalyst. In Europe, the strong U.S. dollar has put downward pressure on prices in the quarter, but overall pricing has been fairly steady. Looking forward, we expect new tissue machines to continue to start up, especially in China, which will ensure a steady demand for NBSK. We are experiencing the usual seasonal price weaknesses in the early part of Q3, but…

[Operator Instructions] Your first question comes from Dan Jacome with Sidoti. Your line is open.

Good morning. How are you?

Very good.

Good. Thanks for taking the questions and David congrats on your new role. Congratulations on the dividend as well. Just wondering if you had any thoughts on that, how should we expect that to go forward, would you see yourselves increasing it, maybe some sort of like step-up function or maybe what sort of internal metrics will you be looking at going forward?

Well, you know, I think that the amount of the distribution that we have started with, we felt very comfortable that it was one which was sustainable throughout the cycles that we would typically envision. Of course, you know, we can never anticipate serious dislocations in the global economy, but it accounts for of course what we believe to be weaker points within the traditional cycle and we feel very comfortable that this level of distribution will be sustainable for the long run. Now, in terms of the further adjustments to that, we believe strongly that of course as we build up cash and our mills continue to perform and with our present outlook in terms of the medium to long term, NBSK price movements et cetera we believe that these dividend streams will continue to be adjusted upwards probably. Of course the amount of those movements will be conditional on our overall liquidity assessment and our investment needs especially in regards to a very high accretive type of projects and opportunities that may arise in the future. But at this point, as I clearly indicated, the level that we have chosen is one that is sustainable for the future.

Okay.

I hope that answers your question.

Definitely it helps. I appreciate it. And then switching over to transportation cost, I know they nicely declined again but at a slower rate of decline versus 1Q. Just wonder if you could give us a little bit of flavor of what’s going on there? Maybe break it out in terms of like FX impact, maybe railcar shortage or whatever you’re seeing.

I think probably this is not the call to get into details, but I can give you some of the general trends of what we are seeing. What we are seeing in terms of the bulk area of course we continue to have prices decline gradually and that’s also true for many of our container traffic. However, in the ports that of course imposed us this kind of CO2 emission type of penalties, you’re seeing those pricing of course increase as a result of the supplemental fees that they have to charge. So what you are seeing really is a continued gradual decline which has been offset to a degree depending on the ports that we are shipping to because of the climate change supplemental fees if you may.

Okay. And then – great, appreciate that. And then just a quick housekeeping, I know you mentioned the global stock [ph] days for softwood I think under 30 again. But did you mention, maybe I missed at the hardwood days, do you have that?

No, the Brazilians have chosen not to give monthly balances and they have chosen – they claim that they will report quarterly and therefore there is no up to date monthly balances.

Okay. Alright, just checking. I really appreciate it and thanks a lot, good luck with the rest of the quarter.

Thank you.

Thank you.

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

Thank you. Good morning. I guess just a bit of a follow-up on the dividend question and how you’re thinking about balancing the dividend, effect of the cash returned to the shareholders with your own capital investment plans. Could you maybe give us a bit more inside as to what you’re looking at as far as capital investment goes, the magnitude along with the return potential.

We’ve kind of stated that each of the mills typically on a maintenance or high accretive type of investment program, we are looking at probably like EUR 10 million and $10 million U.S. per year type of capital investment. Of course all of the mills have extensive long term capital planning budgets and therefore we are pretty good in terms of determining the level of investment activity that we are likely to incur over the next five plus years and that is why considering those type of investment schedules overlaid with our view of the general pulp cycle. And of course stress testing that with the typical type up and down that we have seen even in extreme cases, we feel very comfortable that our level of dividend distribution is sustainable and that’s why we chosen this particular number.

Okay. That’s helpful. And just for clarity sake, there is no real outsize capital investment opportunities at the current set of mills that you’ve got right now.

No.

Okay. And then just let me go completely different, just – are there any fundamental changes to customer behavior or is this just normal course of business that we are seeing with the typical slowdown at this point in time and things maybe getting backend loaded in the year. I mean nothing has really fundamentally changed. You gave great color earlier on to the call but I just wanted to dig into that a little bit.

I think that basically the recent weakness in the China market of course is to a degree driven by more of the speculative bind that occurred early on in the year. There was expectations because of the supply and demand type of situation for softwood. The price movements in China would start to recover more marketably and the Chinese traders of course bought in anticipation of that. Unfortunately, the price movements although they went up, did not of course move as aggressively as I think the traders expected or hoped. And then as going through the summer, this market typically is weak. So of course in anticipation of that, there has been liquidation of the inventory which of course has driven prices down in China and at the same time, I think the paper market as such in term of the publishing grades as you know and certain other grades of course have overcapacity in China and they of course are under pressure. The tissue guys continue to expand. As we move forward probably, we will see of course overcapacity in that sector too, but at the same time they still need to supply their mills. And so generally certainly in the China market, we are not experiencing anything that is a typical of the cycles we’ve seen. The pricing development in terms of United States is much different than I think traditionally because I think lot of the buyers are moving away from contractual type of volumes to more spot type of volumes which probably is more indicative of the China market. And that is because of course the North American market is oversupplied with good quality NBSK and so I think the movement there is different than in the past where you had more long term volume commitments et cetera, et cetera, and pricing which were more determined longer term. I think what you are seeing is more kind of China type of demand moving forward. In terms of the European market, we are seeing pretty much what we’ve experienced in the past. The price movements are pretty determined more by currency issues than supply/demand. The demand is steady, the supply is okay, so any adjustments that we are seeing is really are pushed to get prices up because of the currency movements on occasion and then again them of course resisting because in the prior months, the currency had gone against them. So it’s a bit of tug and war between the two of us because the currency Euro and dollar has been very volatile as you know.

Okay. That’s very helpful. Thank you so much.

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

Yeah. Thanks very much. Just a couple of questions, one on - you mentioned that you settled your hearings with [indiscernible] understand the timing of the decision, but is that either win or you don’t win, is there a grey area in terms of wars, what can we sort of expect at the end of the year early ’16.

I mean the win or loss is determined by the level of penalties. If we lose of course we will get no award, if we win then we will get a significant award. So I think the grey area is the range in-between that of course the high end and the zero. So that we don’t know of course our experts as well as the Canada experts have presented the case as to why we support the level of damage claims that we have indicated. It is up to the panel to determine what is fair and justifiable. That I cannot comment on of course we feel very confident that we have a very strong case. The evidence that has been presented by both sides and certainly from our side, we feel very confident that we have right side of the argument. But like any court, arbitration type of procedures, one never knows until the final outcome.

Okay. So it not a case if you make it…

No I mean we filed the damage claim and we of course there is the method on how we determine the amount that we have filed. We have of course filed that and then we have the expert which of course supports those arguments. And then of course Canada tries to contradict or tries to poke holes into our calculations and then of course it’s up to the arbitrators final decision to see if what they will feel is justifiable. So it’s very difficult to know – it’s not like okay if we win, we get the maximum amount. If we win, we will get either the maximum amount or somewhere between zero and that amount. We are confident that we have a very valid claim.

Yeah, I like your point too. In terms of your tax assets, maybe you could give us some details or where those stand right now?

David?

Yeah, so roughly – and you can pick this up on our annual fillings, but roughly in Germany, we’ve got about $100 million of losses, so those are the – that’s a primary basis for our tax assets. In the U.S., we have about $55 million. And in Canada, the losses are lower than that, but we’ve got a significant – as you will see from our filings, we’ve got significant tax base in the capital assets, so fairly good shield for the time being.

Okay, that’s great. And then just last question, heard recently from a [Audio Dip] that eucalyptus will trade at a premium in the future to NBSK?

No, I don’t buy that argument because clearly from a productivity perspective and running a machine, the softwood is better. The characteristics in terms of softwood fiber versus eucalyptus, in most case, is better. So I would definitely question that eucalyptus pulp will trade consistently at a premium to NBSK.

Okay, thanks. Best of luck going forward.

Thank you.

Thank you.

Your next question comes from Andrew Shapiro with Lawndale Capital Management. Your line is open.

Hi. Thank you. So, a few questions here on your CapEx. You spend some CapEx over the last few years to build out and open up this Rosenthal, I think, tall oil project. You thought you’d get maybe $2 million a year in incremental cash flow from it. Has that one out to be about the levels of cash flow you are now pulling out, is it going according to plan and then what’s the next kind of incremental productivity or cash flow generation project down the horizon?

Yeah, I mean, in terms of the tall oil project in Rosenthal, it is meeting our expectations, there is no question that the original project study as well as to retain calculations and the improvement in EBITDA calculations definitely were conservative. There is a degree of seasonality to the tall oil extraction because, of course, it is an extractive from the tree. So during the drier periods typically there is less tall oil, as an example. And so, some of it will be seasonal, but clearly the indications are its living up fully to our expectations. In terms of the next type of accretive type of projects, each of the mills have significant amount of accretive projects, which are all two years or less. These are in all areas of the operation from the wood logistics to again the tall oil upgrade and further extractive type of projects. So I think we are very comfortable that our continued focus on, not just cost reduction, but improvements in terms of by-product profitability will continue at Celgar. We will continue to focus on increasing their power generation and we know that there is a lot of potential there that we have not yet been able to close the gap on. And recently we had our power specialist from the Stendal operation move to Celgar and he, of course, has started the process of determining the areas where we can further extract and save on steam, so that we can now really close that gap aggressively.

Okay. And last question for me is – just I used to ask of David, maybe this David has enough in his calendar now. What are your upcoming, I guess, call it investment presentations, non-deal roadshows, what’s on the agenda here for the August through like October, November period?

Yeah, so we’ve got a couple of things we are working on. The one that’s firmed up at the moment is we will be attending the Jefferies Industrials Conference, August 12 to August 14 in New York. We are also hoping to do a – a bit of a – it will probably be an East Coast tour later in the summer, early in the fall, but that’s – we haven’t firmed that one up yet, but our next one is this, the Jefferies Industrials Conference.

Okay, very good. Thank you.

Thank you.

[Operator Instructions] Your next question comes from Sean Steuart with TD Securities. Your line is open.

Thanks. Good morning. A question on capital allocation and this goes back to the dividend and your thinking there, but it’s limited discretionary CapEx needs and I guess not a lot of ambition near-term on the M&A side. How should we think about your target leverage levels, whether it would be debt to cap, debt to EBITDA, any target you guys are focused on attaining over the next sort of while?

David do you want to comment in regard to...?

Well, I guess, I would say that where we are at now – where we are heading, so that would be in the mid-2s of interest coverage on a net basis. We are not uncomfortable with that. We are trying to setup ourselves, as Jimmy mentioned, the level of the dividend, we wanted it be something significant, we wanted it to be something that’s maintainable, but also something that’s give us a bit of room, should we want to pursue an activity be it an M&A activity or a large project, we’ve got the capacity to do that. And then as we’ve mentioned in the past, we’ve also setup our debt such that a piece of it is repayable in fact the – you may recall that the short-bonds, the 2019 bonds that we issued last year, the first or they are callable next year, at the end of next year. So I think we’ve created a structure that gives us quite a bit of flexibility going forward. So we are certainly doing quite a bit of work. We were modernizing the mills, as Jimmy was saying, and doing quite a bit of work to grow the company and we are ready, we’ve got the flexibility too to do that when we bump into something.

So I guess you know the two tranches in terms of the maturity date for the bonds are kind of like you know the measures of our expectations in terms of the reduction in debt moving forward and more prominent level of debt for the future. Hopefully that kind of clarifies your question.

Yeah, very much. Thanks, guys. Appreciate it. That’s all I have.

There are no further questions. I would like to turn the call back over to Mr. Lee. Please go ahead.

Well, thank you very much for attending today’s call. It’s unfortunate David was really seriously feeling under the weather. I’m sure he would have been very excited to being able to be here to make the call for the first time as the new CEO. I’m very confident working with David over 10-plus years that he will continue to play a very good role and take on his new position as CEO very productively and effectively and I do believe that the transition has been a very smooth one. And at the same time, I think it allows us, as Mercer, to really move forward to the next development stage that we envisioned. So on that note, I thank everyone and good bye.