Good morning, and welcome to Mercer International's Second Quarter 2019 Earnings Conference Call. On the call today is David Gandossi, President and Chief Executive Officer of Mercer International and David Ure, Senior Vice President Finance, Chief Financial Officer and Secretary. I will now hand the call over to David Ure.

Good morning everyone. I'll begin by reviewing the second quarter's financial highlights. Following my remarks, I'll pass the call to David, he will comment on our key markets, operational performance, the integration of our new assets, progress on our strategies and our outlook in the second half of 2019. Please note that in this morning's conference call we will make forward-looking statements and according to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, I'd like to call your attention to the risk related to these statements which are more fully described in our press release and in the company's filings with the Securities and Exchange Commission. We're pleased with our Q2 operating performance, we achieved record pulp and energy production during the quarter which supported our overall financial results, despite declining pulp prices in the quarter. Q2 consolidated EBITDA was $70 million compared to $123.8 million in Q1, a reduction principally attributable to the sharp decrease in pulp prices that occur through most of the quarter. Our Q2 results also included our 50% portion of 15 days of schedule downtime at our Cariboo pulp joint venture, which reduced EBITDA by approximately $11 million compared to Q1 in which there were no scheduled maintenance. In addition, our EBITDA was reduced by $6.9 million non-cash impairment charge to portions of our inventory to reflect low pulp prices along with an unrealized $4.3 million non-cash loss due to the sharp weakening of the U.S. dollar in the final days of the quarter. To the extent, pulp prices increase, we will recognize a profit on this inventory in Q3. Our pulp segment contributed $72.1 million of EBITDA and our wood product segment contributed EBITDA of $1.9 million. As usual, you will find additional segment disclosures in our 10-Q. In…

Thanks, Dave. Good morning, everyone. As Dave highlighted our Q2 results were strongly influenced by weakening pulp markets with our strong operating performance personally offsetting the impact of lower prices. Our operating performance is a result of our long term value creation strategy. Now I'm going to start today with the markets. European NBSK pulp demand weakened steadily through Q2, while demand in China was at its weakest midway through the quarter. Demand strengthened slightly in June on news event NBSK curtailments. European list prices in Q2 averaged $997 per tonne compared to $1,105 in Q1. July's European list price was about $950 per tonnes. In China, the Q2 average NBSK price was $653 per tonnes, which was down from $710 per tonne in Q1. Recent NBSK curtailment announcements combined with tightening fiber supply in some regions led us to believe that the Chinese NBSK market prices at or near the floor at $585 per tonne in July. The average Q2 hardwood list price in China was $635 per tonne, down $52 from Q1 and the hardwood list price in the US market averaged $1,100 per tonne in Q2 compared to $1,180 in Q1. Now the pulp markets continue to be influenced by a number of factors including macroeconomic conditions, the continuing us China trade dispute, and related tariffs, the high pulp producer inventory levels, all of which are creating uncertainty and negatively affecting pulp prices in all markets. These factors are influencing pulp markets by reducing demand for certain printing and writing paper grades. In addition, high pulp producer inventories are allowing pulp buyers to limit their purchasing levels today. Tissue and specialty paper demand remains steady. We've seen some signs of pulp demand improving but as we look ahead to Q3, we expect markets to remain essentially flat…

Thank you. [Operator Instructions] And your first question will be from the line of Paul Quinn with RBC Capital Markets.

Hey guys, this is Marcus on for Paul. Thanks for taking my questions.

Hey Marcus.

Just starting with pulp markets. Could you talk a bit about what you're seeing in terms of global inventories today? Maybe touch a bit on what you're seeing regionally there?

Yeah, well, I guess -- I think the big overhang starts in China maybe is the way to think about that. Chinese buyers are quite careful when they think pulp prices are going down. So they withhold their orders. And buy just what they need and they don't need it, they can use more or less a spot market. I guess as the way think about it. So we've seen this big shift in levels in China from what would otherwise be customers now to producers. Our take on it is we're probably 1.3 million tonne overhang. I think Qingdao normally would have 500,000 tonnes, it's about 1.3 today. Changshu 350, sort of at the 840 today. So total of 1.3 over. Our estimate is about 80% of that is hardwood. So there is -- that's really where the problem is. There's been an announcement lately that that there is a clearing price in the market. We're expecting to see big movement moves in the third quarter on the hardwood side, from producers to consumers or to customers rather. And I think that's the beginning of the term. It's like we've always said, as long as -- until you have that clearing price, and you see things starting to move. They think volumes moving, it's just kind of drag along. So hopefully with that announcement and with summer coming to an end and getting into maintenance season. And there are curtailment announcements also in Latin America. So we're expecting that to turn through the third quarter with back. And fourth quarter should be should be a different scenario. Softwood and China's not as serious. We've had good volume moves. As you may know, Rocco and Mercer both announced up 20 for August. And we'll see how well we do on that side of things. In Europe, it's been better mill net. So anything that can't get sold in China to the extent that logistics are available, some of that pulp would move moved down into the Central European market. So it's been in decline as you know. Every month it's been moving down. So, I think that will continue until we really see the turn the turn in China. US markets held up reasonably well, spot offers have been quite profitable compared to contract business there. But again, it's a slow erosion, as the global overhang persists. So, I think we can expect things to carry through the third quarter much as we're seeing today, hopefully, with significantly larger volumes transferring from producers, and a lift in the fourth quarter, so I’ll read on it.

Alright, thanks. That's helpful. And then just on the delay of maintenance downtime at Peace River, have you guys considered taking any market related downtime. And then also, just a follow on there, when in 2020, would that downtime be occurring?

Thanks. So the question on have we considered market downtime. Yeah, we, obviously it's something to think about, but in our system, that there's no reason for us to do that. We have access to wood. We have fixed costs that need to be covered. And we're working hard on improving the reliability and productivity of our pump mill. So I have zero interest in taking market downtime, as long as we're covering our fixed costs. And moving the mills ahead. And I see this as a relatively short term condition to the rest of the summer. We've taken the head on the market right down as you know in the quarter so we won't be -- Mercer won't be taking market downtime. In terms of when the shot is going to be I don't know that yet. The -- it's an issue with the tubes for the recovery boilers, users stainless steel overlay carbon tubes that get manufactured by a specialist manufacturing entity, and the tubes did not meet the specifications required. And the supplier is working on trying to figure out what they did wrong and what has to be done directed by that. And we're fine with that. This is not a problem for us to change the timing. It'll lighten up the amount of capital we spend at the back half of the year, I think, actually, we had quite a bit plan for Peace River, on the productivity side. So I think we’ll lighten up our capital spend in the back half of this year by about $30 million as a result of that, and other actions. But in terms of the health of the boiler and its run ability, and everything else, we don't at this stage, we don't see that as a major concern.

Alright, thanks, guys. That's all I have. Best of luck for the quarter.

Thank you.

Thank you. Our next question comes from the line of Hamir Patel with CIBC Capital Markets.

Hi, good morning. David, you touched on the clearing price that I guess Susanna has announced on the hardwood side. What do you think the potential is for Chinese customers to switch more to hardwood if we've got that clearing price is going to drive hardwood down over the near term?

Well, it's hard to say, there always is some substitution in the margin. But, I guess it's important to reflect on the relative size of the two markets these days when you take a premium NBSK market is 15-16 million tonnes compared to the size of the hardwood market and the recycled availability and the amount of recycled fiber in the furnish, which is like a hardwood in a way in terms of strength characteristics. The guys that use NBSK use it because they need the strength attributes and the structure that it provides. So they may be able to adjust a little bit, and they do. And when softwood prices come down and approach hardware, there's a pile into softwood big time, because so you sort of get that swing on the margin. But fundamentally, the very, majority of our NBSK pulp goes into tissue and specialty grades that are branded products that need a particular recipe, or furnish. So I don't see that as really being a major issue. I just think a lot of it has to do with the psychology and the market and the sentiment. The paper guys today are running on 25, maybe maximum days of inventory, normally they'd be up at 60. And if every day is what is it 80,000 tonnes or something like that doing just 15 days is 1.3 million tonnes have shifted from the producer, from the customer to the producer. So we're not far from balance if people are optimistic that we're out of the bottom, right.

Fair enough, thanks that's helpful and just want to ask on the M&A side. Are you seeing any opportunities start to come up, given the weaker pricing environment for both lumber and pulp? And any update you can give us on the sawmill project that you were studying here?

Okay. Well on the M&A front, I mean, I think the safest thing for me to say as it is that we're always -- I mean, we're working really hard on our growth and thinking about different options and opportunities. And you're right, when you're at this stage in the cycles, the valuations make a lot more sense than they do in it when you're at the top of the cycle. So we're active for sure. On Friesau I would touch it when I say this, but I would say things are going very well, we've got a lot of work going on in the mill and the mill is running very well, despite the congestion on the construction site. We're really looking forward to completing that, we'll start to see the performance in the middle of the fourth quarter this year, where we're getting that product lift that comes from the better trim capabilities, all the optical scanning and sorting, and it's going to be it's going to be a significant improvement in the product profitability of number and as well as big volume increase. So no real issues to speak up at this stage. And, you know, the equipment. This is equipment that's installed and sawmills around the world. So it's nothing new to anybody not expecting any major challenges.

And Dave, are you still considering a Greenfield elsewhere in Europe?

Yes, we are. We've been trading off the options of a Greenfield of sandal versus buying and renovating, if you like, one of one of the competitor mils in northern Germany, so that that analysis continues. Timing probably be able to announce something next year on that.

Great. That's all I had. I will turn over. Thanks.

Our next question comes from a line of Andrew Kuske with Credit Suisse.

Thank you. Good morning. I'm David, I think you walk through some of the numbers on what you said is a 1.3 million tonne overhang in the market. Could you just frame the current pulp cycle as you see it versus some of the past cycles that you've seen? And then especially around the context of the pricing downturns and then the snapback?

Hey Andrew. Well, things different just go around and it's -- the hardwood overhang is coming from the big, consolidated producers. It's a strategy throughout the year that kind of baffled me I don't think it's worked for them. And we haven't really ever seen this before. So that's where my -- that's why I say it feels different to me. If you go back far enough, I mean, the cycles used to simply be the industry was chronically oversupplied. And there were times when it tightened up, so you'd get good pricing. And then when it looked like it was a turn then customers hold back the orders and the price would rock it down, and the high cost producers would take a whole bunch of market downtime and you rebalance, and you go through the cycle again. Today, fundamentally, the market is not oversupplied whether it be software hardware or recycle. Like they're just once everybody's going and everybody's feeling like things are good. It's not -- it shouldn't be a roller coaster like this. Like nothing really -- like I don't really believe that much demand destruction has happened that we're in a fundamentally different market than we were where we were a year ago. It's just a sentiment is so much more negative because of all these trade wars and things. So I wouldn't be brave enough to say it's going to be a snapback like we've seen in the past. You know, that's the real question is it me or you. But I think I did my best to describe earlier that I think there's a number of factors and coming in the fall that should really start to concern pulp players that that supply is going to become even though there's a lot of inventory today is that most across and the paper custom paper guys refill their warehouses with get up to their normal levels of inventory and then you start looking around and seeing these markets, these maintenance shots and [indiscernible] going off. Our paper grade NSL [ph] going off paper grades, [indiscernible] going off paper grade, it's going to start that up and if anybody has a running problem like we've seen in the last year, which hasn't really happened yet. And then we'll be moving, right, so.

Okay. That's helpful. I guess, maybe on the hardwood side. I mean what you're alluding to is, maybe there's some self-help as needed by the hardwood players in the market. But when we look at the NBSK, we went through a lot of the additions of capacity, there hasn't been anything, there's really nothing scheduled ahead for the next several years. So the market should be tighter. And I guess that echoes in your comments on no market downtime for you in the current market conditions? And how do you think about just the cost curve, because you've got young mills that are sizable versus some others? So how do you think about the cost curves right now?

Well, the cost curve is shifting a lot. So Western Canada, I mean we've got curtailments happening in the north, right. So I think that has to be simply they can't get wood. But the fixed costs of a pulp mill are such that you've got to be underwater very, very significantly before, you're going to take a curtailment for cash flow reasons or earnings reasons. So it's better to run and lose a little money than to not run and lose a lot. That's what I'm trying to say. So guys that are curtailing or curtailing because of access to fiber and fiber, not more access rather than cost. And I think there's more to come. There is other mills in this province that are really struggling today and will continue to struggle. And I don't see it getting any better with Western being out and announcements in the north about further saw male permanent closures and that kind of stuff. So the curtailments are not over. The fourth quarter, as I've always said, the guides in the fourth quartile are very high cost compared to the rest in the second and third and they're getting worse.

That's helpful. And one final one for me, and I might have missed it in the results. But just on BMI, where are you in the synergies? Where are you tracking? Have you disclosed that number?

No, we haven't put it out there. I mean there still is and we disclose expectations of 15 to 20. It's not, we're not on a run rate of 15 yet, and a lot of that has to do with the market. We aren't able to benefit from a tighter market and that contract relationship, versus what the previous owners were doing. But I still see that synergy in our future. And it's -- the pulp is a good pulp. It's well respected in the market and adding it to the Mercer package for our customers is significant to them and significant to the relationship. So it will, but it's just a little slower than we'd hoped.

Okay, that's great. Thank you.

Our next question is from line of Adam Zirkin with Knighthead.

Gentlemen, appreciate your taking the time. Few things for you. First, David you went through this very quickly, but can you explain once again, what gave rise to the inventory adjustment? Because from [indiscernible] making money, so the notion of prices falling below cost, didn't intuitively make sense to me. So perhaps you could explain that?

Yeah. It's not -- may not be intuitive. So generally, so the policy is in U.S. GAAP is that you value your inventories of the lower cost or net realizable value. And the cost for most producers, the cost would be defined as not just the cash costs, but your depreciation as well. So you've got some non-cash costs in there, some administration costs. So it's possible that the EBITDA, the cash costs are lower than your inventory value. And so when the net realizable value of pulp dips down below that cost level, then you need to adjust down to the net realizable cost. And we called it out, because typically we run at cost. When the market is normal, we're running our inventory at costs and the inventory, there's fluctuations in the inventory value, but they the generally tend to be pretty small. But in this in this case, we had the pulp price dropped considerably towards the end of the quarter. And so we have to push the inventory value down.

And David remind me, you are a LIFO account is that right?

We are an average or weighted average -- we use the weighted average method.

Got it. So the net effect, right will be that it essentially moves earnings or losses from one career to another is when you pull these tonnes from inventory, say this quarter they'll be carried at a lower value?

Yes, that's exactly right. So you can imagine next quarter if prices pop-up again. This is a hit to the P&L we've taken in Q2 that we wouldn't be taking in Q3.

Right. Understood. All things equal, that would create a better result in Q3 that had you not taken it in Q2?

That's right. Yes. If we had we just left our inventory valued at cost. We would have smooth -- some of this would have been -- yeah, we would floated right through Q2 and Q3, and you wouldn't even have noticed it. In this case, we're pushing it down in Q2, and then the costs, if the inventory goes back up to cost. Next quarter, it'll be a -- recovery is not the right word, but it'll be a big benefit to earnings next quarter.

That's helpful. Thank you, David. David Gandossi, this question with respect to the markets. Picking up on Andrew's question. You talked about the shifting cost curves. Can you just explain for a moment, perhaps I should be familiar. But why the wood supply issues affecting the Northern Mills are not affecting you itself are in Canada?

Well, the Northern Mills would have been either more or less integrated with the sawmilling activity, I guess is maybe the fundamental reasons in my mind anyway. So the pulp mills tend to consume to saw mill residuals from the mills around them. As you know, in our world, we have needed around with program. We always have good healthy sawmills around us, but we have a bigger demand than they can provide. But when you harvest sawlogs, there's a lot of residual fiber that goes along with that the tops of the trees, the parts of the trees don't look like they're good sawlogs. And historically in British Columbia, that has been somewhat underutilized resource and Mercer has been quite innovative developing programs to get that wood bring it in and process it economically. So we have lots of labors, and we have lots of access to wood. I'm not concerned about it. If the cost is higher, obviously, then when it's pure sawmills where is it -- when the sawmills are all really running hard. But the guys in the North haven't really gone there much. So I -- they don't have access to other forms that they need to run in the context of significant curtailments on the lumber side. And so…

That's helpful. Dave, can you just give me a sense of scale. I mean, how far are those mills from you? I mean how far would they have to move would to tap into your suppliers? Is that even a silly question.

A completely different geography 800 or 900 kilometers, like it's the North.

Okay.

Range storage region, right. So we're in the Southeastern corner of the province, and they are definitely at North, yes.

Got it. And then lastly, just on fiber cost generally. I think last quarter, we were talking about how fiber prices were falling in Europe, but they hadn't yet had a chance to run through your inventory of raw materials in the European Mills. I was expecting a little more of a down -- of a downward move in the fiber cost of this quarter. Didn't see that. So perhaps you could explain that sort of where we are in that cycle of seeing those declining fiber prices in the Mercer P&L?

Well, we got some of it, and there's more to come. It's -- for others that might aren't -- maybe not quite as familiar with the situation, so we build inventory for the winter so that if there's large storms, or heavy snow falls or whatever, we've got access to wood without being harvesting. So you build up your inventory, we did that. And as wood costs continue to decline, you have to work that average cost of inventory evaluation down. So some of it unwound in this quarter, and there'll be more to unwind in the next quarter. And we see this trend continuing. There's a lot of wood available in Europe. If you've got some damaged forest areas, for whatever reason, then the loss as you take it up, you prioritize that and you bring it out, you put it on the market. So there's really more wood available than there are buyers to buy it and it's the dynamic. So we're seeing some pretty cheap wood over there. And we think that's going to continue.

Can you just quantify the downward move perhaps in those wood prices, David in terms of like dollars per tonne or dollars per wood tonne or how best to think about it?

Yeah, I going to be careful. We haven't discussed all that stuff. So I don't want to get into some specific numbers.

Fair enough. Perfect. I think that's all I have. Thank you very much.

Thank you very much.

Our next question comes from the line of Joe Pratt with Stifel.

Hi, good morning, Dave and Dave. Looking at Canada, my simple question is what percentage of NBSK producers out there do you think have a direct operating cost that's higher than the current price?

Well, Joe just generally I would say most Canadian pulp producers are either -- well, we took a write-down at pulp mills. And we are with a low cost guys over here. So, I would say everybody is underwater from a cash cost perspective. Some of them are going to be struggling simply from access to fiber. As I mentioned earlier, so it's tough going for the high cost guys right now for sure. And that's part of why I think that we're going to see some events that improve the situation in the back half of this year.

Okay. And any of those with financial pressures have balance sheet pressures at the same time?

Hard to say, but I think it's a physical factor. I think it's access to wood fundamentally.

Yeah. Okay, thank you.

Our next question is on the line of DeForest Hinman with Walthausen & Company.

Hi. Thanks for taking my questions. Can you help us think about capital allocation? I know we gave everyone an update in the first quarter dividend increase, share repurchase authorization. The market is always dynamic as it relates to pricing and we're seeing that, do some repurchase in the first quarter, although it was at a level higher than the current share price. And a lot of things have changed over the last few months. So can you help us think about how you're thinking about capital allocation in a very high level? Then I'll have probably a couple follow ups.

Yeah, sure DeForest. Well, there's some big picture concepts in the way we think about capital allocation. Obviously, I would say number one of them is deep commitment to the dividend. I've always said that and believe it and we will do that, our Board is all aligned that we want to return a dividend to shareholders throughout the cycle. So that's one. Another pillar for us is to maintain a strong balance sheet throughout the cycle so that investors are never concerned that that if we go through a dip like we've done that that there will be any permanent destruction of capital. So we maintain a strong balance sheet. We invest in our mills to be highly productive and reliable to make maximum use of our waste streams that are byproducts and all that kind of stuff. So a concept of sustainability where, we want to be here for the long-term we want to continue to build just exceptional mills and human resources to run them. So it stay the course. As far as the share buyback is concerned, we have that tool available to us and depending on how we're trading and how we're thinking about things, we will utilize that to the best of our judgment going forward.

Okay, that's helpful. And maybe just a little bit more detail on the share repurchase authorization and we have bought stock in the past a little bit more I think opportunistic, but just taking your comments that you've made it sounds like expectations are for pricing to improve driven by volumes moving and potentially some pending curtailments share price at this level is it an opportunity to use that repurchase authorization opportunistically, or should we think about the share purchase authorization more as a way to consistently return capital to shareholders overtime even with ebbs and flows of your share price and NBSK prices in general?

Yeah, I am not sure how to answer that. We just think of it as another tool in the tool kit. And depending on the direction the equity markets go, we'll use it more or less. It's just really all about what unfolds, it's nice to have that opportunity if the stock trades off to pick up some stock. But we also are very focused on continuing to invest in our mills and to have the capacity to grow when the opportunities present themselves. So we really just need to be balanced in our entire approach.

Okay. One of the questioners asked about mills running cash negative level in Canada, is there any situations that you're seeing out there or that's occurring in other geographies as well either on the softwood side and hardwood side?

Certainly, yes. I think one of the things to -- it is quite a material issue for some is the integrated pulp in China. So this is the -- these are the pulp and paper mills, paper mills that have pulp mills in front of them that are fully integrated, none of it ever hits the pulp market, but it's their furnish for their paper. These guys are buying wood chips in Vietnam and Australia and places like that and it is really high cost for them. The future flows of chips from Southeast Asia and other markets is expected to decline, it is not going it's not a sustainable thing. And that pulp production would be significantly more expensive to manufacture would be for them just to purchase. And they don't have the same fixed cost constraints that North-western countries would have, perhaps. So it's hard to have visibility into that. But my expectation is there is shifting from integrated pulp production to market purchases of either recycled or hardwood.

Okay. Thank you for taking my questions.

Our next question comes from the line of Sean Steuart with TD Securities.

Thanks. Good morning, guys. Appreciate all the detail you take on the markets and the cost curve. Couple questions on downtime. Just with respect to this quarter Cariboo, the expense of just under 11 million relative to the downtime taken seems quite high. Any context you can give us on any project specific items that might have skewed that this quarter?

No, I don't think any details I might refer to it would be hard to put into context. I mean, it was a big shot. Got all the work done. And things went reasonably well. They struggled to get up at the end, there were a couple of it's always these big mills, sometimes takes a little while to get them all settled down. So we suffered a little bit of that. But no, I think nothing we need to that's remarkable.

Okay. And with the Peace River shut being the major one being pushed to 2020. Can you give us an idea of what else you have on deck next year and if the total downtime, the total maintenance program is going to be bigger than what you'll see this year?

Yeah, I don't know that. I wouldn't expect it to bigger, we are moving towards 18 month shuts. So if you'll see Peace River will be 17 months from it shut. Stendhal, we've done 18 months for a time and that will probably continue. There is in fact at Stendhal won't have a shut next year at all. Peace's recovery boiler me may happen next year, it may happen the next year regardless of when it happens, it'll be covered by business interruption insurance. The work that's in play right now are, the big components are the Friesau sawmill finishing that off this year. A little bit next year on some additional sorting the bale line in Celgar, which debottlenecks one of our pulp machines there. And so, as we continue to debottleneck and improve reliability, the place you need to be able to run as at the back end of the mill. And that bale line bottlenecks up that dryer at about 180 meters a minute. And if we can, the new bale line will bottleneck that issue. And so we'll have capacity well above 200 and we'll push the machine and find out where the next bottlenecks are? So it will be a high return project. Celgar is also putting a new stock containment system under the machine so that we get a better or even furnish on the machines which will allow both of them to speed up. Peace River is maintenance as usual. And Stendhal is continuing to work on debottlenecking there. And Rosenthal will be pretty like just business as usual.

Okay, that's useful detail. Thanks very much, guys.

[Operator Instructions] And our next question from the line of Andrew Shapiro with Lawndale Capital Management.

Hi, thank you. A lot of my questions were asked and answered. So I have a few fringes here on the edge on those. When you talked about market-driven shuts and the lack of wood and all that for some of the competitors that are everyone there's higher cost in Canada. There are also passage of time, a bunch of facilities where I guess their boilers or other major equipment are getting near end of life and these plants are facing a substantial amount of capital expenditure needs. Are there any in particular or do you see some that are really facing the decision of permanent shut because of these end of life issues for and major capital components?

Well, certainly there are some old timers out there that must be really difficult to run and very expensive to maintain. And then when you combine that with all of the changes that are happening on the fiber supply side, I'm expecting to see some fairly significant reductions in pulp capacity globally. So I don't want to any names Andrew, it's not fair to the other operators. But I think generally within the industry, we know who some of those mills are and it's hard to predict what owners will do. But they must be very close to the edges might be.

But these decisions are, without naming names, these decisions are going to be permanent shuttering of capacity rather than an extended market shutdown. Is that right?

I don’t know that.

Okay.

We will see. [Indiscernible].

Okay. Like I said many of the other questions I had were asked and answered. But I don't recall in your scripts any updates. So I want to ask about the update on [indiscernible] as well as I got a longer history here going and others may not even tell you have the investment. But your nanocellulose joint venture, which I thought was about to have maybe some commercial product six months ago, when I asked. So can you update on both of those will call them a longer term interesting investments?

Yeah, sure. So the cellulose plantations in Western Australia are -- we really getting our hands around that situation now and are very pleased with what we’ve purchased. There’s growth potential in that side as well and it has created a platform for us to move further forward with our objectives and other related activities. We see that as what we call our asset life growth strategy. And so we’ve, I think we’ve got a good entrypoint there and that’s developing nicely. On the cellulose filaments, for listeners who don’t know what that is, this is heavily fibrillated fiber that create strength properties and in various products. I’ve just recently met with our joint venture partner Resolute with Yves Laflamme and his team to have a complete review and we continue to be optimistic that there’s value in those products and so this is an R&D activity where we’re looking for a novel product application that would be material. So still committed to it and still moving forward.

David over a period of time because there’s a joint venture has our percentage gone up, gone down from other cash and dilution what’s our percentage in that JV?

No, no, we’re 50:50 and we’re perfectly aligned as organizations on our objective.

Okay. And lastly what are the plans for your investment presentations and onto roadshows in the coming months I think one I think was recently announced taking place soon after earnings here, but what else is on longer multiple month runway?

Yeah. Well I'm on Jeffries next week nice full day there, I’ve also got couple of days of marketing in the region with [indiscernible] our IR front wind up meeting so some of the listeners on the call and so new ones and Dave what else have you got on the phone?

We’ve got we’ll be attending the TV Forest Products Forum in mid-September…

The last meeting, right?

Yeah. And then we will be working on the roadshow that will be an East Coast roadshow in the fall, the details are still being determined but if there’s any listeners that would like to ask to reach out to when we go to the East Coast please let Dave or I know and we’ll make sure you’re included.

And you have any plans for the San Francisco Bay area at present?

No we don’t at the moment.

Okay. I'm sure you’ll let me know when you come. Thanks a lot guys.

Thank you.

Our next question is from the line of Dan Jacome with Sidoti & Company.

Hi good morning. Thank you for taking the question. I was actually just looking for an update on your biomass energy business, I mean just skewing off the second quarter it looks like you’re clearly approaching 100 million plus run rate, even of course factoring in the recent acquisition. But I wanted to hear your thought on that going forward, I know it’d be if I'm not mistaken you’ve still got the BC Hydro agreement expires next year. Just want to get some flavor from you guys and how you think you’re going to whether do that and then of course whether through, if I'm not mistaken some of the green rate should be regretting somewhere in that 7% to 9% range in next couple of years just kind of normal attrition just wondering about that. That’d be great. Thank you.

Yeah. Well I guess maybe I’ll start with Europe so I think the situation the way to think about that is that Celgar's current tariff ends in 2020 and Stendhal will be 2024. And the legislation says that those rates that were in the previous tariff stand for two more years and then they progress 8% a year down to the point where you cross the line with the market rates. If you look at the forward curve and the changes in the electricity market and in Germany with walking away from nuclear and coal and so on, we’re expecting to have pretty attractive generating assets in a regime that needs power that needs firm power. So stable I think, and Alberta there’s no changes expected for the foreseeable future and in British Colombia we’re starting to engage with the provincial government with BC Hydro on what the next energy purchase deal is going to be. My belief is that green energy from a pulp mill where you produce all this employment and allow them to monetize all the trees to [indiscernible] it's just the no brainer. And so we're expecting them to figure that out in time. And so..

Okay.

It should be fine.

So it sounds like you have a favorable outlook for some of these things that are up for lack of a better world contract or what have you.

If common sense prevails, yes, that would be the case.

Okay. All right. Thank you guys. Good luck with the rest of the current quarter.

Thank you.

Our next question is from the line of Frank Duplak with Prudential.

David, can give us an update on maybe where the full year capital spending may come out. Now, it sounds like maybe some of the Peace River spending is going to be delayed. I guess I'm thinking maybe 130 million a year this year, next year is at the right ballpark?

Yes, I think we're probably a little bit higher than that in 2019, probably closer to 140 million. And in terms of 2020 I think it is probably a little premature to describe that yet. We're still in the process of working on that on that plan.

Can you give us a directional guidance at this point for 2020?

No, I think it'd be premature, Frank.

Okay. Thanks I appreciate….

But we will have more to talk about it. Yeah, well, we'll definitely have more to say on this in the next quarter, which is typically matching our planning cycle.

I think one thing we would be able to add though is that the projects that will be in 2020, and 2021 are much more heavily weighted to high return than maintenance and reliability. So that's, we're moving back into that discretionary mode where we will pick off the projects that give us the highest return. And we don't, we don't want to just continue to spend, we want to make sure that we bring the mills up to their full capability, as opposed to, you know, be spending money on them. So will judiciously take those high return projects that we think contribute to further debottlenecking with investments.

Thanks. That's helpful, guys. Appreciate it.

At this time, we have no further questions. I'll turn the call back over to David Gandossi for any closing remark.

Okay. Well, thank you everyone, for joining the call. And as always, Dave and I are happy to talk anytime so don't hesitate to call one of us and look forward to seeing some of you perhaps next week. Thanks again.

Thank you. This does conclude today's conference call. You may now disconnect.