Good morning and welcome to Mercer International’s Fourth Quarter 2021 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 would like to remind you 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 risks 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 achieved record EBITDA in Q4 on strong pulp and lumber sales volumes, high energy sales prices, a much lighter scheduled maintenance program when compared to Q3, and the settlement of the business interruption insurance claim associated with the repair our Peace River recovery boiler amidst 2021. These positive impacts were partially offset by lower pulp realizations in all markets. Our Rosenthal pulp mill ran the entire quarter without the benefits of its turbine generator, which had the impact of lowering our EBITDA by about $30 million at today’s electricity prices. However, I’m happy to report that the turbine is being repaired and has returned to service in mid-January. We also experienced modestly higher fiber prices in both Canada and Germany. In addition, our freight costs were up at our Canadian operations due to the an increased use of trucking and higher warehousing costs due to extreme weather and COVID-related supply chain slowdowns. Our Peace River mill recovery boiler damage insurance claim was settled in late December, which allowed us to record it in Q4. The total Q4 EBITDA impact was about $32 million. We are pleased to have this claim behind us and that our 2021 fiscal year includes both the loss associated with the downtime needed to repair the boiler and the insurance proceeds meant to compensate us for that lost income. We regenerated record EBITDA in the fourth…

Thanks, Dave. Good morning, everyone. Let me begin by saying how pleased I am with our overall operating results this quarter. We benefited from our global operating footprint. The strong European pulp market conditions helped mitigate the impact of supply chain restrictions that we experienced at our Canadian operations. And while our strategic core focus to maintain world class assets keeps your costs and carbon impact low in normal times, in times of high energy prices like we are experiencing at the moment in Europe, our net energy export position is a tremendous differentiator for us. In Q4, our operations generally ran well and the year ends with a number of operating records, including record quarterly EBITDA. You will also remember, 2021 has been a year of considerable evolution as a company with the addition of Mass Timber and engineered wood products, and steady expansions of lumber capacity. And while we continue to diversify our products, we also remain committed to our legacy as our standout pulp expansion will attest. These results reflect the hard work of our team during the period under often challenging operating conditions, along with the benefits of our recent investments. Again, our mills generally ran well this quarter, and strong production, combined with steady -- overall steady demand for products were key drivers behind our record Q4 results. In fact, our results would have been even better but for the complete absence of power generation at the Rosenthal to conduct turbine repairs. While the lengthy downtime was unfortunate, we took the opportunity to pull 84 days of plant turbine maintenance from 2022 into 2021, and this decision will reduce our insurance claim for the period but we also expect it will result in a net benefit to the mill, given that electricity prices in Germany…

Thank you, sir. And we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Sean Steuart from TD Securities. Please go ahead.

Two questions. You gave a lot of detail on cost trends, freight and fiber. And I might have missed it. But, can you give us some context on what you’re seeing with chemical costs to your pulp mills right now, quantify the pressure you might be seeing for that element?

Hey, Sean. Yes. Go ahead, Dave.

Yes. I’d say, at this point, Sean, in 2021, we haven’t experienced material changes in our chemical costs. But as you might imagine, we have some chemicals that are derivatives of petrochemicals, particularly natural gas and electricity. So, we are expecting some inflationary pressure in 2022, probably as early as Q1 and Q2. But at the moment, 2022, the increases are not material, but we’re expecting some in the future for sure.

And on the Rosenthal generator, couple of questions. The business interruption insurance claim that you expect to receive compensation for in the second half, can you quantify that? And I think the context you gave was, if that generator was running in the fourth quarter that would have been an incremental 30 million. Can you clarify that as well?

Yes. So, maybe start with the latter part of your question there, Sean. So, yes, 30 million in the third quarter, another 10 million in the second quarter. So, hence, the 40 million or 41 million in total for the year. And there’s really two elements of that, as you might imagine. One, we’re not selling to the grid at the moment when the prices are particularly high. And in fact, we’re actually buying. We have been buying some power from the grid. So, it’s sort of a -- it’s been a bit of a double whammy. And those -- both of those conditions will be gone here in Q1. In terms of the business interruption, this is definitely an insurable loss and we’ll be working with our insurer to develop a claim and -- but it is a fairly complex claim. There are elements there. As David had mentioned, we had planned on doing a maintenance check on this particular turbine in 2022. So, that’ll roll into the size of the claim. It’s a fairly complex claim, and one that we’re just beginning discussions with the insurer. So, I think it’s a little bit too early to estimate the total value of the claim, but possibly in the next quarter, I’ll be a little bit more-clear.

Okay. One last one on shipping logistics. Do you have any sense that things are starting to improve on that front at all? Do you have any clarity on suppose getting back to normal is ways off potentially, but any sense that things are improving at the margin on that front at this point?

Well, CP’s improved a lot for the Celgar mill. And CN is the company that’s still struggling. It’s just wind their way out. And for Peace River, we’ve been using more trucks, and we’ve been redirecting tons east out of Edmonton, that kind of thing. So, yes, it’s kind of -- it’s costing us roughly on average about 12,000 tons a month -- yes, a month at Peace River mill now, in terms of slowing the mill down and we can’t get logistics sorted out. So, it’s annoying but it’s not catastrophic. So, we have described it. And yes, it is expected to unwind itself over the next one or two months I would guess.

Your next question comes from Hamir Patel with CIBC Capital Markets. Please go ahead.

David, can you maybe help us just understand maybe the magnitude of how energy prices that you receive in Europe, how they may have changed -- or how they’re tracking in Q1 versus Q4?

Sure. Yes. Maybe just some metrics here. In the middle of the pandemic, the gray market, which is the rate you can sell at as a generator, not green, just normal, was about €40 per megawatt hour. The green rate, the tariffs that we’ve had, at both Rosenthal and Stendal are roughly €90 a megawatt hour. And remember Rosenthal came off its 20-year tariffs last year. Today, the gray rate is about €180. And we -- in December, we saw at times above €200. So, it’s a very dramatic increase. So, both Rosenthal and Stendal are selling today at the gray rate. We have the right to clip off the green rate tariffs on to the gray market at our discretion. So, it’s double what the green rates were, on average.

I just wanted to ask about the acquisition pipeline. And just given where we are in the cycle, I want to get your thoughts on what do you see more attractive opportunities in pulp or lumber. And then, within the lumber side, is the focus on Europe or is North America of interest as well?

Yes. I don’t think you should plan us chasing pulp mills right now. Our strategy is to operate world class, modern mills fit for the future, and there just aren’t many like that, and those that exist are not for sale. But on the lumber side and the mass timber side, we definitely see a bright future and it’s all about being disciplined and picking the right lane and some of that has to do with synergies with pulp assets as well. So, we’re open for lumber in Europe and in North America, and we’re also very focused on mass timber engineered wood products. We’ve got quite a bit of work to do at our Spokane plant. We’re making long-length finger-joint today. We’re getting a tremendous amount of interest on CLT, but there’s other engineered wood products that can come out of that plant as well. So, similar to what we did with Friesau, when we bought it, as we build our team up and we get going here, I think we’re going to have some pretty exciting projects we can implement at that facility. And it’s going to take a little while, but I’m really super excited about that whole mass timber space. So, I think that’s a place for us in the future, for sure. So, mostly lumber and mass timber would be the focus right now.

Your next question comes from the line of Andrew Shapiro with Lawndale Capital Management. Please go ahead.

Hi. Thank you. A few follow-ups to Mr. Patel’s and Mr. Steuart’s questions regarding Mercer Mass Timber. Have you said or updated if at all, what the burn rate of the operation is at present? And did you expect that to increase before starting its move towards profitability? And when might that be? What’s your expectation for operations to be geared up to be adding -- being additive versus small grade?

From a burn perspective, I’d say it’s immaterial to the Mercer scale. We’re selling -- basically, we’re buying boxcars of lumber and converting it into a value added product, called long-length finger joint lumber. And there’s a margin on that that’s really helping to cover the cost as we ramp up the facility. When we bought the facility, really we didn’t have any employees. So, this will be extensive ramp-up period, building the team to be able to successfully execute on CLT and other associated products. But, I think what investors should expect is the internal rate of return for the investment in the facility -- as soon as we got through ramp up, which is probably six to nine months is okay. It’s a good internal rate of return. But, with the additions and the strategy that we’re developing, for reasonably modest investments, we’re going to really knock it out of the park. We’re really excited about it. That’ll take -- that’ll be something that’ll progressively happen over the next couple of years, similar to -- very similar to how it occurred at the Friesau facility. So, it’s something we look forward to, Andrew. It is not a burden on the Company at all today. And really, what we’re doing is building a team that can execute on these high value or high return capital projects that are coming and also help us develop our strategy for growth in that area, so that we can be really smart about it. And turn this into a platform.

And the follow-up to Mr. Steuart’s line of questioning and just trying to make sure if it’s -- if I’m dealing with apples to oranges. Your press release spoke about a logistical delay of about 35,000 tons of pulp from Canada to Asia, and you spoke of about 12,000 tons of months of pulp, I think was eastbound instead of westbound perhaps. Are these one on the same?

No. They’re different. And I think I might have mischaracterized 12,000 tons, correct that. There is sort of three things going on. We had a vessel slip from December to January. And that’s just going to push -- you can’t record the revenue until the vessel leaves the berth. And so, that’s pushed from Q4 into Q1. We also have an inventory unsold pulp that’s higher than normal because it’s taking longer to get it to the ports and to customers at the Canadian mills and I’d say, both the Canadian mills are running with finished goods inventory in and around the 60,000 ton range, they should be closer to 40,000 tons kind of under normal conditions maybe 35,000 to 40,000 each, and they’re both at 60ish. And then the 12,000 tons I was referring to was because it’s winter and it’s very cold, where these mills are located, we would never dream of allowing them to -- you can’t shut them, but they have to run, to stay warm, to keep things from freezing. So, when we’re short at boxcars, and where you have nowhere left to put the pulp, to say, we slow the mills down a bit and just produce less than their normal operating rate. And that’s the [$12,000] a month for Peace River. Celgar is running flat out again. We had some modest curtailments during this last couple of months, nothing really significant. But, maybe for a few days there are times we slow down. But at Peace River, we’re losing about 12,000 tons a month on average, December and January. I expect the same February because of the shortage...

So, then, as you’re describing this, it’s fair to assume then that this shifting into Q1 doesn’t impact or force the shifting of Q1 into Q2. This is something that can get made up in Q1 or gradually between Q1 and Q2, be made up, is that right?

That’s right. Yes. I mean the -- for sure, that’ll be -- that’s happened already, shipped and recorded in the first quarter. And there’s no challenge selling pulp right now. At least we can sell every time two to three times. So, we just need the logistics to work through what’s sitting in our warehouses. And I think we’ll get through most of that this quarter, maybe some into the second quarter.

So, then, call it Q1 and Q2, there’s a little bit of a kind of a surge and carryover from the Q4. When that happens, are we dealing with the higher Q1 net prices? Are these already contracted out at the Q4 price level?

That’s a mix of both. Nothing at -- the vessel that slipped would have been Q4 pricing and that’s going to Asia. And then, yes, you’re right, there’s a -- there was a price increase in January and February and in March for China. So there’s also some that is unsold today that will connect when we know we’ve got a logistics path to get it to the customer.

So, are we dealing -- we’re dealing with perhaps a $20 million or more revenue surge opportunity?

I haven’t done the math. But no, we got a nice tailwind coming, I think, existing prices and we got lots of inventory to sell, so.

Okay. Moving on to my final two here. It’s been about half a year since I last asked. So, I do want to ask if you might give us update on the status of the BioFilaments and joint venture, and the status, progress and the timing of cash flows that are in that emerging business?

The BioFilaments continues to be a research and development project. There -- we still see lots of potential in it. It’s not -- we don’t have any customer opportunities today. But it’s a small amount of money. But I think, there is something in it. So, we’re going to stick with it for a little longer and see what we can make of it. On the Sentinel side of things, the other small sort of on the -- smaller on the side, biochemicals project where -- when we come out of winter, get into harvest season, this is going to be the year that we start that bigger harvest. And as we go towards the end of this year and into next year, and as I signaled before, this is when we’ll really start to notice the benefits of that operation on the sale of higher volumes of sandalwood oil. So, that’s the update there.

Yes. I wasn’t going to ask about that one until next quarter and I’ll hold this one off for a half year. And lastly, I’ve been here for years, and you’re doing a great job with all this. And lastly, what are your upcoming plans for virtual or in-person IR activities in the upcoming quarter or two?

Yes. Well, I’ll let Dave speak to that in a second. But one of the things we’re recognizing is that we think, we can do a lot more on the whole ESG story. And we need to get out more in Europe and look for more of the -- try to get more of the retail and the family office -- get on some of these more social media type promotion methodologies. So, that’s going to be a real focus for the next couple years. So, frankly quite struggle with the multiples that the analysts give us. And to all the analysts on the call and I apologize for calling you out like that, but I just think you got it wrong. Mercer should have a much higher multiple based on the quality of its assets and the energy story, biochemical situation, and what’s going to happen to all the high cost mills in our space. So, we’re really going to put a kind of whole refreshed IR move on. Maybe we need to get out to a slightly different audience, audiences that have more understanding of how important particularly the future really is. So, that’s in the works. We’re doing a lot of thinking and planning for that, looking for some consulting support to help us. And Dave, maybe you can jump in and just a little bit of more traditional investor relations activity you got.

Yes. And it’ll be -- Andrew, it’ll be fairly quiet over the next couple of months. We don’t have any large formal conferences booked over the next couple of months. But we are taking a lot of calls right now. So, just a reminder to folks, if you’ve wanted to talk to us, we’re always available, David, and I, and be happy to take calls from investors and folks wanting to learn more about the Company. So, please reach out to us and we’ll make sure that happens.

Great. Thank you, guys. And ESG stuff, call me offline and I obviously have some ideas, given the governance and ESG is a very important part of Lawndale’s mission for the last three decades.

Great. Thanks, Andrew. Yes. We’ll do that for sure.

Your next question comes from the DeForest Hinman with Walthausen & Company. Please go ahead.

As we look at the power situation in Europe, I know you talked about selling into the gray market. There’s a lot of uncertainty out there. Is there any opportunity to enter into a power purchase agreement, either in the short term or long term?

Yes. There may be some room there. And we’re looking at it, DeForest, but we’re at spot today for a bunch of reasons. So, more to come in the future I would guess.

Okay. That’s helpful. And then, just I was checking my notes, on last fourth quarter call, we discussed the woodroom projects, your prepared comments made it sound like there was some amount of woodroom spending done in the 2021 period. Can you tell us the amount that was spent in 2021 on those projects, the amount planned for 2022? And then, I believe there was a previous discussion about plant realization of some of those projects. Can you give us an update there, and if those will be earned in 2022?

Yes. Well, I’d say for Celgar, most of the capital spending will be 2022. I mean, there was engineering and ramp-up and orders made with a big chunk of the civils, and the installations will be this year. Similarly -- but for Peace River, it’s a little bit -- got more done in 2021. I think they got close to 10 million into the ground and 2022 will be the remainder. Yes, the guidance we gave for both of those was getting better resource utilization, which is with a centralized chipping versus remote chipping, you get a wood recovery of -- could be 8%, so for every log process, you keep the bark for fuel, when you do it in a central location, and you get about 8% more wood from the chipping exercise. And then, it’s also the -- on Celgar, what we’re doing is we’re bringing in waste wood that used to be left behind. So, that’s all reasonably cheap wood. The only thing you’re paying for really is the logistics and the processing. And then Peace River, rather than bringing in tree length logs to satellite yards and shipping them there and shipping the chips to the mill, we’re putting cut to length on 10 axle trucks, which carry 100 tons a payload all the way to the mill and shipping it the mill. So both projects, coincidentally are expected to reduce our wood input costs by about $20 million each per year, including all that greenhouse gas reductions and resource utilization efficiencies. And it’s also -- in the Peace River situation, it’s also a much more attractive type of job driving a truck, where you’re coming back to the mill all the time, because it means they can go home at night. And so, it’d be easier to develop our own fleet and for contract partners to develop their drivers -- when it’s a circular traffic group where they can be at home at night, which is a big deal for a lot of them. I guess, it makes us more competitive for the trucking market as well.

And then just on the grant realizations. Is that still feasible?

Yes. All of that’s been committed or will be collected in due course, as part of the project. Yes.

And that’s just upon completion, and they’re up and running? Is that how it’s going to work, or is there some sort of monitoring…

Each one has a contribution agreement, each one is slightly different. And we’ll disclose them as they come. Some of the money already -- each contribution agreement has milestones that need to be reached for funding. But it’s all on track.

And then, on the Stendal sawmill project, I know there was a discussion at the Board level. And you did touch on it in the prepared remarks. But, can you just give us an update in terms of what you’re thinking now? What you think the pricing number is potentially to do that project? And you did talk about equipment availability as well. What are some of the things that in your mind need to get better before we’re looking to do this project?

We’ll even go up -- right up to 100,000 feet for it. The Stendal project is really attractive components of having sawmilling capacity at the Stendal region. So, a lot of that for us is becoming nice mature timber and will be for some extended period of time. So, it’s an underutilized sawlog timber basket that we want to take advantage of. And we want to make sure nobody else does. So, we’re ready to go with the Stendal sawmill. So, engineered -- the land is -- we own the land and it’s -- everything’s ready to go. It’s just, it’s a slow return on investment, because of these long delays with equipment suppliers. So, there’s no rush to do it today. Like, we don’t need to rush at it. There are also some M&A opportunities in Northern Germany that with our logistics we could take advantage of and we have strategic opportunities that existing owners might not have. So, we focus on those kinds of opportunities as well. And we also have Friesau, which we’re currently on track to produce about 550 million board feet of lumber this year. As we get our sorter completed, that’ll creep up again. But we could also put a third shift on. And if we had a third shift at that facility, we could take it up to the 700 million board feet of lumber. And so, we’re also focused on that. That’s really a human resource issue, like it’s making -- when you’re running a sawmill on three shifts, you’ve got to have all your operators really well trained. You don’t want to have anybody making mistakes. You’ve got to have some excess capacity to deal with illnesses and make sure you can cover every shift and you’ve got to have a pretty robust maintenance team and strategy because you’re running the mill harder, so you’ve got to really be on top of your maintenance. So, that’s where we’re heading. We’re working towards. That’s 200 million board feet of lumber by putting a third shift on, think of that compared to building up a whole greenfield sawmill. So, we’re going to do the right thing at the right time and take it in steps. I’m really pleased that we know what the Stendal situation is. Nobody’s going to be able to come in and start planning something and beat us. They all know that. They know we’re ready to go. So, we kind of protected the timber resource there. And we just have so many really great strategic opportunities as a company, we just have to evaluate them and do them all at the rate -- in the right order and timeframe and be clever about it. So hope that helps.

Your next question is from Andrew Kuske with Credit Suisse. Please go ahead.

You talked a little bit about fiber cost and a bit of attention there. And I guess on the positive side, you see Canada cost going down a little bit, because COVID restrictions coming off. And then, may be some issues from a German standpoint. But, maybe if we could just dive into that a little bit more, because if I go back, I don’t know, it’s seven, eight years ago, when fiber costs got out of control because of the pellet market in Germany. It doesn’t seem like those incentives are in place right now for people to consume the pellets to the same degree as they were back then. And your business is -- not being patronizing about it, but your business is just better positioned. If you could just give us some thoughts on fiber costs, both North America and then Europe, it would be great.

Yes. Well, I think the -- Germany sawlog prices have moved up quite a bit from, say, the early part of 2021 to what you’re seeing in Q4. It’s quite different from what it was in Q2, when we had all the beetle wood. And now what we’re really -- what the market is seeing is primarily fresh green wood. So, it’s back up to what I would say would be more normal sawlog pricing. We don’t see a huge amount of further inflation in 2022, maybe 10% at the most, something like that. On the pulpwood side, we’ve been enjoying really cheap pulpwood for a couple of years now with the beetle situation. That’s unwound itself. There’s not a lot of calamity wood at the moment. And there’s pretty strong demand in the winter anyway from the pellet side. So, we didn’t have a ton of inflation in 2021 from maybe Q2, Q3 up to Q4, might have been 7% rise. And then, in 2022 it’s going to be more significant. I’m thinking hopefully could get up to maybe as much as $60 a cubic meter, which could be roughly 30% increase from what the calamity level was. But that’s more normal from pre-calamity levels. And that’s kind of a peak that we’d see. And then, if we get dry summer, we get some beetle kills coming back where things will obviously soften up a bit as well as the pellet demand is more seasonal thing. So that pressure will come off as things warm up as well. So that gives you the kind of goalpost there, I hope.

It does. That’s very helpful. And then, maybe for the second question, if we could talk a little bit about the potential in the higher multiple and just the positioning on the CLT facility. And it’s a great position. And once again, not being patronizing about it, but you’ve got a great market share in North American market. Is this something that you really see yourselves as a little bit of -- maybe the wedge on where you can grow this business, not just in CLT, but in some other areas, and be more exposed to higher multiple, more stable market positions without the volatility?

Yes. The mass timber definitely deserves a much higher multiple. It’s a value added product. Our facility -- I mean the amount of sorting and trying and scanning capacity in this facility is enormous. We’ve got very large CLT press, with -- which gives side press as well. So, I was actually at a building yesterday that was under construction from panels that were produced in the Spokane facility. And the owner of that project was telling me, this is the best CLT he’s ever seen, and he’s building an office for his engineering group that provide engineering services to mass timber owners. And what’s unique about our press is that it’s got a side press on it, like it squeezes sideways without -- it’s not a side glue, it’s a side press with bottom... So, that’s one thing. So, very high quality, excellent -- big, big operation already, 30% of the capacity of North America. But it also -- the sawmilling -- not with the sawmilling, but the grade -- the in-feed gradings, drying, sorting, trimming and all of that kind of cleaning, there’s enough capacity there. We can add a second press. So, you don’t have to build the whole facility. You can put a second press here. So, we’ve got this huge upside in terms of capacity and what our thinking is we put a smaller press in that’s more flexible. So we can do the full spectrum from the big four place, the bigger panels that can be cut into all sorts of different products, but we can also custom smaller panels for the more of the catalog things for like row housing and smaller applications. And we’ve also got the space and the capacity we put in glulam and make other engineered wood products on the site. So, I see this as a really big deal. And within a couple of years, we’re going to be fully up and really making people notice. And I also think that with our pulp mills and our sawmill and just -- and our logistics and compared to who we’re competing with, like we just -- we’re in the wrong ZIP code, like we’ve got to find a different audience because we’re not getting recognized for the quality of our assets right now. And that’s what I was trying to say.

I appreciate the thoughts and the detail on the CLT. I think that you’re well positioned there.

Great. Yes. Thanks, Andrew.

[Operator Instructions] Your next question is from the line of Paul Quinn with RBC Capital Markets.

Just a question, a little confused on these global pulp markets. Yesterday, we had World-20 pulp stats, softwoods at 43 days, hardwoods at 40 days. I don’t see any particularly low. But, we’re seeing all kinds of price increases for January, February and now March. How do you make -- what do you make of the market and how sustainable is it?

Well, I think in China, it’s -- they’re concerned about supply, like I think it’s really a supply story. I mean, demand is off quite a bit in China right now, as everybody knows. If we can get through COVID and get back to anything close to normal, I think there’s a huge pent-up opportunity there. But just at the moment, I think what’s impacting paper producers over there is for those who are running, they’re worried about whether they can get pulp. And there’s a bit of speculation in the market from that perspective. The Shanghai Futures is something they’ll look at, and it’s popped up. So, you’re right. It’s been 800, 850, 880 type of thing. In Europe, it’s a really strong market. And I think that has a lot to do with the absence of competition on the paper side caused by logistics challenges. So, it was -- and I think the finished situation is also kind of all those paper machines are down up in Finland. So, they’re -- those pan-European accounts that have operations in Germany as well, we’ll be running those very hard. And the U.S. market, yes, spot has moved up there as well. So, it tells us something. I’m not sure I fully understand it. I think it’s mostly supply and logistics driven. And as things -- as we come out of COVID, I think on the demand side, we’re going to see quite a tick up because there’s been some pretty significant curtailments that have had to happen on a lot of -- for a lot of the paper guys. I think I worry a little bit about the cost side for some producers in these energy costs in Europe. They’re tough on paper guys. Obviously, great for us, but tough on them. And I think one of the things to watch going forward is to see how successful the paper guys are on getting the prices up because they really need to -- I know they’re working on it, but it takes a little bit of time. I’ll stop there. Paul, see if you want to drill into anything else on that.

No. That’s good there. And just it sounds like you’re equally confused. And just maybe on the European energy side. Just what are you guys generating on an annual basis in Europe? And thanks for the color on the increased prices. I’m just trying to see what the incremental revenue or EBITDA could be.

Well, maybe the way I could answer that is in a way that’s helpful to the audience is, in the past, you would always have thought of Mercer is having this $100 million of revenue that was flat. It was -- 80 of it was -- 80ish of it was energy and 20 of it was biochemicals, right? And that was at a time when the EEG rates were averaging around 19. So, at today’s rates, like just today, that 80 becomes 160. Right? Like it’s a double, on average. That’s how significant it is.

Your last question is from Cole Hathorn with Jefferies. Please go ahead.

Just a follow-up on the European pulpwood costs, and then, kind of a longer-term demand question. On the pulpwood, you talked about there being less calamity wood available and demand for the pellet producers. That 30% number kind of off the lows, how should we think about German pulpwood costs relative to other regions? I mean, if I look at Sweden and Finland pulpwood, it’s going up, but the increase is a little bit more muted because there’s a lot of sawmill demand, and there is that pulpwood available. So, I’d just like to kind of put that pulpwood increases into context. And then, I’ll follow on with the demand question.

Yes. I’d say, the German wood cost is going to be a little bit higher than Scandinavia, but our energy side of the business and the proximity of our customers to our mills are both significant advantages relative to them. In Canada, wood cost will be -- gosh, maybe think about it on a per ton of pulp basis, we’d be $70 or $80 lower at Canada compared to Germany. So, we’ve got a very distinct wood advantage, but we’re a little further away from our markets, and we don’t get as much for power.

And then, if I think about wooden construction demand in Europe, we’ve got EU commentary, the EU forest strategy, various other documents coming out of the EU talking and prioritizing kind of the CO2 sink and the benefits of wood construction really trying to promote that as kind of the first use of wood. How do you see this playing out? When do you expect to start getting legislation that really supports demand, or are you involved in any kind of discussions of how you’d like to see regulation to support demand of wood-based construction in Europe? And do you think this is going to be a kind of underappreciated multiyear, kind of demand boost for wood-based construction? Thank you.

Yes, I do. And I think it’s going to really help the engineered wood side of things. As we move further and further into the future, I think system building, factory-built components going into buildings is going to become more and more how it’s done, like a lot like Japan is miles ahead of us, right? Everything gets built in a factory and it gets taken out and it goes up like Lego, very little waste. I think that’s got to be the future in all of the developed economies. I mean, that’s why we’re seeing such high growth rates in North America around mass timber. Yes, I think, we have to be involved in the policy development to make sure the governments all get it right, but a forest -- I’m not talking about wood growth here, but a typical forest like a Central European forest or the boreal forest where we operate or a Southern British Columbia forest. These forests need to be managed. Like, if you leave the forest alone too long, the trees just get to an age where they become susceptible to droughts, to pests, to forest fires, and you have huge problems. So, I think society is going to figure out if it’s properly managed, and it’s planted and looked after. It’s a tremendous renewable resource. And, of course, the most important thing is to get the maximum value out of the resource that you can. So, we’re rewarded for resource efficiency for making high value-added products versus commodity products, utilizing the waste to make heat and steam and electricity. And in the future, we’ll be making biochemicals out of our black liquor and all these other sorts of things. So we’re really, I believe, on the right side of this whole kind of thing. I think our operations will evolve to really participate well in both, looking after the forest and producing as much high value materials we can from it. And I think the pure conservation argument is not going to win. People are going to see forest fires. They’re going to see calamity wood. You got to deal with the forest. You can’t just leave and sit there. And really good examples are all over the place. Like in Canada, when they left our national parks, like Jasper and Banff, and so you can’t -- nobody can harvest anything in here. We just got to a -- be a natural forest. Well, when you get into fire season, you can’t even visit the parks anymore because it’s so dangerous. So, I think there’s a whole movement towards ecosystem-based management doing the right thing, promoting more vibrant, healthy biodiverse forest and creating value from those renewable products. And I think those products are going to be more and more in demand in the future for all these different reasons.

I suppose, I mean, not just focusing on the CO2 sink benefits of the forest, but the substitution effect, which is, I think, often underappreciated. But if we think about cross-laminated timber, your competitors like Stora Enso and Sodra and the U.S., they really talk up the benefits and the blue skies there and the CO2 reduction in buildings. I’d love to get some color of how you perceive it in North America. Are you getting similar traction from kind of your architects and support there to build in cross-laminated timber? Thank you.

Yes. I think so. As I was saying earlier, I was visiting a building yesterday that’s still under construction. And I said, "So, what’s the heating source in here?" And the owner said, "We don’t need a heating source. Humans and laptops are our heating source." I think out like R48 or whatever it is in the walls is cross-laminated walls and ceiling and the other components come with the installation and the rain screen already applied. The whole building, four stories went up in 10 days, and it’s incredible. It’s -- so he’s all about demonstrating the environmental benefits of building this way. So, he’s got all kinds of pretty cool features in there. And more and more, all these organizations where the conscience are going to want to be thinking about having passive buildings like this and homes that are energy and carbon efficient and -- both in terms of their construction and CLT sequesters a lot of carbon, right? That is a renewable carbon sink that’s turned into a row building, and it sits there for 100 years. It could usually be potentially repurposed whenever the building like this needs to be renovated or whatever. So, what I think? I think society is going to grow a conscience more and more, and that’s a big part of the story.

As there are no further questions in the queue, this concludes today’s question-and-answer session. I will now hand the conference over back to David Gandossi, President and CEO, for any closing remarks.

Yes. Great. Thanks, Paula, and thanks, everyone, for joining the call. And as usual, and as always, if you have any further questions or you want to connect with us, don’t hesitate to give us a call. And otherwise, we look forward to speaking to you again on our next call in April. Thanks very much. Bye, bye.

That concludes today’s conference call. Thank you for your participation. You may now disconnect. Stay safe and well. Have a great day.