West Fraser Timber Co. Ltd. (WFG) Q3 2020 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. And welcome to the West Fraser Q3 2020 Results Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and- answer session. [Operator Instructions] During this conference call, West Fraser's representatives will be making certain statements about potential future developments. These forward-looking statements are intended to provide reasonable guidance to investors, but the accuracy of these statements depends on a number of assumptions and is subject to various risks and uncertainties. Actual outcomes will depend on a number of factors that could affect the ability of the company to execute its business plans, including those matters described under risks and uncertainties in the company's annual MD&A, which can be accessed on West Fraser's website or through SEDAR and as supplemented by the company's quarterly MD&As. Accordingly, listeners should exercise caution in relying upon forward-looking statements. This call is being recorded on Tuesday, October 27, 2020. I would now like to turn the conference over to Ray Ferris. Please go ahead.

Thank you, Operator. Good morning, everyone, and thank you for joining us. With me today is our Chief Financial Officer, Chris Virostek; Chris McIver, our Vice President of Sales and Marketing; and several other members of the West Fraser executive team. Before I turn the call over to Chris to go over financials, I'm deeply saddened to report that in the early stages of a major shutdown at our Hinton pulp facility, that Norman Hatami, a scaffolder working for Aluma Systems suffered a fatal fall from height, while erecting scaffolding inside a vessel. This is a difficult period for all impacted and our deepest sympathy goes to Norman Hatami's family, his friends and fellow workers. With that, I'd like to acknowledge that we recently posted our updated ESG responsibility report and it is now available on our website. It references the Sustainability Accounting Standards Board, Global Reporting Initiative, and includes information recommended by the Task Force on Climate-Related Financial Disclosure. With that, I'm now going to turn the call over to Chris Virostek.

Thanks, Ray, and good morning, everyone. A few months has certainly made a dramatic difference in things. When we last reported earnings in July of this year, we were just a couple of months into the restart of many of our facilities coming out of the first wave of the pandemic. Strong demand for lumber from new home construction and for renovation applications, coupled with lien channel inventories and a limited ability for a supply response drove a significant pricing reaction in wood products. Our lumber segment adjusted EBITDA increased to $552 million, eclipsing the $467 million recorded in the second quarter of 2018, which was the prior high point of pricing in recent years. Our panels segment rebounded as well, ramping back up production and shipments with significantly improved plywood pricing. Adjusted EBITDA for the panels segment increased to $51 million. And while adjusted EBITDA in pulp declined to $5 million in the quarter, principally due to price, we offset a significant amount of the price headwind with lower costs through improved reliability and production rates. Consolidated adjusted EBITDA rose to $605 million, and operating earnings were $487 million. Finance expense declined as we repaid debt during the quarter, and interest rates declined as well. We recorded earnings of $350 million for the quarter. Improved wood products pricing, reduced costs, and increased production volumes, all contributed to better earnings. While the progression from Q2 to Q3 involved a healthy dose of price $430 million, of which $424 million was attributable to lumber, we also made progress on the cost front, not only from increased production, but also from the benefits of capital we've spent in prior years and continued close management of fiber costs. Volume was a slight drag overall in the quarter, coming mostly from reduced shipments of SPF partially offset by higher SYP and plywood shipments. SG&A costs increased in the quarter due principally to increases in provisions for variable compensation, along with slightly higher wage costs resulting from pandemic-related staffing actions. Our prior quarter also included $7 million of insurance recovery that did not carry over. Turning to the comparison to the first nine months relative to last year, there's been a remarkable turnaround in wood product markets. Pricing in lumbers and panels has increased significantly partially offset by softness in pulp markets. We are particularly pleased with the progress we have made on cost in each of our segments over the prior year. Through continued focus on safety, operational excellence and management of fiber costs, we've improved costs by $169 million over the comparable nine month period. Timing of pulp shutdowns year-over-year did provide a benefit as well. SG&A changes year-over-year were largely attributable to the fact there was no variable compensation recorded in the prior year period, given the earnings performance. Year-to-date adjusted EBITDA of $916 million has drawn more in line with the $819 million and $1.4 billion of adjusted EBITDA for the comparable periods in 2017 and 2018. Lumber production for the quarter increased by 125 million board feet, as SPF production increased 8% and SYP production increased 9%. Shipments were down slightly in the quarter. But for the full year, shipments are slightly ahead of production, as we reduced inventories during downtime earlier in the year. Plywood shipments reflect a full quarter of operating near capacity. Cash flow from operations was $613 million, as improved earnings and favorable working capital both contributed. In the quarter we paid down a number of the COVID-19 related deferrals that were put in place earlier in the year, notably on stumpage and property taxes. Capital spending was in line with the prior quarter, and we expect the full year to be towards the higher end of our previous guidance, as we brought forward a few small projects. Net debt declined by $563 million and net debt to capital is now 12%. During this quarter, we have repaid our operating loans and increased our cash by $179 million. Our cumulative duties on deposit grew to US$495 million. If the duty rates adjust as anticipated in Q4, we will record a US$93 million recovery in Q4 in respect of overpayment of duties for the 2017 and 2018 periods. Evaluation of 2019 duties is currently underway. Liquidity continued to improve and is now approximately 1.3 billion with the majority of that comprised of undrawn bank lines. We remain well on site with our financial covenants and have no near term maturities. We are entering -- currently entering the period of seasonal inventory accumulation of logs in Western Canada, which will carry on through March of next year. With that, I'd like to turn it over to Ray for some comments on market perspective and recent developments on some of our capital projects.

Thanks, Chris. And I'm going to keep my comments fairly brief. First, just a little bit about the pulp business. Our pulp operations, again, had a solid operating quarter. However, the impact of COVID is obviously resulting in an acceleration of the decline in printing and writing demand, which has only been marginally offset by growth in tissue and packaging. We expect continued difficult markets for pulp in the short-term before production becomes aligned with overall demand and market preference. Hinton pulp and QRP, Quesnel River, both completed shutdowns in early Q4. As Chris noted, and further to his comments, with respect to the dynamics of lumber demand, reasonable housing starts combined with good repair and remodel activity with export volumes, although down from previous years, remain at a similar level to the last half of 2019. On the supply side, it's important to note that North American production in the third quarter of 2020 remained below similar periods of record pricing in early 2018, partly due to permanent capacity closures in British Columbia that were not fully offset by increased capacity in the U.S. South. Import volumes, although flat over the previous year, are up roughly about 100 million board feet per quarter over 2018 and 2019. This stronger-than-expected demand and limited supply response contributed to record pricing in the third quarter. As everyone has multiple sources of housing forecasts for the balance of '20 and 2021, I did not intend to repeat them here, except that consensus appears to indicate that housing starts are expected to continue to improve, saying that demand can be hard to predict. But we do have a good understanding of supply, and that the difficulty in adding supply has been a driving factor in the price response. And the respective short-term fluctuations of price, saying that we believe it is not coincidental that we have experienced record pricing twice in the past two years. When the long-term evolution of lumber prices examined for a long period of relatively stable prices from 2011 through 2016, the last four years have seen a markedly higher trend in pricing as the current supply and demand dynamic has influenced lumber pricing. The last three cycles in both Southern yellow pine and SPF have resulted in successively higher floors and higher feets. So what is the impact of potentially higher pricing on home affordability, at peak pricing in September, FEA estimated the increased cost could average at an average of $10,000 to a median home. Well, not insignificant, this appears manageable and should not be a significant impediment to builders and homeowners. Pricing has retreated from September levels, and critical gaps in supply have been mitigated. Short interruptions in the supply chain in the past few years have not been quickly overcome. As we've done in the past few quarters -- moving beyond supply and demand, as we've done in the past few quarters, we thought we'd update you on another step in our modernization journey in the U.S. South. We've owned Joyce, which is in Louisiana since 2001. The log handling and merchandising systems were built in the early 90s and were quite inefficient and lacked the technology to meet current expectations. Although I have to tell you there was a delay in the crane delivery, the USD$30 million project was essentially delivered on time and near budget. The project eliminated the high cost bottleneck in the operation and we’re pleased with the results that our Joyce team has delivered which has met or exceeded our payback expectations. We're continuously focused on the improvement of all of our segments, and particularly our lumber segment. In 2007, we made significant investment in U.S. South by buying 13 mills from IP. The first few years were difficult as we endured the most significant collapse in the housing construction industry and the turmoil of the Great Financial Crisis. As we started to emerge from that difficult time, we continue to grow through acquisition and invested capital to keep our assets low cost and to improve the operations where we have the opportunity to do so. Our work is not done yet. And we remain convinced of further upside. While it may seem obvious that lumber profitability comes with inherent volatility, the 10-year average EBITDA margin for our lumber business is just under 15%. And the trend has been increasing. In the three of the last four years, our lumber EBITDA margin has been in excess of 20%. Tightening supply, increasing demand, the prudent deployment of capital and a focus on operational excellence have all played a role in margin improvement. Over time, our consistent strategy has worked and we remain focused on our key priorities. Since the peak of the last housing cycle in 2005 to the significant downturn through the late 2000s and into recovery over the last decade, our total shareholder return has been above the comps and ahead of most of our directly comparable peers. So a few wrap up comments before I turn it back to the operator. We expect that BC or British Columbia production, including West Fraser, will continue to shrink over the next few years, as the industry continues to rationalize to the available and the accessible timber supply. We also expect that our U.S. South modernization and operational improvement focus will continue to deliver and improve our relative cost structure. Our modernization and operational improvement runway in the U.S. South will continue to be a focus area for disciplined capital. Record and unexpected pricing in our wood products business has significantly improved our balance sheet. However, as the past few quarters have demonstrated, it would be prudent to be prepared for further volatility and uncertainty, as the impacts of COVID continue to play out. We will be conservative with respect our balance sheet, are well-positioned to further invest in the growth and performance of the company; and as conditions allow, responsibly return capital to the shareholders. Finally, all injuries and serious incidents are preventable at West Fraser. And although our injury and incident rates have improved to record lows, we have more work to do in order to eliminate all life-altering incidents for our employees and contractor partners. With that, I will turn it back to you operator for follow-up questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. So your first question comes from Sean Stewart from TD Securities. Sean, please go ahead.

A few questions. I gathered from the MD&A that you're content to let liquidity build on the balance sheet in the near-term. We're forecasting a transition in that cash at some point next year. Ray, can you give us some context on priorities for capital allocation, growing asset base versus potential returns of capital to shareholders as we move into 2021?

Thanks, Sean. I'll take a stab at that and let Chris chip in here as well. I mean I don't think our capital allocation strategy has really ever changed. I mean our first priority is to invest in ourselves. And so we continue to see a significant runway, primarily in the U.S. South to continue to modernize our assets, and we'll be disciplined in how we do that. We don't want to get out ahead of our skis. And we're digesting some major capital that we want to make sure it meets our objectives, and -- but that our expectations are to continue to grow and invest in U.S. South. And -- but as we kind of work through that hierarchy of capital allocation, and we frankly see a little bit more certainty and visibility in what the next few quarters will allow, then we'll assess our -- the other options as far as returning capital back to the shareholders. Chris, do you want to chip in?

I think that's a great summary. The only other -- a of couple things I would point out is, we are entering a period of time in the year when demand is a little bit seasonally slower, at the same time as we're building log inventories through March of next year to carry us through breakup into the summer. And that usually consumes some liquidity as we work through that. And I think, while the fundamentals that we all talk about around housing and interest rates, and repair and renovation, the fundamentals are all good. There's still a fair amount of uncertainty out there, when you look at the case counts that are going on and all the other factors that may impact the market. So I think we're going to take a measure of caution now. I think that measure of caution in the past has done us well. It allowed us to keep our dividend and not touch our dividend through the darkest part of this pandemic in May, June of this year. And so being cautious, I think, given the backdrop of uncertainty, even though the fundamentals are good, is the right strategy for now. But as Ray said, our balanced approach is over time, as opposed to, a quarter-by-quarter kind of assessment of things. So, when we think fundamentally, things really changed.

Thanks for that guys. A question for Chris McIver. Wondering if you can give us some context on the pullback we've seen in lumber the last five or six weeks. And I suppose some of that was to be expected after a run like we had through the second and third quarter. Can you give us a sense of how your order files have trended, perspective on inventory through the channels right now? And any sense on if we're headed for a bottom anytime in the next little while?

Sure. Sure. Good morning, Sean. Well, as you said, I don't think this is entirely unexpected. And prices got way ahead of us for a while. We're seeing a bit of a pullback. But we’ve -- and we really got -- both our lumber businesses are a bit different. Certainly, we saw our Southern pine business run first, and probably a little further. SPF took a little while to get going. We were able to build a bigger order file in SPF. So we're still winding that down a bit and trying to get our last orders out. We are seeing -- certainly we're hearing from our partners in the field that their inventories are very low, whether it's retailers or pro dealers distribution. So that is a difference than we saw in 2018 going into 2019. We are selling -- I would say we're selling better in the South right now than we are in Canada, which is quite usual. Usually, the South picks up a bit earlier. But I can't say we’re at a bottom. We're beginning to build an order file for SYP, and we are going to need to build an order file for SPF in the next little while. So, what that volume is? I don't know. I would suggest it's higher than the bottom we've seen earlier this year. And so I -- again back to the comments Ray and Chris had, we see the fundamentals for next year as pretty strong. And our partners are saying the same thing. So, we'll see where it goes. I couldn't give you a price. But I think we're close to seeing things turn a little bit.

Your next question comes from Hamir Patel from CIBC Capital Markets. Hamir, please go ahead.

Ray, Alberta has announced some plans to increase harvest levels in the province. So, what sort of production uplift could that represent for West Fraser and what's the timing of that?

Good morning, Hamir. Well, a good question. And I'm going to couch my words here. But I mean, I would say that remains to be seen. So, what -- I think the Alberta government probably about a year ago now, I would say, announced that the challenge of industry and government to look the opportunities to raise annual available cut. That opportunity is there, it's not an insignificant number. They've asked for 30%. I think that might be aggressive, but that's certainly the tone that you want from -- and that certainly is available on the land base. And I would say, it'll play out differently across the province, depending on the region that you're in, including West Fraser. So, we continue to work through that with government and our people. And I would just say that it's positive. And rather than talking about, whether it's 5% or 30%, I think the key is, it's great to be talking to people that want to grow access to the land base. And so I think it's positive and it goes a long way to help us continue to grow in Alberta.

Thanks for that, Ray, that’s helpful. And do you have any -- in terms of your capital projects, after Dudley and Opelika, are there any other sawmill sort of rebuilds that you have on deck for next year?

Well, what I would say is yes. We do have more projects in the queue, and that would be what I call significant strategic and that -- but at this point, Hamir, we're not going to pull the trigger on any large ones at this point, but we continue to look at that and think about our portfolio and when we might do that. But -- so we have them in the queue, but not ready to kind of say that we're ready to move forward on that stuff today.

Fair enough. And Chris Virostek, should we -- any sort of directional guidance you can give on CapEx for 2021?

Well, I think as we've said all year, we've had a couple of big years of capital. We've got a lot of stuff in the U.S. South in 2018 and 2019. And certainly this year, we've had a big focus on operationalizing that and getting the benefits of that. We'll be bringing Dudley online next year. And I think, next year capital is probably somewhere between where it was this year and where it was in the couple of prior years. But I don't think, we're set on a final number and final list of projects yet. But our focus right now is really on squeezing all the benefits out of the capital that we've spent over the last couple of years, more so than it is tackling a whole bunch of new stuff.

Your next question comes from Mark Wilde from Bank of Montreal. Mark, please go ahead.

Good morning, Ray. Good morning, Chris. Just back on the capital allocation front, I just would like to get your thoughts prospectively on any share repurchase activity. I mean, your leverage is quite low. The stock is more than $25 below where you did that accelerated repurchase back in '18. I guess my question would really be, why not just take a portion of this extraordinarily windfall that we're getting here in the second half, maybe 20%, 25% and just put that capital to opportunistic share repurchase, because the market doesn't think your prospects are as good as I do when I think they probably don't think prospects are as good as you think they are?

Sure. So Mark, I think, it's a fair question, I think all the options are on the table for us. Executing on an NCIB is something that can be done in reasonably short order. I think our approach, as we said earlier has been, there's still uncertainty there. I don't think we would kind of disagree with your assessment that it probably doesn't seem to be reflecting a more common outlook of the market, but there's still uncertainty in the background. And I think we have to just balance all those things together. The amount of cash that we're holding right now is not that much different than what we were holding at the same point in time in 2017 or 2018. So, 2019 was a pretty tough year. And so, holding that liquidity and making sure that we're prepared for what may come out of the different eventualities is I think top of mind for us right now. There was only kind of six months ago, when people were scrambling to raise additional liquidity and get facilities and they couldn't do it. So, it's been a great return since basically the end of May, but it's only been four months. And I think we just have to be mindful of where things could go and make sure we're prepared for all the outcomes and how we best add shareholder value over the long-term.

I think that's fair enough, Chris. I mean, don't get me wrong. I'm not pushing for like a real aggressive program. I think in a cyclical business a strong balance sheet makes a lot of sense. But I also think we've got kind of a very unusual second half of the year here by I think any historic measure. So I'm just saying when you got to kind of a mismatch with the fundamentals in the business versus your share price, it's just things like taking a portion of that cash and putting it to share repurchase to be a very good use of capital. A couple of other questions away from that. I wondered, Ray, is it possible for you to just talk about kind of fiber supplying cost issues for the pulp mills over the next three to five years, just with the shrinkage that's taking place, particularly in BC?

Sure, Mark. And so -- and I believe we talked about this on previous calls. And of course, there's lots of public information out there. And I think this is primarily around pulp. But I mean, there is, without a doubt, significant shortage of fiber available to the pulp mills. I would say we probably haven't seen a lot of that significant cost pressure on the residual side. But certainly as pulp mills go out and reach out to purchase more whole-log chips, those costs continue to be difficult. So, I mean, it depends on whose math you want to use. But certainly, our view would be that, in British Columbia in general, almost irrespective of cost, but more about supply, there's not enough supply to fully operate all the pulp mills in the province. So, it's hard to predict exactly, because I do think, in the short-term, people can be pretty creative to define fiber supply. But that we'd expect one or two pulp mills to come out of the system at some point. Look, we understand the supply side quite well. We've been planning for it for a decade. Everyone is under stress, including West Fraser. But I think, our fiber position is probably a little bit better relative to others. But that doesn't mean that it's great. So I guess, we'll see how it plays out, Mark. I think, much depends on where and when the pulp capacity comes out and how this plays out for us and others.

And then finally, just I wondered if Ray either you or Chris McIver, just thoughts on, one of your peers saying recently that customers are becoming more open to kind of alternative lumber pricing structures. And I don't know that this is just a function of $900 lumber prices. I'm just -- I'm curious whether you guys are seeing any of this or having any dialogue. I think they suggested, it might be 15% or 20% of their volume, where they're starting to have some discussions like that?

Chris?

Good morning, Mark. I would say that, certain jurisdictions are more prone to that. And certainly, those who do business in Europe are more used to that kind of relationship. We are seeing customers -- and I think you've kind of nailed it at $900 lumber and even more importantly with major supply constraints. Customers tend to be much more interested in a longer term relationship, be it contractual, vendor manage inventories, whatever it is, and potentially different pricing structures. I don't think we've seen anything that would tell us that there's enormous move in that direction. But I would say that we are getting closer to our customers or what would say our target customers, and we're moving further downstream, which I think is good for visibility of inventory, and hopefully help us manage our business a bit better so.

Your next question comes from Paul Quinn from RBC. Paul, please go ahead.

Maybe I will start in on lumber side. You got a good slide on North American imports there. It looks like annualized rate somewhere around 2 billion board feet laid down. So do you think that's a peak or you think it's going to go a lot higher in the next year?

So, well, Paul, I'll take a shot and I’ll ask McIver to kind of jump in. So I mean, you can go back and look at the previous peaks back in 2005, in 2006, and McIver correct me here, 3.5 million, 3 million. So look, I mean we -- I mean, I think we certainly expect, particularly with the pricing that we've seen, and available timber supply in Europe that we're going to see a more volume come over. I think it’s -- I think our view would be it's difficult that it will significantly surpass peaks in 2005 and ‘06, and we can debate all the reasons why for that, but it'll increase, but I think probably near something like 2005, 2006 level. So Chris?

Yes, Paul, I’d just say a couple of things to that. I agree with Ray, that sort of is there another billion board feet that can come over? I think so. But a couple different things in the past. One is Europe is pretty strong, their markets are good. And that is your first target. And then secondly, a lot of their -- spruce beetle that they're having is -- it's deteriorating pretty quickly from what we understand. And so it's more targeted to let's call it a China market, than maybe say a big box retail American market. And then finally, the Europeans tend to make a lot of -- just a couple of links. So their mix is not exactly what every customer wants. So there's a spot for North America, but it is limited geographically, as far as they can come in, and also a bit on the product mix they make. So -- but I would suspect we're going to see more.

And then if I could flip around. Take a look at your export volumes, and what do you anticipate going forward. I mean, obviously, we've had this record ‘19. Does that mean that you've lowered your export volumes into Asia as a result of some better utilizations in North America? And what are you expecting going forward?

Paul, yes, I would say that we have lowered our volumes. But we've kept a meaningful volume, both in Japan and China. Japan has slowed considerably for everyone, including ourselves. But it's traditionally been the highest returning market. And we're in this for the long-term, not just for this year. So -- and China is always changing, whether it's Russian fiber or European fiber. There are competitive fibers there. But again, we keep a foothold there and we find it very helpful, particularly in lower grades to be able to get better returns within North America by keeping a presence there. So yes, I would suspect to be up and down a bit with a fairly consistent relatively modest volume.

Okay. And then maybe just Ray you mentioned that BC lumber supply is going to come down over time, not just for West Fraser, but for others. Just wondering if you got an estimate of how much? And then, to piggyback on Mark's question on fiber availability, shut down in Cariboo and Q2 on the fiber issues. Is that the mill that looks like the one or two pulp mills that will come out at some point down the road?

Well, thanks, Paul. So, first on lumbers by look, I mean, I think there's lots of good public information out there on timber supply. And I think the -- I'll be frank, the issue we have in British Columbia is, one is timber supply. The other one is access to the available timber supply. And I think that's even a bigger issue than the available timber supply at times. So, therein lies a bit of uncertainty. But there's certainly -- I don't think the information that's out there is -- it's somewhere north of 1 billion board feet, more to come out of the interior. And I would say that's likely. Our guess would be that's going to be spread around somewhat. So -- and so -- and we'll certainly be part of that. We're planning and have been planning on how to get some more over time. With respect to pulp, Paul, I can't answer that. And with respect to which mills are going to go out, I think you can look across the province, there's mills that are not running. There's mills that have taken significant amounts of downtime over the last couple of years. And I guess we'll have to see how that strategy plays out. But we'll stay tuned.

And then maybe just squeaking a bonus question, just, I guess, maybe not so much a change in BC government, but do you expect any kind of change in forest policy going forward as a result of the election last week?

Well, you probably have the wrong guys on the call to answer that question. So, I’d refer you to them. I would say -- I don't think we're expecting significant changes. But -- and that is more of a status quo. But I guess we'll see.

Another question here from Sean Stewart from TD Securities. Sean, please go ahead.

Chris Virostek, just one follow-up. Can you give us an update of where things stand with your tax carryforwards in Canada and the U.S., just kind of gauge where we will be looking at the transition to cash taxes going forward?

Sure. And maybe if you want to give me a shout after talking about it, but I think, when you look at the last couple of years -- and I think we had this disclosure in the earlier quarters, in '19, we carried back, and so in Canada, and a little bit in the in the U.S. So, I would say the accelerated depreciation on the capital that we're doing in the U.S. helps mitigate some of that. But probably, we're a little bit lighter on attributes in Canada, would be taxable in Canada and getting close to that point in the U.S.

Another question from Mark Wilde from Bank of Montreal. Mark, please go ahead.

Yes, Chris, is it also possible to just get an outlook on [lower] costs in both BC and Alberta over the next four or five quarters?

Well, four or five quarters might be a little tough.

Well, let's try two quarters then.

I'll tell you that if you can tell me what the price of lumber is going to be in January, Mark. So in Alberta, the system is quite responsive. It generally kind of lags with about a month. And then in BC, you've got two main inputs. You've got kind of a quarterly input on lumber prices, which is one factor. And then the other factor is the July 1 adjustment, which is largely the purchase wood adjustment. And so the next quarterly adjustment on lumber prices is going to be in January. I think, as we put into disclosure, we estimate that's probably $25 to $30 potentially. Where it goes kind of April 1 is going to be dependent on how lumber does hear over the next few months but that should. Well, the January 1 is going to catch just about all of the peak in SPF over the last quarter or so. So, if we see this bit of correction here, right, that gets probably baked in April. And then I don't have off the top of my head kind of where the purchase market has been trending so far, but we can take a look at that and because it'll be the purchase market for calendar '20 that will affect July 1 of 2021.

And then I'm just curious Ray, if you could talk a little bit about sort of what type of M&A opportunities you're seeing right now in the Southern U.S.? And maybe if you'd also just want to share any thoughts, we've had one or two kind of greenfield mills announced in the South, and at least one of them is from a very non-typical player and going into what looks like a pretty challenging area down in Mississippi?

With respect to M&A opportunities, I mean, Mark, we're plugged in every day to every opportunity. And so that is kind of built into our DNA. And so we are -- I would say, I think I said on the last call, it's a little bit quiet. And I would say -- but there's always something going on, and there's always opportunities out there. I would say that -- and so we tend to look at many things, but quite frankly they need to be something that we see synergies in, and that can make the company better, either in the short-term or in the mid-term. And so there's opportunities out there, I think there's -- I think -- I still think there's -- valuation is always a major obstacle. With respect to others that are out there building greenfield projects, I think I saw one that was announced. I think, look, there's a great opportunity in the U.S. South. So you've got good ample timber supply. And I think there's always money out there to venture into these things. I think we've seen that over the last number of years, whether it be lumber or OSB and I would just say that those opportunities come with a significant amount of risk, both financially and on execution. You need to have a well thought out home for your residuals. And we think those things will continue to happen over as we see quite frankly robust pricing hopefully the next few years. And I would just say that -- anyway, I would just say that we should expect that and -- but understand that building a greenfield and running a greenfield mill and finding a home for residuals creates some headwinds. And it takes quite a while for that production to actually land in the marketplace in a meaningful manner.

It would just seem like if you're not in the lumber business already, it might be doubly challenging. Just one final one for me. Just Alberta newsprint joint venture, I mean I've always understood that maybe the lowest cash cost Newsprint mill in North America. Is the strategy there just to be kind of last man standing, right?

Just further to your last comment and I think that said, I think for a large company like West Fraser, which we aren’t far from perfect, but we've got a fair amount of talented and resourceful people. And it's a challenge for us to start up and run and execute to our expectations. So I think that's hard to do. With respect to ANC look, it's been a -- it is a great, well run -- we don't run ANC, but it’s an extremely well run, very thoughtful team. They've been wildly successful in executing on their business plans year-over-year. And their cost structure is certainly one that most people would envy. So as far as strategy is last man standing, I'm not sure that's ever a great strategy. But I do think ANC creates profitability on a number of things outside of newsprint, including energy, transloading and a few other things. So it's a pretty inventive group there. And so I’d kind of leave it at that.

[Operator Instructions] Okay. So it appears there are no further questions. Please proceed.

Well, thanks for everyone for joining the call and we look forward to talking to everybody sometime in February. Thank you. Bye now.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.