Fortress Paper Ltd., a leading producer of security and specialty papers, on March 19 announced the signing of an asset purchase agreement (APA) to acquire the assets of a northern bleached hardwood kraft (NBHK) manufacturing facility located in Thurso, Quebec, from Fraser Papers Inc. with the intention to convert this operation into a world-class, low-cost, specialty cellulose (dissolving pulp) operation. Concurrently, Fortress Paper intends to build a biomass-based co-generation plant at the Thurso Mill which will produce green electricity resulting in material net energy savings (income).
Upon closing of the acquisition of the Thurso Mill, which will be completed through its wholly-owned subsidiary Fortress Specialty Cellulose Inc., the corporation intends to incur capital expenditures of approximately $153 million to convert the non-operating NBHK mill into a high-quality specialty cellulose mill and to construct a new cogeneration facility. In connection with the proposed capital expenditures, Fortress Paper announced that it has pre-arranged specific financing initiatives to fund the conversion and co-generation projects.
The specialty cellulose mill is planned to have an annual production capacity of more than 200,000 air-dried metric tonnes and is expected to be completed in mid-2011. In entering into the specialty cellulose sector, Fortress Specialty will focus on producing dissolving grade cellulose for the textile industry, primarily targeting viscose fiber (rayon) products which have shown strong growth of approximately 10 percent in China and 7 percent worldwide over the past five years. Rayon is a technically evolved and versatile fiber with many advantages, particularly in the warmer and higher growth regions of the world.
Fortress Paper also plans to construct a 25-megawatt co-generation facility to service a net 18.8-megawatt power supply agreement over a 15-year term. The location of the co-generation facility provides it with access to on-site generation of biomass and an extensive local network of chip and other biomass suppliers. The co-generation facility is expected to be supplying electricity in the fourth quarter of 2012.
Chad Wasilenkoff, CEO of Fortress Paper, stated, “We are very pleased to announce this new acquisition which we believe will add significant shareholder value in the years to come. Both the board of directors and management of Fortress Paper feel that this new opportunity warrants the diversification of the corporation into other specialty sectors as it has the potential to materially enhance shareholder value. Once the conversion and co-generation projects are complete, we will be entering a new product segment which offers long-term growth prospects and attractive margins. During the interim period, we will capitalize on the current strength of the NBHK pulp market. We feel it is important to emphasize that this is not an acquisition to enter into the pulp industry, but rather the opportunity to acquire assets that are ideally suited to be converted into a bio-refinery and produce high value-added products. We intend to strategically enter this sector at a time when demand exceeds current capacity. We believe this trend will continue over the next several years given the limited announced new capacity.”
Pursuant to the terms of the APA, Fortress Paper will pay Fraser $3 million in cash at closing, subject to certain adjustments.