Push aside dated notions of our global forestry sector as dominated by lumberjacks focused solely on logging trees and processing the wood. Today’s forests are increasingly high-tech with employees skilled in biochemistry, genetics, computer modeling, satellite imagery, and digital processing.

Today’s bio-economy is a dynamic global market that mirrors a paradigm shift to products that originate from natural renewable sources. Mills that have focused on processing timber and pulp are beginning to diversify into bio-energy, bio-chemicals and bio-materials which include wood fibre and biomass that is converted into renewable fuel, food additives, non-toxic chemicals, solvents, plastics, textiles, and other products.

The International Council of Forest and Paper Associations, (ICFPA), which represents the global forest and paper industry, champions the role of our global forest sector as a central, thriving player in our new bio-age. The international forest and paper industry is committed to the principles of sustainable development and ensuring that the environmental, social and economic benefits of our natural resources are available to current and future generations. Studies have shown that by repurposing the chemicals and bio-materials extracted from trees, we can tap into a potential global market estimated at around $200 billion.

The global forestry industry is a vital benefactor to our world’s sustainable development. The worldwide forestry sector supports thousands of communities as a supplier of millions of jobs across the globe. The forestry sector prides itself on its use of renewable raw material and record of sustainable forest management and application of cleaner technologies in an increasing number of mill operations. More and more mills across the world are converting their wood residues into heat and power for their own operations with most of the sector’s energy coming from waste biomass with some facilities already acting as net sources of green power. With its strong reliance on biofuels, maximum recycling rates and the storage of carbon in its wood and paper products, our global forestry sector is at the forefront of the renewable era.

The forestry sector is finding new life in innovative and creative solutions that are not only helping the once struggling industry turn around, but also helping to usher in a green movement. After two years of work by FPAC, FPInnovations, and the Canadian Forest Service (CFS) of Natural Resources Canada, a new program called the Bio-pathways Project was set into motion this year with the goal of revitalizing the Canadian forestry sector. The project looks outside of traditional uses for wood, lumber, pulp and paper in an effort to create new jobs and sectors with a more sustainable future for the country and its citizens. New, innovative products include bio-active paper – paper towels than can indicate contamination; nanocrystalline cellulose composites that can replace materials in aircraft; wood-based textiles (such as rayon); and cross-laminated timber – a technology that produces strong beams and panels for construction products.

As the CEO of a security and specialty pulp and paper company, we are in the process of transforming Quebec’s Thurso mill from a traditional pulp mill to a specialty dissolving pulp operation. Dissolving pulp, a chemically refined bleached pulp of pure cellulose fibers extracted from trees that are used to produce rayon, is a popular cotton substitute in China and other markets. With our Quebec facility, we are transforming an under-utilized asset which struggled for market-share in the low-value add commodity marketplace. The evolution to dissolving pulp from traditional pulp metamorphoses the mill into a globally competitive, low-cost producer with a sustainable and profitable long-term future.

The future of the forestry sector is here today and it offers a bold, innovative, profitable and environmentally conscious path for the industry. Our global concern to reduce greenhouse gas emissions leads us through the forest to invest in renewable energy technologies that use wood fibre. As more forestry firms invest in technologies to increase their reliance on biomass for fuel versus fossil fuels, we drive the future of the forest sector to develop new biotechnologies, new jobs and greener prospects.

As our global forestry sector expands and leads the way to produce new and innovative bioproducts, we will experience greatly enhanced employment opportunities and financial returns than from traditional stand-alone mills. By incorporating new technologies into existing mills, we can ensure that these integrated operations will utilize all parts of the trees and extract the most value possible to ensure an environmentally friendly, sustainable, and profitable future.

About the Author:
As Fortress Paper’s Chairman, Chief Executive Officer and Director, Chadwick Wasilenkoff, oversees the company’s production of security and other specialty papers. Based in Vancouver, Canada, Wasilenkoff is an established entrepreneur with extensive capital markets experience specializing in the resource industry and currently serves as a director with various publicly listed companies.

SOURCE:
Vancouver Sun: “Future of Canada’s Forestry Sector is Renewable”
The Windsor Star: “A Renewable Forestry”
International Forest Industries: “Future of Canada’s Forestry Sector is Renewable”
The Post-Journal: “Future Of Global Forestry Sector Is Renewable”

Yawning all the way to the bank

While the pulp sector may appear quiet, the market players are “yawning” all the way to the bank. “Between 2002 and 2006, world exports of wood, pulp and paper products grew at an average annual rate of 10.6%,” reports Global-production.com Inc., a business economics consultancy. Despite the volatile economy, the upward price trend in market pulp continues across the world.

“The fundamentals of the pulp market continue to be very strong,” reports PulpWatch, a leading provider of business information and consultancy services to the international pulp and paper industry. “Pulp prices increased by $30-50/t in May, and are set to reach new records in Europe and North America in June. Producer inventories reached record lows in April, and consumer warehouses are similarly bare. European paper demand and order books have improved and prices for most grades are moving upwards, albeit at a slower pace than fiber prices.” This is currently a temporary cyclical high, but we will be getting out of this old product in approximately one year.

As a contrarian investor, I keep focused on industries widely considered to be depressed with an eye on purchasing world class assets at deeply discounted prices. My company recently paid $1.2 million to Fraser Papers for a facility in Quebec with an insured replacement cost of $851 million in assets. We are converting this operation into a specialty dissolving pulp operation. Dissolving wood pulp is chemically refined bleached pulp composed of pure cellulose fibers extracted from trees. Dissolving pulp is the major source for the natural cellulose used in the production of rayon.

Rayon – a very promising future

I believe rayon demand is at a tipping point around the world. The declining global production of cotton is insufficient to meet global textile industry demand; particularly with the rapidly expanding middle class in China and India. Industry analysts indicate that the rayon market has grown at 7% globally and over 10% in China for the last 5 years. Rayon is typically blended with other fibers and can logically displace the cotton shortfall. Rayon has high uniformity which leads to significant improvements in productivity in spinning and textile plants.

Rayon demand has revealed a gap in supply. Total dissolving pulp capacity in late 2007 was 2.4 million tonnes according to the CCF Group (China Chemical Fibers & Textiles Consultancy). Expansions and conversions with plants in Brazil, South Africa and Canada added 0.6 million tonnes of dissolving pulp capacity in 2008, but closures of many higher cost dissolving mills resulted in limited capacity to fill the increasing demand.

A specialty producer

Driven by overall textile demand and increasing preference for rayon over cotton, over one million tonnes of additional rayon capacity (dissolving pulp customers) was built in China in 2009 and an additional 0.5 to 0.7 million tonnes in China is planned to start-up in 2010. There is a current shortfall of approximately 0.5 million tonnes in annual rayon supply which is expected to continue during the next several years.

Rayon, derived from wood pulp, is a textile made from cellulose whose future is looking very promising which is why we sought to invest in this sector. With our Quebec facility, we are transforming an asset which was previously underutilizing its potential by operating as a high cost producer into a specialty product producer which is low-cost and globally competitive. Over 90% of the existing mill equipment is ideally suited to produce high quality specialty cellulose for the rayon textile industry.

The consumer advantages of rayon are clear as it is woven into soft, absorbent and comfortable fabric which supports vibrant colors and wears well. Rayon is one of the most widely used fabrics in the world which can be blended with man-made or natural fabrics. For many centuries, people have relied on plants and animals, such as silkworms, sheep and buffalo, to provide the materials needed for clothing. In our 21st century world, we look to technology and chemistry to create our fabrics. Rayon, dubbed “laboratory’s first gift to the loom” is widely considered to be one of the most versatile and economical man-made fibers available.

–Chadwick Wasilenkoff, Chairman & CEO of Fortress Paper Ltd.

SOURCE:
RISI: “Pulp Growth Ain’t Pulp Fiction – Embracing New Opportunities”

With its recent acquisition of the idled Thurso pulp mill located in the Outaouais region of western Quebec, Vancouver-based Fortress Paper plans not only to make a splash on the market, but a significant profit, too. By ditching the production of northern bleached hardwood kraft pulp in favour of manufacturing dissolving pulp, the company is confident it won’t fall prey to the relentless profit losses so many Canadian forestry companies have witnessed.

“We’re expecting to generate $60 million (EBITDA) but could potentially see profits in the order of $200 million,” says Chad Wasilenkoff, president and CEO of Fortress Paper, with a confidence not often heard in this industry.

Wasilenkoff refers to himself as a “contrarian” investor, as he keeps a punctilious eye on industries widely considered to be depressed, only to pounce on opportunities to grab world class assets at heftily discounted prices. For his $3 million* purchase price, Wasilenkoff pocketed $85 million worth of assets in buying the Thurso facility from insolvent Fraser Papers.

Fortress Paper currently owns and operates two pulp mills in Europe — in Germany and Switzerland. With an emphasis on specialty papers, the company’s product portfolio includes non-woven wallpaper base products, graphic papers, and technical papers. Fortress officially incorporated in 2006, with the intention of taking a closer look at investments in the forestry sector. The company was not specifically seeking to invest in Canada, but had been observing the dissolving pulp market for a number of years. When the Thurso pulp mill came on the market, the timing and price were compelling.

The acquisition is also welcome news to the 320 people formerly employed by the mill, who will, with only a few minor exceptions, be back on the job in June 2010.

“The Quebec government was very interested in getting people back to work,” Wasilenkoff confirmed. “We were informed that not only does the mill provide work for 320 people, but an additional 2900 indirect jobs are supported by the operation, as well.” The provincial government’s motivation to see the facility up and running translated to a cash infusion of $102 million, in the form of a 10-year loan.

It’s money that Wasilenkoff anticipates no difficultly in repaying. “We’re extremely comfortable with the underlying fundamentals,” he says, explaining the overall growth in the market his newly purposed mill will be supplying. “Asia will be our biggest market, and the textile industry there is very strong. As more and more people move into middle income brackets, research indicates consumption of clothing increases, and yet, cotton is an expensive material to produce. Rayon has very similar characteristics to cotton but is more absorbent and breathable, and is less expensive to produce. As a result, the finished product almost always trades at a premium compared to cotton. We consider this to be a very, very low-risk and high-return venture.”

Fortress has two additional multi-million dollar goodies in its bag: the company is entitled to $10 million from the federal Green Transformation Program, as well as $15 million from the Green Infrastructure Fund. Both are initiatives designed to encourage green energy generation and environmentally-friendly production upgrades. Fortress’ decision to construct a biomass-based cogeneration plant at the facility to produce green electricity positioned the company to benefit from these grants.

The mill won’t be making an immediate switch from NBHK production to dissolving pulp, however. Thurso will continue to churn out kraft pulp for another full year before producing its new product line starting in June 2011. Once the transition is over, the mill will produce 200,000 tonnes of air-dried product annually. The company plans to capitalize on bolstered demand for NBHK first. Wasilenkoff expects the restructuring to be a smooth process, however, as it requires very little in the way of retrofitting. Much of the equipment currently in the mill will be suitable for the production of dissolving pulp as it shares much in common with the process of manufacturing NBHK.

With a secure and reasonably priced fibre source (the company has a 50% Crown allocation), a ready-made labour force, and strong market fundamentals, Fortress appears poised for success. Coupled with Chad Wasilenkoff’s unstoppable “can-do” attitude, Canada’s pulp and paper sector may have a new market leader, and mentor, for the future.

* After price adjustments, Wasilenkoff notes, the final price paid for the Thurso facility may be in the order of $900,000.

By Heather Lynch for Pulp and Paper Canada. June 2, 2010.

SOURCE:
Pulp and Paper Canada: “Thurso’s Future Secure with Fortress”

Fortress Specialty Cellulose has a very innovative plan in store for the Thurso mill. Initially, it plans to convert the pulp mill to a speciality cellulose (dissolving pulp) operation. The new product will be sold mainly to the rayon market, a segment that is growing rapidly worldwide. In fact, rayon is increasingly replacing cotton because it breathes, is comfortable and easy to dye. Then, the corporation plans to build a 25 megawatt cogeneration plant that will produce electricity.

“This is great news for the region and for the forest industry, which will benefit from the expertise of a company that’s already a leader in its field. Innovation and R&D are central to Fortress Paper’s business strategies, which is very exciting. Since the mill will be producing products with substantial added value, the company has an ambitious business plan in mind that we are happy to back. In so doing, we continue to play an important role in the Québec wood industry, be it in sustainable forest management through Solifor or by investing in secondary and tertiary wood processing companies,” said the Fund’s executive vice-president of investments, Gaétan Morin.

About the Solidarity Fund QFL

The Solidarity Fund QFL helps drive our economy. With net assets of $7.0 billion as at November 30, 2009, the Fund is a development capital company that through its RRSP channels the savings of Quebecers into investments in all sectors of the economy to help create and maintain jobs and to further Québec’s economic growth. The Fund is a partner, either directly or through its network members, in 2,000 companies. It currently has nearly 571,000 shareholders and has helped, on its own or with other financial partners, to create, maintain and protect nearly 143,000 jobs. For more information, visit www.fondsftq.com.

SOURCE:
NewsWire: “Solidarity Fund QFL Helps Reopen Thurso Pulp Mill and 290 Jobs Will be Recalled”

This article takes an in-depth look at some of the crucial innovators for this fabric.

The fact that nitrocellulose is soluble in organic solvents such as ether and acetone, made it possible for Georges Audemars to develop the first “artificial silk” around 1855, but his method was impractical for commercial use. Commercial production started in 1891, but the result was flammable, and more expensive than acetate or cuprammonium rayon. Because of this, production was stopped before World War I.

Nathan Rosenstein invented the spunize process by which he turned rayon from a hard fiber to a fabric. This allowed rayon to become a popular raw material in textiles.
Paul Schützenberger discovered that cellulose could react with acetic anhydride to form cellulose acetate. However, the acetate was only soluble in chloroform making the method expensive but the discovery later on that hydrolyzed cellulose acetate is soluble in more polar solvents, like acetone, made production of cellulose acetate fibers cheap and efficient.

German chemist Eduard Schweizer discovered that tetraaminecopper dihydroxide could dissolve cellulose. Production of rayon for textiles started in 1899 in the Vereinigte Glanzstofffabriken AG in Oberbruch.

Finally, in 1894, English chemist Charles Frederick Cross, and his collaborators Edward John Bevan, and Clayton Beadle patented their artificial silk, which they named “viscose”, because the reaction product of carbon disulfide and cellulose in basic conditions gave a highly viscous solution of xanthate.

The first commercial viscose rayon was produced by the UK company Courtaulds Fibers in 1905. Avtex Fibers Incorporated began selling their formulation in the United States in 1910. The name “rayon” was adopted in 1924, with “viscose” being used for the viscous organic liquid used to make both rayon and cellophane. In Europe, though, the fabric itself became known as “viscose,” which has been ruled an acceptable alternative term for rayon by the U.S. Federal Trade Commission. The method is able to use wood (cellulose and lignin) as a source of cellulose while the other methods need lignin-free cellulose as starting material. This makes it cheaper and therefore it was used on a larger scale than the other methods.

The physical properties of rayon were unchanged until the development of high-tenacity rayon in the 1940s. Further research and development led to the creation of high-wet-modulus rayon (HWM rayon) in the 1950s.

SOURCE:
“Rayon”

Fortress Paper President and CEO Chad Wasilenkoff. Source: The Globe and Mail

That explains why Fortress Paper shares were bruised last Friday, after the company announced that it was buying a pulp mill from a bankrupt operator in Quebec.

Fortress is a smart little company that literally makes money.  To be precise, the company makes bank notes for Switzerland and euros for 10 countries. It also makes passport and other security papers. Plus it makes high-end wallpaper. It’s been a great little investment, returning more than 100 per cent since it started trading less than three years ago and 300 per cent since it bottomed in the market crash a year ago.

At first glance, the pulp purchase looks like a change of strategy. While Fortress is technically in the paper business, it’s nowhere near pulp on the food chain. No one wants pulp, which explains how the mill ended up in bankruptcy protection.

But this is not a change of strategy. It fits in very well with how Fortress has made such gains for investors, and analysts have figured it out, which is why the stock was up so much yesterday. If it works out – and CEO Chadwick Wasilenkoff told me yesterday that he thinks this is the best deal he’s ever done – the stock has lots of room to rise.

While it’s true that pulp demand is in decline as we consume less paper, demand for rayon is climbing briskly. Rayon is a substitute for cotton, and according to the U.S. Department of Agriculture, cotton production is dropping, down by about a sixth in the past four years. The economics don’t make sense for farmers who can make more by growing food or ethanol feed stocks.

Demand for cotton, meanwhile, is growing. But there isn’t enough of it, so demand for rayon is climbing at about 7 per cent a year, according to Fortress.

What does that have to do with a pulp mill in poor old Thurso, Quebec? With a healthy investment, the mill can be converted to produce what’s called “dissolving pulp,” which is what they use to make rayon among other things. And that’s what Mr. Wasilenkoff intends to do.

Fortress is paying all of $3-million for the mill. It has to invest $153-million to convert the plant – $91-million for the actual conversion and another $62-million to build co-generation, which produces electricity. Once up and running, the refurbished plant will, analysts figure, be a cash cow.

Why? Well, since there’s a shortage of production capacity out there, dissolving pulp is changing hands for $1,500 a tonne – that compares nicely to the $800 a tonne the mill’s pulp product fetches now.

What’s more, Mr. Wasilenkoff arranged for attractive and cheap government financing for much of the acquisition. Fortress is putting up equity of only $15-million in total. The risk to shareholders is limited.

The analysts whose reports I looked at show, on average, a doubling of earnings before interest, taxes, depreciation and amortization over the next two or three years. The new price targets are twice as high as the stock price today, which may seem ambitious and may even be ambitious but isn’t ridiculous.

Meanwhile, Fortress’s other divisions – wallpaper and security paper – also show promise. The wallpaper mill is one of the lowest-cost mills in the world, and Fortress has about half of the global market share of coated and uncoated non-woven wallpaper.

And the banknote business is also stable with room to grow, although Fortress needs to make investments to modernize the works. Fortress’s EBITDA grew 125 per cent from 2006 to 2009.

The truth is that this deal fits in perfectly with what Mr. Wasilenkoff has been doing all along: being a contrarian, buying cheap, seeing opportunities others overlook, allocating capital intelligently and being patient – the sorts of things only CEOs who own a lot of stock (23 per cent in this case) do.

Asked what is most challenging about his job, Mr. Wasilenkoff says “the stock price. We think it’s lower than it should be and that’s frustrating.”

While small companies bear risks that bigger ones don’t, like concentrated customer sales, I think he’s right. The stock does look cheap, especially given that he’s demonstrated an ability to make money for not only central banks but investors as well.

By: Fabrice Taylor for The Globe and Mail. Tuesday, March 23, 2010.

SOURCES: The Globe and Mail: “Rayon is Fortress’s True Story”.

Fortress Paper

Rayon is a man-made fiber used to make fabrics that are more natural than polyester and nylon.

This week, Vancouver-based paper maker Fortress Paper announced a new venture (read “Fortress Paper Announces An Acquisition To Enter The Specialty Cellulose and Bio Energy Sectors”) acquiring a mill in Thurso, Quebec with the intention of transforming wood pulp into specialty cellulose.

Derived from dissolving wood pulp to its organic core, specialty cellulose is a most often used in the textile industry for the production of rayon

So what exactly is rayon?

A Short History:

In production since the late 19th century, rayon is one of the oldest manufactured fibers in the world. Made famous around 1920 by Dupont Chemicals, rayon was predominately used by the company to make curtains.

The fabric gained a less-than-stellar reputation around this time because though it was easy to work with – and especially easy to dye – rayon was often mixed with other cheaper fibers to make cheaply made garments that didn’t stand up to heavy wear.

However, because the fiber has a high uniformity, it is very durable and frequently used as an alternative to silk, usually to produce high-end clothing items such as evening gowns and flowing garments. It is a highly absorbent fiber that breathes well, is soft and comfortable and supports vibrant colours.

The Science of Rayon:

Rayon is not a natural fiber, it is a manufactured fiber derived from naturally occurring cellulose typically extracted from wood pulp.

The pulp’s cellulose is steeped in caustic soda, which concentrates some of the cellulose into soda cellulose. After pressing, the cellulose is shredded into a substance called white crumb.
The white crumb is then oxidized, forming shorter molecular chains, and treated with carbon disulfide. The soda cellulose reacts with this substance, forming yellow crumb due to inorganic compounds that emerge during the chemical process. This yellow crumb is dissolved in a caustic solution, which relaxes the hydrogen bonds in the cellulose, producing a highly viscous substance.

This viscous fluid is allowed to age, breaking down the cellulose structures further to produce an even slurry, and then filtered to remove impurities. Small air pockets are forced out to ensure a strong, even fiber, and the mixture is forced through a spinner, which forms many even strands of fine thread that enter a setting solution to form cellulose filaments: also called rayon. The rayon is stretched to form a strong, even bond, washed, and then formed into rayon fabric.

Since rayon is a man-made fiber extracted from wood pulps its properties are more similar to cotton or linen than synthetic fibers like nylon or polyester.

Responding to Industry Demand:

Because many textile manufacturers prefer using rayon over cotton, there is an overall increase in the demand for this fiber. In the last five years, the rayon market has grown by seven per cent worldwide. Recent reports suggest that there is a current shortfall of approximately 0.5 million tonnes in the global annual supply.

In their recent press release Fortress Paper revealed that once the necessary technical conversion at the Thurso mill is complete, they expect to produce more than 200,000 tonnes of specialty cellulose annually, which the company will sell to textile markets around the world in order to manufacture rayon.

SOURCES:
Fortress Paper: “Specialty Cellulose Inc.”
“Fortress Paper Announces An Acquisition to Enter The Specialty Cellulose and Bio Energy Sectors”
WiseGeek: “What is Rayon?”