Fortress Paper Continues Big Bets on Dissolving Pulp

Fortress Paper Co (North Vancouver, B.C., Canada) CEO Chad Wasilenkoff said his strategy of buying unprofitable Canadian pulp mills will either spark a rally or push him to buy the whole company. Wasilenkoff is betting idled paper-grade pulp mills can be transformed into some of the world's lowest-cost makers of chemical cellulose pulp (also known as dissolving pulp) used in synthetic (rayon) fabrics, LCD screens, as food additives, etc., according to a report this past week by Bloomberg. Fortress bought a second Québec mill last month and the CEO said he's in talks to acquire another in North America and one in Europe.

The growing market for dissolving pulp, combined with Fortress's cheap acquisition costs, government financial support, and wage concessions from workers, will generate "staggering" returns for investors, Wasilenkoff said in the Bloomberg report. "We are going to see a significant upward movement in the shares in the next 12 months," Wasilenkoff, who also is chairman, company founder, and its largest shareholder, said in the interview near Fortress's headquarters. "If we don't, I'd consider taking the company private."

Fortress acquired its first Québec mill in 2010, a facility near the town of Thurso held by bankrupt Fraser Papers Inc. At the time, Fortress's main assets were a wallpaper mill near Dresden, Germany, and a banknote papermaking operation in Switzerland.

Fortress completed the purchase last month of its second Québec mill near Lebel-sur-Quevillon for C$1. Domtar permanently closed the mill, 500 km (311 miles) northwest of Montreal, Qué., in 2008, citing "deteriorating conditions" for the global pulp market.

The transformation of Thurso, about 100 km west of Montreal, from a mill that made pulp for paper to a producer of dissolving pulp was slower and more expensive than expected, the Bloomberg report noted. The project was first forecast to be completed by mid-2011 and to cost C$153 million. Production began in December and the project is now projected to cost C$210 million,

Fortress isn't the only company in North America currently seeking to exploit the market for dissolving pulps. Aditya Birla Group, based in Mumbai, India, said last week it will buy and upgrade a mill in Terrace Bay, Ont., Canada (see article in the July 12 issue of Over the Wire). Paper Excellence BV, a unit of Jakarta-based Sinar Mas Group, is investing in dissolving-pulp capacity at a mill in Prince Albert, Saskatchewan. And Johannesburg, South Africa-based Sappi is upgrading a mill in Cloquet, Minn., USA.

Global dissolving pulp capacity is set to rise 36% by 2015 to some 8.1 million metric tons, likely leading to an oversupply of viscose staple fiber, a pulp derivative used to make rayon fabric.