Good morning, and welcome to Mercer International's First Quarter 2024 Earnings Conference Call. On the call today is Juan Carlos Bueno, Mercer's President and Chief Executive Officer; and Richard Short, Mercer's Chief Financial Officer and Secretary. I will now hand the call over to Richard.

Thanks, Liz. Good morning, everyone. Thanks for joining us today. I will begin by touching on the financial and operating highlights of the first quarter before turning the call to Juan Carlos to provide further color into the markets, our operations and our strategic initiatives. Also, for those of you that are joined today's call by telephone, there is presentation material that we have attached to the Investors section of our website. But before turning to our results, I would like to remind you that we will make forward-looking statements in this morning's conference call. 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. This quarter, our EBITDA was $64 million compared to Q4 EBITDA of $21 million. The improved results were driven by not having any major maintenance downtime, improving pulp sales realizations and lower fiber and other production costs. Our Pulp segment contributed quarterly EBITDA of $68 million, and our Solid Wood segment EBITDA was negative $1 million. You can find additional segment disclosures in our Form 10-Q, which can be found on our website and that of the SEC. In Q1, both our NBSK and NBHK sales realizations increased compared to Q4. Average list prices increased in Europe and North America due to stronger demand and global supply constraints. In China, prices were flat as demand slowed during the Chinese New Year and picked up near the end of the quarter. The European NBSK list price averaged $1,400 per tonne in the current quarter, an increase of $155 or 12% from Q4. And the North American NBSK list…

Thanks, Rich. Our Q1 operating results improved significantly relatively to Q4. The improvement was primarily the result of higher pulp prices in combination with no major maintenance at any of our mills. And our results in Q1 also benefited from lower costs, including fiber and energy costs. Overall, all of our mills ran at near record production levels, while both our energy production and sales volumes were at record levels in Q1. As previously announced, we came to the decision to dissolve the Cariboo mill joint venture after reviewing this asset and its future prospects against the strategic priorities and determine that dissolving the joint venture will allow us to focus our resources to areas more aligned with our long-term strategic goals. I will also add that we were not expecting Cariboo to have any meaningful impact on our 2024 earnings. In Q1, we invested roughly $18.5 million in our operations. This CapEx spending was in line with our 2024 CapEx target of between $75 million to $100 million. Those of you who follow the company closely will recognize that our 2024 CapEx target is well below our traditional spend. Our 2024 CapEx target is essentially a maintenance of business budget and is the result of a weak cash flow generation in 2023. I will speak about our markets in a moment, but we're optimistic about our cash flow generation in light of improved pulp pricing expectations for the remainder of the year. Consequently, we are comfortable restarting our Torgau lumber expansion project and the Spokane sorting line project. Both of them will provide significant added value and were originally contemplated as part of our investment strategy for each mill. We have also approved a handful of other small value-adding projects. And as a result of these decisions, we now…

[Operator Instructions] Our first question comes from the line of Hamir Patel with CIBC.

Juan Carlos, one of your peers recently announced a large reduction of its pulp capacity in British Columbia. Just given your presence in the province, how much more pulp capacity do you think needs to come out of the region? And can you speak to how comfortable you are with the long-term capacity potentially at Celgar?

Thank you, Hamir. Yes, this -- obviously, this is something that actually knows that we were expecting from some time. It is well known that the fiber supply in the province has been pretty tight and getting tighter and tighter as time goes by. So it comes as no surprise that, that announcement came up yesterday. Now one of the things that we've decided to do and I think that it puts us in a very favorable position in the case of Celgar in BC, so we're taking full advantage of the strategic location of the mill very close to the U.S. border. That has proven for us extremely beneficial. Our cost of fiber have been coming down as we've started implementing that strategy. And that is basically allowing us to source chips from the U.S. at costs that are competitive as logistics have been arranged accordingly. And we're seeing more and more inflow from the U.S. into Celgar. We can easily think about Celgar going as much as between 30% to 50% of fiber sourced from the U.S. So again, that takes the pressure off the mill from this very complicated situation that BC is going through. Regardless, and I have to say that the good news that region in particular, has not been impacted as much as other regions in Northern BC on reductions and access to fiber. So that also has helped Celgar in a good way. We have a very good source for fiber in the mill, and we expect this to continue that way.

Great. And just last question I had was on the lumber side with respect to demand in Europe. Could you comment on what you're seeing there across the different end markets in terms of R&R, new res, industrial? And maybe where if anything stands out as inflecting on the R&R side?

Yes. The European market has been very weak over the past -- I would say, over the past year. The situation in the European economy in general, in Germany, which is probably the one that we focus ourselves a lot more, is still not in a recovery mode. It's still very dormant. The only thing that we have seen recently that has built a little bit of momentum -- possible momentum, even in prices, has been the resurgence of the U.K. and Ireland market. So we've been able to get back into that market after being out of it for almost a year. So Europe is still, I would say, very precarious and nothing that we expect any significant change most likely for the next couple of quarters. We'll see if there is some improvement in the economy indicators by the end of the year. And obviously, that would definitely push the construction industry in a better trajectory as it has been before or at least in a recovery mode. So yes, it's been very, very slow, Hamir, incredibly slow. We have the advantage that since our mill is very competitive from a cost production point of view, we're able to serve the U.S. market very competitively. And obviously, we've taken advantage of that as much as we can. In the last year, we did exactly the same thing. Almost 50% of our sales went to the U.S. This year, it's been a bit lower than that, again, because U.K. and Ireland has showed good signs of recovery. But we always play that card and it gives us that confidence that if Europe is not giving us what we expect, then we can take advantage of the U.S. market.

Our next question comes from the line of Sean Steuart with TD Cowen.

A couple of questions. The discretionary projects at Torgau and Spokane, can you give us a sense of the return parameters you're looking at for that type of CapEx, I suppose, once markets normalize a little bit, how do you think about the returns for those types of projects?

Absolutely, Sean. We have 2 important projects, as I was mentioning. The first one and both of them were envisioned when we acquired the mills. So if we talk first about Torgau. Torgau, as we acquired it, it has 4 saw lines, but it's not optimized in any way. It's an old mill, very big in size with a lot of capacity, but it's totally underutilized, and it was focused its production on pallet production to a large extent. And what we are doing right now with this investment is, we're freeing up capacity so that we can produce lumber in addition to what we're producing in Friesau. And that additional capacity that would put Torgau as not only as a pallet mill, but both lumber and pallets, bringing a little bit down the volume of pallets. But really, really, really increasing the volume that we can get for lumber. So that's what we're planning for. The return on those projects is relatively short. We have those investments coming probably completed next year. So by the end of next year, we will already -- which we believe that lumber prices will be better by the end of next year than they are today. So when we said that we're doing all this investment during the cyclical low part of the -- or the low part of the cycle, we're preparing ourselves to be ready whenever the markets rebound. The return of those projects, both lumber or what we're doing in Spokane, when we do it, it's usually less than 3-year returns. So for us, those are high return projects in general terms. In the case of Spokane, it's the same -- it's a similar situation. The mill, even though it's a brand-new mill when we acquired it, not because it's brand new means that it was designed ideally or in an optimal way. So there's a few things that we need to do, particularly on sorting lines. Later down the road, we'll do some improvements on the press capacity. And those things will drive costs down significantly for us. Again, same as in Torgau, those are 2- to 3-year payback projects when fully implemented.

That's great detail. Second question is on pulp markets. Curious on your assessment of current momentum, sustainability into the second half of the year. How much of the recent surge do you attribute -- I suppose a lot of it is temporary supply constraints. But on the demand side, how much do you think is customer restocking versus real pull from paper demand improvement?

Absolutely, Sean. Yes, what you said is absolutely true. Supply constraint is a huge driver of the surge that we've seen in pulp prices. There's no doubt about it, and it's still increasing. We just heard the announcement yesterday of yet another closure, another 300,000 tonnes that goes out of the market. So the elements to keep the pressure upwards around prices is there, is sustained, no doubt. And we do believe that we will see further price improvements along the second half of the year. Now when it comes to demand, it has been a lot better, but not as we would like, let's put it that way. So yes, European demand has improved. North American demand has improved. Chinese demand, not so much. We know that they're exporting quite a bit. So there's a balance on how much of that demand coming in from China goes elsewhere. But it is a fact that European -- especially European was so low just, I would say, 6 months ago or 9 months ago, demand was incredibly low, and we've seen a very big resurgence of demand. It's still -- I wouldn't say that is strong enough, as we like it, as we would prefer it to be, but it's obviously much, much healthier than it was before. So all in all, I think the prospects are positive. The logistic constraints that we see, issues that we still see in the Middle East and the logistic constraints that, that causes. Now there's a potential issue of railway strikes in Canada. Obviously, those things just add noise and probably put more pressure on prices than anything else upwards. So again, we're bullish -- probably cautiously bullish on the price increases that we may see in the coming months. I don't think there is any sign of softwood giving way within these current market conditions.

[Operator Instructions] Our next question comes from the line of Harman Dhatt with RBC Capital Markets.

This is Harman, on for Matt McKellar. I just had a quick question. You noted in the release that you've begun work on certain large-scale mass timber projects as of Q2. Are you able to provide a bit more detail more broadly on the kind of pickup we should expect in manufactured product sales or EBITDA in the next couple of quarters?

Sure, Harman. To give you a sense of magnitude, we have 2 very large projects. And I wish I was at liberty to say the companies, I'm not allowed to say which companies they are. But we have 2 very large projects that are currently being produced at the mill. These projects will keep us busy for this quarter for sure. One of them is also going to be built up in the beginning of 2025. So we see the order book gaining good momentum and therefore, we see very positive results as a result of this. Now one of those projects had a delay, a minor delay for them, but a minor delay for them means that instead of becoming a Q1 production project, it became a Q2 production project. And as we're ramping up, obviously, when we have a major project that moves from one quarter to another, that creates a hole that we cannot fill up as we would like. So that's why our results in Q1 for mass timber were very short or almost at breakeven level. But in Q2, we expect mass timber to be much better in terms of profitability. Our sales for the year, we expect them to be almost twice as much as we had last year. So last year, our sales were around $60 million. We're estimating that for 2024, we should be around $100 million to $120 million, give or take, with further sustained levels in 2025. One of the things that we're seeing in this market, which is not different from many things that we see in lumber spaces, with the interest rates being as still at a very high level, what we're seeing is that, yes, there is more demand for more interest in projects to be built…

That concludes today's question-and-answer session. I'd like to turn the call back to Juan Carlos Bueno for closing remarks.

Thank you, Liz. And thanks to all of you for joining our call. Rich and I are available to talk more at any time, so don't hesitate to call either one of us. Otherwise, we look forward to speaking to you again on our next earnings call in August. Bye for now.

This concludes today's conference call. Thank you for participating. You may now disconnect.