Legacy equipment issues and acts of nature have plagued the ramp-up of dissolving pulp production at the Fortress Specialty Cellulose mill in Thurso, Que. Nine months after the start-up, the mill was still not at full production, due to various planned and unplanned shutdowns.
“We had lofty expectations and high hopes because we haddone all the right preparatory work,” said Fortress Paper president Chad Wasilenkoff in an interview in late September. The entrepreneur said he is pleased with the way the conversion from the kraft process to dissolving pulp was accomplished, but nonetheless, investors are noticing that the company has missed its stated production targets.
At one point in early June, Fortress announced the mill had been running at 92% of final targeted capacity for 10 days, and had averaged approximately 83% over the last 4 weeks.
But more often than not, stoppages in production have pulled the final output down into the 80% range.
In the last year, the mill has taken unplanned downtime due to a recovery boiler failure, a water intake pipe break (under a building), a lightning strike that damaged transformers, and a power outage caused by a storm.
And then there are the planned maintenance shutdowns, necessary to tweak process equipment and accommodate construction of the co-gen plant on-site.
A comprehensive seven-day shutdown was taken in September for a combination of annual maintenance and to complete high-voltage and process tie-ins for the co-gen plant.
Wasilenkoff says the construction work on the co-gen project required a shutdown of 2.5 days, so, “we committed to the shutdown to get most of the critical path items out of the way.” The causticizing unit was a particular area of focus during this period.
The pulp dryer has also been a source of headaches at the Thurso mill. Modifications and upgrades performed prior to the conversion of the facility to dissolving pulp were not sufficient, Wasilenkoff explains. The dryer was suitable for drying NBSK pulp, but dissolving pulp is more fragile (due to the reduced hemicellulose content), and this fragility amplified the problems caused by a mis-alignment of the dryer.
The troubles with the dryer have been addressed and it is running better now, says Wasilenkoff.
With the maintenance work completed and co-gen construction on track, the CEO says he’s “looking forward to a few good months to end the year.”
Investors waiting for evidence
Recently, Fortress Paper reported a third-quarter net loss of $18.9 million on sales of $73.0 milion. The company’s specialty papers segment contributed $8.3 million EBITDA, while dissolving pulp generated EBITDA losses of $8.0 million, and security papers had EBITDA losses of $5.6 million.
The losses in the dissolving pulp sector are attributed to the recovery boiler issue and the scheduled maintenance shutdown at Thurso, the company’s only dissolving pulp facility at this time. Pulp shipments for the quarter ended Sept. 30, 2012, were 30,500 tonnes, compared with 35,700 tonnes the previous quarter.
Paul C. Quinn, a forest sector analyst with RBC Capital Markets said in a September note to clients that management “over-promises and under-delivers” at Fortress. “We believe the market will only pay up when Fortress starts delivering.”
Share prices dropped from a high of $63 in Feb. 2011 to less than $10 following the release of the Q3 2012 figures.
Second conversion in the works
Knowledge gained at the Thurso mill will no doubt be helpful with the company’s Lebel-sur-Quevillon conversion that’s now on the drawing board.
In the announcement of its Q3 results in early November, Fortress Paper said detailed engineering and process design were underway for the LSQ conversion, and commitments have been made for major equipment that requires long delivery times. Pre-engineering work is being undertaken by GLV and KSH Solutions Inc. An on-site workforce is refurbishing the plant and preparing it for winter.
Wasilenkoff says the LSQ site, operating as Fortress Global Cellulose, will be making NBSK next year, with about 300 employees. Marco Vielleux, former chief operating officer at Fortress Specialty Cellulose, will be leading the conversion at LSQ, partly because of his experience gained at Thurso. His new title is vice-president, business development and strategic projects, for Fortress Paper. Andre Boucher, who replaced Vielleux as chief operating officer at Fortress Specialty, will migrate to Fortress Global in 18 months or so.
A key element of the business plan for the LSQ mill was secured in late September, with the signing of an electricity supply agreement with Hydro Québec for the sale of green electricity. Fortress Global will provide up to 34 MW of green power to Hydro Québec, beginning no later than June 1, 2014, at a price of $106 per megawatt hour.
Wasilenkoff says the restart of the cogeneration facility at LSQ and subsequent sale of green electricity will reduce production costs for the site.