MERCER INTERNATIONAL INC. (MERC)

Mercer International Inc. is a global forest products company that manufactures and sells pulp, lumber, mass timber and other wood products, along with surplus "green" electricity and chemicals generated as by-products. It is one of the world's largest producers of "market" northern bleached softwood kraft (NBSK) pulp, meaning pulp sold on the open market. The company reports two segments, Pulp and Solid Wood.

The Pulp segment makes, sells and distributes pulp, electricity and chemicals at four pulp mills: Stendal (about 740,000 ADMTs of capacity) and Rosenthal (about 360,000 ADMTs) in Germany, and Celgar (about 520,000 ADMTs) and Peace River (about 475,000 ADMTs) in Canada. Peace River is a "swing" mill producing both NBSK and northern bleached hardwood kraft (NBHK) pulp, and through it Mercer holds a 50% share of the Cariboo mill in British Columbia (about 170,000 ADMTs of its capacity). Total kraft pulp capacity is about 2.3 million ADMTs, roughly 89% of it NBSK. All mills sell surplus electricity, and the German mills also sell tall oil made from black liquor. Mercer also runs a lignin pilot production and research facility at Rosenthal with capacity of about 250 tonnes per year. The Solid Wood segment makes lumber, manufactured products (cross-laminated timber, glulam and finger joint lumber), wood pallets, electricity, biofuels and wood residuals. Its German operations are the Friesau sawmill (about 550 MMfbm of lumber) and the Torgau sawmill and pallet facility (about 410 MMfbm of lumber, 17 million pallets and up to 230,000 tonnes of wood pellets and briquettes). Its North American mass timber facilities are Spokane (140,000 m3 of CLT), Conway, Arkansas (about 75,000 m3 of CLT and glulam) and Okanagan, British Columbia (about 40,000 m3 of glulam and CLT). The last two came from the June 2023 acquisition of substantially all of the Structurlam Group's assets. Total segment capacity is about 960 MMfbm of lumber, 210,000 m3 of CLT, 45,000 m3 of glulam and 28 MW of electrical generation. Consolidated electrical generation capacity is 426.5 MW.

Pulp customers are in Europe, Asia and North America, and Mercer generally deals with them directly. Germany is the largest pulp import market in Europe, and Mercer is the sole NBSK producer and the only significant market pulp producer there. It serves growing demand in China through the Port of Vancouver and Stendal's logistics arrangements. In solid wood, Friesau supplies custom lumber to the European market and kiln-dried dimension lumber to the United States, Japan, the United Kingdom and other export markets. The European lumber market is customized, while the U.S. market is driven by housing starts and renovation and is standardized. CLT is positioned as a more sustainable alternative to steel and concrete in building projects. Surplus electricity goes to regional utilities or electrical markets. The German mills sell at market prices, and Stendal can also use a tariff under Germany's Renewable Energy Act. Celgar sells under a fixed purchase agreement with a regional utility that runs until October 2030.

Mercer says its mills are among the newest in Europe and North America, giving it cost, efficiency and maintenance capital advantages over competitors with older mills that cannot sell surplus power or chemicals in meaningful amounts. Friesau is one of Rosenthal's largest fiber suppliers, and Peace River holds two 20-year renewable forest management agreements and three deciduous timber allocations in Alberta. The Torgau facility is one of the world's largest producers of Euro-pallets. The company's energy sales in Germany are subject to EU and German energy price-cap and windfall-tax legislation.