Good morning and welcome to Mercer International's Third Quarter 2020 Earnings Conference Call. On the call today is David Gandossi, President and Chief Executive Officer of Mercer International, and David Ure, Senior Vice President of Finance, Chief Financial Officer and Secretary. I would now like to hand the call over to David Ure. Sir, please go ahead.
Thank you. Good morning, everyone. I'll begin by reviewing the third quarter's financial highlights, and following my remarks, I'll pass the call to David, who will comment on our ongoing response to the COVID-19 pandemic, key markets, operational performance, progress on our strategic initiatives, along with our outlook for the fourth quarter of 2020. Please note that in this morning's conference call, we will make forward-looking statements, and 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.
Our third quarter results were up when compared to Q2, primarily due to record operating results from our wood product segment, solid operating performance from our pulp mills, and the continuation of lower pulp wood costs in Europe. These positive influences were partially offset by lower pulp sales realizations, a weaker U.S. dollar, and a slightly heavier annual maintenance program in Q3 when compared to Q2. We generated EBITDA in the third quarter of about $45.6 million, compared to EBITDA of about $40.5 million in Q2. This quarter, we curtailed our Celgar mill for 30 days to address a temporary spike in fiber costs, a decision that resulted in a modest savings on fiber and fixed costs. In addition, as a result of improved pulp pricing outlook, we reduced our inventory impairment provision to $8 million from $12.3 million in Q2.
We also applied for and received about $3.5 million of subsidies from the Canadian federal government in connection with its COVID-19 wage support program in Q3. Our pulp segment contributed EBITDA of $32 million, and our wood product segment contributed record quarterly EBITDA of $15.4 million. Our wood product segment results reflect record high lumber sales prices in the U.S., strong sales volumes, and the benefit of low saw log prices. As usual, you can find additional segment disclosures in our Form 10-Q, which can be found on our website and that of the SEC. Average softwood and hardwood pulp prices were down slightly or flat in all of our markets when compared to Q2. As a result, our average pulp sales realizations were lower this quarter, negatively impacting EBITDA by about $12 million compared to the prior quarter. Pulp demand was steady in Q3.
Our pulp sales volume totaled 470,000 tons, which was down about 22,000 tons from Q2, but in line with production. We continue to see the benefit of our recent investments in our wood products business as we achieved record sales volume, the equivalent of about 118 million board feet of lumber in the quarter, which was up about 10 million board feet from our sales volumes in Q2. Electricity sales totaled 233 gigawatt hours in the quarter, which is down slightly relative to Q2, primarily due to Celgar's 30-day curtailment in Q3. Our Cariboo Pulp Joint Venture, which is accounted for using the equity method, contributed another 21 GWh to this total, which is our highest quarterly sales level since we became a partner in the joint venture in late 2018.
We reported net income of $7.5 million for the quarter, or 11 cents per share, compared to a net loss of $8.4 million, or 13 cents per share in Q2. The increase in income reflects stronger EBITDA, along with an increase in other income, which was the result of the opportunistic sale of certain investments in the quarter, which we had been accumulating to offset the effects of low interest rate conditions on our considerable cash balance. Cash generated in the quarter totaled $42 million, compared to $17 million in Q2. Our cash generation in Q3 was primarily driven by solid EBITDA generation, modest reductions in working capital, and the sale of certain investments. We invested about $15 million of capital in our mills this quarter, and David will speak more to our current capital spending expectations in 2020.
Based on this prudent cash flow management, our liquidity has improved considerably in Q3 and at the end of the quarter totaled about $600 million, comprised of $345 million of cash and $255 million of undrawn revolvers. Low pulp prices and high fiber costs continue to force us to revalue certain components of our Canadian inventory. However, as pulp prices are expected to slowly improve, we decreased our non-cash provision this quarter. In Q3, the non-cash impairment provision was $8 million, compared to $12.3 million in Q2, which resulted in a net positive EBITDA impact in Q3 of about $4.3 million. In Q3, our planned maintenance shuts included a successful seven-day shut at Celgar and the first three days of a two-week shut at Rosenthal, compared to Q2 when we successfully executed a short three-day shut at Stendal and a 12-day shut at our Cariboo Joint Venture.
The impact of the Q3 maintenance days, including lower production and higher direct costs, reduced Q3 EBITDA by about $3 million when compared to Q2. As a reminder, our competitors that report the results under IFRS are permitted to capitalize the direct costs of their annual maintenance shuts, while we expense our costs in the period of shut completion. You will have noted from our press release, our board has approved a quarterly dividend of $0.065 per share for shareholders of record on December 23rd, for which payment will be made on December 30th, 2020. Finally, before I pass the call to David, I'd quickly like to congratulate David Gandossi and our Celgar team, who have recently been recognized for excellence in three categories at the 2020 Canada's Safest Employers Awards.
David Gandossi as CEO of the Year and Celgar for both Best Wellness and Psychological Safety Program and Canada's Safest Manufacturing Employer. These recognitions of excellence are testament to our strong commitment to health and safety leadership at Mercer. That ends my overview of the financial results, and I'll now turn the call over to David.
Yeah, thanks very much, Dave, and good morning, everyone. As you all know, the COVID-19 pandemic is hitting its second wave in many countries around the world. As a result, we are redoubling our measures to ensure the safety of our employees and the continued operation of our facilities. I would like to thank our employees for continuing their efforts to keep themselves, their families, and our colleagues safe. I'm pleased with our Q3 operating results during this challenging time. Our mills all continue to run well. We are effectively managing our costs, and we are experiencing steady demand for our pulp products. Our Friesau sawmill continues to set operational and financial records as our expansion project gets nearer to completion.
NBSK pulp prices in Q3 were generally flat in both Europe and the U.S., while China experienced modest upward pricing pressure at the end of the quarter due to steady demand and improving economic activity. However, when compared to Q2, average pulp prices in all markets were either down nominally or were flat. In China, the Q3 average NBSK net price was $572 per ton, unchanged from Q2. European list prices averaged $840 per ton in the current quarter, compared to $850 per ton in Q2. And the average Q3 net hardwood price in China was $443 per ton, down $22 from Q2, and the hardwood list price in the U.S. market averaged $868 per ton in Q3, compared to $897 in the prior quarter. The pandemic's second wave of infections and various governmental responses to limit its spread have created significant economic uncertainty.
Currently, we are expecting a modest seasonal increase in pulp demand through the fall and winter. We also expect to see moderate demand increases from certain end uses, including printing and writing, as countries continue to slowly reopen their economies. More recently, packaging manufacturers in Asia are looking to replace, at least in part, recycled fiber with virgin fiber in some of their products. We see this trend continuing as higher quality recycled furnish becomes more and more difficult to source. We believe this could be a new source of demand for virgin pulp going forward. We also believe that current low pulp pricing will drive additional market curtailments as mills take their delayed maintenance shuts in Q4, which will moderately reduce the supply of pulp.
Although it was a difficult decision, given the impact on our employees and community stakeholders, we completed a 30-day curtailment and short shut at Celgar in Q3. We took roughly 52,000 tons of pulp out of the market, which allowed us to build a more economical base of fiber. The curtailment was necessary due to multiple market forces impacting Celgar's fiber basket that limited the supply of residual chips and also created a temporary and unsustainable increase in log stumpage rates. We recognize the short-term impact of these forces and made the decision to curtail. The financial impact from the curtailment was a modest net cash saving this quarter, but the savings from lower fiber costs will continue to be realized into early next year. Overall, we expect the slow pulp recovery, which began late in Q3, to carry through into Q4.
The previously noted supply-side reductions are expected to be combined with increasing pulp demand as the global economy continues its slow recovery from the pandemic-related slowdown. We're already seeing economic activity gaining momentum in China and related upward pulp pricing pressure. August market statistics reflect steady demand and highlight NBSK inventories remaining high at 46 days and hardwood at 43 days. Despite the high inventory statistics, the markets are reacting in a manner that reflects they are tighter than the statistics suggest. We're pleased that our pulp products are an important part of the healthcare supply chain, and in some jurisdictions, we are considered an essential service.
So we expect to continue to run regardless of the impact of the second wave of COVID-19 infections, and we will continue to follow all government health-related recommendations to ensure we keep our people safe and to reduce the risk of the virus spreading through one of our facilities. With regards to our wood products business, the European lumber market remained steady while we saw a dramatic increase in lumber demand from the U.S. market through Q3, which drove record lumber prices. Compared to Q2, our average lumber sales realizations were up over $100 to $453 per thousand board feet, primarily due to the significant price increases we saw in the U.S. market in the quarter. As Dave noted earlier, this enabled our wood products business to achieve record EBITDA in Q3.
The historic increase in lumber prices in the U.S. was reflective of the solid housing market and home renovation-related demand combined with reduced supply. Lower supply, at least in part, is due to reduced annual allowable cuts in regions such as Western Canada. Despite lumber prices moderating considerably in recent weeks, we expect lumber demand to stay strong due to low home inventory levels in many areas of the U.S. and sustained low borrowing costs. The Random Lengths U.S. benchmark for Western SPF number two and better averaged $768 per thousand board feet in Q3, up over $400 from last quarter. Today, due to high prices, lumber buyers are generally ordering on an as-needed basis and holding low inventory levels, which has pushed pricing down.
However, lumber prices in the U.S. remain at historically high levels, and the current supply-demand dynamics, combined with the high levels of economic stimulus, are expected to keep upward pricing pressure in place well into 2021. The benchmark lumber price is currently close to $600 per thousand board feet. In Q3, 39% of our lumber sales volumes were in the U.S. market, with the majority of the remainder of our sales in the European market. As we move through Q4, we expect the European lumber market to remain steady, with some modest upside as some European manufacturers move inventory to the U.S. market, and despite this, we expect the U.S. market to stay strong. Our mills ran well this quarter in spite of all the pandemic-related challenges and Celgar's curtailment. Including our Cariboo Joint Venture, we produced almost 480,000 tons of pulp, down 33,000 tons from Q2.
The decrease is primarily due to Celgar's curtailment. Excluding the Cariboo mill, our pulp mills produced 529 GWh of power, down 34 GWh from Q2, primarily again due to Celgar's curtailment. Our wood product segment performed at a high level this quarter despite ongoing production interruptions as we worked through the Friesau construction project. Our Friesau mill produced 97 million board feet of lumber, which was down 17 million due to interruptions to production as we tied in new equipment related to our Phase II expansion project.
In Germany, our wood costs remain at historically low levels due to the abundance of beetle-damaged wood. We expect this log supply dynamic to last well into 2021. In Western Canada, pulp wood supply has improved due to sawmills running full out to take advantage of the strong U.S. lumber market. We expect fiber prices to be stable in that market.
As we discussed last year or last quarter, our annual maintenance program for 2020 has changed in order to reduce the exposure to COVID-19 that may occur when the traditionally larger numbers of contractors enter the site to assist with maintenance during a shut. Our Q4 maintenance schedule is: Peace River will take a five-day shut in Q4. Its recovery boiler rebuild has been deferred into Q2 of 2021 due to the inability of contractors being able to guarantee the availability of skilled tradespeople during the pandemic, and Rosenthal had three days of its 15-day shut in Q3, and the last 12 days were successfully completed earlier this month. In Q3, we invested almost $15 million in high-return projects at our mills. Our planned 2020 CapEx program remains at about $90 million.
Our more modest 2021 program or 2020 program has focused on the completion of the Friesau phase II expansion project, along with some smaller high-return productivity and cost initiative measures. We also began early work on the production expansion project at Stendal, which, when completed in late 2021, will take the total capacity of the mill from 660,000 to 740,000 tons per year. Throughout 2020, we have experienced a wide range of pandemic-related operating challenges and market shifts. As we begin to look ahead to 2021, I remain confident that effective execution of our strategy will continue to bring us success. Our focus on world-class assets, strong balance sheet discipline, and sustainable operations will continue to serve us as we focus on optimizing our fiber handling and logistics and controlling our costs.
Our balance sheet is in good shape with strong liquidity, and our ongoing financial discipline will contribute to shareholder value over the longer term. This completes our prepared remarks, but if I can take a moment to remind listeners that we are in the second wave of COVID-19 infections. The virus continues to be a significant risk to society, so please continue to keep your families, friends, colleagues, and neighbors safe. Thanks for listening, and I'll now turn the call back to the operator for questions. Thank you.
As a reminder to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. And please stand by while we compile the Q&A roster. Once again, to ask a question, please press star one on your telephone. Your first question is from Hamir Patel of CIBC Capital Markets. Your line is now open.
Hi, good morning. David, with the recent upgrades, what level of lumber production are you targeting in 2021? And do you see that mix of volumes directed to the U.S. changing next year?
Yeah, good morning, Hamir. I think we'll sort of plan to top out around the 40% range. We won't go much beyond that. With our new equipment, I think we'll be expanding quite significantly. We're offering J-grade as well, the higher quality dimension lumber into the Japanese market. But we've got a lot of really steady customers in Europe that we don't want to abandon. We don't want to turn this mill into a purely dimension lumber mill. We want to maintain that more diverse base. As you know, the European market is a lot less volatile than the U.S. market. So on balance, depending on how we're seeing what the outlook is, we'll move that mill between 25%-40% U.S. dimension and the rest in the other markets with an increasing component of Japanese J-grade as well.
Okay, great. And then, David, just in terms of overall lumber output there next year, what would you be targeting?
Yeah, well, I expect that mill will produce more than 500 million board feet of lumber. Depending on how we shift it, it'll have a capacity of 750 million. But the question will be, how are the markets? What's the labor supply for shifting? And how are we feeling about maintenance capacity and all those other sort of things? But to be conservative, it'll run easily at the 500 million level.
Okay, great. Thanks. That's helpful. And if I recall, I think on the last call, you mentioned Celgar's power agreement was scheduled to expire, I think, maybe last month. Where does that stand today? I'm just thinking with all of us talking in the province now of Site C potentially being canceled.
Yeah. Well, yeah, we've finished our negotiation. We've crossed that timeline. Where we are is where the rest of the industry is. BC Hydro is treating us in a similar fashion, finally. So we're at 80% of what we had in volume and in price. But there's some interesting features in there. We've got options if we find better uses for the energy value of our black liquor, for example. We can sell everything above the 80% at market, whatever that is. And we can also. We're not exclusive to BC Hydro, so we have the option to wheel that power into another source if we care to. And we've got some fuel optimization opportunities with the 80% volume at the higher price. We'll back off on the fossil fuel use, obviously.
When you take fuel use optimization into account, the difference in power revenue from Celgar compared to the average of the last couple of years would be really not that material. We're sort of more or less in about the $1 million range, is our guess. Not a bad result considering how concerned we were about it initially.
Yeah, so it's definitely higher than I would have thought. And then, David, just the last question for me. Alberta had made some pronouncements about growing harvest levels in the province. What sort of impact do you see from that on your operations there?
Yeah, well, we've got so much potential in that province. I don't know if listeners understand that the size of our forest management area is massive. We utilize a little less than 50% of the available hardwood today. There's a whole section of our forest management area that is really a traditional territory of the First Nations band in Alberta that didn't settle under Treaty 8 but did settle in the last couple of years with the federal government. So they're interested to start to manage their land with us. And it's that forest is getting quite old and more fire risk now. So it's a big area of working for us that we'll be, as we enter into another agreement, we'll be able to start managing with the Lubicons.
That'll produce, I think, pretty significant volumes of softwood timber to be available either to our embedded quota holders, our partners in the region, or we dream of a sawmill of our own there at Peace River someday. We're also looking hard at what other uses for aspen might be available to us to value-add to sort of support the pulp mill and produce additional value, similar to what we did with the Rosenthal-Friesau situation. The cut is going up in the province as well, which will just take what I just described and multiply it by a percentage of some kind. That's what we really like about Alberta. There's just a lot of fiber. We've got a lot of control. The early work there for us is going to be the optimization.
We're seeing some pretty exciting opportunities to reduce the logistics and handling costs of the wood we're bringing in today. So if we can make a structural shift in the wood cost, that mill will be much more profitable at times like this when we're at the bottom of the cycle and actually be more profitable at all points in the cycle. But we still see lots of potential in that mill. And it's not producing free cash flow today, but there's a path forward for it, for sure. And so we're quite excited about that.
Great. Thanks. That's all I had. I'll turn it over.
Your next question is from Sean Steuart of TD Securities. Your line is now open.
Thank you. Good morning, guys. David, I wanted to get your thoughts on the midterm pulp supply outlook. Disproportionately heavy to hardwood growth over the next couple of years. You've downplayed substitution dynamics on previous calls. But can you comment on softwood price? I guess the softwood market's ability to withstand extreme hardwood supply growth, especially with the softwood price premium already quite high relative to historical norms.
Yeah, well, I guess my first reaction is if I thought the long-term hardwood supply demand was going to be oversupplied, I'd be concerned. But I don't believe that. I think this is a short-term anomaly that's brought on by the impact of COVID on printing and writing. And you have to remember that a big chunk of these printing and writing grades, a lot of that's mechanical and very little chemical pulp in it compared to the amount of chemical pulps that go into the growing grades. And so the things that I think about are, one, the very rapid changes in the recycled fiber baskets globally. So more than half of all fiber that goes into any kind of paper product today is a recycled furnish.
Borders are now closed, not just because of COVID, but because of countries not wanting to transfer the pollution associated with the recycled furnishes into their countries. In the early stages of this transition, we didn't see a substitution of virgin for recycle. I mean, it was just the recycle is always the cheapest grade, and virgin is the more expensive grade. You didn't really. It never got to the point, I don't think, where there was a significant substitution. There were some paper makers that changed their furnish. We've seen machines that go from making a recycled product back to a virgin product, for example. That was a brand switch, a longer-term decision. Today, I mean, we're already seeing in Asia some of the bigger higher-end packaging producers starting to look for furnish.
For next year, even the clean white grades of recycle are not going to be going into China. So there's a big shift in that going on. I think there's also a pretty big shift in the brown grades coming. The amount of packaging products that are required because of Amazon ordering from home and all that kind of stuff, it's just expanding extraordinarily. And you're seeing the large Asian companies coming into other markets to build facilities to produce packaging papers. But you're also seeing them building facilities in China trying to keep up with demand. And these facilities are requiring imported wood chips from all over Southeast Asia and wherever they can get it. And we already know that that is a very competitive, challenging way to source fiber. And it's only going to get worse.
And if they start calling all over each other for it, it'll become quite significant for virgin. And if you look at the Hawkins Wright supply demand figures, Hawkins Wright has chemical pulps generally growing between one and one and a half million tons of demand per year every year from 2020 through to 2024. And they see that continuing. This year, obviously, the demand has dropped about 800,000 tons, but a big chunk of that's expected to come back in 2021 and recover. In softwood capacity, there's really very little. And in hardwood capacity, people are going to continue to try to fill that void because they see the demand coming.
So it's hard when you're in the trough to look up over the hill. But if you think about the population growth on the planet, you think about the growing middle class in Asia. You think about the need for better hygiene concepts globally. Fiber demand is really coming, and I think it's going to be quite exciting.
That's great detail. Thanks for that. Question for Dave here. Can you give us some context on the sales of investments during the quarter? What was that, if you can give us any detail?
Yeah. So as you know, we've been accumulating a little bit of cash, well, a considerable amount of cash. So we're always looking at just trying to see if we can do something better than virtually zero as an interest rate. So we had had some certain small investments using some of that cash over the last few quarters. And we just elected to sell the investments this quarter. We thought they'd done what they were intended to do. So we sold them. And yeah, it's as simple as that. Really trying to get a little bit something more with our cash balances.
Were those public equities?
Yeah. We haven't.
Not at liberty to disclose what we invest in. We just don't think it's something we want to talk about too much. But I think what I can say to listeners is we're not risking the balance sheet. We're being very cautious and careful. But if we see things which are a no-brainer and we can get a little bit of return on our cash holdings, then we're prepared to do that. But we're very risk-averse. We're not taking big flyers or anything like that.
Still well done. Last question for me. You guys were reported bidder on the Klausner sawmill. And I guess, can you talk a little bit about appetite for growing the sawmill footprint outside Europe, having a non-integrated sawmill platform? Appreciate you probably want to be cautious with respect to growth. But what's the appetite look like beyond Friesau and maybe additional growth in Europe?
Yeah. Well, I just start with we do see lumber in our future. It's a core strategy for us. And I've talked before about the benefits of having an integrated model like Friesau and Rosenthal. So just big numbers, we're thinking somewhere around maybe one and a half billion board feet of lumber in Europe. That's an aspiration that we have. With the platform we have today, the Klausner sawmill made a lot of sense to us, actually. It's a Linck mill, which is the technology that we run in Europe. We knew the North American majors don't run Linck assets. They don't understand them. It's just not something they've ever really looked into. So we felt the competition would be light for the asset. And we've got a really strong sales team and lots of demand for lumber in the U.S. market.
So at the right price, it would have been a really great expansion step for us. And we felt comfortable to a level. But as the bidding, we had a couple of European bidders that showed up literally the weekend before the auction. Bidders had to qualify. We were the only qualified bidder up until three days before the auction with a stalking horse bid, which would have been a steal. But two Europeans showed up and they started going crazy on each other. And so we just stepped away. We really would have liked it. It would have been a good growth step for us.
And it would have given us a footprint in the U.S. South, which is obviously if you're close to fiber, close to your customers, and you've got a good asset, that's a way to make some money if you buy it for the right price. So we stepped away from that. The Klausner Two came along as well. We're not participating in that. It's a different situation. The mill is not as far along. It's not ready to go. So the cash-generating capacity of that mill is further out. And it would take some work to get it up to snuff.
And with COVID, I just couldn't dream of sending our European colleagues over to the U.S. South right now to work on a sawmill. So we're kind of in that we would have liked to have done it, but the stars didn't line up for us on that one.
Understood. That's all I have. Thanks very much, guys.
Your next question is from Andrew Kuske from Credit Suisse, and your line is now open.
Thank you. Good morning. If you could maybe just give us a bit of color on what you're seeing in pulp markets with a particular focus on just the boots on the ground view of what you're seeing in Asia, where most parts are really through the pandemic, and then what you're seeing in Europe, where you've got operations where clearly lockdowns happening, whatever we want to call it, and we're seeing pockets of shutdowns happening again.
Yeah. So China was sort of the first to get hit, obviously. Complete shutdown in the areas where they had the virus. Everything kind of stopped. Logistics were really challenging. Any trucker that wanted to go somewhere had a very rigid protocol you had to follow. We couldn't deviate. It was a challenging situation. And then they more or less got through it. They started opening up. And if you look at their manufacturing activity, it looks a bit like a V. I mean, they still have outbreaks, but they clamped down on them really hard, very isolated. And more or less, things are moving again. So demand is good.
I think the pulp situation is one of, I mean, if you're a paper producer in China and you don't have a full warehouse of pulp, you've missed it because there's been a lot of inventory available from producers, particularly on the hardwood side. That is all transacted. I think most of the pulp in Asia today is owned by the end producers. And they're running well. Demand for their products is improving. And they're buying as much as they can get to replenish. They don't want to fall behind because prices can remain low. But there is upward momentum. We're seeing that. We've moved from the 570 to 600, now looking like 610, 615. And generally, the mood is one of things are improving. And demand is actually robust. There's no shortage of homes for pulp right now.
In Europe, I guess the mood would be there's been a lot of shifts. I think the paper companies have done quite a bit of rationalization, shutting machines to manage the drop in demand of certain grades. But the printing and writing space generally today, like the graphics grades, are really starting to improve. The lockdowns are not complete. You don't go to restaurants when things are serious. No theaters are open. If a community has an outbreak, they're going to get locked in for a little while. But other than that, the cities are busy. People are moving around. People are working. And society is figuring out how to live with this thing. So demand is a little more optimism on the demand side coming out of Europe than we saw three or four months ago. And there's been some modest upward momentum on pricing.
As I was mentioning in my prepared remarks, we're starting to see we're getting inquiries for virgin fiber from companies we haven't traditionally serviced. It's because they're short in the furnish that they normally use. I think others will be getting the same kind of inbound queries. I think it's the signal of a beginning of, as I was saying earlier, a couple of things: the impact of the lack of availability of high-quality recycled furnish. I think also the impact of this really dramatic increase in demand for brown fiber. I think those are trends we'll be watching through the rest of the winter here to see how those develop.
That's very helpful. And then has there been any change to really your geographic sales mix since the start of the pandemic, or has it held pretty constant?
I'd say if there was one change, we're really putting a focus on getting more of Stendal into Asia. So we've been defining optimal logistics patterns for that mill, like booking well ahead freight services to move product there. We just don't want to put any pressure on the European market. Europe's steady. And we don't want to exacerbate a condition that could put it in an oversupply situation. Not that one mill could do that, but just pushing tons into Asia where there's this strong appetite for a small discount compared to a European realization is, in our minds, the right way to go. So yeah, that would be the only real change, I would say. Well, I should say we do continually look at our customer list, and we think about the machines.
We're very connected to our customers discussing the prospects of their different products and so on. We really do focus on servicing customers and grades that have a long-term future. We don't need to be in the spot markets. We don't need to be with customers that need credit support or that we think may be one of the next to succumb to the shifting demand patterns. I feel pretty comfortable that we've got a good, steady customer base as we go through the pandemic for however long that is.
Okay. That's very helpful. Thank you.
Your next question is from Andrew Shapiro of Lawndale Capital Markets. Your line is now open.
Hi. Good morning. Congratulations on the honors, David. You well deserved.
Oh, thank you.
The cash flow that came out this quarter and your discussion of the prospects and pricing, etc., seems to indicate at least stabilization of cash flow, if not a trend likely to grow from these levels. What's kind of your priority on the use of cash flows? Is there an optimal debt level or a level of turns, etc., that you're looking for for when the allocation of cash flows might be going more towards other growth investments and for evaluation and increase in either dividends or other-I wouldn't call it return of capital, but if the company's stock price and valuation stays this low, repurchase.
Yeah, thanks for the question, Andrew. Yeah. Basically, I think about things. I kind of have to separate the conditions that we're in just today with what would maybe be considered normal conditions. So by that, I mean today, the focus is controlling costs, servicing our customers, being strategic around fiber, finish the Friesau expansion, finish the Stendal project, which is just such an accretive positive thing for that mill when you take the wastewater fee offset program into account. It was a really great project that we put together there with support from the wastewater fee program. So that's a priority. Finish those things, maintain the mills, keep all our people healthy, continue to work on process controls, just keep optimizing, doing what we do.
When we get through the pandemic and we're starting to generate the free cash flow that these mills can generate, then we need to get back to our balanced capital allocation approach. That would be reinstate the dividend, continue to grow the dividend, look for opportunities to deliver, continue to. We're going to have some in our notes that are coming up as we get into call periods. We're going to have some options there. And we're going to have some interesting growth opportunities to pursue. We'll do what we've always done, which is to be balanced, protect the balance sheet, but create long-term value through that process.
Okay. And then in this new era, which is extending of virtual, most of your sales efforts or all of your sales efforts these days with customers is all done virtual, or is there any travel and in-person activities going on at all yet?
There has been a fair amount of in-person things happening. Not for me, obviously. I can't get to Europe from Canada here. Our European sales team visit with customers or have been. This week, they're not because things have locked up again. There's been quite a bit of. We've had meetings with our large pan-European customers. They'll meet somewhere safe where they can be in a big conference room and compare notes, that kind of thing. We've got an on-the-ground sales force in China, obviously. There's still that direct contact going on.
For our leaders, like our vice presidents here in Canada, it's more of a virtual arrangement because the international travel is not possible. That's been going reasonably well. We've done really well servicing our customers throughout this pandemic. We just continue to build that relationship and that trust. And so the market side of our stakeholder engagements, I think, are doing very well.
So the trade shows, like the London and the other Paper and Pulp Weekly.
Not happening.
That go on.
Not happening.
Yeah.
They're not happening.
Do they happen virtually at all?
Yes. Yeah. Yeah. The Hawkins Wright Symposium will be virtual next week. Yeah. That's right.
All right. So they do that virtual, and they'll still be the various networking opportunities and things that the industry thrives on. And then on the investment side of the coin, what's on the calendar for your virtual storytelling to articulate the Mercer proposition and value here?
Yeah. We've been doing the bank virtual conferences, which actually work really well. It's interesting that in a day or two, we meet as many as 75 investors and just made that number up. And I mean, big numbers. And they'll have one-on-ones with certain investors that really want to talk one-on-one. And then sometimes the banks will put them into a group. And Dave and I've had groups of up to 20 investors on one call. You do a little bit of show and tell and then answer a bunch of questions like we are this morning. So that's working really well. And I think we'll be busy through the fall continuing to do that.
What's next up on your calendar for that? I'm sorry. What's next up on your calendar for those?
Yeah. I'll just ask Dave to run through the list.
Yeah. Yeah. We've got two conferences coming up. And they happen to be in the same week, the week of November 30th. We'll be attending the Bank of America Fixed Income Conference. And also that same week, the RBC Forest Products Conference. So that's in the week of November 30th.
Okay. Excellent. All right. Thanks, guys.
Okay, Andrew.
Once again, to ask a question, please press star one on your telephone. Your next question is from Adam Zirkin of Knighthead. Your line is now open.
Hey, gentlemen. Thanks for taking the time. And David, congratulations again. Well deserved. Quick question to Dave Ure. I know you didn't want to comment on the nature of the investments sold during the period, and that's fine. I'm just curious. Are those investments that were in prior periods accounted for as cash equivalents? Meaning is the $21.5 million that we see as proceeds, is that truly additive, or is it just really a reclassification of liquid assets?
Yeah. They were not in the cash. So they were not cash equivalents. No.
Got it. Okay. So the balance today is $21.5 million higher than otherwise would have been if I think about equivalents?
Right. Yes.
Got it. Thanks. That's a helpful clarification. And then, David, I'm just curious if you can comment as to what you're seeing or thinking around pulp maintenance cycles globally. You mentioned in the press release that you think we'll see some capacity curtailments just on account of deferred maintenance. That's a theme we've been talking about for a couple of quarters now. So I'm curious where you are in the ending of that we're in?
Oh, for sure. Yeah.
How do you think about it? Thanks, Dave.
Yeah. Well, it's challenging. We've done some shuts ourselves. Rosenthal, we've completed that. We're successful. But it was a nail biter, frankly. We had one contractor typically come in to do high-pressure cleaning of the boilers. And they just, three weeks before, maybe a month before the shut, they just, "We can't send the crew. We're not going to do it. We're not comfortable." And so we're scrambling around looking for an alternative supplier. We were successful, ultimately, and it was optimal because it was kind of a new process for the group that did it for us. But so that was an example of the scurrying around to get qualified trades, if you like. And then I know that if we had to do that shut today, it couldn't happen. You can't cross the border from Austria. You can't cross the border from the Czech Republic today.
You can't stay in hotels as a guest. So what does that look like? So we got lucky. As this thing comes in waves, if a company's got a shut at a time when there's a wave in their area, there's going to be disruptions. And I can't predict that. I don't have a crystal ball. But for these big manufacturing facilities, it's a struggle. And I'm sure it's impacting the decisions that other companies are making around the timing and the availability of contractors to do the work. Yeah. I mean, the hygiene protocols that are necessary to conduct a maintenance shut these days are extraordinary. You can imagine whole parking lots with tents and rows and horns and people in gowns and taking your temperature, filling out questionnaires, verifying information, special trailers for canteens and bathroom facilities, protocols that don't mix contractors.
They tend to become a little pod among themselves. They don't actually physically meet with our people. They're barricaded apart. They work separately. Hygiene, clean tools, all that kind of stuff. It takes an extraordinary amount of effort to conduct these big shuts, and Mercer is a very modern company with strong operating and process controls. We can handle that kind of stuff. But I'm not sure all our competitors are up to the challenge, so I'm still expecting to see unplanned downtime as a result of COVID. I just can't imagine everybody's going to be successful doing what they want to do when they want to do it.
Got it. Super helpful. Thanks, Dave. Congrats on a good quarter.
Yeah. Thank you.
There's no further questions, and I would like to turn it back to David Gandossi for more information.
Yeah. Thank you, operator. And thanks, everybody, for joining the call. As always, Dave and I are always happy to take calls anytime. So don't hesitate to reach out. And we'll look forward to speaking to you all upon the completion of the year. And stay safe, everyone. Look after your families and be careful. Thanks.
Ladies and gentlemen, this concludes today's conference call, and thank you for participating. You may now disconnect.