West Fraser Timber (TSX:WFG) Q3 2020 Earnings Call

0:00 Good morning, ladies and gentlemen, and welcome to the West Fraser Q3 2020 results conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. During this conference call, West Fraser's representatives will be making certain statements about potential future developments. These forward-looking statements are intended to provide reasonable guidance to investors, but the accuracy of these statements depends on a number of assumptions and is subject to various risks and uncertainties. Actual outcomes will depend on a number of factors that could affect the ability of the company to execute its business plans, including those matters described under risks and uncertainties.

0:50 In the company's annual MD&A, which can be accessed on Wes Frazier's website or through SIDAR, and as supplemented by the company's quarterly MDMAs. Accordingly, listeners should exercise caution in relying upon forward-looking statements. This call is being recorded on Tuesday, October 27, 2020. I would now like to turn the conference over to Ray Ferris. Please go ahead.

1:16 Thank you, Operator. Good morning to everyone and thank you for joining us. With me today is our Chief Financial Officer, Christopher Virostek, Chris McKeever, our Vice President Sales and Marketing, and several other members of the West Fraser Executive Team. Before I turn the call over to Chris to go over financials, I'm deeply saddened to report that in the early stages of a major shutdown at our Hinton Pult facility, that Norman Hatami, a scaffolder working for Illumina Systems, suffered a fatal fall from height while erecting scaffolding inside a vessel. This is a difficult period for all impacted, and our deepest sympathy goes to Norman Hatami's family, his friends, and fellow workers.

2:10 With that, I'd like to acknowledge that we recently posted our updated ESG and Responsibility Report, and it is now available on our website. It references the Sustainability Accounting Standards Board Global Reporting Initiative, and includes information recommended by the Task Force on Climate-Related Financial Disclosure. With that, I'm now going to turn the call over to Chris Virostek.

2:38 Thanks, Ray, and good morning, everyone. A few months has certainly made a dramatic difference in things. When we last reported earnings in July of this year, we were just a couple of months into the restart of many of our facilities coming out of the first wave of the pandemic. Strong demand for lumber from new home construction and for renovation applications, coupled with lean channel inventories and a limited ability for a supply response, drove a significant pricing reaction in wood products. Our lumber segment adjusted EBITDA increased to $552 million, eclipsing the $467 million recorded in the second quarter of 2018, which was the prior high point of pricing in recent years. Our panel segment rebounded as well, ramping back up production and shipments with significantly improved plywood pricing.

3:29 Adjusted EBITDA for the panel segment increased to $51 million. And while adjusted EBITDA in pulp declined to $5 million in the quarter, principally due to price, we offset a significant amount of the price headwind with lower costs through improved reliability and production rates. Consolidated adjusted EBITDA rose to $605 million and operating earnings were $487 million. Finance expense declined as we repaid debt during the quarter and interest rates declined as well. We recorded earnings of $350 million for the quarter. Improved wood products pricing, reduced costs, and increased production volumes all contributed to better earnings.

4:16 While the progression from Q2 to Q3 involved a healthy dose of price, $430 million, of which $424 million was attributable to lumber, we also made progress on the cost front, not only from increased production, but also from the benefits of capital we've spent in prior years and continued close management of fiber costs. Volume was a slight drag overall in the quarter, coming mostly from reduced shipments of SPF, partially offset by higher SYP and plywood shipments. SG&A costs increased in the quarter due principally to increases in provisions for variable compensation, along with slightly higher wage costs resulting from pandemic-related staffing actions. Our prior quarter also included $7 million of insurance recovery that did not carry over.

5:05 Turning to the comparison of the first nine months relative to last year, there's been a remarkable turnaround in wood product markets. Pricing in lumbers and panel has increased significantly Partially offset by softness in pulp markets. We are particularly pleased with the progress we have made on cost in each of our segments over the prior year. Through continued focus on safety, operational excellence, and management of fiber costs, we've improved costs by $169 million over the comparable nine-month period. Timing of pulp shutdowns year-over-year did provide a benefit as well. SG&A changes year over year were largely attributable to the fact there was no variable compensation recorded in the prior year period given the earnings performance.

5:51 Year-to-date adjusted EBITDA of $916 million has drawn more in line with the $819 million and $1.4 billion of adjusted EBITDA for the comparable periods in 2017 and 2018. Lumber production for the quarter increased by $125 million board fee as SPF production increased 8%. and SYP Production increased 9%. Shipments were down slightly in the quarter, but for the full year, shipments are slightly ahead of production as we reduced inventories during downtime earlier in the year. Flywood shipments reflect a full quarter of operating near capacity. Cash flow from operations was $613 million as improved earnings and favorable working capital both contributed.

6:37 In the quarter, we paid down a number of the COVID-19-related deferrals that were put in place earlier in the year, notably on stumpage and property taxes. Capital spending was in line with the prior quarter, and we expect the full year to be towards the higher end of our previous guidance as we've brought forward a few small projects. Net debt declined by $563 million, and net debt to capital is now 12%. During this quarter, we have repaid our operating loans and increased our cash by $179 million. Our cumulative duties on deposit grew to $495 million US. If the duty rates adjust as anticipated in Q4, we will record a US $93 million recovery in Q4 in respect of overpayment of duties for the 2017 and 2018 periods. The evaluation of 2019 duties is currently underway.

7:33 Liquidity continues to improve and is now approximately $1.3 billion, with the majority of that comprised of undrawn bank lines. We remain well on side with our financial covenants and have no near-term maturities. We are currently entering the period of seasonal inventory accumulation of logs in Western Canada, which will carry on through March of next year. With that, I'd like to turn it over to Ray for some comments on market perspective and recent developments on some of our capital projects.

8:02 Thanks, Chris. And I'm going to keep my comments fairly brief. First, just a little bit about the pulp business. Our pulp operations, again, had a solid operating quarter. However, the impact of COVID has obviously resulted in an acceleration of the decline in printing and writing demand, which has only been marginally offset by growth in tissue and packaging. We expect continued difficult markets for pulp in the short term before production becomes aligned with overall demand and market preference. Hinton Pulp and QRP, Cornell River Pulp, both completed shutdowns in early Q4.

8:48 As Chris noted, and further to his comments, with respect to the dynamics of lumber demand, reasonable housing starts combined with good repair and remodel activity with export volumes, although down from previous years, remain at a similar level to the last half of 2019. On the supply side, it's important to note that North American production in the third quarter of 2020 remained below similar periods of record pricing in early 2018, partly due to permanent capacity closures in British Columbia that were not fully offset by increased capacity in the U.S. South. Import volumes, although flat over the previous year, are up roughly about 100 million board feet per quarter over 2018 and 2019.

9:41 This stronger than expected demand and limited supply response contributed to record pricing in the third quarter. As everyone has multiple sources of housing forecasts for the balance of 2020 and 2021, I did not intend to repeat them here, except that consensus appears to indicate that housing starts are expected to continue to improve. Saying not, demand can be hard to predict. But we do have a good understanding of supply, and that the difficulty in adding supply has been a driving factor in price response. and the respective short-term fluctuations of price. Saying that, we believe it is not coincidental that we have experienced record pricing twice in the past two years. When the long-term evolution of lumber prices is examined, after a long period of relatively stable prices from 2011 through 2016, the last four years have seen a markedly higher trend in pricing as the current supply and demand dynamic has influenced lumber pricing.

10:46 The last three cycles of both Southern Yellow Pine and SPF have resulted in successively higher floors and higher peaks. So what is the impact of potentially higher pricing on home affordability? At peak pricing in September, FEA estimated the increased cost could add an average of $10,000 to a median home. While not insignificant, this appears manageable. and should not be a significant impediment to builders and homeowners. Pricing has retreated from September levels and critical gaps in supply have been mitigated. Short interruptions in the supply chain in the past few years have not been quickly overcome.

11:33 As we've done in the past few quarters, moving beyond supply and demand, as we've done in the past few quarters, we thought we'd update you on another step in our modernization journey in the U.S. South. We have owned Joyce which is in Louisiana since 2001. The log handling and merchandising systems were built in the early 90s and were quite inefficient and lacked the technology to meet current expectations. Although I have to tell you there was a delay in the crane delivery, the $30 million USD project was essentially delivered on time and near budget. The project eliminated a high-cost bond lack in the operation, and we are pleased with the results that our Joyce team has delivered, which has met or exceeded our payback expectations.

12:23 We are continuously focused on the improvement of all of our segments, and particularly our lumber segment. In 2007, we made significant investment in U.S. South by buying 13 mils from IP. The first few years were difficult as we endured the most significant collapse in the housing construction industry and the turmoil of the great financial crisis. As we started to emerge from that difficult time, we continued to grow through acquisition and invest capital to keep our assets low cost and to improve the operations where we have the opportunity to do so. Our work is not done yet and we remain convinced of further upside. While it may seem obvious that lumber profitability comes with inherent volatility, the 10-year average EBITDA margin for our lumber business is just under 15%.

13:15 And the trend has been increasing. In the three of the last four years, our lumber EBITDA margin has been in excess of 20%. Tightening supply, increasing demand, the prudent deployment of capital, and a focus on operational excellence have all played a role in margin improvement. Over time, our consistent strategy has worked, and we remain focused on our key priorities. Since the peak of the last housing cycle in 2005, through the significant downturn through the late 2000s, and into recovery in the last decade, our total shareholder return has been above the concept and ahead of most of our directly comparable peers.

14:02 Just a few wrap-up comments. before I turn it back to the operator. We expect that BC or British Columbia production, including West Fraser, will continue to shrink over the next few years as the industry continues to rationalize to the available and the accessible timber supply. We also expect that our US South modernization and operational improvement focus will continue to deliver and improve our relative cost structure. Our modernization and operational improvement runway in the U.S. South will continue to be a focus area for disciplined capital. Record and unexpected pricing in our wood products business has significantly improved our balance sheet.

14:48 However, as the past few quarters have demonstrated, it would be prudent to be prepared for further volatility and uncertainty as the impacts of COVID continue to play out. We will be conservative with respect to our balance sheet, but are well positioned to further invest in the growth and performance of the company and, as conditions allow, responsibly return capital to the shareholders. Finally, all injuries and serious incidents are preventable at West Fraser. And although our injury and incident rates have improved to record lows, we have more work to do in order to eliminate all life-altering incidents for our employees and contractor partners.

15:34 With that, I will turn it back to you, Operator, for follow-up questions. Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star followed by the one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received. Should you wish to decline from the polling process, please press star followed by two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment for your first question. Okay, so your first question comes from Sean Stewart from TD Securities. Sean, please go ahead. Thank you.

16:19 Good morning, everyone. A few questions. I gather from the MD&A that you're content to let liquidity build on the balance sheet in the near term. We're forecasting a transition in that cash at some point next year. Ray, can you give us some context on priorities for capital allocation, growing the asset base versus potential returns of capital to shareholders as we move into 2021?

16:50 Well, thanks, Sean. I'll take a stab at that and let Chris Chip in here as well. I mean, I don't think our capital allocation strategy has really ever changed. I mean, our first priority is to invest in ourselves. And so, you know, we continue to see a significant runway, you know, primarily in the U.S. South to continue to modernize our assets and, you know, we'll, you know, continue Be disciplined in how we do that. We don't want to get out ahead of our skis, and we're digesting some major capital that we want to make sure meets our objectives, but our expectations are to continue to grow and invest in U.S. South.

17:38 But as we kind of work through that hierarchy of capital allocation, and we frankly see a little bit more certainty and visibility in what the next few quarters will allow. Then we'll assess the other options as far as returning capital back to the shareholders. Chris, do you want to chip in?

18:03 I think that's a great summary. A couple of things I would point out is... You know, we are entering a period of time in the year when demand is a little bit seasonally slower at the same time as we're building log inventories through March of next year to carry us through breakup into the summer. And that usually consumes some liquidity as we work through that. And I think while the fundamentals that we all talk about around housing and interest rates and repair and renovation, the fundamentals are all good, there's still a fair amount of uncertainty out there. You know, when you look at the case counts that are going on and, you know, and all the other factors that may impact the market. I think we're going to take a measure of caution now. I think that measure of caution in the past has done us well.

18:48 It allowed us to keep our dividend and not touch our dividend through the darkest part of this pandemic in May, June of this year. Being cautious, I think given the backdrop of COVID, Uncertainty, even though the fundamentals are good, is the right strategy for now. But as Ray said, our balanced approach is over time as opposed to a quarter-by-quarter kind of assessment of things. So I don't think fundamentally anything's really changed.

19:17 Okay, thanks for that, guys. Question for Chris McKeever. Wondering if you can give us some context on the pullback we've seen in lumber the last five or six weeks. and I suppose some of that was to be expected after a run like we had through the second and third quarter. Can you give us a sense of how your order files have trended perspective on inventories through the channels right now and any sense on if we're headed for the bottom anytime in the next little while?

19:53 Sure, sure. Good morning, Sean. Well, you know, as you said, I don't think this is entirely unexpected. I think prices got way ahead of us for a while. We're seeing a bit of a pullback, but, you know, and we really got – both our lumber businesses are a bit different. You know, certainly we saw our Southern Pine business run first and probably a little further. SPF took a little while to get going. We were able to build a bigger order file in SPF, so we're still – You know, winding that down a bit and trying to get our last orders out. You know, we are seeing, certainly we're hearing from our partners in the field that their inventories are very low.

20:43 You know, whether it's retailers or pro dealers, distribution, you know, so that is a difference than we saw in 2018 going into 2019. We are selling. I would say we're selling better in the south right now than we are in Canada, which is quite usual. Usually the south picks up a bit earlier. But, you know, I can't say we're at a bottom. You know, we're beginning to build an order file for SYP, and we are going to need to build an order file for SPF in the next little while. So, you know, what that bottom is, I don't know. I would suggest... Thanks for that detail, Chris. I'll get back to you.

21:54 Your next question comes from Hamir Patel from CIBC Capital Markets. Hamir, please go ahead. Hi, good morning.

22:03 Ray, Alberta has announced some plans to increase harvest levels in the province. You know, what sort of production uplifts could that represent for West Fraser, and what's the timing of that?

22:16 Well, good morning, Hamir. Well, good question. and, you know, I'm going to couch my words here, but, I mean, I would say that remains to be seen. So, what I, you know, I think the Alberta government probably about a year ago now, I would say, announced, you know, that the challenge of, you know, industry and government to look at the opportunities to raise annual level cuts. That opportunity is there. It's not an insignificant number. They've asked for 30%. I think that might be aggressive, but that's certainly the tone that you want, and that certainly is available on the land base.

23:09 I would say it'll play out differently across the province depending on the region that you're in, including West Fraser. We continue to work through that with government and our people. I would just say that it's positive. Rather than talking about whether it's 5% or 30%, I think the key is it's great to be talking to people that want to grow access to the land base. I think it's positive and it goes a long way to help us continue to grow in Alberta.

23:51 Thanks for that, Ray. That's helpful. Do you have any, in terms of your capital projects, after Dudley and Oak Lake, are there any other sawmill sort of rebuilds that you have on deck for next year?

24:09 Well, what I would say is yes. We do have more projects in the queue and That would be what I call significant and strategic. But at this point, we're not going to pull the trigger on any large ones at this point, but we continue to look at that and think about our portfolio and when we might do that. So we have them in the queue, but not ready to say that we're ready to move forward on that stuff today.

24:45 Chris Virostek, any sort of directional guidance you can give on CapEx for 2021?

24:52 Well, I think as we've said all year, we've had a couple of big years of capital. We've done a lot of stuff in the U.S. South in 2018 and 2019. And certainly this year, we've had a big focus on operationalizing that and getting the benefits of that. We'll be bringing Dudley online next year. and I think next year capital is probably somewhere between where it was this year and where it was in the couple of prior years but I don't think we're set on a final number and final list of projects yet but our focus right now is really on squeezing all the benefits out of the capital that we've spent over the last couple of years more so than it is tackling a whole bunch of new stuff.

25:43 Make sense? That's all I had. I'll turn it over. Thanks. Your next question comes from Mark Wilby from Bank of Montreal. Mark, please go ahead.

25:56 Morning, Greg. Morning, Chris. Morning. Just back on the capital allocation front, I just would like to get your thoughts prospectively on any share repurchase activity. I mean, your leverage is quite low. The stock is more than $25 below where you did that accelerated repurchase back in 2018. I guess my question would really be, why not just take a portion of this extraordinarily windfall that we're getting here in the second half, maybe 20%, 25%, and just put that capital to opportunistic share repurchase? Because the market doesn't think your prospects are as good as I do, and I think they probably don't think prospects are as good as you think they are.

26:45 Sure, go ahead. So, Mark, I think, look, it's a fair question. I think all the options are on the table for us. Executing on an NCIB is something that can be done in reasonably short order. I think our approach, as we said earlier, has been There's still uncertainty there. I don't think we would disagree with your assessment that it probably doesn't seem to be reflecting a more common outlook of the market, but there's still uncertainty in the background.

27:30 I think we have to just balance all those things together. The amount of cash that we're holding right now is Not that much difference than what we were holding at the same point in time in 2017 or 2018. So, you know, 2019 was a pretty tough year and so, you know, holding that liquidity and making sure that we're prepared for what may come at us, the different eventualities is, I think, you know, top of mind for us right now. It was only, you know, kind of six months ago when people were scrambling to raise additional liquidity and get facilities and they couldn't do it. So, it's been a great Returns since basically the end of May, but it's only been four months.

28:15 And I think we just have to be mindful of where things could go and make sure we're prepared for all the outcomes and how we best add shareholder value over the long term.

28:29 Yeah, I think that's fair enough, Chris. I mean, don't get me wrong. I'm not pushing for like a real aggressive program. I think in a cyclical business, A strong balance sheet makes a lot of sense. But I also think we've got kind of a very unusual second half of the year here by, I think, any historic measure. So I'm just saying when you've got kind of a mismatch with the fundamentals in the business versus your share price, it just seems like taking a portion of that cash and putting it to share repurchase would be a very good use of capital. A couple of other questions away from that. I wondered, Ray, is it possible for you to just talk about kind of fiber supply and cost issues for the pulp mills over the next three to five years, just with the shrinkage that's taking place, particularly in B.C.?

29:22 Sure, Mark. And so, you know, I believe we talked about this on previous calls, and, of course, there's lots of public information out there. and I think this is primarily around pulp but there is without a doubt a significant shortage of fibre available to the pulp mills. I would say we probably haven't seen a lot of that significant cost pressure on the residual side but certainly As pulp mills go out and reach out to purchase more whole log chips, those costs continue to be difficult.

30:15 It depends on whose math you want to use, but certainly our view would be that in British Columbia in general, almost irrespective of cost, but more about supply, there's not enough supply to fully operate all the pulp mills in the province. So, you know, it's hard to predict exactly because I do think, you know, in the short term people can be pretty creative to find fiber supply. But, you know, we'd expect, you know, one or two pulp mills to come out of the system at some point. You know, look, we understand the supply side quite well.

31:02 We've been planning for it for a decade. Everyone is under stress, including Wes Fraser, but I think our fibre position is probably a little bit better relative to others, but that doesn't mean that it's great. So I guess we'll see how it plays out, Mark. I think much depends on where and when the pulp capacity comes out and how this plays out for us and others.

31:35 Okay, and then finally, I wondered if, Ray, either you or Chris McKeever, thoughts on one of your peers saying recently that customers are becoming more open to kind of alternative lumber pricing structures. And I don't know that this is just a function of $900 lumber prices. I'm curious whether you guys are seeing any of this or having any dialogue. I think they suggested it might be 15% or 20% of their customers volume, or they're starting to have some discussions like that?

32:08 Chris?

32:11 Morning, Mark. Morning, Chris.

32:13 You know, I would say that certain jurisdictions are more prone to that, and certainly those who do business in Europe are more used to that kind of relationship. We are seeing customers, and I think you've kind of nailed it, at $900 a Lumber, and even more importantly, with major supply constraints, customers tend to be much more interested in a longer-term relationship, be it contractual, vendor-managed inventories, whatever it is, and potentially different pricing structures. I don't think we've seen anything that would tell us that there's an enormous move in that direction, but I would say that we are Getting closer to our customers are what we would say are our target customers, and we're moving further downstream, which I think is good for visibility of inventory and hopefully help us manage our business a bit better.

33:11 Okay. All right. That's helpful, Chris. I'll turn it over. Your next question comes from Paul Quinn from RBC. Paul, please go ahead.

33:24 Yeah, thanks. I'm already good. Let me start on the lumber side. You've got a good slide on North American imports there. It looks like annualized rates somewhere around $2 billion board feed right now. Do you think that's the peak, or do you think it's going to go a lot higher in the next year?

33:47 So, well, Paul took a shot in last, McKeever, to kind of jump in. So, I mean, you can go back and look at the previous peaks. Back in 2005 and 2006, and McKeever, correct me here, $3.5 million? $3.3 million. So, look, I mean, I think we certainly expect, you know, particularly with the pricing that we've seen and available timber supply in Europe, that we're going to see, you know, more volume come over. I think it's, you know, I think our view would be it's difficult that it'll – and so on. I think we're going to significantly surpass peaks in 2005 and 2006 and we can debate all the reasons why for that, but it'll increase, but I think probably near something like 2005, 2006 levels.

34:41 Chris?

34:42 Yeah, Paul, I'll just say a couple of things to that. I agree with Ray that is there another billion board feet that could come over? I think so. A couple of different things than in the past. One is Europe is pretty strong. Their markets are good. And that is their first target. And then secondly, a lot of their service people that they're having is it's sharing pretty quickly from what we understand. And so it's more targeted to let's call it a China market than maybe a big box retail American market. And then finally, The Europeans tend to make a lot of just a couple of lengths. So their mix is not exactly what every customer wants. So there's a spot for them in North America, but it is limited geographically as far as they can come in and also a bit on the product mix they make.

35:39 But, yeah, I would suspect we're going to see more.

35:43 And then if I could flip it around and just take a look at your export volumes and what you anticipate going forward. I mean, obviously we've got this record-breaking. Does that mean that you've lowered your export volumes into Asia as a result of better realizations in North America, and what are you expecting going forward?

36:03 Yes, I would say that we have lowered our volumes, but we've kept a meaningful volume both in Japan and China. You know, Japan has slowed considerably for everyone, including ourselves. But it's traditionally been the highest returning market, and we're in this for the long term, not just for this year. And China's always changing, whether it's Russian fiber or European fiber. There are competitive fibers there. But, again, we keep a foothold there, and we find it very helpful, particularly in lower grades, to... to be able to get better returns within North America by keeping a presence there. So, yeah, I would suspect it would be up and down a bit with a fairly consistent, relatively modest volume.

36:54 Okay. And then maybe just, Ray, you mentioned that BC Lumber Supply is going to come down over time, not just for West Razor, but for others. Just wondering if you've got an estimate of how much. And then, you know, to piggyback on Mark's question of fiber availability, Shut down Caribou and Q2 on the fiber issues. Is that the mill that looks like, you know, the one or two pulp mills that will come out at some point down the road?

37:21 Well, thanks, Paul. So, first on lumber supply, I mean, I think there's lots of good public information out there on timber supply. And... and I think, you know, I'll be frank, the issue we have in British Columbia is one is timber supply, the other one is access to the available timber supply and I think that's even a bigger issue than the available timber supply at times. So, you know, so therein lies a bit of uncertainty but, you know, there's certainly, I don't think the information that's out there is that somewhere, you know, North of a billion board feet more to come out of the interior. And I would say that's likely. Our guess would be that's going to be spread around somewhat. And we'll certainly be part of that. We're planning and have been planning on how to get smaller over time.

38:25 With respect to pulp, you know, I can't answer that. And and with respect to which mills are going to go out, I think you can look across the province. There's mills that are not running. There's mills that have taken significant amounts of downtime over the last couple of years and I guess we'll have to see how that strategy plays out, but we'll stay tuned.

38:50 Okay, and maybe just squeaking a bonus question, just I guess maybe not so much a change in BC government, but do you expect any kind of

39:01 Well, you probably have the wrong guys on the call to answer that question, so I prefer you to them. I would say I don't think we're expecting significant changes, but, you know, and that it's more of a status quo, but I guess we'll see. Best of luck. Thank you. Your next question, another question here from Sean Stewart from TD Securities. Sean, please go ahead.

39:34 Thanks. Chris Virostek, just one follow-up. Can you give us an update of where things stand with your tax carry-forwards in Canada and the U.S.? I'm just trying to gauge when we will be looking at a transition to cash taxes going forward.

39:51 Sure. Sure, and maybe if you want to give me a shout-out after we talk about it, but I think, you know, when you look at the last couple of years, and I think we had this disclosure in the earlier quarters, in 19 we carried back, and so in Canada and a little bit in the U.S., so I would say, you know, the accelerated depreciation on the capital that we're doing in the U.S. helps mitigate some of that, but probably... You know, we're a little bit lighter on attributes in Canada. It would be taxable in Canada and getting close to that point in the U.S.

40:31 Okay. That's all I had. Thanks. Another question from Mark Wilby from Bank of Montreal. Mark, please go ahead.

40:43 Yeah. Chris, is it also possible to just get an outlook on log costs in both BC and Alberta over the next four or five quarters?

40:53 Well, four or five quarters might be a little tough. Well, let's try two quarters then. I'll tell you that if you can tell me what the price of lumber is going to be in January, Mark. So in Alberta, you know, the system is quite responsive. It generally kind of lags with about a month. And then in BC, you've got two main inputs. You've got kind of the quarterly input on lumber prices, which is one factor. And then the other factor is the July 1 adjustment, which is largely the purchase wood adjustment. And so the next quarterly adjustment on lumber prices is going to be in January. I think, you know, as we put into disclosure, we estimate that's probably – You know, $25 to $30 potentially.

41:48 You know, where it goes kind of April 1 is going to be dependent on how lumber does here over the next few months, but that should... Well, the January 1 is going to catch just about, you know, all of the peak in SPF over the last quarter or so. So, you know, if... If we see this bit of correction here, right, that gets probably baked in in April. And then I don't have off the top of my head kind of where the purchase market has been trending so far, but we can take a look at that because it'll be the purchase market for calendar 20 that will affect July 1 of 2021. Okay. All right.

42:31 That's helpful. And then... I'm just curious, Ray, if you could talk a little bit about sort of what type of M&A opportunities you're seeing right now in the southern U.S. And maybe if you'd also just want to share any thoughts. We've had one or two kind of greenfield mills announced in the south, and at least one of them is from a very non-typical player and going into what looks like a pretty challenging area down in Mississippi.

42:58 Yeah. With respect to M&A opportunities, I mean, Mark, we're plugged in every day to every opportunity that's out there. It's kind of built into our DNA. And so we are, you know, I would say, you know, I think I said in the last call, it's a little bit quiet. And I would say, you know, but there's always something going on and there's always opportunities out there. I would say that, you know, and so we tend to look at many things, but quite frankly, they need to be something that we see synergies in and that can make the company better, either in the short term or in the midterm. And so, you know, so there's opportunities out there. I think there's, you know, I think, you know...

43:55 You know, I still think there's a valuation is always a major obstacle. And with respect to others that are out there building greenfield projects, I saw one that was announced. You know, I think, look, there's a great opportunity in the U.S. South. You've got good, ample timber supply. And I think there's always money out there to venture into these things. I think we've seen that over the last number of years, whether it be lumber or OSB. and I would just say that those opportunities come with a significant amount of risk both financially and on execution. You need to have a well thought out home for your residuals and we think those things will continue to happen as we see quite frankly robust pricing hopefully in the next few years and I would just say that you know anyway I would just say that we should expect that and but understand that building a greenfield and running a greenfield mill and finding the home free residuals you know creates some headwinds on and it takes quite a while for that production to actually land in the marketplace in a meaningful manner.

45:16 Yeah it would just seem like if you're not in the lumber business already it might be probably challenging. Just one final one for me just Alberta Newsprint Joint Venture. I mean, I've always understood that to be maybe the lowest cash cost newsprint mill in North America. Is the strategy there just to be kind of last man standing, Ray?

45:35 Just further your last comment, and I think that's it. I think we, you know, for a large company like West Fraser, which weren't far from perfect, but we've got a fair amount of talented and resourceful people in It's a challenge for us to start up and run and execute to our expectations. I think it's hard to do. With respect to ANC, look, it is a great, well-run, we don't run ANC, but it is an extremely well-run, very thoughtful team. They've been wildly successful in executing on their business plans year over year. and their cost structure is certainly one that most people would envy.

46:22 So as far as strategy is last man standing, I'm not sure that's ever a great strategy but I do think ANC creates profitability on a number of things outside of newsprint including energy, transloading and a few other things. So it's a pretty inventive group there and so I kind of leave it at that.

46:45 Okay, sounds good. Good luck in the fourth quarter.

46:47 Thank you. Ladies and gentlemen, as a reminder, should you have a question, please press star followed by one. Okay, so it appears there are no further questions. Please proceed.

47:04 Well, thanks for everyone for joining the call and we'll look forward to talking to everybody sometime in February. Thank you. Bye now. Ladies and gentlemen this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.