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Operator: Good morning, and welcome to Mercer International’s Second Quarter 2025 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.

Richard George Short: Thank you, Michelle, and good morning, everyone. Thanks for joining us today. I will begin by touching on the financial and operating highlights of the second quarter, before turning the call over 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 negative $21 million, a significant decrease from Q1’s positive EBITDA of $47 million. The key drivers of the lower results included a negative foreign exchange impact from a weaker dollar, primarily on our euro and Canadian dollar denominated costs and expenses, which reduced EBITDA by approximately $26 million relative to Q1. Lower pulp prices in China negatively impacted EBITDA by roughly $8 million and led to a non-cash hardwood inventory impairment of $11 million. We also incurred higher fiber costs for both our Pulp and Solid Wood segments. Our Pulp segment had negative quarterly EBITDA of $10 million in Q2, and our Solid Wood segment had negative EBITDA of $5 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 the second quarter, our NBSK pulp sales realizations decreased compared to the first quarter due to the ongoing uncertain global trade environment impacting demand from China. In North America, NBSK published prices modestly increased due to both stable demand and supply constraints, while in Europe, prices were stable. In Q2, the NBSK net price in China was $734 per tonne, a decrease of $59 from Q1. The North American NBSK list price averaged $1,820 per tonne, an increase of $67 from Q1. The European NBSK list price averaged $1,553 per tonne, flat compared to Q1. Hardwood sales realizations remain largely unchanged in Q2 compared to Q1 as lower prices in China were offset by higher prices in North America. The North American NBHK average Q2 list price was $1,310 per tonne, up $42 from Q1.

In China, the Q2 average net price for NBHK was $533 per ton, a decrease of $45 from Q1. As a result, the average price gap between NBSK and NBHK in China for the quarter was about $200 per tonne, a gap we anticipate will be sustained in the second half of 2025. In addition, lower Chinese Hardwood prices resulted in us recording an $11 million non-cash inventory write-down this quarter. Pulp sales volumes in the second quarter decreased by 51,000 tonnes to 427,000 tonnes. This decrease is due to weaker demand caused by the ongoing uncertainties in the global trade landscape. Pulp production was flat in Q2 compared to Q1. We had 23 days of planned maintenance downtime in Q2 compared to 22 days in Q1. But we also had a total of 6 days of downtime related to a slow start-up from Celgar’s Q1 shut.

In the third quarter of 2025, we had a total of 18 days of planned maintenance downtime. This includes 14 days at our Rosenthal mill and 4 days at our Celgar mill. For our Solid Wood segment, realized lumber prices increased about 10% in the second quarter compared to the first quarter. This was primarily due to higher realized prices in the European market, a result of reduced supply and steady demand, while realized prices in the U.S. market were essentially flat. The Random Lengths U.S. benchmark price for Western SPF #2 and better averaged $472 per 1,000 board feet in Q2, down from $492 per 1,000 board feet in Q1. Today, that benchmark for Western SPF #2 and better is around $533 per thousand board feet, an increase of about $90 from the beginning of 2025.

In Q2, lumber production decreased to about 120 million board feet or 6% from Q1 due to planned maintenance at our Friesau mill. Lumber sales volumes also decreased to 121 million board feet, down about 8% from Q1, reflecting the lower production. Electricity sales for the quarter totaled 216 gigawatt hours, an 8% decrease from Q1 due to planned maintenance downtime at the Stendal mill. Q2 pricing decreased to about $90 per megawatt hour from $112 in Q1 caused by lower spot prices in Germany. Fibre costs for both our Pulp and Solid Wood segments increased in Q2 compared to Q1 due to strong demand in Germany and higher logistics costs in Western Canada. Our Mass Timber operations within the Solid Wood segment had lower revenues in Q2 compared to Q1 as the prevailing market uncertainty is impacting project timelines and overall market momentum.

However, we believe this is a temporary headwind, and we continue to see strong and growing underlying interest in Mass Timber and expect improved results going into 2026. In Q1, we announced our One Goal, One Hundred program. This initiative focuses on cost reduction and operational efficiencies with a target to improve our profitability by $100 million by the end of 2026 using 2024 as a baseline. To date, we have approximately $5 million in cost savings with an anticipated total of $25 million of cost savings for 2025. We also expect our implemented operational efficiencies to further improve profitability. Juan Carlos will provide more details on our progress on this initiative. We reported a consolidated net loss of $86 million for the second quarter or $1.29 per share compared to a net loss of $22 million or $0.33 per share in the first quarter.

In Q2, we consumed $35 million of cash compared to $3 million in Q1. This increase was primarily driven by lower EBITDA, partially offset by a $21 million decrease in our net working capital excluding non-cash items, due in part to working capital reductions from our One Goal, One Hundred initiative. In Q2, we invested a total of $24 million in capital across our facilities. These investments include upgrades to the log yards at Friesau and Torgau. These strategic projects are expected to enhance efficiencies, positioning us favorably for improvements in the Solid Wood market. At the end of Q2, our strong liquidity position totaled $438 million, comprised of about $146 million of cash and $292 million of undrawn revolvers. That ends my overview of the financial results.

I’ll now turn the call over to Juan Carlos.

Juan Carlos Bueno: Thanks, Rich. Trade uncertainty resulting from tariffs and global trading disputes was the main driver behind our disappointing Q2 results. This is despite the fact that our products are now being tariffed up to this point. Market uncertainty, coupled with excess supply of cheap hardwood fiber locally has caused Chinese demand for imported hardwood pulp to weaken resulting in an 8% decrease in prices with a single knockdown effect on softwood when compared to Q1. In addition, trade disputes have caused the U.S. dollar to weaken dramatically against the euro and Canadian dollar. This U.S. dollar weakness created almost $26 million of negative EBITDA for us relative to Q1. All these uncontrollable factors create significant macroeconomic headwinds for our business.

We continue to focus on the things we can control. For example, we’re beginning to see improvements in our reliability as our mills ran well this quarter. Early in the second quarter, we launched a company-wide program aimed at identifying $100 million in cost savings and profitability improvement opportunities by the end of 2026 when compared with 2024. Our organization has actively embraced this program, which is known internally as One Goal, One Hundred. At the end of Q2, we achieved $5 million of cost savings and have already identified an additional $20 million by the end of this year. This initiative also includes targeting working capital reductions of $20 million as well as another $20 million in CapEx reductions. Beyond this, we have started to unlock some significant reliability improvements that combined with additional cost savings next year, gives us high confidence that we will reach our $100 million target by the end of 2026.

In parallel, our working capital and CapEx reduction plans are tracking exactly as planned. The trade war has created an unprecedented level of uncertainty in the markets in general. As a reminder, on average, we sell about 200,000 tonnes of pulp into the U.S. annually. About half of this volume is hardwood pulp. We also export from Germany about 200 million board feet of lumber to the U.S. Today, these products do not have any tariffs applied to them. However, lumber is subject to Section 232 review by the U.S. Department of Commerce. So it is unclear if tariffs will be applied at some point in time. This reviews to be completed before the end of the year, but we expect decisions will be made beforehand. In contrast, our main import from the U.S. into Canada is woodchips for our Celgar pulp mill, which today amounts to about 45% of the fiber consumption of the mill.

There are no counter tariffs currently applied to this fiber. As I previously mentioned, our businesses are being impacted by the secondary effects of tariffs as this uncertain business environment directly affects the regular trade flows of the commodities we produce and forces delaying construction projects that we aim to serve. In addition to the above, the weaker dollar has an immediate effect on our cost basis on our receivable balances. With this global economic uncertainty in the background, our Board has taken the difficult decision to suspend our dividend. We view the suspension as temporary, but prudent from a capital allocation standpoint as we focus on debt reduction and navigate the uncertainty impacting our industry. Our Board of Directors remains committed to a competitive dividend as the market uncertainty dissipates on our balance sheet strengthens.

Our EBITDA of negative $21 million reflects a heavy maintenance quarter. Our Peace River mill was down for 20 days. Stendal took a short 3-day shut. And as a reminder, Celgar’s Q1 shut had 6 days of slow start up in Q2. In Q2, the combined effect of uncontrollable negative market impacts, including a weakening of the U.S. dollar and Pulp pricing and the associated hardwood inventory impairment reduced our EBITDA by almost $45 million compared to Q1. These were the results of the indirect impact of tariffs and trade uncertainty. Even though we carried good momentum during Q1, the strength changed very quickly as we entered into Q2. Midway through the quarter, the Chinese market weakened dramatically on concerns and uncertainty on tariff costs and the availability of export markets.

Today, Pulp prices in China appear to have hit the floor. Given that we’re now in the seasonally low summer period, we don’t expect Pulp prices to regain any positive momentum until the fourth quarter. While some trade agreements are beginning to take shape, the global trade landscape continues to be unclear. We will continue to work on mitigation strategies and remain flexible to manage through the uncertainty. In the meantime, we continue to maintain an open dialogue with our customers, government officials and our industry associations and are prepared to take swift action redirecting products to other geographies as necessary and adjusting our operations accordingly depending on the scenario that actually plays out, once the dust settles and the tariff map is completed.

Turning to the Pulp markets. Softwood pricing is expected to remain weak through the summer months. However, we are confident that overall demand for softwood will be steady in the midterm, which when combined with reduced supply will create some upward pricing pressure in most markets in the fourth quarter of 2025 and into 2026. In the second quarter, hardwood pricing remained weakened significantly in China due to weak paper demand and increased domestic pulp supply. Conversely, hardwood pricing in North America was resilient due to steady demand. As we have highlighted in previous calls, we believe that the ability of paper makers to substitute hardwood pulp in the place of softwood pulp is limited as most of the substitution options have already been exhausted, and understand that while customers will continue to push the limits given the wide gap that still persists between the two fibers, only a marginal amount will still be possible.

In total, our Pulp production was flat at almost 460,000 tonnes compared to Q1. Our lumber production was down slightly relative to Q1 by about 6% due to planned maintenance at our Friesau mill. Overall, we are pleased with our lumber production and look forward to the incremental lumber production at our Torgau mill going forward. As a reminder, we expect the increased annual capacity to be about 100,000 cubic meters of dimensional lumber or roughly 65 million board feet. In Q2, our overall pulp fiber costs were up slightly relative to Q1. In Germany, we saw increased demand for sawlogs which pushed up the price of sawmill chips, while in Canada, costs were up slightly due to the increased logistic costs. The increased demand for sawlogs in Germany also pushed the price of fiber up for sawmilling business.

Looking ahead to Q3, we expect fiber costs to modestly decrease for our pulp business and increase by about 10% for Solid Wood business as harvesting levels in Germany are very low due to lack of calamity wood. The business environment for Solid Wood segment remains consistent with Q1. Our Solid Wood segment continues to be held back by a weak European economy and the impact of high interest rates on the construction industry, despite some modest price improvements on certain grades in the U.S. lumber market. As a result, our Solid Wood segment posted a negative EBITDA of $5 million in Q2 with higher European lumber pricing not offsetting the sustained weak demand for pallets. Looking ahead, we feel — we are seeing the beginning of improved economic recovery growth in Germany and Europe in general, which we believe will bring improved pallet pricing.

As a reminder, $1 per pallet increase or roughly 10%, will put this business into a very positive cash flow position. Given the economic forces affecting the U.S. construction activity, U.S. lumber pricing would be volatile in the short term. Currently, weak housing construction due to high mortgage rates is a headwind, but the expected implementation of significantly higher antidumping and countervailing duties is expected to push lumber prices up. It may also result in the curtailment of some Canadian sawmills, which could create additional pricing tailwinds. In contrast, we expect modest upward pricing pressure in the European market, primarily due to increasing sawlog prices. However, any meaningful long-term improvement in either the European or U.S. markets will be dependent on improved economic conditions and lower interest rates.

The cost competitive configuration we have in Friesau gives us the flexibility to have a strong presence in Europe, the U.S. and the quality sensitive Japanese market. In Q2, 40% of our lumber volume was sold in the U.S. as we continue to optimize our mix of products and target markets to current conditions. Looking forward, we believe the U.S. lumber market will be driven by favorable homeowner demographics. Additionally, factors that we believe will improve lumber market dynamics include potential Canadian sawmill curtailments in the aftermath of higher softwood lumber duties and relatively low housing stock. Combined, we expect these factors will put sustained positive pressure on the supply- demand balance of this business in the midterm.

Shipping pallet markets remained weak with the pallet pricing staying generally flat due to the overhang of the European economy, particularly in Germany. Once the economy begins to show signs of recovery, we expect pallet prices to recover towards more historical levels allowing Torgau to deliver significant shareholder value. Heating pallet prices were up in Q2, which is unusual, given the seasonality of this product, but higher German fiber costs created supply constraints and drove prices up. We expect demand and prices to be slightly lower in Q3. With regard to our Mass Timber business, we have seen steady growth in the number of incoming projects inquiries. In the last 2 quarters, the potential sales volumes of these inquiries have exceeded $400 million and equates to well over 100 projects per quarter.

And as a result, our order book is growing. The projects we are bidding on and winning today are meant to be constructed 9 months from now, well into 2026. While our orders — while our work orders for Q3 remain weak, revenue will start picking up momentum in Q4 to the point that we’re planning on ramping up one of our facilities to two shifts in the early part of next year. Today, our Mass Timber backlog of projects sits at about $68 million. We remain confident that the environmental, economic speed of construction aesthetics, benefits of Mass Timber will allow this building product to grow in popularity at a pace similar to what happened in Europe. As such, we’re highly confident in this business being a growth engine for Mercer. We are well positioned to take advantage of that market growth as we have roughly 30% of North American cross-laminated timber production capacity, a broad range of product offerings, including design-assist and installation services and a large geographic footprint with manufacturing sites in the Northwest as well as Southeast giving us competitive access to the entire North American market.

As part of our objective to keep all of our partners running reliably, we planned major maintenance shutdowns at all mills throughout the year. Our remaining shut schedule is as follows: In Q3, Rosenthal will be down for 14 days or about 14,300 tonnes; and Celgar will take 4 days or 5,300 tonnes. In Q4, Stendal will be down for 18 days or 37,100 tonnes. In light of recent economic uncertainty, we have reduced planned CapEx and now expect to spend about $100 million on capital projects in 2025. This capital budget is heavily weighted to maintenance, environmental and safety projects and includes both Torgau’s lumber expansion project and Celgar’s recently completed woodroom project. We’re currently conducting a FEL-2 engineering review for a potential carbon capture project at our Peace River mill.

We have a lot of work to do given where we are in the project, but we’re excited about the potential that such a venture could have on the economics of this mill. As we look forward, we believe that products like mass timber, green energy, lumber, pulp and lignin will play increasingly important roles in displacing carbon-intensive products. Products like concrete and steel for construction or plastic for packaging. Furthermore, the potential demand for sustainable fossil fuel substitutes is very significant and has the potential to be transformative to the wood products industry. We remain committed to our 2030 carbon reduction targets and believe our products form part of the climate change solution. In fact, we believe that demand for our low carbon products will dramatically increase as the world looks for solutions to reduce its carbon emissions.

We remain bullish on the long-term value of pulp and are committed to better balance our company through our growth in our lumber and mass timber businesses. Overall, our Q2 operating results were disappointing, and equally frustrating given the cause for a weak earnings lies in this uncertain business environment created by global trade challenges. We believe our businesses have strong fundamentals and when combined with our debt reduction strategy, we are poised to create significant shareholder value. We will continue to pursue the benefits of our One Goal, One Hundred program and continue to improve the reliability of our mills to strengthen our resilience. We remain committed to increasing shareholder value by reducing our leverage through aggressive cost reduction programs, strong reliability and prudent capital management.

Thanks for listening, and I will now turn the call back to Michelle for questions. Thank you.

Operator: [Operator Instructions] And our first question comes from Roger Spitz with Bank of America.

Roger Neil Spitz: Can you provide any information on other cash flow items like 2025 cash taxes and perhaps all the way through 2025 operating cash flow less the $100 million of CapEx.

Richard George Short: Roger, it’s Richard. So we expect our tax for the year to be about $20 million, $25 million cash tax. And then I’m not sure — so our CapEx, we mentioned we’re targeting $100 million, interest probably around $110 million, and working capital should be slightly negative, if not flat for the year. Does that answer your question?

Roger Neil Spitz: I’m sorry, a slight outflow flash.

Richard George Short: Yes. For working capital, yes, just a modest negative, yes.

Roger Neil Spitz: Sure. I think you just said cash tax of $25 million, but you’ve already kind of there in the first 2 quarters, no?

Richard George Short: Yes.

Roger Neil Spitz: Or did I mishear you?

Richard George Short: No, you’re right, it’s about $25 million for the year.

Roger Neil Spitz: Okay. Got it. And my other question is, regarding the German revolver facility, can you remind us of the — any maintenance covenants under that? And what kind of headroom you have given where you are as of June 30, draw?

Richard George Short: Yes, there’s no maintenance covenants, and we have lots of headroom. The number escapes me, but it exceeds $100 million, probably like $150 million, $200 million-ish. So there’s lots of capacity there. I just don’t have the number off the top of my head But the…

Roger Neil Spitz: [indiscernible] covenants deployed?

Richard George Short: Not all, but most.

Operator: Our next question comes from Sean Steuart with TD Cowen.

Sean Steuart: I want to follow up on the balance sheet. Rich, I guess, just perspective on what — given the capital intensity of the business and the exposure to maintenance downtime schedules, what’s the minimum liquidity level you guys are comfortable with as sort of the baseline going forward? And then a follow-up on that. You’re talking about flat to slightly negative working cap changes this year, but one, Carlos, you mentioned an opportunity to bring working cap down further as a part of broader cash management initiatives. Can you give a little bit of perspective on longer-term opportunities to bring working capital down?

Richard George Short: Well, maybe I’ll touch on that first. So we’ve got some initiatives around inventory, specifically wood inventory that will continue to push our working capital down. This is sort of an ongoing thing with the mills, managing those inventories. So we’re confident that we’ll get our One Goal, One Hundred target hit. And then, sean, sorry, your first question…

Sean Steuart: Just minimum available liquidity that you’re comfortable with, just given the capital intensity inherent in the business.

Richard George Short: Yes. We’re a long way from being uncomfortable, I would say. So we’ve — I don’t know if I have a minimum number in mind, but we’re not even close to that. When we look out and we look at the levers that we can still pull around CapEx, we’ve talked before, Sean, about the MOB is probably like $60 million or $70 million a year. And we could probably push that down if we needed to. So I mean, I think we’ve got, yes, plenty of room, not worried about liquidity at all at this point.

Operator: Our next question comes from Sandy Burns with Stifel, Nicolaus.

Sanford Murray Burns: You mentioned how you had to take the write-down on the hardwood pulp side in the quarter. Just given how it looks like based on the production versus sales numbers on the softwood side. Your softwood inventories are probably at elevated levels. Maybe, one, can you comment if you would agree with that or how you view your softwood inventory levels and maybe related do you think there is the potential risk to have to take a non-cash write-down on those inventories as well?

Richard George Short: I can take that, at least the impairment part of it. Yes, we’re not close to taking any impairments on softwood inventories. Inventory levels, I would say, are slightly elevated primarily in Canada, just due to the slower Chinese sales. But I wouldn’t say we’re uncomfortable with the inventory levels at this point.

Sanford Murray Burns: Okay. And then also maybe just to discuss your current liquidity. I mean, you discussed the covenants under the German revolver. I guess, under the Canadian revolver, anything that may start to — you’re getting close on or may trip up in the next quarter or so, given current conditions?

Richard George Short: No. So that covenant — sorry, that revolver has a springing covenant that kicks in once you hit a certain threshold of borrowing, which again, we’re not — sort of, when you’d, sort of, top out on the overall facility. But again, not even close to that at this point. So yes, no concerns.

Sanford Murray Burns: Okay. And then lastly, just a follow-up on your previous comment, the $60 million to $70 million. Is that more like the maintenance CapEx level you’re referring to?

Richard George Short: Exactly. Yes. Sorry. Yes — sorry, I used the term MOB, maintenance of business.

Operator: [Operator Instructions] And our next question comes from Matthew McKellar with RBC Capital Markets.

Matthew McKellar: First, could you just talk through what you would expect to catalyze pulp prices gaining some momentum as we kind of get into the latter part of the year? Have you already seen enough production to come out of the market to put it in a more balanced position? Or what are you looking for there?

Juan Carlos Bueno: Absolutely. Thanks for your question. Yes, we believe that there is positive momentum coming into the later part of the year as it comes to pulp prices. This is on the back of restocking after the low summer season process that we go through year-after-year. So as demand picks up, we do see that inventories will come down and there would be a need for restocking. Now in the particular case of softwood, we do see the market being tight in terms of supply. In previous years, there’s been several mill closures and capacity that have come down. We’ve seen some announcements of also additional closures in recent times, particularly in Finland or curtailments that will take some volumes out of the market as well.

So when you add everything up, we do believe that once demand comes picking up from the low summer season, we would start feeling the pressure of the tight supply, and that would drive prices up for the second — for the latest part of the year, let’s say, end of Q3 and coming into Q4. For hardwood, it’s a bit different because obviously, there is some excess capacity. But at the same time, as always, after the low summer season kicks in and we see some of the restocking happening, it would naturally go up again. Not materially, not significantly. We’re not expecting a hockey stick on hardwood. We expect probably a better recovery on softwood than we see on hardwood in the later part of the year.

Matthew McKellar: Great. I’d like to ask just quickly about this carbon capture plant at Peace River as well. Is there anything you could share at this point, recognizing the project is pretty early stages, around how meaningful the project could be financially to Mercer? Or how we should think about a potential capital commitment there, if any?

Juan Carlos Bueno: Absolutely. As I mentioned earlier, we’re very excited about how that project is progressing. And despite the fact that we’re still a couple of years away from it becoming a reality. The fact is that we have completed FEL-1 with very good results. We’re in the middle of FEL-2. We will go into feed already by the beginning of next year. So it’s progressing in a very favorable way. Now the impact that this project may have on the mill is very significant, because when we look at the potential revenue stream that can come out of that, it would be tied to about 500,000 tonnes of CO2 that we can capture. And given where the prices of CO2 credits are, we can easily come up with a number that is close or north of $100 million per year of revenue.

And given how this project works, the costs associated with that revenue is very low. So it’s a highly profitable venture for the mill. And obviously, it would be a very significant upgrade to the financials of the asset itself. It basically becomes a biorefinery with a — of prime product, if you see — if you put it that way that is — that are those carbon credits. And remember that, that market when we negotiate those carbon credits, those contracts are 10-year contracts. So that means that the mill would have a guaranteed revenue for 10 years of $100 million per year. So that is why we see this as something that is strategically important for Peace River and for Mercer as a whole, because it opens the door of what we can do with carbon capture in other mills as well.

Now to the second part of your question around the capital requirement for it, it is obviously an expensive project. But when I say expenses, it’s probably north of $500 million. However, the beauty of this is that, it is one of these — these type of projects are incredibly supported by the government and by the state of Alberta. So we expect no less than 60% of it to be covered by grants. And then the remaining 40% or 35% that we’re seeing would be up to us. And in this particular case, this is a joint venture that we’re doing with a company called Svante. And that’s a 50-50 venture. So basically, half of that would be on us. When you bring it down it’s a much smaller — it’s probably less than $100 million, what would be our share of the pie.

So it becomes a bite-sized project with a very, very quick payback given the revenue stream that comes out of it.

Matthew McKellar: Great. And if I could just fit in one more on Wood Products. Could you please remind us if Torgau is configured to produce lumber for the U.S. markets? And how that $65 million board feet of incremental production plus maybe duties on Canadian lumber pushing higher could affect the geographical sales mix through the balance of the year? And then, it sounds like you have visibility to Mass Timber revenue picking up in Q4. What kind of magnitude are we talking about? And how do you think about the timeline to get back to that revenue run rate we saw kind of Q2, Q3 of last year?

Juan Carlos Bueno: Absolutely. Yes. On Torgau, it is equipped and capable to supply the U.S. market. As a matter of fact, that is already happening. So we have basically pine 2x4s and studs coming out of Torgau into the U.S. market. And it actually complements very nicely the offer that we have from SPF with Friesau. So that has actually come on in a very positive way. So we expect to see that capacity continue to grow. As we were saying by the end of this year, we should be around 100,000 cubic meters of plane lumber being produced at Torgau and that should escalate the capacity that we have right now installed is about 250,000 cubic meters. So we still have a way to go in order to capture value from Torgau. And if I can remind everybody, that was the thesis when we invested in Torgau, was the fact that despite of it being a pallet mill, we wanted to invest in it so that it could become a much more stronger sawmill from a lumber, plain lumber perspective.

And that’s what we’re doing, and that’s what we’re proving right now, that the mill is capable of doing that. And gradually will continue to increase as time progresses. So we’re satisfied with the way that is progressing and obviously look forward to having that full capacity of plain lumber out of Torgau. And which a big part of it goes into the U.S. Now it will be an advantage when we think about the position that we are in producing out of Germany, both at Friesau and Torgau and we compare with the position that the Canadian sawmill industry is relative to the U.S. with a countervailing duties and the antidumping duties going up. Obviously, that puts our German product in a much more competitive position relative to the Canadians. So for us, regardless of what happens with tariffs, we’re obviously now much more competitive than the Canadians from that point of view.

So that’s something that is obviously very eager for us to continue in that direction. And to your second question on Mass Timber. Yes, the order book is picking up steam as we go through. As one of the things that is probably important to explain as how this is different from what we saw last year, is the fact that last year, we had some very significant projects, large projects. We had the Walmart campus, which was a very big mega project. And we had also the Google project. So there were two very large projects that commanded a big part of the revenue. And those projects are obviously very productive and we’re very efficient for us. So that pushed our results very nicely in last year. This year as the year has come, the way it has come, those megaprojects are not there.

So what we’ve seen is an incredible amount of growth on the smaller projects, and that’s what has built up the momentum this year. Just an incredible amount of growth in smaller projects. And we do expect some of those mega projects to come back in ’26 and ’27. There’s very good progress with several of them, given the reputation that we built for ourselves with some of the ones that we delivered. We’re highly confident that we’ll get back on those mega project trends in ’26 on top of the growth that we’re seeing already on the smaller projects that we’re picking up. So that’s why we’re very, very confident about the growth potential for this in 2026.

Operator: Our next question comes from Cole Hathorn with Jefferies.

Cole Hathorn: I’d just like to follow up on the Pulp market. I mean, we’ve seen Metsä Fibre take software downtime. We’re seeing UPM take some software downtime in the Nordics, which hopefully reduces inventory levels and you talk about some potential recovery in the fourth quarter and into 2026. But I’m actually wondering what the lumber duties do to some of the Canadian sawmills and ultimately, the pulp mills. With the lumber duties at the moment, does this put some sawmills at risk, which reduces the available fiber to some of these — of your competitor pulp mills? Are we potentially going to see further supply disruptions in Canada now that we’ve got these lumber duties? I just like your thoughts around that and who’s better placed versus not?

Juan Carlos Bueno: Perfect. I appreciate the call and the question. And yes, you’re absolutely right in the diagnosis that you put forward. We share your opinion that with the countervailing duties going the way they have increased, that will put a lot of strain on sawmills in Canada. We would not be surprised if as a consequence of this increment in the countervailing duties and antidumping duties that more sawmills may need to close and shut down. And with that, obviously, what that would put is a lot more pressure on fiber or access to chips in BC in particular. That obviously doesn’t play well for any of the mills located in BC. We feel we’re very lucky that we are located, where we are located, that we have put in place a strategy 2 years ago to look at sourcing from the U.S. rather than depending on BC.

As I mentioned in the call earlier, 45% of our fiber is coming from the U.S. We have potential to increase that if we need, and it is very competitive fiber. So for us, we don’t suffer. We’re very well positioned, and we won’t suffer if there is further closures of sawmills and whatnot. In comparison to others. I think that any other pulp mill, in BC in particular, especially those that are further up north they would suffer the consequence directly. And there could be potential for a pulp mill closure or further curtailment in Canada and not only in Finland, like we’ve seen. So yes, that all goes back to some of the reasons why we think that from a pricing perspective for softwood, the trend, no matter how you look at it, is upwards because from a supply perspective, there’s going to be further and further constraints.

And obviously, if fiber prices go up, that will also push breakeven prices for pulp mills go up and that kind of sets a little bit of the floor at what softwood can settle. So we see it today. The $700 is probably the floor price right now for softwood just as it’s a little bit below $500 for hardwood. So for our mills, again, Celgar are pretty much okay under that circumstance. And in Peace River, obviously, we don’t, since we have our FMA. We have no problem with access to fiber. It’s pretty much the country have more fiber than what we need.

Cole Hathorn: And then maybe expanding on that. I mean, I agree with kind of the $700 a tonne kind of cost curve support levels and if there was an exit in Canada, it would be material for the softwood markets to impact pricing. But if I look at your business in Europe, you are second to first cost quartile in Europe. Is there any kind of disclosure you can give on the relative profitability levels of your pulp operations in Europe versus Canada, just to kind of give a feel for where you are in Europe versus Canada. What the profitability like is in Europe? And maybe just frame the value of those European pulp mills. I mean, we had Metsä Fibre that recently built their expanded pulp mill, but the replacement value of those two European assets would be bordering $2 billion. I’m just wondering how you see the value of that European pulp mill system? If you can give any kind of color there, that would be helpful.

Juan Carlos Bueno: Absolutely. Well, we have a very large pulp mill in Stendal. We’re talking 740,000 tonnes of softwood capacity and Rosenthal being probably 370,000 tonnes or so. So one very large and one average size pulp mill. However, that average size pulp mill, it’s Rosenthal, is an incredibly efficient pulp mill. It runs like clockwork. So when it comes to the competitiveness of it, it is up there and very, very, very high. We feel very confident about the profit stream that comes from Rosenthal, even in times like these, we’re well below — our breakeven point is well below where the market sits nowadays. So those assets are very competitive. Celgar, very similar to Rosenthal. It has demonstrated and last year was testament to that.

The profitability of Celgar last year was just as equivalent as Rosenthal, so very, very resilient, still positive even with pulp prices at the levels that they are right now. So when it comes to softwood, even with the prices that we see today, our mills — all of our mills are profitable. And obviously, Stendal being the largest is obviously we take advantage of those economies of scale and it becomes incredibly resilient. Now hardwood is a different — it’s a different story because obviously, we’re located in Alberta and further far markets, logistic costs are more expensive to get the pulp out of there. And we’re talking aspen pulp, not eucalyptus grown in Brazil. So obviously, our competitiveness on hardwood is different than when it comes to softwood.

In terms of valuation, I wouldn’t be able to give you a number that would — it would be a guess at this point in time. But we’re very confident about the high value of the assets that we have in both continents. Again, the value comes not only from the potential that they are offering today, but what they can also bring in the future. We talk about lignin out of Rosenthal. That could be a very significant revenue stream for the mill. We have a pilot plant that is running. We have plans to build the commercial plant probably starting in 2027. That’s what we aim for to have a project for commercial facility of lignin. That could generate 3x as much value than what we get from energy revenues today. In Stendal, we have a similar project looking also at gasification of black liquor and the potential that, that can bring and the fallback position being lignin on both assets.

And in Stendal, we have the possibility of CO2 capture which is what we’re doing in Peace River as we mentioned. So there’s a lot of potential in the assets beyond what we’re doing, and that’s why we see them incredibly more valuable than just thinking of them as pure pulp assets. We see them strategically as by refineries, and we want to develop them that way.

Cole Hathorn: And then finally, if you permit me, I mean, we’ve heard a lot in Europe around Germany infrastructure spending, an improvement into 2026. I’m just wondering how you think about your pallets and lumber business, in particular, exposed to any form of either infrastructure spending or kind of recovery spending if the German government does give tax deductions like they’re giving in the U.S. for accelerated, depreciation, et cetera. Will Mercer be a beneficiary there? And then maybe, Richard, just a quick one. Are you expecting any energy rebates in your business in 4Q at all from Germany?

Juan Carlos Bueno: Yes, on Germany, what we can see is that as you will mention, this push from the government for further spending is obviously very good news for the country as a whole. It would generate a lot of push for the economy. And if we have that push for the economy that it immediately translates into benefits for industry moving goods and if goods are being moved, then pallet prices — pallet prices should go up, because pallet demand will obviously pick up naturally. So — and we are very sensitive, very sensitive to any price increase in pallet prices, as I mentioned before. So we’re very energized by the policies that the current government has laid out and what that would mean for the German economy recovering, although we recognize that even though they have been announced already and that they are in place already, it doesn’t have an immediate effect.

So we do see a gradual improvement more into the second half of ’26 than earlier than that. We wish it was faster, but I think these things will take time to simmer into all the economy and the different industries as well. Rich, I’ll pass it on to the second part.

Richard George Short: Yes. So no, we’re not expecting any energy rebates in Germany or Europe in general. Yes.

Operator: I’m showing no further questions. I’d like to turn the call back over to Juan Carlos for closing remarks.

Juan Carlos Bueno: Well, thank you, Michelle, and thanks to you all for joining our call. Rich and I are available to talk more at any time. So don’t hesitate to call one of us. Otherwise, we look forward to speaking to you again on our next earnings call in November. Bye for now.

Operator: Thank you for your participation. This does conclude the program, and you may now disconnect. Everyone, have a great day.