Mercer Announces Project to Boost Pulp and Energy Output at Stendal Mill

Jan. 20, 2012 - Mercer International Inc. today announced a project ("Project Blue Mill") to increase production and efficiency through debottlenecking initiatives including the installation of an additional 40 MW steam turbine at its Stendal mill.

The debottlenecking which, among other things, requires the new turbine in order to enhance and efficiently utilize steam production, is designed to increase the mill's annual pulp production capacity by 30,000 ADMTs to approximately 675,000 ADMTs. The new turbine is also expected to initially produce an additional 109,000 MWh of surplus renewable energy for sale at premium pricing.

"We are very pleased with this project," said Jimmy Lee, President and CEO. "The project allows us to maximize the value from the wood that we process at Stendal, increase production and efficiency, provide a backup generator on the first turbine and reduce energy costs during maintenance periods and expand power generation.

"We currently expect the project, in addition to enhancing mill operating results, to deliver approximately EURO7.5 million (U.S. $9.8 million) of additional annual power revenues."

"The project is in line with our group's overall focus on enhancing revenues from the production of green energy and other by-products at all of our mills. We believe that our generation and sale of surplus renewable energy and by-products give Mercer a competitive energy advantage over less efficient mills and provides us with a stable revenue source unrelated to pulp pricing. Based upon our overall 2011 production and sales, after giving effect to Project Blue Mill, on a consolidated basis, we currently expect Mercer will produce about 760,000 MWh of annual surplus renewable green energy and generate approximately EURO65.5 million (U.S. $84.5 million) of associated revenues therefrom. Since our energy production is a by-product of our pulp production process there are minimal incremental costs and our surplus energy sales are highly profitable."

Project Blue Mill will require approximately EURO40.0 million in capital expenditures over about 21 months. The project is eligible for EURO12.0 million of non-refundable German government grants and the Stendal mill has secured a new EURO17.0 million five year amortizing secured term debt facility, of which 80% will be government guaranteed.

The facility is non-recourse to Mercer.

The balance of the project will be funded through operating cash flow of the Stendal mill and up to an aggregate of EURO8.0 million in pro-rata shareholder loans from Mercer and its minority partner.

Project Blue Mill is currently designed to be completed and start to generate power revenues in or about September, 2013.

The Stendal mill is a state-of-the-art, single-line NBSK pulp mill situated near the town of Stendal, Germany with a current annual pulp production capacity of approximately 645,000 ADMTs.

Mercer International Inc. is a global pulp manufacturing company.

SOURCE: Mercer International Inc.