Yet Another Value Podcast - Mike Mitchell on his big bet on lumber and GreenFirst $ICLTF

Episode Date: August 18, 2021

Mike Mitchell, the king of lumber fintwit, discusses his big bet on GreenFirst. Key topics include how Mike found GreenFirst (back when it was Itasca Capital), how he came to know and trust the management team, why he's so bullish on lumber, and why the thinks the deal to buy Rayonier's lumber assets is such a good one.Note that GreenFirst is a microcap Canadian company and much riskier than your average stock, so please remember nothing in this podcast is investing advice and to do your own due diligence.*During the podcast, Mike mentions smoking ribs for Kyle. Kyle has assured me that Mike's ribs are excellent.Mike's thread on ICLTF: https://twitter.com/ignorenarrative/s...My GreenFirst background tweets: https://twitter.com/AndrewRangeley/st... Chapters0:00 Intro1:55 GreenFirst overview and background6:45 Who the heck closes a deal on a Saturday?7:15 How Mike came to know and trust management13:35 Mike smokes ribs for Kyle*17:20 Discussing the various bear cases surrounding the FGF universe20:45 Comping FGF to some of the early John Malone transactions22:50 Betting on great management teams28:00 Lumber fundamentals overview37:45 Some more discussion on the complexity of lumber prices41:40 What drove the recent lumber price crash?44:15 Can ICLTF make money with lumber prices where they are currently?49:35 If ICLTF is buying assets so cheap, why is Rayonier selling?56:20 Viewing the rights offering through the bull and bear lens1:06:15 GreenFirst's new management team (the people who will actually operate the assets)1:10:25 Comping the assets GreenFirst is buying to other industry deals1:14:00 What happens if lumber prices and utilization don't improve?

All right. Hello and welcome to yet another value podcast. I'm your host, Andrew Walker. And with me today, I'm excited to have Mike Mitchell. Mike is a private investor. He's a retired dad of three. But most importantly, for our purposes, he is the king of Lumber Finchwit. Mike, how's it going? I'm a dream, man. Thanks for having me on. Hey, I'm really excited to have you on. Let me start this podcast the way I do every podcast. The first thing I'm going to do is I'm going to make a disclaimer that nothing on here is investing in ICE. Everyone on here should remember that. Go do your own research.

But I'll particularly emphasize it today because we're going to be talking about a microcap Canadian lumber company that comes with all sorts of risks. I know Mike has a big position in this and they just did a rights offering, which I participated in. So I have a position in this. So everyone just remember, nothing in here is invest in. advice this is really risky so please do your own diligence yeah let me can i ask you that andrew i'm far far from an expert on this stuff so i'm willing to talk about whatever i know but uh you don't take my word for gospel go out and you know figure it out on your own and if you have any questions you i've never had anyone add on to my disclaimer there but i appreciate you adding the extra risk

i'm an idiot Andrew i want that to be in the disclaimer that i'm a moron so don't talk to me i'm an idiot that's part of the disclaimer well i i hate to disagree with my guests up front but you know the second part of the way open every podcast is with a pitch for you. I've got to say everyone who's on Finchwit knows that you are the king of lumber Finchwit, but I've just really respect you as investor. You know, you are an investor who you wait for your pitch and when you find your pitch, you swing really, really freaking hard at it. I know you do lots of due diligence and lots of kind of sleut around these, but like you've kind of lit Finchut on fire with Q-rate last year, ICLTF last year and this year. And I'm just really excited to have you on talk about it. So get out of the way,

let's turn to the company we're going to talk about. It's Green First and the U.S. The ticker is ICLTF. This is currently a Canadian company up in Canada. It's GFP. So intro, everything out the way. Mike, what is Green First? And why are you swinging so hard at this? Well, so starting with what Green First is. Green First, when I first bought it, was a pile of cash, a company called Atascot Capital. And when I bought it, I had no idea what it was going to be. So it wasn't like I, so the intelligent analysts and investors out there will, we'll start with, I want to look for an interesting business or I want to look for, you know, I have a, a theory about how the world's going to play out, or I have a theme that I want, and then I'll go chase down, you know,

so I happen to be bullish on lumber. So what you do is if you're bullish on lumber, it's so, well, how can I express that bullishness? You know, can I maybe buy one of the distributors, or can I maybe go buy some of the lumber mills? This was the reverse of that. This was, I have a pile of cash, it's run by somebody who has become a good friend, who I like and respect. I figured my base case actually was that this pile of cash would simply liquidate. I'd make a nice little sum of money, get all my money back, and maybe have an IRA in the mid-teens, maybe the mid-20s. And then I felt like, well, at least it was actually explicit, there was an option that something might happen. And I didn't know what that would be. I wasn't able to frame it. So I was just as

surprise as the world in September of 2020 when I found out that I was actually long a lumber mill in Canora, Ontario. And that actually just got me focused on what was happening in lumber. And at that time, the market had risen, fallen, was rising again. And I just have to say, I really like the lumber business. I don't know why. I couldn't tell you like that I just love the idea. It's like Berkshire buying bricks in 2000. I'm like, I just love the idea of like it's so tangible. I love the idea of owning something that creates, you know, dimensional lumber that builds homes across. It just, the idea is very appealing to me. So I started digging into what was happening in the lumber market. And the more I dug into it, the more I sort of liked it.

And the caveat to be liking it is that for the longest time, I mean, since 2006, 2007, it's been a very, very bad place to be. I mean, if the returns have been terrible, there's been a lot of bankruptcy, supplies come off. However, when I see that, I'm like, I've been bullish on housing. And by the way, my bullishness has not been rewarded, but I've been bullish on housing since 2013, 2014. And when I see all this capacity coming off and then demand picking up and then that causing some crazy action and prices, like in my mind, I'm like, this could be really interesting. If your, if my bullishness on housing turns out to be right, you know, what is that, etc. So I started just kind of digging in and digging in.

And I thought, you know, actually owning a mill that's well capitalized in Canora might not be the worst thing in the world. And we got it for just an absolute song. We bought that mill for pennies, pennies on the dollar because of COVID. I have a write up on Twitter from last November that kind of talked about why that opportunity existed. And so I, you know, it was long as this just kind of by happenstance. And then I started digging in the market. I was like, this is interesting. And then I got, in April, 2021, I got surprised with a very, very large, so tiny company.

I think of it. When I bought it originally, it was a 7 million U.S. market cap doing a deal with a large public company called Rainier Advanced Materials to buy lumber mills. It was seven sawmills, five in Ontario and two in Quebec and then also a newsprint mill. So I went from this like, I own a pile of cash to like, oh, I own this, you know, I got a sweetheart deal on this one mill in Ontario and some land around it to like, holy crap, I now own, like a huge, the third largest lumber producer in Eastern Canada, one of the top 10 now in Canada. So it's like, I hope you do like lumber, Mike, because you are going to be long a lot of lumber. And so I got kind of dumped on that. And I actually got really excited about the deal and excited about the market. And so anyway, that's kind of the intro.

So today, well, as of, I believe Rainier said that the deal was going to close August 28th. So as at the end of August, green first forest products will be almost pure play dimensional lumber producer, third largest in eastern Canada, top 10 producer in Canada. they do spruce mostly softwood dimensional thing two by fours and some random like stuff then they have a a nice low cost top quartile newsprint mill that unfortunately has been losing money because it's basically a dimensional longer producer perfect perfect well let's you laid a lot out there and actually everything you laid out kind of hit touched on something that I wanted to discuss in this thing so I'll use everything you laid to out to jump off of questions

The first thing that you said as of August 28th, and I know you're right because I read the Ray and your thing and I saw that too. And the reason I remember it is they're closing the deal on a Saturday. Who closes a hundred million dollar plus deal on a Saturday? What type of psychopaths are we dealing with your bike? Yeah, I don't know. It's kind of weird. It's Jacksonville, Florida meets, you know, Quebec. You know, it's just like weird stuff happens, you know. So I don't know why it was the 20, on a Saturday. That's what they said. So I think your history, and you know, generally I like to talk forward looking on these because, you know, who cares about the past. The stock price right now is two. Who cares if you got in at 20 cents or $200 like the stock

is two and we're looking for value, right? But I do think the history here is instructive. So you mentioned you bought this as a cash shell last year. Part of the reason you bought it is you became friends with the management team. You got to trust them and you thought they could do something good with the cash. The management team, a big part of this is Kyle Serminara, who was on the podcast pitching FGF Financial, which became op-fi a couple months ago. But can you talk a little bit more about the management team here? Because I do. think this is, you know, one of the reasons I was so excited to have you on is because you're a smart guy and I was really excited. But I know a lot of people are really interested here.

And many of the questions I got is pushback on offlying in on this is push back or I guess if pushback is negative push through, push, you know, boosting Kyle. Like he's a very controversial figure, him, Larry, all these guys. So I kind of wanted to start, how did you find this and how did you kind of get comfortable with the management team here? So my, my history, um, My history with Kyle, I found Kyle via a company called 1347 property insurance holdings, which is now the successor company that is FG Financial. And what I noticed is I'm kind of a funky special sits investor. I look for liquidations and high IRA, but low M.OIC propositions and things that return

cash pretty rapidly. So as part of that process, I was screening SEC filings. And I noticed in that screen, this company called 1347 property insurance holdings. which was selling its primary asset, but it was not selling the entire business. It was going to go from a housing insurer based in Louisiana with a big operation of Florida, which is a business that I'm not really interested in, but it was going to sell that business for a pile of cash for some public stocks. And the net of it was, if I just penciled out, I mean, this is like 30 seconds worth

of work, just reading the first page of the proxy, I took the cash they were going to get from the deal, and then they were going to call out some regulatory capital that they had stranded in Florida. I add that to their balance sheet and I add the public stocks that they're getting and they had no debt and they had a preferred security and subtract that out. I was getting to a number that was two times the current market cap of the stock. So, but well, for 50 cents on the dollar, just a pile of cash in public equities, I will absolutely reach out to the person who is the chairman of the board of the CEO and just try to get a sense of whether this is a reasonable person or not. And so I reached out, in this case, it happened to be Kyle Cermanara. And I actually,

I reached out to Kyle through LinkedIn. I got a response back pretty quick. I want to say within a day. And I was a little bit surprised because, I mean, I'm a nobody, right? I'm the time as a 40-year-old retiree in this beautiful office you see behind you in White Plains. And the guy, you know, I said, listen, here's my cell. I'll call me anytime.

So we went back and forth for a little bit. I got him on the phone for 90 minutes. And he walked through a little bit of his history, which I really enjoyed because he's from Hershey, Pennsylvania. My wife's from Morgantown, West Virginia, and he grew up a big West Virginia football fans. We kind of bought it over that. But he walked me through after his history and why he moved to Charlotte, et cetera, he walked me through his thesis for buying pH in the first place and why he took a big position, what he saw and what he thought. And I would say probably more important than that, he walked me through what changed. So you have a thesis,

you buy a company. In this case, he was buying a lot of a company. He thought the business in in Louisiana was a good business for a couple of different reasons. And I figured, you know, he knew a lot more about it than I do. He knew a lot more about state regulations. He was actually walking me through why, you know, you would want to do business in Omaha. You would want as an insurer. You'd want to do business in Louisiana. You don't want to do business in Florida.

He's walked me through all these state regulations that I had no idea about because I'm not an insurance policy. So he's walking me through all these. He said, Louisiana good. You know, Florida not so good. We were expanding into Florida. The numbers were not coming out well. Somebody showed up to buy your asset. I could get all my cash back.

and I could go do something else and I was like sold right and in my mind when he had that 90 minutes he walked me through that one I learned a lot actually I learned a lot about how interns works and then I also was like my god that's like the most rational that's exactly what I would want the manager of my business to do you have a theory have a thesis doesn't play out something changes it goes wrong like get out like that's what you're supposed to do right so and by the way that's not common it's just not a that's the way that capital allocators think and analysts think when they're thinking rationally it's not the way that's CEOs in terms of things. But I heard that, I was like, great. Now, what are you investing in this

capital? And he said, well, so far, we've got some ideas. We haven't done anything. So far, I bought four Goodwill locations, all with very, very minimal mortgages and all at an eight cap. So, you know, we're levering them up into the low double digits, but it's really not sexy and not aggressive. And I'm like, look, if I can buy it for 50 cents on the dollar, I like you, I feel like you're rational and you know what you're doing. And you're buying like low teens, like low double-digit, low teams, returns, like for me, at 50 cents on the dollar, that makes all the sense in the world. So I started buying stock.

I also bought a fair amount of their prefers because I figured, if you like the stock at 50 cents on the dollar, the preferred were I think three or four times covered and just cash on the balance sheet, and they were yielding 8% at par and trading at par. So it was like, well, you like the stock, like buy the press and you get an 8% coupon and you're well covered. So I bought a lot of the prefs. And through that process, I've been investing in Pih, I saw, sort of slowly, I would talk to Kyle and things were kind of going on. And this was 2019.

Like, what's the plan and what are we doing? And also just try to be supportive because I have nothing going on. So it's like, listen, if you need any help, if you need any analytical support, I used to do this for a living and I've got nothing going on. So if you want to, you know, then he didn't, but I was just trying to be nice. Anyway. So a time, there was, we were talking on the phone maybe once a month, once every two months. And then in the end of 2019, you said, well, I'm coming to the city. Do you want to be, I'm meeting with some investors. And I've got some of the meetings going on. Do you want to grab the beer? So we grabbed a beer. We talked for like an hour. At the end of it, I had to rush back and get home. This was a Friday night. I had to take my any of the train stations. I rushed back. He said, well, he said, I'm going to be around this weekend. So I can't come to the city because I've got the kids. But if you want, come out to White Plains and I'll smoke ribs. So he decided to come up to White Plains. He spent, I think that was Sunday night. He spent like five or six hours over here. I have a dinner with my family. And we went through not only, he his entire complex, which was Valentine, Fundamental Global, FGE investors, which was still at the time,

BIAH, we went through Capital Health Advisors, the RIA that he was involved in. We went through his partnership with Larry Sweats. I mean, literally everything. And at the end of it, he was like, look, based on what you, the way you think about the world, you should take a look at this like TASCA Capital. I was like, what's that? So, well, this was a vehicle we used to fund 1347 LLC, which was an investor in a business called Limbach, and that investment had run its course. It paid out, had its return and

was going to be converted to cash. He said, the market cap is low. I own almost 50% of the stock, and Larry is the CEO, and he owns a ton of stock, and the burn is very low. We're either going to do something, or we can't find something to do. We'll just give the money back. And I was like, that's right down the middle for your boy, Mike Mitchell. So I started buying stock. The problem is very liquid. So I bought stock. Every share of the traded, I bought it for, basically a year. And I didn't know. I was telling my wife, so we're needing capital to move to Colorado. She said, well, what are we doing? I'm explaining it to her. And I said, I don't know what's going to happen with this. But, you know, like, we'll either get our money back or something

will happen. And it turns out something I think is, so far it appears to be great. I think it's going to, I'm hopeful, you're not going on whether it'll keep being great. He did something great and it kind of got sprung in me in September. So my history with Kyle started in April of 2019. And I always, what was kind of neat about it was I kind of came to my relationship with Kyle on my own. It wasn't like somebody said, oh, you got to meet Kyle. I didn't know him. We had no overlap. We actually had overlap when he was in Stanford at Sack. I was a breeding capital in Greenwich. So we were kind of in the same area around the same time, but we didn't travel in the same circles. I mean, he had a job that I almost can't even really believe that someone could do and survive, much less like Thrive, which was,

you know, working next to Steve Cohen as a financial analyst during the financial crisis. Like, I really can't think of, like, for me personally, I would have blown up on D2. Like, I would have, my head would have just, like, exploded. Not your portfolio, just you would have blown off. Well, I was actually busy at Zale Corporation, like back and forth to Dallas, Texas, as I was a board advisor to Zale Corp, and we were, like, in the midst of some of the most miserable time in my life. It was just so awful.

So I couldn't even get my mind around financials, like the guy was sitting at sack next to Steve Cohen during the financial crisis covering the banks. Like I just, I can't even like fathom having had a front row seat to the financial crisis and how brutal it was. And the banks were the center of it. I mean, that was like bear gets traded to chase, right? Wachovia gone. Lehman, donut, you know, like everything was exploding. And he was front and center for, I used to be kind, one of the most aggressive investors, you know, on, on, you know, around. And certainly at the time, I would, I would argue now, too.

And, you know, like I tell people, like, you can think he's a good stock picker, best stock figure, but he worked next to Steve Cohen for four years in the financial price covering banks. Like, Steve doesn't think he's terrible. So that was my, it's kind of like, damn, dude, that was crazy. So we talked about all that and St. Street, T. Row. And I really liked him, you know, I just thought he was a really good dude. he's trying very hard. And I'd say since then, we've just become closer and, you know, friendlier. And I suspect now that I moved to Colorado, I'm hoping he'll, you know, come out and visit. He's a good dude. I like him a lot. So look, I've talked to Kyle. I had him on the

podcast. I actually just texted him to see how your ribs were when you said you smoked him some ribs. So if I get an answer there. So look, I like him, but I do, you know, I do get both the size of them, right? Because a lot of the response, a lot of the people, are saying, hey, I love, I love Kyle. They really like to appear in some Bill's podcast. They like what he's done at ICLTF. But then, you know, a lot of the people say, hey, look at that Roddy Boyd article that came out last year. You know, look at that. The Barakave had a short report on Op. They say, how can you trust him, you know, Limbock, which I don't think, I don't think he was super involved with Lindbach, but Limbaugh was a little strange, you know, so what would you

say about just kind of the Roddy Boyd article and that stuff? And then we'll move on to greener pastures. Yeah. So I feel very lucky that I got to know Kyle before that article hit. And so I wonder if I think back and I didn't know Kyle and all I knew about him was I read that article, I think there's a, I would like to say that like I would give the people the benefit of the doubt. But I also, if that's the only thing you ever knew, you read that article, you'd read it and he'd be like, my God, this is, like, this is awful. Like, what is, and I had the benefit of actually knowing him, asking all these questions, liking all the answers and thinking, yeah, this is very rational, I'm no problem,

and actually becoming friends with him and understanding him to be a good human. And then that article comes out. So it would be akin to me reading and a hit piece on my wife. You know, I'm like, okay, like, you don't, you know, you think she's a bad person because of X, Y, and Z and she did 15 things wrong. I read it and I was like, I read it once. And I was like, did I really read that right? And so I read it twice and I closed the book on it and I never read it again.

I was like, there was nothing in there that surprised me or interested me or did I think that like, oh, I might be wrong about this person. It just seemed like a piece that was written to kind of the smirch him. And I don't know why that would, I don't know why that happened that way. I don't know what the motivation was. I have some ideas about it, but I'm not really sure. But to be honest, I don't really care. I feel like I know Kyle a lot better than Roddy, so I'm happy to kind of go with myself. I'm just sort of trusting my own gut.

But if for anybody else who says, hey, read this article, this is really not good, I get it. Like the article sucks, you know. And so same with the Bear Cave. You know, and Edwin, he seems like a really sharp dude and his hash reports have seemed really sharp and I feel like the guy does, you know, does real work. And so I'm happy for him. And the difference is I've known Jared Kaplan since Jared was 22, you know, and one of my best friends since I started. Yeah. And one of my best friends since I started in the industry in Jeffries, I grew up with Jared in Cleveland. And I know of the Schwartz family and I know people who know them. And I'm like, I am just sitting here telling you, Jared is a very good human being and he's trying very, very hard. Anybody who comes to me like Jared is is a bad character, the answer is no. Yeah. It's just for me. You know, the answer is no. And but. You know, anybody else can make their own judgments.

I have no, I get it if you look at some of these related party transactions, you'd think, well, you know, what's the problem? You know, I guess I think part of my deal with related party transactions and all these crossholdings and everything, I made my first, my initial wealth, for lack of a better description, investing with John Malone. And if you want to see some very weird related party transactions over 30 years, just go read John Malone. You can read his book. I mean, his book, he gave the, he gave a dog shares the stock to get control of it. Like, crazy stuff, but it worked out for shareholders. And I don't, like, in my mind, I'm like, he was trying, ultimately he was trying to do the right thing for the business.

And people who stuck with him did very well. So that kind of stuff has never really bothered me personally. But that's just me. It's not for everybody. It's funny you mentioned John Malone, because when we get to talking about ICLTF's rights offering, the first thing, you know, I wrote this up on BIC and it, And everything. The first thing that jumped out to me was, this is a little bit John Malone-esque, super complicated rights offering, three and a half times rights for every share. We'll get to that. But it is funny. You mentioned that. Last couple things I mentioned, A, I believe a quote from you is you bet on two people. I can't remember it was John Malone or Greg Mathay, but they were one and the other was Kyle Serminara. Is that a, am I quoting that accurately? Yeah. So that's accurate. I said I have my money with two people. One is John Malone and one is Kyle Cermanara. That's where my money is right now. And now it's way more with Kyle because of this rights operating.

It was much more skewed to John if I go back two years ago. But it's kind of shifted and maybe one day that'll shift back. But I had a sort of epiphany is not the right way to say it, but an evolution of my thinking in 2013 when John took his initial stake in charter. And I started being very close to Liberty, at the time head of investor relations, I just thought these. people were brilliant. And I kind of evolved my thinking into, my thinking went from, I need to find a cheap stock to I need to really focus on find, like I turned into kind of a Garp investor, which is like, I need quality and I needed it a reasonable price to in 2013, 2014, I was like, wait a minute, I just need to find people who are doing very smart things and know this better

than I do and get looks at stuff I never will and just give them my money and like, don't ask any questions. And that was, John, was that evolution. It's funny to say that because the John Malone fans will kill me for saying this. But one of my big evolutions as an investor was a couple years ago, I got really into IAC. And I'm still really into IAC. It's a huge position for me. But IAC has continued to impress me. And, you know, Liberty does the same thing, right?

The thing is, if you invest in them and you do it at a good price, you can get them, you know, if a normal business is worth $10 per sharing, you buy it for $2.50, you might do worse than if IAC is worth $10 per share and you buy it for $750. because I see John Malone and all these guys, they're going to pull a rabbit out their hat, right? They're going to buy something that's worth $10 and they're going to pay $5. And then five years from now, they're going to do it again. And then they're going to do a split off or something. So it does, I think most people come to where you and I are talking about over time, buying a great manager is kind of the most important thing to do, right?

Buying somebody who maybe you're paying a little bit up for them, but they're going to make great decisions that are going to compound capital. Yeah, I think it's, that's certainly where I've gotten to in my thinking. And it just is easier for me because I don't worry. But so it's hard. It's very hard for people, myself included, to put a value on capital allocation. I don't know how to do it. You know, I don't know how to say very, so you have this group of assets. And it's asked a different way. People will say, well, how much, I got to ask this question on your chain from Jeremy Rayper. I said, you know, how much of this is you diligenting Canora and how much of it is you betting on the jockey? Well, for me, every bet is somewhere between 85 and 95% the jockey. You know, because, and simply but, I won't buy it if I don't like the jockey. So it doesn't, if I don't like the jockey, I don't care how great of the businesses. Unless it's an unregulated monopoly that everybody has to be a part of, then I could like be talked into it.

But those things right now are so expensive anyway. It's just unlikely to me that I would ever find something where I'm like, well, that's reasonably my student. I had this huge mental hang up where I have to pay something that I consider to be a reasonable price. Like, I can't pay something that's absurd just because it's so bulletproof that I'm going to get paid. By the way, that has been a huge mistake. I should have just bought like Visa and PayPal and just like walked away, you know? Yeah. Or Domino's just so much easier. That's been a mistake. That's the way. There's no, there's no human on Earth who loves Domino's pizza as much as I do. And no one has, and I have missed dollars a whole way up.

a mistake. You could have paid for all your pizza. People would have just bought a couple shares of Domino's and let it ride. But yeah, so I am more of, I believe that the vast majority of everybody's bets, the jockey is incredibly important, whether they realize it's important or not. And I think that's just a function of me seeing people do some really dumb things and me being on a couple of boards as board advisors and me meeting several CEOs. I'm like, they can really take something great, make it terrible. But also, you know, you can take an asset green first, and you can do some really wonderful things with it if you pay good prices and you have people who are running, who are sound and they're well-incentivized,

good things can happen. I just don't know how to tell someone. So if you would have asked me two years ago when I was buying ICLTF, like, well, what's your best case scenario? And I would have been like 45 cents. Best case, 45 cents U.S. If I got 45 cents right now, I'm out. Well, that would have been a huge mistake. Like, objectively the stock is, in my opinion, is worth 45 cents. I have Senvest willing to buy all stock at $1.20. So those guys aren't dumb. So it's worth more than $45 now.

How I could have gotten there, I really don't know. I don't know how to put a value on that. So I always just say, well, it's a free option, right? It's like free option. I'll pay for it. If you get it, it's free. You know, Michael Price used to say it's the sizzle versus the steak. You buy the stake in 45 cents and then, you know, you sell the sizzle when it hits

or it's akin to saying there's a bunch of these free options. So I don't necessarily think it's wrong that people don't value that. Because I don't know how to value. I don't know how to value John getting along a cable asset and, you know, rolling up time work cable. I don't know how to put a value on that except to say, like, it's probably worth the premium. You know, it's just people brought in the podcast that can't see my face. I'm doing this like shaking my head. I'm not sure.

You know, it's a shrug. I don't know. It's probably worth more. Like, you know, people say, well, I bet with Brian Roberts. And I was like, do you want to? I love Brian. There's nothing wrong. Brian's amazing.

Great family. They built something incredible. It's incredibly durable. But Charter is a better investment. And that was always my pitch was like, Charter deserves a premium. And finally, I think after Sky happened, everybody sort of bought into the idea

that Charter was worth the premium. And then you could see, charter did not work until you saw the free cash flow come through. There was always the best $30 a share in free cash flow that Tom could deliver at them when you saw it was at the start. I didn't know how to put a value on John. It was just, John is going to do some really amazing things.

Like, how would you have put a value in 2007 on John's ability to take serious XM, which is a really interesting story to recapitalize Sirius XM with debt that basically repaid immediately and then you got 40% of the equity on the other side for zero. How do you value that? I don't know. So I'm talking about this all day, Andrew. Well, this is great.

We've covered a lot of stuff in management. Let's turn, instead of turning straight to ICLTF, I think at this point, you know, obviously we talked about how management's important. The way you're expressing your bet on lumber is through ICLTF. But I think what you're saying is a big part of the. ICLTF for you is you are very bullish on lumber. So let's talk lumber fundamentals. You know, if you look at a chart of lumber so far over the past 12 month, it almost looks like a SPAC stock, right? Where in January through March, prices just go parabolic. You know, they go from like $500 to $500 per

what is it. It's like megaboard foot. Is that what is that MMBF? It's described as per thousand board feet. It goes from about 500, which is a little bit over the 10 year average. And you know, by by April when this big deal that ICLTF is going to announce to happen, it's at 1100. By the end of April, early May, it's at 1,500. And then as you and I talk right now in mid, what is it? Is it mid August? My gosh, time flies. It's back towards around $500 per share. So, you know, I think lumber is a little unique among commodities because the old thing, the old saying is the cure for high prices is high prices. But because of lumber's lead time and everything, I think it might be a little bit different there. So I'm just going to flip it over to you.

Why are you so bullish lumber, lumber as an asset right now? So step back. And I'm going to reintroduce the disclaimer. I am not a lumber expert. I happen to be spending a lot of my time there. I've had a lot of calls on it. People have been very generous to call me and give me their thoughts on it that are in the industry.

And I've been fortunate to talk to a lot of people. But I am not an expert. And I also give the caveat, always go see my fin tweet. It's like, this is just a bet. you know, and I could be very wrong. So just, you know, now that that caveat is out there. So I have a very simple view. Simply, and this is all based on housing. I believe, and in my mind, it's, it's, it's, nothing is a certainty, but it's as close to a certainty as anything else I can think of, that over the next 10 years, the United States is going to consume a lot more wood products than they have over the last 10 years. Okay.

So, and look no further than if you look at housing over the last 10 years, so housing starts, and then you look at, you know, where it was, and if you take a projection of where anyone thinks it's going, you know, with under supply and demographics and work from home, et cetera, it's, in my mind, it's almost a certainty we will use more dimensional number. It is also the amount of dimensional number I think that we're going to need does not match where I believe the supply of that dimensional number is. least the inexpensive supply that the dimensional number is. So when I saw that what you're describing, which is the SPAC chart or it looked like Bitcoin, it just came down a lot more. But this big spike and then it comes right down. When I saw that, I had a couple of thoughts. Number one, no one in the

world predicted that. No one. Zero people were out here going in this in April of 2020. No one was saying, yeah, dude, by next May, you're going to see $1,500 lumber, like, bank on it. Like, if you would have said that to Stinson Dean, he would have laughed in your face, you know, so everybody else would have to do, but it happened, right? And so I look at that and I'm like, well, that's interesting. What drove it? Well, the driver for increased lumber prices, there were several things, but the big driver is demand. So the suppliers and the builders found themselves short of lumber and long on their commitments for lumber. So If you think about what lumber is used for, it's used for single family housing. It's also used for repair and remodel. There's different applications for different types of softwood lumber and, of course, hardwood lumber as well, and panel, etc. But basically what happened was a lot of demand showed up for housing applications for new home purchases and then also for repair and remodel. And all of these places found, suppliers and builders found that they didn't have enough lumber to meet those commitments. So what do they do? They all rush to the market to buy it at once. Now, if you go back to 2005, 2004, 2007,

six, the amount of supply that we had, the amount of mill supply that we had, capacity we had, could have met it. If you then look from today, because of the housing crisis and all, like I said earlier with mills have been a bad place to be, mills have shut down, capacities down, one, because the market's been bad, two, because there's supply constraints in Canada for logs, which we can get into if you want. But there just isn't the supply that there used to be. So when everybody showed up for this increased demand, the price just moaned. It was basically like, and people would say, well, it's supply of lumber. It's not there. Well, if you go look at all the public mills, they were all producing exactly like you would expect them to when prices are moody. They were just cranking out as much food as they could, which is what you'd want. You know, you look at Resolute in the most second quarter production they've ever had, right? And on a trailing basis, it's the most production they've ever cranked out. I think that's because they were buying plenty of capacity. They just don't have a lot of cheap logs. They're just out buying expensive logs and made sense. So I look at that and I go, wait a minute. For a long time, the price of lumber has been dictated by supply, right?

So the demand was slow and increasing. There was always more supply. The adage was you can always produce enough lumber to meet demand. What I think we learned was that if a lot of people show up to build a house or buy a house or to buy wood products for fences, decks, etc., there might not be as much supply as we thought there would. Now, what does that mean? Well, we know now the price is down. We know two things. We know that, one, the demand is going to move around a lot. It's going to spike at certain times and it's going to crater in certain times. And so that makes it very hard to plan. Two, we also know that

there is a price at which people have no interest in buying lumber. They just say, you know, screw it. They just want to walk away. But there's a big middle part in there where I think lumber can exist and where I think people's appetites for lumber will be quite strong. And it's all based on my view of housing. I believe there's three main drivers for housing, at least that I'm paying attention to. One is the under supply. So this is the easiest chart to pull up. You can pull it up from five. You look at housing starts 10 years back and you just look at them forward. And it's just obvious. You don't even have to do math. It's just look at the chart and you're like, we didn't build enough homes. So that's one. Two, work from home.

I think is structural, not fully. I don't know that everybody in New York will always be able to work from an apartment, but I do think that there is a part of the world going forward that will be working from their home one, two days a week, certainly more than they were in the past. And then three, and this is the bigger one, is demographics. So you have the average millennials 30 years old now. They're just now hitting family, and they're just now hitting peak earnings. Historically, when you see a demographic do that, that creates demand for single family housing, that creates demand for cars. increased, they hit their peak spending periods, and that's just happening now. So all of those things sort of combine, and if it's possible, and there's the bare case is that it's not even possible,

but if it is possible, my belief is we need to build somewhere between 1.6 and 2.0 million homes for the next five years easy. The less we build, the longer it will go, and the less we build, the higher the price is likely to go. But we need to build a lot of homes. And if we build a lot of homes, we need a lot of lumber. I think the industry itself today is structured to deliver enough dimensional lumber to produce about 1.6 million homes in a year. That assumes pretty steady R&R demand, repair and remodel demand. It seems like repair and remodel demand actually could go quite a bit higher. So at least that's what the Center of Joint Center for Housing Studies, a Harvard Joint Center for Housing Studies, and to me it makes a lot of sense because the drivers for

R&R are existing home sales. So you buy an existing home. That existing home is aged. So you need to do a big remodel project. And the other driver's home equity. And home equity is as high as it's been since the last housing boom. So you put that together. And it's like, I kind of think that all the pieces are there. Doesn't mean it's going to work. Doesn't mean that the demand will be there. But it just seems like all the pieces are there. So that keeps me pretty bullish. And I think the challenge is that, like I said, there's going to be these spikes. So one of the things I just, it's sort of my mantra for 2021 for the market. And I've given it a few times and you can just dismiss it if you want. But I fundamentally believe nobody has a post-pandemic playbook for the

U.S. consumer. This is a new time. No one in our, in my lifetime, no one's ever survived a pandemic, survived like a total economic shutdown and then come out the other side. And that has created some changes in the way people behave. What changes will continue, what changes will stop, how things will normalize. I think it's anybody's guess. I think some things are pretty obvious. I think some things are not quite so obvious. But I also don't read too much into the fact that Lumber went to 1,500 and everybody showed up to do a backyard project at once. That doesn't tell me that that's going to be the new norm. It also doesn't tell me the new norm that I'm literally, Andrew, I take 5x the amount of vacations this summer that I've taken probably ever in my life.

The reason why is I started booking this stuff last year. I don't know what you did with your family, but I started booking all this stuff last year because I've been cooped up. And so my friends were like, let's go to Maine for a week. I'm like, yeah, which was the dumbest to sit. I love them. They were awesome, but like taking three little kids to Maine was so stupid. I mean, it's great there, but it's not really built for little kids.

And then, you know, we did this Colorado trip, my wife. And then we went to, we just had done so much. And so there's a lot, that changed a lot. Like my grocery spend is down. My dry cleaning builder. Everything is down here because I spent some, but that's not kind of, persist. That's just these weird changes in consumer behavior. I just want to push back on one point here, right? So lumber went to 1500 and it's kind of crashed back down to 500, which I'm seeing

roughly 500, about the 10-year average for lumber prices, right? And I hear you on everything, but the one thing I don't, you know, it comes back down to 500 around the 10-year average. The reason I said lumber might be a little bit different from other commodities is, you know, if oil is at 100 or 120, you can go out. You can drive. well as you can increase spending it takes you know six to nine months for all of it to start flowing through but you can get you can find more oil right there's more expensive oil if lumber is at 1500 like you know the the sawmill that that green first bought it takes 18 months to three years to get a sawmill that's been kind of mothballed to come back online if you're talking about

actual shortage of lumber you know it takes 15 years 20 years to go plant a tree and for it to grow enough to get lumber so it depends on the tree but there's a lot of nuance I just interrupted. You keep going. Go ahead. Go ahead. I think you saw where I was driving at. Yeah, I do. So there's a lot of nuances, and I've been, I've sort of been learning about these. It's actually kind of shocking how many nuances there are to the lumber market. So you say, you know, the average price, the current price is 500, the average, it's close to the average. So there's pricing for lumber is not uniform by region.

So when you see the quoted price on CME, that is a price, what they describe as FOB in Western Canada, which means it's at the gate of the mill. And that's in Western Canada, nowhere else. So you go to Western Canada for, let's say on the screen, it's just picking numbers 500. You go to one of West Brasgers mills, you can pick it up for 500. Let's just say the cash market of the mill

is mirroring the CME market. So you have to pay for transportation. You have to pick it up. If you go to the east, which is where green first is, there's a lot of differences, not just in how it's priced, but then also the cost structure and then how the actual trees are different

between you get into. But in Eastern Canada, and so if you look at the Green First deck, they always quote their pricing on ESPF. And so when you say 500 now, the 10-year average is 454, that's in the East. The East is priced differently. The East is priced as a, it's priced as an FOB in Western Canada, but it's added to, added to that as a delivery charge. And that the difference in price is over the last 10 years about $91. Now you say, well, it's a delivery charge so the mill doesn't get it. That's true.

but if you're looking at the cost structure in the East, it always includes an as-delivered component, which is about, right now I think it's $80 or $85, but historically it's been about $91. So the CME average for the last 10 years has been $350. The ESBF number that we're quoting is about $4.450, and the difference is this delivery charge. But on our cost structure, when somebody says, well, you know, you look at Rainier, sorry, not Rainier, you look at Resolute. Resolute was quoting $434 as an as-delivered cash cost in the second quarter. I was like, that's true, but if you were comparing them to somebody in the West, which you'd do if you were using the CME, you'd have to subtract out of that about $85 for a generic delivery cost to your number. So, I mean, there's there's other whole other nuances about the trees, like the trees in the east are thinner, generally, the spruce, you say it versus in the West, which is really good for the West because the thicker the tree, the more two by fours you can get, which means the less byproduct you have.

So you ask like, why do we have a newsprint mill? You know, why is there so much pulp in the east? And the answer is, thinner trees create more waste or byproduct, which has gone into pulp historically in newsprint. So that's why all the newsprint bills are released. So it just means that our cost of production generally is higher unless you have good pulp and newsprint prices, which can bring that. So anyway, sorry to kind of go off into the nuances of how the pricing is, but it's at 500 now and it average 350. So it's quite a bit higher than the last 10-year average in the West. That's really, that's very interesting.

but my point was, you know, the prices went up to $1,500, and then they crash back towards the 10 years average, you know, pretty dramatically. And I don't see, you know, I don't see how a lot of supply could have come online. It's not like the demand for, no, it's not a supply issue. Yeah, no, I see what you're saying. So the run up to 1500 was not supply driven. The run down to 500 is not supply driven. So in the, if you made me guess what was going to dictate lumber prices for the next five to 10 years, I would tell you supply is going to dictate it, not demand. And that is because I feel strongly that over the next five to 10 years, the demand is going to be there. Right now, the demand is not. And you're seeing it in lumber prices. So part of the

1500 run was not just fulfilling existing commitments. We now know that the home centers were not just buying for the commitments they had. They were also looking to buy for their continued strong pro and DIY demand. We've now learned, and it's everything so obvious in hindsight. They never should have done that because the DIY business all went on vacation in May. So DIY is down 15 to 20 percent versus where it was in the first quarter, the sequential numbers. I get that from Builders, I think Builders first source earnings calls. I wanted to talk about that. That's down 15 to 20 percent. Well, you'd say like, hey, Mike, like how much is DIY? And the answer is, well, DIY is a good component, but we've got, it's not the biggest component. The biggest component of single

family. Single family is running one six, but they haven't been running one six. So they've still got lumber to produce, there are probably a little light on inventory, but they're not very light on inventory. If the home centers are over inventory, which they are and they're going to have to work through, until they show up to buy and everybody shows up to buy at once, you're not going to see the rebound in prices. The move to 1500 was demand. The move to 500 is demand. Demand will stabilize. That's my view is that the reason I'm bullish on it is because I'm very bullish on demand, but demand is moving around. It spikes and then tanks and then my guess is one thing I'm kind of hoping is that it doesn't spike again.

So I think these like wild price movements actually create problems in the system. I don't think they, but I do, I hope that it sort of comes back to this like normal level where everybody's rational and they're placing their orders way in advance so the mills can actually deliver at a good price. It doesn't have to be $1,500. But the reason why you saw it crash is because DIY went on vacation. It's really that. That's really helpful because, look, for me, I know lumber, I know you're not a lumber accident.

I'm certainly not the lumber expert. And, you know, I see the price spike and I say, oh, well, It doesn't seem like, you know, I follow some of the home builders. It doesn't seem like the home builders are stopping the single family home building. It seems like all the demands there. So that's super helpful. Last question on lumber as an asset, which will lead us nicely into ICLCF. We might be jumping too far ahead here.

But, you know, ICLTF, when they announced the Rainier deal, they said, hey, right now lumber is 1100. Lumber could drop by 40%. So call it $700, $600, $6, whatever you want to call it. And we think we're still getting these at a really attractive. price, you know, they, I put a quote on my Twitter, I'll include the links in the show notes if anyone wouldn't see it, but they said, hey, even if lumber drops by 40%, we think we can make really good money here. Well, lumber has dropped by over 50, 60% at this point, right? So, you know, if I'm thinking about an earnings number here, can ICLTF, can they make a sustainable

profit with where lumber prices are right now? Or do we really need to see? lumber prices kind of follow, not a super spike, but follow a general upward path like you think they can in order for this investment to play out properly? So they're profitable today. So the ESPF price with, let's say you tell me that we settle CME around the CME quote around 500, your ESPF should be in the high 500s. The current cash cost of the Rainier mills, and there's a very, very important point that is going to dictate exactly where we sit on the cost curve 18 months from now. It's the utilization rate within the most that we bought. So with the current utilization rate,

I believe the as-delivered cost for Resolute is around 435. And the utilization rate is mid-80s right now, if I remember. It's low. It's 83. Even when lumber was moaning, they could only actually produce to the low 80s. I mean, since Rainier's owned them, I think the number is bounced between 80 and like 83% utilization rate.

And that's a really interesting component of this investment case because we have, if you look at Resolute, Resolute runs very low utilization, but on the mills that they have and they're running, they actually run high. But on the overall mill structure, it's not very high. And the issues, they don't have whole. They don't have cheap access to stumpage. We have enough stumpage to get us to 95%. That's just in their deck.

So I'm not like, you know, sourcing that number somewhere else. It's right in their deck says we have enough stumpage and access to affordable logs to get us to 95% production reliably on the 755 million 4 feet of production we're buying from Rainier. Yet, these mills are only producing at 80 or 83. So my team, so Paul Rivett, is a chairman and his guy, Rick Doorman, who's going to be the CEO of this, say, look, I've got it there. We've toured every mill. We've done bottom up. We know we can get this higher.

The goal would be to get in the 90s. If it does get into the 90s, the cost structure is going to come down pretty dramatically. Part of that's going to be more shifts, but apparently we already have the late. labor there. So we're actually kind of overmaned in some of the mills. It's just to be a bottlenecks that we require a lot more labor than a traditional mill should have. So they've got a plan. Hopefully they can get that up to the 90s, which will bring our cost structure down. But in the second quarter, well, Resolute was pumping out what at 435 delivered, let's say, U.S. We're in the 460s delivered U.S. So that puts it on USDA more like in the mid-300s.

It's in the low 300s for Resolute. Resolute traditionally, without the delivery cost, is in the kind of mid to high 200s. I believe the reason why it climbed, if you look at their production, their production like ramped in the second course because prices were ripping. If you didn't have the logs already, what do you do? You just start buying whatever log you can get. It doesn't have to be close to your mill. It doesn't have to be cheap.

Just give me the log. I can sell this for $1,500 right now. So just give me the wood. And so that took their costs up. But for us, so right now in the high 500s for ESPF, we do make money. I mean, the spread on that, the EBITDA spread on that should be something in the neighborhood if we don't get utilization rates up, something in the neighborhood of about $100. So at Ryan's old utilization, we do high, like mid-600s of production versus we think mid-to-low 600s.

We think that if we get into the 90s, we can climb up quite a bit on that 755. You get production up and get EBITDA, but you're still talking about making something like a hundred bucks per 1,000 board feet after the crash in lumber going from 1,500 to 500. So that's the case yet. It's nicely profitable. It'll be a good asset. I mean, remember, we paid on the $755 million or $75 million feet of production, we paid $185. If the utilization rate never gets better than 83, take our actual ability to produce, not the 755.

but like 630, take that number by the price we paid, and we paid like 222 U.S. per foot. So if we can generate $100 in EBITDA per foot produced, like paying 222 isn't going to look like a very bad deal. That's going to look like you paid 2.2 times EBITDA, you know, and the stock will look like it's trading around, you know, for foreign change times EBITDA. Like none of that's heroic. If that's where lumber stabilizes, if we get utilization rates up, then it's going to be a lot better than that. if we get lumber higher, then it's going to be a lot better than that. So, yeah.

If you get both. Yeah. Well, that's the dream. I mean, that's the dream. I hope we can, you know, knock on wood. So this transitions me nicely into the, to, I think the biggest question mark in my mind, I think for many people, it's management team, but, you know, we'll talk to more about management team a second.

But to me, the biggest question mark is, hey, Rainier is not a dumb seller, right? This is a large company. Maybe they wanted to get rid of these assets, but they're not. not a dumb seller. You've got them selling these assets, you know, for ICLTF comes out and says, hey, we're buying these below replacement costs. We're buying them below peer transactions. Hey, these guys are running mid-80s utilization. We've got a plan. We can get it to over 90. And when we do that, we're going to make a lot of money, right? So I think the natural question is, what is a third-party buyer who comes in? And yeah, they've got experienced management team,

comes in, looks at this. What do they know? that the seller who's owned these assets for years knows what they can do has been operating them, you know, doesn't know that the buyer is going to get such a good deal. Does that make sense? Yeah, no, it makes a lot of sense. So I, this is going to be, you know, this is conjecture, right? Because I was not in the boardroom for a rainier when they made this decision. I wasn't part of the negotiations. I'd say we did talk about the management team, Kyle, and we didn't talk about Larry. We didn't talk about that too if you want to. But the management team, Newco, Greenfirst is run by Paul Rivett. I mean, he's the guy. He's the chairman's large shareholder.

He's the one with the relationships. He was the one with the deal. He's a former Fairfax guy. He was on the board of Resolute. I mean, he knows business. He knows deals and he knows wood products. He knows all these players. So how he was able to negotiate this deal, I don't know. I mean, I wasn't in the room. I wish I would have loved to have been in the room. The one thing I noticed that, so there's a couple of things. So Rainier bought these assets. These are not Rainier assets. These are Tembek assets. And Tempec was formed in 1973. did well up into the housing crisis had to do a big restructuring after the housing crisis like so many of these producers did ran okay is it's not it's not just a lumber producer i mean they have a chemicals business they had pulp they had paperboard there's a lot of different assets that

they had rainier bottom and they had a cellulose business rainier is a cellulose manufacturer that's what they do i don't know all of their product lines but i i had some dealings with them when i owned eastman chemical which had a big acetate toe business which is a customer there's acetate toe goes into cigarette filters. So shout up to all my cigarette business owners out there. So we had a good and that was actually a really nice business and we sourced some of that from Rainier. The point is

this is not Rainier's core business. So they bought 10 back in 2017. They got all their assets. They started selling pulp assets. I believe they sold a couple of bolt mills in 2019. And then my understanding is, and this is just Scuttlebutt that they were marketing these assets, these wood products

assets as early as 2020. The idea was their balance sheet was big. I'm not sure they were getting the synergies that they originally thought that they could get out of the 10-BEC assets. And so with a large balance sheet, not necessarily getting the synergies and wood products and newsprint especially, which went from making $40 million a year to losing, you know, actually a material amount of money every year and wood products being stable. I think from their perspective, they were like, just get me out. We want the pulp. We do not need lumber. We don't. We don't need to do sprints, just we want the ball. So the problem is you start marketing these assets

and COVID hits, right? When COVID hits, we're talking about lumber 15 to 500. Lumber broke 200, went into the 200s when that. Everybody thought like nobody's ever going to buy a house again. So lumber craters, debt markets look like it's blowing up. So my understanding is rainier, like, thank God that the Fed came in and saved, they were able to refinance, they were able to be okay. So they're marketing these assets. Our guys, Paul and Rick, So I really wish this deal would have had a proxy out so we could read the history of the transaction. We don't have that, unfortunately. We have a little bit of that from our circular that we got from Green First.

We don't have it from the Rainier side, which would be really interesting. But one thing we do know for sure is that Paul and Rick signed an LOI, and I believe even exclusivity, to acquire these assets on August 14th of 2020. So if you go back to August 14th of 2020, there wasn't a robust market for wood products, M&A transactions. The lumber hadn't mooned. Nobody was really focused on it. If you look where the Canadian producers had been focused in 2019, there'd only been one transaction, at least that I can, that I've been able to find in Vancouver. All the other transactions have been in the southeast, which we can talk about why, but everybody's been buying in the southeast, nobody had been buying in Canada. And you look at Tembek, the Tembek assets are high-cost assets with load.

utilization. So it's like these are going to require some work. So who would be a logical buyer for these Tembek assets? And the answer is Resolute, right? Resolute is the obvious purchaser. These are right down the room. I mean to say right down the road, Ontario. It happens to be a very big place. But these are in the backyard. And Resolute needs access to fiber. And these guys have plenty of fiber. So the only reason I've learned that, and this is just through SputtleBot, that apparently Resolute and Tembek going way back before Rainier Bottom in 2017, they weren't, they didn't like each other very much. This is the way to say it. Culturally, they just did not like each other. I don't know if it's a French-Canadian thing. I don't know what the history is, but that's what

I've been told is that Resolute was basically persona non-grata in this deal. And anybody else who wanted to come in, we had exclusivity starting in August 14th. That's the only thing I can think of why somebody wouldn't show up. Now, there's the bear case, which is like, well, maybe these assets suck. And it's like maybe, but I think what we just learned, especially seeing through Q2, when lumber works, like these mills can actually generate nice profit. Like, it's not like there's something structurally wrong with these assets. So my guess is what I think happened is just like with Canora, I think Paul and Rick just kind of snuck one on the market. And they did it so early before all this happened that I think they just happened to get themselves a very good

deal. And I think the company that could come in and maybe put up a fight with us for it, It's just persona non grata. But you ask me, do I think Resolute would want the 10-Beg assets? It's like, yeah, I'm pretty sure they would. It's my guess. It reminds me of, you see it in football, basketball, sports all the time. It's like, hey, Aaron Rogers requests a trade. And, you know, the best team for the Packers to trade to trade Aaron Rogers too is the Saints.

My team, because I'm from New Orleans. But, you know, and everybody says, oh, the Packers would never trade Aaron Rogers inside the NFC. And you're like, what? What is that matter? Are you insane? Like, if that's the best trade. I said, why are you going to take worse trade assets over your team just because they play in the same comfort? You're taking out half the teams in the league.

But it kind of reminds me of that. That makes sense. Okay. So let me go. In my head, I've like got two demons that have been pulling at me. And I've already purchased into the rights offering, but they still do pull up me, right? So there's a bull case. This is a classic special situation, right?

You're buying assets. You had this weird situation where all the natural buyers, as you just described, kind of couldn't get involved or weren't involved. It was a weird time in the markets. green first ends up getting these assets they funded in this really funky way right three and a half rights for every one show you have three to one but yeah i thought it was three and okay three to one for every year you have three yet uh not only that but it ends up because this is a canadian company as you and many people including board members here know it's a disaster for american investors to participate in the rights offering so you've got this really complicated rights

offering that gets even more complicated. You've got sellers who maybe aren't natural owners of these assets selling at very low levels. And then Sendvest, a very knowledgeable party, backstops the entire rights offering. And by the way, the seller is taking a seller's note and equity on the side. So it reminds me very much of early 90s John Malone rights offering special situations right down the middle. Right? That's right. That's my bullcase. But then there's my bear case, right? hey, they structured a deal that optically looks very cheap, but it's because it's on peak lumber numbers. You know, we already talked about how lumber went from 11 to 15 and then $400 or $500 or whatever. Insiders, so it's a bet on the lumber cycle and lumber is down 50%. Insiders, by the way,

a lot of insiders give up all of their rights to send vests to get this deal done, which people can look both ways at. BTN and BTN, who owns a lot of shares, they get about 20 million rights. they sell 12 million rights on the open market for, you know, literally pennies on the dollar. They exercise 8 million, but they sell a lot of them. And then, you know, that kind of adds into when the bear case in my mind all the red flags he talks about with management. So just talk to me about the bull in the bear case there. Like, why are we leaning towards the bull case over the bear case? Because you could see both ways, right? Yeah. Oh, no, no. Everything you're saying is right. I, you know, it's wild. I don't know that

I'll ever see a situation like this again. I've been doing specialization for 15 years. And I've seen some really funky ones. I haven't seen any funky ones recently, but I've seen some really funky ones. This one is really funky. I mean, you're right, the size, the size of it is, it's huge. I mean, this is, you know, my prior transaction with David Swallowing, Goliath was, you know, charter buying timeware cable. This is like, this dwarfs that. I mean, this is so much capital.

It's such a big deal. It's this tiny company buying a much bigger division of public company. As you said, it was a $7 million market cap company when you invested in it. In November, they did a, what was it, it was an $11 or $12 million deal to buy the shuttered mine, the shuttered mill. That was a big deal at the time. And then they turned around and do this, which, you know, including the inventory, all is like $200 million or something. It's wild. I mean, it really is, I really don't think.

And not so then not only that, it's a huge transaction with a rights offering, which is in people in the United States, I've got some familiarity with rights offerings. I've been doing them with Liberty. Liberty likes them, and I like them for various reasons. But this was not just a very large deal. It was a huge rights offering. The biggest one I've ever seen, you know, relative starting market cap, it was in Canada, to your point. And it was really quick.

I mean, like, quick. It was like, boom, we're doing this. See in two weeks. You know, and they actually gave us three, but then brokers like took us down to two. The whole thing was just wild in how this went down. And I think, from my perspective, it's like, it's really, this has been such an interesting education. And so if any management teams that listen to you get another value, odd guess, like, please call me if you ever want to do a rights offering that's big and complicated. I'll tell you all the things of like, make sure to do this and make sure to do that, things I just never even contemplated.

And this is a guy who's been doing this for a while. So the answer is, yes, this was a really big wild deal. If you think about the bull and the bear case, I would say it this way. say, we'll see. I mean, so the people involved, Paul Rivett, Sterling reputation, Fairfax for 17 years, worked under Prem Watson, the guy's royalty in Canada. He's very sharp. He knows what he's doing. He brought in Senvest. I think Senvest, Sunvest is kind of, most people hadn't heard of them really until this year, but Senvest has been around a very long time. They've been a very good track record. Rick Domen's been in the industry forever. These assets have been

around since 1973, for God's sake. So there's a history of these assets. We can see how they're performing. A lot of these things line up very, very well. The bear case that you give of like, hey, you know, was this a, I mean, sloppy transactions, sloppy rights offering. Is this like, do these people know what they're doing? Now, the answer for me is everybody I think is trying their best. And this, I go back on this rights offering. Oh, and Valentine and selling their 12.5 million rights and like management giving up their rights and you know again with all that stuff is like we'll see my belief and I think it's how and maybe this is just a um a a negative against myself is that I see management doing that like Larry doing that even if he puked those words he didn't

give them to send us to do the deal he just puked them at what valentine puked him for that still would have been a couple of million dollars I mean valentine's still got a couple of million dollars if they didn't do a rights offering and valentine valentine would have had nothing to sell So even I personally think that was a mistake for them to sell 12.5 million rights on the open market for, I forgot what they got less than 20 cents. It was like 20 cents or something. Yeah. And people were pissed because it was right to buy at $1.50. I'm a shareholder. I didn't love it. They sold it. So effectively, they gave up the right to buy shares at $1.70, right, $1.50 plus the 20 cents they sold for. For $1.70, they sold and the shares were trading at $3 at the time. And they, you know, they sold a lot.

So a lot of people were saying that's a lot of money you kind of gave up. Are you bullish on GFP if you're selling over half your rights? And the other thing, sorry, I'm ranting, but I'll add one more thing. You know, the other thing that was a bare fact to me, you did this thing, three rights for every share, right? And then BTN had to bail out. All the management team had to give SendVest the rates. Couldn't you have just structured it where Senvests bought stock directly at $1.50?

And then you could do a rights offering, you know, one-to-one rights, a lot less complicated and everybody could fully exercise. And, you know, you and I aren't having this conversation, like, what the heck is going on? This is the weirdest thing I've ever seen. You know, it's interesting. The answer is, would Senvest have done the entire deal at a $1.50 Canadian, right? It's a $1.20 U.S. It's a $1.50. The fact that they backs out the entire rights offering or at least enough for us to close a $1.50 tells you, if we would have just given it to them and said, this is yours, you can do it at $1.50. My strong belief, I actually really love rights offerings. And this is why. That stock, when they announced this deal was $2.50. cents. Send vests said I'll buy every share you want to sell me for a dollar 20, right? And these are all U.S. numbers.

I mean, this is going on. So send vests it for 50 cents on the dollar, I'll take everything. Now, if you're the management team, so if I was the CEO of this, the chairman, or I was on the board, I'd say, you know what? I love the deal. I think it's accretive even at, you know, issuing all this equity to send vests at 50 cents on the dollar. The only ask that I would have is that you just give your existing investors the right.

So think of it as a private company and you were raising venture capital. right? So we're doing our C round. It's like the C round goes for this valuation. The only thing I'd ask is give the B round the chance to invest at the C round valuation. If they say no, that's fine. If it's a higher valuation, a lower valuation, it doesn't matter. You get the choice to invest. So Cinvest comes in. They set the price at $1.20. If you like that price, they basically told their shareholders, you get the option to do that as well. If you don't like the price, then boom. And the one thing that's an open question now, because this was so big, should those rights have been separately tradable. I actually think when, so that's what Malone always does. And I always vote yes.

They should. Of course they should. Because if you don't want the right, it has some value. You can just go sell it, which is exactly what Valentine did. But I sort of wonder now, because this was so big, should you never have detached those rights and just said, look, one share becomes four if you want it. If you don't want it, don't send us your money. Everybody else who's a shareholder can just over-exercise their rights and get the subscription. I wonder if that would have just been cleaner. Because I do think part of the problem was in the U.S., at least, at least the only problem that worked out negatively for some of myself included, was Charles Schwab actively would not do this exercise on our behalf. And the reason they wouldn't is because they

just figured it was easier for them to have you deal with the DRS on your own. And because these rights were separately traded, they could just give you these rights. So it wasn't like you lost them as part of a share attachment. It was separately traded rights. They were their own Cuset. They were their own thing. And so Schwab just said, no, you deal with the DRS.

You can do this on your own with computer share. And by the way, I've never seen that in my entire life. I've never heard of anything like that having. This was totally new to me. It wasn't even in my brain space that something like that could happen. So I sort of wonder,

should they have been separately traded or should they have just stayed attached? But if you asked me, was it the right thing to do for Green First to say, look, we're doing this transaction because we think it's accretive. We're doing it at a price It's a material discount to the current stocks.

You are going to get diluted if you don't participate, but we're going to give you the ability of participate. In my mind, that's wildly shareholder-friendly. And I am sorry, I'm going to tell my children to stop talking. You're going to, you know what? I'm going to pause this. I'm going to pause it for a second. And we can come back and more.

All right. Mike has told his kids, we've got an important podcast going to run out. My nine-month-old will not, or sorry, my 11-month-old won't get quiet, but my four-and-a-half-year-old is a little sweet kid. No problem. May let me ask you one last thing. And then I'll turn it over to you. You know, there's a lot we could have covered a lot we didn't cover. But I just want to dive in a little bit on the operating guys, right? You've mentioned Paul a couple times. I wanted to dive in on the guys who, you know, are going to take the 80 percent, 83 percent utilization and who think they can get it to the low 90s. You know, I think they've got a really good track record. This is a, you know, it's a 200 million dollar company. And as you said, the chairman was the president of Fairfax Financial. That's what, 10 billion in assets? Maybe more I can't remember. They're almost overqualified. This is a really small, small minnow they're kind of taken over.

So talk to me about the track record here, and why do you think they were so attracted to this particular asset? So I have to admit, I don't know Paul personally, although I really would like to. The reason Paul came into my life is because of Larry Sweets. So Paul came in through Larry and Larry came in through Kyle. So that's kind of my connection to this. I don't know Paul. I only know him by reputation. I don't know him personally.

But I know his reputation is sterling, and of course, everybody knows. So the question of why would Paul do this? So in February of 2020, Paul retired from Fairfax Financial, and almost immediately upon his retirement, he started doing deals. So he bought, in fact, our newsprint division, their largest customer, I believe, is Torstar, which is the Toronto Star. Paul acquired the Toronto Star and is the chairman of the Toronto Star. He did that like six or nine months or something after he retired from Fairfax in

2020. And then he turned around and did this deal, the Kenora deal. And then we now know, so when they announced the Kenora deal that Paul was investing and Rick was investing in Itasca Capital and they were acquiring Canora, they hinted at a transaction to come. And they said a $25 million equity financing would triggers some issues with covenants that they, so with the converts that they issued to Paul and Rick. And so I saw that and I was like, $25 million is a lot of money. There's something big it we now know because of the Rainier transaction, we know that they were actually already under LOI to acquire these assets when they announced that deal. So my hope is if you, if, well, I have two hopes actually for Green first and for Paul. My hope number one is that once they

close this deal, like I can get on here and say the model this and utilization that and the price this and ESPF that. And what I really want is I want Paul and Rick once they get this deal closed and this is a massive deal. I think they're going to have like at least, 1500, but they may have like 1,700 total employees. This went from a nothing company to like a real company overnight. So there's going to be a lot of work to do. But I really would like, I hope that they will come out. I'm confident they will say this is how we think we can get from our current cash costs to a closer to benchmark cash cost. And basically do an analyst day to kind of walk us all through because right now I'm just sort of guessing. Oh, and here's our plan

for newsprint, right? And sort of walk us through all the nuances there. But my hope is that Paul still a pretty young guy. So my hope and belief with him acquiring these assets and becoming chairman of these assets, he's sort of putting a stake in the ground out on his own ex-prem. And my hope is that I get that his motivation is to go be his own guy, to be the chairman, to build a very real business in Canada. And that's my hope is that the guy wants to go from being a big important guy, number two to prem, to being his own guy and building his own business and his own brand in Canada. And to me, that would be the wild bull case is that the guy's like, I'm not done. I'm going to keep going. And so that would be the upside case. That's what I hope

is happening here. I hope we didn't just fall into it, although I'm happy to be in the business, but I hope that it's meant to be bigger. And I actually think as I sort of step back and look at lumber, my strong guess is that in five years, green first will either be much bigger than the current mills or it won't exist. So either green first will acquire. more or green first will get acquired. My guess is we're going to see an enormous amount of consolidation, particularly if I'm right about the demand, is that the lumber supply is going to become an even bigger issue over the next five years. And we've got plenty of supply in east. So my guess is we're either going to be consuming or we're going to be consumed.

Perfect. You know what? I do have one more question because we got it. You and I were talking before, you know, they've highlighted the acquisition multiples that they're acquiring people at. And I think a lot of people were saying, oh, you know, the headline multiple on, I think it was interfer buying the Georgia Pacific assets was the headline EBDA multiple was a little bit lower. And I don't know if that's the right way to look at it because I think you probably want to look at these on a per, you know, per thousand boards or whatever metric. But I just want to talk to, you know, when you look at the acquisitions that Green First did in the valuation they're putting on it, they say, hey, we're going to weigh below placement. We're going to net these cheap multiples. And you compare it to what else you've seen in the industry, you know, how. do you think these assets compare both quality and valuation? So you mentioned Interfor.

So there's most of the transactions that are happening and most of the new production that's starting. So when they talk about replacement costs and then it's all happening in the southeast. Yeah. That's not a perfect comp. Southeast United States, not Southeast United States. Yeah. It's not Southeast Canada. Southeast United States. It's not a perfect comp. They produce a different type of softwood called Southern Yellow Pine. It's not the same. It has applications that are different. Some people believe that the applications ultimately could be the same as Canadian spruce. So far, I can't, no builder has been willing to tell me that they actually use Southern Yellow Pine for studs,

which is what spruce goes into, duct for a spruce behind, up in Canada. So it's not exactly the same. Plus, when we go to build a new mill in the southeastern United States, we're talking like most of the mills getting built there, our state of the art, their production is rapid, it's great. It's very different from buying, you know, mills that were built in 70s, 80s, you know, 90s, and have been retrofitted over the time. It's different. But I do think it's instructive. So when I think about what price we paid, so the headline price on 755 million board feed of production for our assets acquired from RAMs, $185 to us, so per thousand board fund. So the question is, do you think, like, how long do you think it will take for us to generate $185 per thousand board foot

of the 755 million that we acquired? How much, how long do you think it'll take for us to get that back? And like me, I'm bullish on lumber. I also believe that they can get their utilization rates up. At least I think there's better than fair shot. Those two things happen. I think $185 is going to seem really, really, really cheap. The deal you talked about Interfor, their number, headline number was more like 520, although one of the mills had been shut down, which I think it's interesting that

that mill had been shut down because one is run by George Pacific, which is a Koch brothers company. They are widely considered to be some of the best operators. some of the best capital allocators in the space. So the fact that they were selling these assets, I think they thought that that was a pretty good price. Plus one of these mills wasn't even operational, which is wild considering where lumber prices were. So my understanding is that the capital that's going to take

to get that thing up and running is going to make that acquisition price look closer to what we see in replacement, which is in the mid-600s. So I'd say it this way. With the fiber supply that we got in East, the mills that we acquired, My guess is 180, 185 screens is crazy cheap. I mean, even the deal in Vancouver in 2019, I think was done at 350. And that's a, that's a much tougher place actually right now to be producing lumber just because of where the stumbage costs are. So on any metric I've seen, it looks very, very cheap.

That being said, if we can't get the utilization rates up and if lumber goes back to 450 in the east and 350 in the west, it's 185 going to look cheap, I don't think any acquisition that was done at 185. or at 500 or at 650 is going to look like it was a great acquisition. That's just my guess. But I also don't think that's what's going to happen. I think this is going to look like a pretty good deal. So lumber prices stay about where they are right now and utilization stays about where it is right now. And we're probably, it's probably a meh deal.

Would I be saying that about correct? So I think the deal itself, I think the stock will end up being fine, not amazing. I think the deal will actually look pretty good. I mean, the deal at 215 in Canada, it's very, the price of the stock and the market cap of the stock is a ball for the, you know, so, but if you said, would $185, if with their current production and the current price, and those two things do not change, you know, these guys are clearing like 100 on what they can produce. And if they don't get their production up, they're paying 222. So would I buy an asset at 2.2 times EBITDA when my EBITDA converge pretty nicely to, free cash flow, like, I think that's going to look like a really good deal. Now, on your stock, you're now talking the number is more like three and a half, three, three, seven, five, if those two things don't improve, maybe even up to four times, is four times going to look expensive? Like, I don't know. I personally think that it's fine. I really would like, you know,

the two things to get better. And so it looks like it's more like one times. I think if you look at the other stocks in the space, like Resolute and West Brazier, it's telling you that things are going to get better. And so my guess is that, you know, it'll look cheap to peers. I just wanted, it's very difficult without a model and, you know, really knowing, really knowing exactly everything here to price up. But I was just trying to lay out, like for anyone who's listening going to do work on it. Like, you know, this is, yes, you want utilization up and yes, you want lumber prices up, but you're not going to get crushed if both don't happen. Right. Now, if utilization stays flat and lumber goes down, you probably get crushed.

if utilization goes up a little bit and lumber price is good. I was just trying to benchmark. Yeah, no, that's fair. Yeah, I think you've framed it well. Cool. I think we have covered a ton of stuff. And actually, I got to tell you,

I was so excited to have the King of Lumber Twitter on. I have so many more notes and stuff, but I've got to be cognizant of this time. I've got something coming up a little bit. I'm sure you've got kids. You've got a lumber kingdom to rule. But I wouldn't turn it over to you. There's a lot we could have covered,

a lot we did cover. Is there anything you wish we had covered? Is there anything you wanted to hammer home harder? Any point you wanted to leave people with before we, we kind of wrap this up? No, I'm happy with where we're at. I think anybody who has any questions, I am around on Twitter. I think this, you're getting, I think my swan song on podcast appearances. I think this may be the last one I do for a while. I've been working so hard and I'm about to move to Colorado. So I think this may be my last time, but I'm on Twitter.

So anybody wants to ask you. And you know what? I think you take about one big swing, maybe once a year or so. So if this is your swan song for this year, I've got you next year when you Yeah, right. Yeah, 2022. My big swing in 2022 is going to be a private doctor's office in Fort Collins, Colorado, so we can have a podcast about that. That'd be a lot of fun. That'll be a lot of fun. You're moving to Fort Collins. We have a house there. We're doing a big governor right now. You know, we'll talk for a second after we wrap this up. My wife and I, we've got about a year left on this lease. We've got some friends out in Fort Collins. Oh, come on out. Love to have you. We've got plenty of room. Its house is huge. Well, we were thinking about find our own house, but maybe we'll take it up.

Makes more sense. Look, Mike's, I'm going to put Mike's Twitter link in the notes. I'm going to get Mike's November, November tweet on ICLTF into the notes. I'll put some my links in the notes as well. Mike Mitchell, great having you on. King of Lumber, Twitter. Appreciate it. And we're going to chat soon.

Sounds good. All right. Have a good one, man.