Fortress Paper Acquires Fraser's Thurso Mill, Plans Conversion to Dissolving Pulp

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Fortress Paper, Vancouver, B.C., Canada, a producer of security and specialty papers, in a major strategic move this week, announced the acquisition of the Fraser Paper Thurso, Que., northern bleached hardwood kraft (NBHK) mill, with the intention to convert it into a "world class, low cost" specialty cellulose (dissolving pulp) operation. Concurrently, Fortress Paper intends to build a biomass-based cogeneration plant at the Thurso Mill that will produce green electricity, resulting in material net energy savings (income).

On closing of the acquisition of the Thurso mill, which will be completed through Fortress's wholly-owned subsidiary Fortress Specialty Cellulose Inc., the company intends to incur capital expenditures of approximately $153 million to convert the non-operating NBHK mill into a high quality specialty cellulose mill and to construct a new cogeneration facility. In connection with the proposed capital expenditures, Fortress announced that it has pre-arranged specific financing initiatives to fund the conversion and cogeneration projects.

The specialty cellulose mill is planned to have an annual production capacity of more than 200,000 air dried metric tpy and is expected to be completed in mid-2011. In entering into the specialty cellulose sector, Fortress Specialty will focus on producing dissolving grade cellulose for the textile industry, primarily targeting viscose fiber (rayon) products that have shown strong growth of approximately 10% in China and 7% worldwide over the past five years.

The25 MW cogeneration facility will service a net 18.8 MW power supply agreement over a 15-year term. The location of the cogeneration facility provides it with access to on-site generation of biomass and an extensive local network of chip and other biomass suppliers. The cogeneration facility is expected to be supplying electricity in the fourth quarter of 2012.

Chad Wasilenkoff, CEO of Fortress Paper, said that "we are very pleased to announce this new acquisition, which we believe will add significant shareholder value in the years to come. Both the board of directors and management of Fortress Paper feel that this new opportunity warrants the diversification of the corporation into other specialty sectors as it has the potential to materially enhance shareholder value. Once the conversion and cogeneration projects are complete, we will be entering a new product segment that offers long-term growth prospects and attractive margins. During the interim period, we will capitalize on the current strength of the NBHK pulp market. We feel it is important to emphasize that this is not an acquisition to enter into the pulp industry, but rather the opportunity to acquire assets that are ideally suited to be converted into a bio-refinery and produce high value-added products. We intend to strategically enter this sector at a time when demand exceeds current capacity. We believe this trend will continue over the next several years given the limited announced new capacity."

Fortress Paper will pay Fraser $3 million in cash at closing, subject to certain adjustments. Included in the assets being purchased from Fraser is approximately $9.9 million in credits (black liquor credits) granted under the Canadian government's Pulp and Paper Green Transformation Program (GTP).