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Chadwick Wasilenkoff, CEO, Fortress Paper at his office in North Vancouver. Lyle Stafford for the Globe and Mail (Lyle Stafford for the Globe and Mail/Lyle Stafford for the Globe and Mail)
Chadwick Wasilenkoff, CEO, Fortress Paper at his office in North Vancouver. Lyle Stafford for the Globe and Mail (Lyle Stafford for the Globe and Mail/Lyle Stafford for the Globe and Mail)

Fortress Paper: Outside the box, crazy like a fox Add to ...

The first time Dan Buckle walked into the headquarters of Fortress Paper Ltd. , he didn't know what to make of it.

Located above a McDonald's in North Vancouver, the dark, small office has no interior walls and features a pool table in lieu of a boardroom table. The first thing to greet visitors is a five-foot-tall wooden statue of Buddha.

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"I remember walking in, 'What the heck is this place?' " said Mr. Buckle, first an auditor of the company and now its finance director.

The operation, whose value has more than quadrupled to $360-million in the past year, is the brainchild of 38-year-old Chad Wasilenkoff, a deep-value investor who has made his latest fortune in Canada's most unloved sector - forestry.

He's in the midst of pulling off his biggest deal yet - resuscitating a dead pulp mill in Quebec. Scraping through the corners of the global bargain bin, he has a dozen more potential deals on the go, from Canada and China to Russia and South Africa, all in a mission to get his company to $1-billion in market capitalization.

Like other deep-value investors, Mr. Wasilenkoff searches for overlooked assets selling at great discounts. But deep-value investing can be a siren's call: What looks like a deal can be a disaster.

So far Mr. Wasilenkoff has avoided missteps. When he started Fortress four summers ago, he spotted potential in pulp and paper, an area most investors shunned because of concerns over global overproduction. As a result, assets were available cheap.

"If [anything's]98 per cent off, I want two," said Mr. Wasilenkoff in an interview over wings and beer at East Side Mario's, a favoured haunt. He acknowledges it takes confidence to operate in areas most investors regard with alarm. "I can't tell you how many times I've been called crazy. The more times I'm told I'm wrong, the more I know I'm right."

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He gets called crazy less often now. Joel Lusman, head of New York hedge fund Lusman Capital Management LLC, first heard of Mr. Wasilenkoff in early 2010. When the Quebec deal was announced, he quickly bought hundreds of thousands of Fortress shares. "This is one of the smartest deals I've ever seen," Mr. Lusman said.

Mr. Wasilenkoff first made his name as a broker at investment bank Canaccord Capital in Vancouver, where he led a group of investors that took over a junior gold miner shortly before the price of gold doubled. He had another hit when he acquired a uranium asset when the price for that commodity languished.

After cashing out of uranium when its price spiked, Mr. Wasilenkoff started Fortress in 2006, putting up about $2-million of an $8-million private offering. His first moves at Fortress were to buy a banknote and security paper mill in Switzerland and a specialty wallpaper mill in Germany, both of which he viewed as poorly run, niche assets available at near fire-sale prices.

Within a year, he took Fortress public in a $46-million offering. But the stock languished - and then was sunk by the market crisis. By spring 2009, the price had fallen by nearly half from its IPO level.

Fortress's decline was the kind that makes investors question an unconventional manager like Mr. Wasilenkoff, who favours ball caps and blue jeans as his working attire. Irwin Michael, head of a Toronto money manager that owns about 10 per cent of Fortress, fielded calls from his own investors about his stake in the company.

"You hear all these very descriptive four-letter words," says Mr. Michael, who manages about $900-million at I.A. Michael Investment Counsel Ltd. "But we hung in. We had a lot of faith in Chad. [He's]a workaholic, very methodical."

By this past spring, when operating profit had doubled at the two mills, the stock too had doubled. And it was then Mr. Wasilenkoff sealed the Quebec deal. For $1.2-million, he bought a bankrupt pulp mill in Thurso, Que., a small town 50 kilometres northeast of Parliament Hill. The mill had once turned hardwood pulp into photographic paper, a business done in by digital cameras.

He saw another possibility. He has been a long-time believer in the potential of rayon, a fabric which is enjoying growing demand in Asia as a substitute for cotton, whose global production is in decline. Rayon is made from dissolving pulp and Mr. Wasilenkoff plans to make that dissolving pulp in Thurso.

"He's not interested in the typical commodity game forestry usually falls into," said analyst Daryl Swetlishoff at Raymond James. "He's extremely driven, a very aggressive risk-taker, a grinder. Focused on value. And he's not pretentious at all."

Mr. Wasilenkoff figured he needed about $150-million to re-tool the mill. So he lined up veteran Quebec forestry executive Pierre Monahan to connect with the Quebec government. They eventually convinced Investissement Québec, an economic development company, to provide a low-interest loan of up to $102-million, allowing Fortress to make its plan work while putting up just $15-million of its own money.

In the five months since doing the deal, Fortress shares have doubled. Mr. Wasilenkoff's original $2-million investment in Fortress is worth roughly $80-million today. He remains the company's biggest shareholder.

He's convinced more gains are ahead, but analysts at TD Newcrest say Fortress's valuation might be stretched and worry about the pitfalls of trying to grow too quickly. RBC Dominion Securities said this month it is "very impressed" but added the share price now reflects the value Mr. Wasilenkoff has uncovered.

Mr. Wasilenkoff has always had an eye for value. In elementary school, he scooped up lost golf balls at a course near his childhood home in Calgary and resold them, soon buying and selling everything from Atari cartridges to Robert Bateman prints. He made enough to buy a used Porsche 911 for $15,000 in high school - which resulted in him being accused by a vice-principal of dealing drugs.

An investor since youth, Mr. Wasilenkoff initially wanted to get into property development. He ended up as a broker after getting a two-month temporary gig at Canaccord stapling stock receipts.

His early forays blew up, as he chased gold stocks in the Bre-X era, then got hammered by the tech-stock crash. Chastened, he embraced a deep-value philosophy in which he tried to build deals, rather than simply buying stocks.

What's next is more deals - but Mr. Wasilenkoff , who previously insisted that he would only be at Fortress for a few more years and eventually start again from scratch, now gives some thought to sticking around longer. "There's no guarantee that I'll stop," he said. "I am having a lot of fun."

Chadwick Wasilenkoff, CEO, Fortress Paper at his office in North Vancouver.

The man and his company



CHAD WASILENKOFF



Age: 38, grew up in Calgary



Education: Earned a BA in economics and urban geography from University of British Columbia, 1996.



Career:



1997-2000: Broker with Canaccord Capital.



2004-2006: Titan Uranium Inc., serving first as president and then as CEO.



2006-present: Founder and president of Fortress Paper.



THREE ARMS OF FORTRESS PAPER



Landqart mill, Switzerland: Makes banknote paper for the Swiss franc and euros for 10 countries. Also makes other security paper, such as for passports and visas. Currently rebuilding a machine to add banknote capacity. Produced one-third of operating profit in 2009.



Dresden mill, Germany: World's largest producer of a specialty non-woven wallpaper, which is of higher quality and is easy to strip off walls. Management estimates it controls half the world market, double its share four years ago. Produced two-thirds of operating profit in 2009.



Thurso mill, Quebec: Currently producing hardwood pulp, the mill will be converted to produce dissolving pulp, to be sold to Asia where it is used to make rayon. Analysts at Raymond James estimate the mill will generate half of Fortress's operating profit in 2011.











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