LOS ANGELES–(BUSINESS WIRE)–Nov. 7, 2013– Rentech, Inc. (NASDAQ: RTK) today announced its results for the three and nine months ended September 30, 2013. Rentech owns and operates wood fibre processing and nitrogen fertilizer businesses. Rentech also owns technologies designed to produce certified synthetic fuels and renewable power, when integrated with third-party technologies, that it is seeking to license or sell.
Rentech’s financial results reflect the consolidated results of Rentech, Inc. and its subsidiaries, including its wood fibre processing business and Rentech Nitrogen Partners, L.P. (Rentech Nitrogen). The results of the wood fibre processing business are reported as two operating segments: Fulghum Fibres (wood chipping) and wood pellets. The results of Rentech Nitrogen are reported as the nitrogen products manufacturing subsidiary of Rentech, which includes two operating segments: the East Dubuque Facility and the Pasadena Facility. Results of the energy technologies business are reported in a separate segment.
D. Hunt Ramsbottom, President and CEO of Rentech, said, “We are extremely pleased with the performance in our wood fibre processing business, as Fulghum Fibres generated solid gross margin of 19% and progress continues to be made on our two wood pellet production facilities. Fulghum remains on track to generate annualized revenues and EBITDA of $95 million and $20 million, respectively. Construction of the Atikokan and Wawa pellet facilities in Eastern Ontario commenced in August, and we remain on schedule to meet our pellet delivery obligations to OPG and Drax next year.”
The company report can be found here
Update on the Pellet Projects in Atikokan and Wawa
At the inception of the projects in 2012, Rentech retained two affiliated firms, AgriRecycle and EAD, who together have 27 years of experience designing and building 11 pellet plants, to perform engineering and project design. After the joint venture (JV) with Graanul Invest (Graanul) was formed in May of this year, Graanul reviewed the engineering and project plans. Rentech and Graanul then jointly decided that AgriRecycle and EAD would continue their work, while the resources of the JV and Graanul would be focused on other projects under development. Since Graanul would not be providing EPC services, the Wawa and Atikokan projects would not be financed and owned by the JV.
Rentech will continue to own the projects outright and be responsible for construction. The Rentech team includes the former plant manager, wood yard manager, and manager of capital projects at the Wawa facility, all of whom worked at the plant when it was operated by Weyerhaeuser as an OSB mill processing nearly 750,000 green metric tons of logs annually.
Rentech began construction of the Atikokan and Wawa wood pellet facilities in August and remains on schedule to begin producing wood pellets from these facilities in 2014. Demolition work at the sites has been completed within budget. Rentech has placed orders or received bids for all major equipment, with costs consistent with the budget.
The Company has decided to increase capital costs at the Wawa facility, by installing two electric 170 foot radial log cranes, to be purchased from Fulghum Industries, rather than using diesel-powered mobile equipment to manage the wood yard, offloading and feeding. It is expected that the project cost will increase by approximately $8 million due to this decision. Cranes are typically more reliable, safer, reduce emissions, and are significantly less expensive to operate for large capacity facilities such as the Wawa plant. The use of these cranes should result in annual operating cost savings of at least $1 million, with an expected useful life of 20 years or more.
The design of the facilities has been further modified to add capacity, which will increase capital costs.
450 000 ton in Wawa and 100 000 in Atikokan
The expected production of the Wawa plant has increased to approximately 450,000 tonnes. The Wawa plant is now expected to supply the entire 400,000 tonnes of annual pellet deliveries to Drax, with 50,000 tonnes available for sale to Drax or other customers.
The production of the Atikokan facility is now expected to be approximately 100,000 tonnes, which will fulfill the existing contract with OPG for 45,000 tonnes, with the remaining 55,000 tonnes available for sale to OPG or other customers.
When the increased output anticipated from the design changes and the operating efficiencies anticipated from the cranes are balanced against higher capital costs, the expected return profile of the projects remains unchanged, with stabilized annual EBITDA now projected in the range of $17 to $20 million. The projected EBITDA is based on estimated operating income in the range of $8 to $11 million. Further explanation of EBITDA, a non-GAAP financial measure, has been included below in this press release.
Rentech entered the wood fibre processing business to create value by investing in high return projects with stable cash flows and long-term contracts, diversifying the Company’s exposure to commodity fluctuations in the nitrogen business. The Company is pursuing specific opportunities in both wood chipping and pellet operations that could lead to substantial growth.
Possible IPO of the fibre business
Some of the opportunities depend on the consummation of transactions, the success and timing of which are unpredictable. Rentech believes that an IPO of the fibre business as an MLP is possible, depending on market conditions, and could best be accomplished at a scale somewhat larger than that of the Wawa and Atikokan projects combined with Fulghum Fibres. If the wood fibre processing business is able to achieve a larger scale through development and transactions, Rentech believes that it could accomplish an IPO in approximately 2 years or less.