- Fulghum Fibres is the leading provider of contract wood chip
processing services in the U.S., with approximately $10 million of Operating Income and $20 million of EBITDA expected in
2013.
- Two former wood processing facilities to be acquired and
converted to produce wood pellets, projected to have combined
stabilized Operating Income of $3
million and EBITDA of $15
million.
- Contracts in place for the sale and transport of
approximately 445,000 annual metric tons of wood pellets over ten
years; sustainably managed wood supply from Crown forests in
Ontario, Canada; and joint venture
development and construction partner.
- Rentech enters wood fibre processing business with stable
cash flow, construction and operating expertise, and long-term
contracts structured for stable margins and cash flow.
- Businesses provide Rentech with diversification of margins,
products and markets and entry into rapidly growing pellet
industry.
Conference Call Today at 7:00 a.m. PDT
LOS ANGELES, CA, May 2, 2013 /CNW/ - Rentech, Inc. (NYSE MKT: RTK)
today announced the acquisition of Georgia-based Fulghum Fibres,
Inc. (Fulghum Fibres) and the acquisition of two facilities for
conversion to the production of wood pellets in Ontario, Canada, along with contracts for the
sale and transport of more than four million metric tons of wood
pellets over ten years. These steps position Rentech to develop a
world class wood processing business for production of high-quality
wood chips and pellets. Rentech expects these investments to be
funded from cash on hand, expected distributions from Rentech
Nitrogen, and investments from a joint venture partner. Rentech
will host a conference call today at 7:00
a.m. PDT to review additional details regarding today's
announcements as disclosed in its investor presentation posted on
its website.
Fulghum Fibres is expected to have approximately
$10 million of operating income and
$20 million of EBITDA in calendar
year 2013, consistent with its stable financial history. The net
purchase price, including assumed debt, is $112 million. The company, founded nearly 25
years ago, has been consistently profitable and maintains a solid
reputation as a producer of high quality wood chips and other
services to a diversified customer base in the pulp and paper
industries in the U.S., South
America and Asia. The
acquisition provides Rentech with immediate stable cash flow with
growth opportunities, and a platform to launch into the growing and
complementary global wood pellet industry. The acquisition also
brings with it a joint venture with Graanul Invest, a large
European producer of pellets, for the development and construction
of pellet plants in the U.S. and Canada.
Take-or-pay contracts are in place with two
utilities to supply a combined total of 445,000 metric tons of wood
pellets annually over ten years. To supply the pellets, Rentech
plans to convert two decommissioned wood fibre mills in
Eastern Canada into pellet mills
that will employ a total of approximately 65 full-time employees
and help to create jobs for construction and wood supply from
sustainable Crown forests in Ontario. These two facilities are expected to
generate $3 million of operating
income and $15 million of EBITDA when
fully operational, with combined total project cost estimated at
$70 million. Rentech has contracted
for the handling and transport of the pellets. The two plants would
make Rentech the largest producer of industrial wood pellets
utilizing fibre from Eastern
Canada, a source of supply that is highly desired due to its
location and wood quality.
"Today's announcements launch us into the wood
fibre and pellet supply business, with immediate cash flow and
significant growth opportunities, and allow us to take advantage of
our fibre relationship in the Province of Ontario," said D. Hunt
Ramsbottom, President and Chief Executive Officer of
Rentech. "Fulghum Fibres provides immediate and steady EBITDA and
nearly 25 years of fibre processing expertise that we can leverage
for successful execution in the wood pellet industry." Mr.
Ramsbottom continued, "The wood chip and pellet industries, which
qualify for an MLP structure, are growth sectors with long-term
contracts that should provide stable margins and attractive returns
on project investments. With sustainable fibre supply from Crown
forests, Rentech will continue to pursue First Nations partnerships
and opportunities for economic development associated with our
Ontario projects. With our
long-term customer contracts, processing expertise, and logistics
in place, Rentech is positioned to execute on our objective to be a
leader in the rapidly growing global market for wood pellet
production."
Mr. Ramsbottom added, "We expect these new
businesses to have stable cash flows. The pellet facilities are
structured around sustainably managed long-term fibre supplies and
long-term off-take and logistics contracts. Fulghum Fibres' chip
processing business is primarily a fee-based service. The stability
of margins we expect here will reduce our consolidated exposure to
agricultural cycles inherent in Rentech Nitrogen's business. We
believe this diversification and pricing stability creates a
stronger and more valuable entity at Rentech in the short, medium
and long term."
Fulghum Fibres
Based in Augusta, Georgia, Fulghum
Fibres has approximately 420 employees and is a leader in contract
fibre processing services. Fulghum Fibres, which was established in
1989, processes approximately 15 million metric tons of wood
and bark annually into wood chips and residual fuels at its 32 wood
chipping mills, 26 of which are located in the U.S. and 6 of which
are located in South America,
where Fulghum Fibres provides chipping services and exports wood
chips to customers who are primarily in Japan. Fulghum Fibres operates primarily under
long-term contracts and services a portfolio of industry-leading
customers, such as Georgia Pacific,
International Paper and Weyerhaeuser.
Revenues are typically based on per-ton
processing fees with minimum volume requirements. Fulghum Fibres
commands an estimated 70% of the U.S. contract chipping business
and approximately 6% of the total U.S. chipping market that
includes in-house chipping operations by large pulp and paper
companies. In the U.S., the majority of Fulghum Fibres' wood chip
production is destined for products with the highest expected
growth in the pulp and paper market, such as containerboard,
boxboard, and tissue.
The senior management team of Fulghum Fibres has
signed employment agreements, and is expected to remain in place
for the foreseeable future. Fulghum Industries, which manufactures
wood handling and chipping equipment and has been under common
ownership with Fulghum Fibres, is not being acquired, but will
continue to supply equipment and expertise to Fulghum Fibres on
favorable terms.
Fulghum Fibres Transaction Highlights
Rentech will acquire all of the equity interests of Fulghum Fibres
for $60 million, to be paid from cash
on hand. Rentech will acquire approximately $10 million of cash, repay $3 million of debt, and assume approximately
$59 million of Fulghum Fibres'
debt, for a total net purchase price of $112 million. The acquisition price equates
to 5.6 times 2013 forecasted EBITDA for Fulghum Fibres'
business.
Fulghum Fibres is forecasted to have revenues of
approximately $95 million, operating
income of approximately $10 million and EBITDA of approximately
$20 million in calendar year 2013,
which are consistent with Fulghum Fibres' stable historical
financial performance. Further explanation of EBITDA, a non-GAAP
financial measure, and a reconciliation of Fulghum Fibres'
forecasted EBITDA to operating income have been included below in
this news release.
Fulghum Fibres as Platform for Pellet
Business
Fulghum Fibres provides Rentech with a stable operating and
financial platform with inherent growth opportunities within the
sector. The Company intends to use this platform to launch into the
complementary, growing wood pellet industry, a natural extension of
chip production. Fulghum Fibres brings operating and processing
expertise to the front end of the Company's wood pellet business,
as each pellet mill requires wood handling and production of chips.
Fulghum Fibres also brings a joint venture with Graanul Invest, a
European company that is one of the largest pellet producers in the
world, to develop and construct pellet projects in the U.S. and
Canada.
Entry into the Wood Pellet Supply
Industry
Global demand for wood pellets is projected to triple by 2020, to
50 million metric tons. Rentech has secured the key elements to
quickly become an industrial scale supplier of wood pellets from
Eastern Canada to the Canadian and
European utility markets with:
- Deep experience in wood handling and production of chips with
the acquisition of Fulghum Fibres,
- A joint venture for development, construction, and investment
in the U.S. and Canada with a
major European producer of pellets,
- Two take-or-pay ten-year off-take contracts for combined pellet
deliveries averaging 445,000 metric tons annually,
- Two decommissioned facilities in Ontario, Canada for conversion to pellet
production,
- Exclusive priority access to the only large scale pellet
handling facility in Eastern
Canada through a 15-year agreement with Quebec Stevedoring Company Limited (Quebec
Stevedoring), which provides deep water access at the Port of
Quebec and short shipping distance
to European pellet consumers,
- A strategic relationship with Canadian National Railway Company
(CN) (TSX: CNR) (NYSE:CNI) for the inland transportation of pellets
to the port,
- Job creation, including new employment opportunities for First
Nations,
- Sustainably managed fibre supply from Ontario Crown forests,
and
- In-house management expertise in forestry and pellet
supply.
Contracts to Supply Pellets
Two ten-year take-or-pay contracts are in place for the sale of
industrial wood pellets totaling over four million metric tons of
production over the life of the contracts.
Drax Power Limited (Drax)
Drax has signed a ten-year off-take contract for the delivery of
approximately 400,000 metric tons of pellets annually to be
supplied by Rentech's Wawa and
Atikokan facilities (see below),
with prices indexed for inflation, fuel and fibre supply costs. The
contract establishes a strategic relationship with Drax, which
plans to invest approximately U.S. $1 billion through 2017 to transform the
largest coal-fired power station in the U.K. into an electricity
generator fuelled predominantly by sustainable biomass. With the
conversion of three of six generating units from coal to biomass,
Drax is expected to demand approximately seven million metric tons
of pellets per year by 2017.
Dorothy Thompson,
Chief Executive of Drax said, "We are delighted to have entered
into an agreement with Rentech for the supply of sustainable wood
pellets. Forming an integral component of our fuel supply
arrangements and supporting the diversification of our supplier
base, this agreement helps to underpin the transformation of Drax
into a predominantly biomass-fuelled generator, providing low
carbon, cost effective and reliable renewable power."
Ontario Power Generation (OPG)
OPG, which is phasing out the use of coal to produce electricity at
its power plants, has signed a ten-year off-take contract for the
Atikokan project (see below) for
the supply of 45,000 metric tons of pellets annually FOB plant
gate. The OPG contract is the first long-term pellet supply
agreement for a domestic utility in Canada. OPG has the option to expand the
contract to 90,000 metric tons annually. Rentech will acquire the
OPG contract as part of the acquisition of the Atikokan project.
Conversions of Fibre Mills to Pellet
Production
Rentech expects to convert two decommissioned fibre mills in
Ontario, Canada with significant
existing re-usable infrastructure into pellet mills to fulfill
pellet deliveries required under the Drax and OPG contracts.
Wawa Facility
Rentech has exclusive rights to acquire, at a fixed price, a former
oriented strand board processing mill from Weyerhaeuser in
Wawa, Ontario, which Rentech
expects to convert for production of approximately 360,000 metric
tons of pellets annually. The full output of pellets from this
facility will be sold under a long-term contract to Drax, with the
first delivery under the contract scheduled for the fourth quarter
of 2014. The facility is expected to consume approximately 710,000
metric tons of certified sustainably managed Crown fibre annually
and is anticipated to employ approximately 40 full-time
employees.
"I am pleased to see Rentech's investment in
Northern Ontario coming to
fruition and bringing critically needed jobs to Wawa and surrounding areas. This project will
help to diversify the local economy. I look forward to continuing
to work with Rentech in the future," stated Michael Mantha, Algoma-Manitoulin Member of
Provincial Parliament.
Atikokan Facility
Rentech has entered into an agreement to acquire a former particle
board processing mill from Atikokan Renewable Fuels in Atikokan, Ontario, located just 18 kilometers
from the OPG power station, which is expected to be converted for
production of approximately 125,000 metric tons of pellets annually
to supply 45,000 metric tons annually under the OPG contract, with
the balance to be sold under the Drax contract unless OPG exercises
its option on the additional 45,000 metric tons. The first delivery
of pellets under the OPG contract is scheduled for the first
quarter of 2014. The facility is expected to consume approximately
250,000 metric tons of Crown fibre annually and is anticipated to
employ approximately 25 full-time employees.
Rentech has formed a partnership with Great
North Bio Energy to continue to work with First Nations in the
development and operation of the Atikokan project.
Financial Forecast for Wawa and Atikokan Facilities
The facilities are expected to generate revenues and EBITDA
beginning in 2014, with a ramp-up to approximately 80% of
stabilized EBITDA in 2015 and forecasted stabilized operating
income of $3 million and stabilized
EBITDA of $15 million in 2016. The
total cost to acquire and convert the two mills is estimated to be
approximately $70 million and is
expected to be funded by cash on hand, expected distributions from
Rentech Nitrogen, cash generated by Fulghum Fibres, and anticipated
joint venture investments from Graanul Invest.
Contracts for Transport and Handling of
Pellets
The transport arrangements secured by Rentech are central to the
Company's strategy to become a prominent manufacturer and exporter
of wood pellets in Eastern Canada.
The long-term contracts described below establish the costs to
transport pellets from the Wawa
and Atikokan facilities, and are
structured to reduce per-ton expenses as pellet volumes increase
through future expansions and/or developments.
Port of Quebec
The Port of Quebec, which is
located along the Saint Lawrence Seaway and provides a direct and
expedient route from Eastern
Canada to Europe, is an
inland port suitable for large Panamax vessels that provides
important economies of scale. Rentech has entered into a long-term
contract with Quebec Stevedoring at the Port of Quebec to provide stevedoring, terminalling
and warehousing services. This agreement is designed to support the
term and volume commitments of the Drax contract as well as future
pellet exports through the Port of Quebec. Quebec Stevedoring will invest an
estimated $20 million to build
handling equipment and 75,000 metric tons of pellet storage
exclusively for Rentech's use at the port, with the same amount
becoming a lease obligation of Rentech. Offering year-round
terminal access, the Port of Quebec is expected to become the largest bulk
pellet terminal in Eastern Canada
as a result of this contract.
CN
Rentech has secured a long-term contract with CN, whose freight
railway network spans Canada and
mid-America, to transport the wood pellets approximately 1,110
miles from the Wawa facility, and
1,500 miles from the Atikokan
facility, to the Port of Quebec.
Rentech expects to lease more than 200 covered hopper rail cars
from third parties to transport wood pellets to the Port.
CWT Commodities (USA), a leading solutions provider of
integrated logistics and supply chain management, is providing
market intelligence and logistics advisory services in support of
Rentech's Eastern Canadian wood pellet projects under a long-term
strategic relationship with the Company.
Wood for Pellets Sourced from Crown
Timber
Rentech intends to utilize Canadian Crown fibre, which is highly
desirable due to Ontario's
long-term forest management regime, which supports fibre
availability, security of supply, and industry-leading
sustainability practices. In addition, mixed hardwood trees in
Northern Ontario have chemical
properties that allow for the production of top-tier quality
pellets.
The Honorable David Orazietti, Minister of
Natural Resources, said, "Our government is committed to continuing
to improve the competitiveness of Ontario's forestry industry and are encouraged
by early signs of growth and progress in the sector. We look
forward to working with Rentech on their proposals, which are
expected to achieve economic benefits for northern Ontario and First Nation communities in the
Atikokan and Wawa areas."
Joint Venture for Development, Construction
and Project Investment
In connection with the acquisition of Fulghum Fibres, Rentech has
entered directly into a joint venture (JV) agreement with Graanul
Invest (Graanul), a European company which is one of the largest
pellet producers in the world. Graanul has designed, built, and
operates, 6 pellet facilities in Europe, which produce 830,000 tons of pellets
annually. The JV is an equal equity partnership between Rentech and
Graanul to develop and build wood pellet facilities in the U.S. and
Canada. Under the JV, Graanul will
provide EPC services to projects developed by the JV. Graanul will
also provide marketing services for excess pellets produced by the
JV, and allow the JV to acquire pellets from Graanul's European
plants in the event the JV needs to supplement pellet supplies.
Wood Pellet Industry: Forecasted for
Growth
According to independent industry reports, the global demand for
wood pellets is forecasted to reach 50 million metric tons by 2020,
which is nearly three times the current global demand. Wood pellets
provide a clean energy source for power generation. Much of the
global wood pellet production is consumed in Western Europe by large utilities to reduce
reliance on coal, reduce carbon emissions and avoid regulatory
penalties. Japan, Korea and
China are expected to represent
growth opportunities as a result of increasing demand for pellets
to be used as fuel for reliable and diversified power generation.
The U.S. and Canada are seen as
the best export supply markets for wood pellets based on fibre
supply availability, logistics capabilities, and distance to
market.
Wood Fibre Strategy: Summary of
Benefits
Rentech believes its investment in the wood fibre industry will
create value for its shareholders because of the following key
attributes of the sector, which are consistent with Rentech's
announced criteria for new investments:
- Stability of cash flows,
- Long-term customer, supply, and logistics contracts,
- Diversification of products and markets,
- Targeted returns on capital in the mid-teens and higher,
- Commercially available technologies,
- Global and growing markets,
- Capital requirements to execute on the strategy are within
Rentech's anticipated resources,
- Leverages Rentech's expertise and resources, and
- Income qualifies for a Master Limited Partnership (MLP)
structure.
Sean Ebnet as
Business Lead
Sean Ebnet joined Rentech in
October 2012 in the role of Senior
Vice President of Business Development. Mr. Ebnet is responsible
for growing and managing Rentech's wood fibre business. He began
his career with the United States Forest Service before moving into
the private sector, where he worked as a consultant to numerous
forest products companies, power utilities and government agencies.
In 2000, Mr. Ebnet became Executive Director of Alternative Energy
Investment Group where he was responsible for the screening,
research and development of privately funded renewable power
projects. In 2008, he joined Drax, operator of the largest
coal-fired power station in the U.K., as Director of New Business
and spearheaded the company's development of the largest biomass
co-firing facility in the world. Mr. Ebnet holds a B.S. degree from
the University of Washington.
Sustainability Commitment
Rentech's objective is to increase shareholder value through the
development of a world class wood processing business. This
objective will be achieved, in part, by adopting best practices of
sustainable forest management, and ensuring that the feedstock
supplies to the Company's facilities meet the rigors of independent
certification of environmentally sound practices and procedures for
the sale and export of wood pellets to Europe.
Conference Call and Investor
Presentation
The Company will hold a conference call today at 7:00 a.m. PDT to discuss the transactions.
The slide presentation to be used in conjunction with the call will
be available on Rentech's website, www.rentechinc.com, within the
Investor Relations portion of the site under the Presentations
section. By dialing 1-866-294-4838 or 1-847-944-7303 and entering
the pass code 9069023, callers may listen to the live presentation,
which will be followed by a question and answer segment. An audio
webcast of the call will also be available on the same web page as
the presentation. A replay of the audio webcast and teleconference
will be available from 9:30 a.m. PDT on May 2, 2013 through 9:30 a.m. PDT on May 12, 2013. A replay of the teleconference will
be available by dialing 1-888-843-7419 or 1-630-652-3042 and
entering the pass code 9069023.
Disclosure Regarding Non-GAAP Financial
Measures
EBITDA is defined as operating income plus depreciation expense.
EBITDA is used as a supplemental financial measure by management
and by external users of our financial statements, such as
investors and commercial banks, to assess:
- the financial performance of a company's assets without regard
to financing methods, capital structure or historical cost basis;
and
- a company's operating performance and return on invested
capital compared to those of other publicly traded companies,
without regard to financing methods and capital structure.
EBITDA should not be considered an alternative
to net income, operating income, net cash provided by operating
activities or any other measure of financial performance or
liquidity presented in accordance with GAAP. EBITDA may have
material limitations as a performance measure because it excludes
items that are necessary elements of Rentech's costs and
operations. In addition, EBITDA presented by other companies may
not be comparable to Rentech's presentation, since each company may
define these terms differently.
The table below reconciles Fulghum Fibres'
forecasted EBITDA to operating income for the twelve months ending
December 31, 2013 (unaudited
estimate, stated in millions).
|
|
12 Months Ending
December 31, 2013 |
Operating Income |
|
$
10.0 |
Plus: Depreciation |
|
10.0 |
EBITDA |
|
$ 20.0 |
The table below reconciles the estimated
stabilized EBITDA to operating income for the Wawa and Atikokan facilities (unaudited estimate,
stated in millions).
|
|
Stabilized
Operating Year |
Operating Income |
|
$ 3.0 |
Plus: Depreciation |
|
12.0 |
EBITDA |
|
$
15.0 |
About Rentech, Inc.
Rentech, Inc. (www.rentechinc.com) owns and operates wood fibre and
nitrogen fertilizer businesses. The wood fibre business consists of
the provision of chipping services and the manufacture and sale of
wood chips, through a wholly-owned subsidiary, Fulghum Fibres,
Inc., and the development and operation of wood pellet production
facilities. Rentech's nitrogen fertilizer business consists of the
manufacture and sale of nitrogen fertilizer through its
publicly-traded subsidiary, Rentech Nitrogen Partners, L.P. Rentech
also owns the intellectual property including patents, pilot and
demonstration data, and engineering designs for a number of clean
energy technologies designed to produce certified synthetic fuels
and renewable power when integrated with third-party
technologies.
Forward Looking Statements
This press release contains forward-looking statements about
matters such as: forecasted EBITDA, operating income, and
depreciation; the outlook for the wood fibre business; our ability
to consummate the acquisition of the facilities in Wawa and Atikokan,
Ontario; successful integration and future performance of
acquired assets or businesses; successful design, implementation
and execution of growth projects; Rentech's plans for market share
of the wood pellet industry; sale and transport of wood pellets,
and plans for sustainability. These statements are based on
management's current expectations and actual results may differ
materially as a result of various risks and uncertainties. Other
factors that could cause actual results to differ from those
reflected in the forward-looking statements are set forth in
Rentech's prior press releases and periodic public filings with the
Securities and Exchange Commission, which are available via
Rentech's website at www.rentechinc.com. The forward-looking
statements in this press release are made as of the date of this
press release and Rentech does not undertake to revise or update
these forward-looking statements, except to the extent that it is
required to do so under applicable law.
SOURCE Rentech, Inc.