Pinnacle discusses growth plans in second quarter earnings call

By Erin Voegele | August 13, 2019

Pinnacle Renewable Energy released second quarter financial results Aug. 12, reporting significant increases to revenue and pellets sold. During an earnings call, Pinnacle officials discussed company growth plans.

Rob McCurdy, CEO of Pinnacle, said the second quarter marked a strong period of revenue growth for the company, demonstrating the successful execution of Pinnacle’s growth strategy. He discussed the two new pellet contracts with customers in Japan and Korea the company announced in July. The first is with GS Global in South Korea, under which Pinnacle will supply 100,000 metric tons per year beginning in 2022. The second, with Mitsubishi in Japan, is for up to 120,000 metric tons per year beginning in 2021, McCurdy said.

“With the growth of our contracted backlog and diversification of our counter parties we are continuing to develop and evaluate further opportunities to add incremental production capacity,” McCurrdy added. “Hence the announcement early in the third quarter of our new facility to be constructed in High Level, Alberta.” That facility, under development in partnership with Tolko Industries, is expected to have an annual production capacity of 170,000 to 200,000 metric tons per year. “The new facility will diversify our fiber supply by using high-quality wood fiber sourced primarily from Tolko’s existing sawmill in High Level,” McCrurdy said.

During the call, McCurdy also discussed operational challenges Pinnacle experienced during the second quarter, including the ongoing effects of the February 2019 fire at the company’s pellet plant in Entwistle, Alberta, and the transition to processing a broader range of fiber sources at some of the company’s British Columbia facilities. McCrurdy said the change in fiber sources was required due to sawmill curtailment. At the facilities that were impacted, the low-quality fiber caused more than typical wear on production equipment, he said, and resulted in more downtime as well as higher repair and maintenance costs.

“Over the upcoming quarters we expect to mitigate the impact of the curtailment as we continue to optimize the production flows in our plants and some of the curtailed mills restart,” McCurdy said.

While the Enwistle plant began processing dry fiber in late March, McCurdy said the facility is currently operating at approximately 20-30 percent capacity. He said plans to restart the dryer are on schedule for the fourth quarter of this year. The plant is also installing a destoner system, he said, which will enable it to improve the fiber quality and reduce downtime.

According to McCurdy, improvements are continuing at the plant in Aliceville, Alabama. Production volumes have improved consistently, he said. The Smithers, British Columbia, plant is also making progress. McCurdy said it is expected to reach its full production rune rate of 125,000 metric tons per year during the third quarter of 2019.

McCurdy also discussed upgrades being made to the company’s Meadowbank and Williams Lake pellet plants in British Columbia. The facilities are installing new fiber drying and air filtration equipment and making improvements to infrastructure access, he said. The estimated $34 million in upgrades will allow the two facilities to process a broader range of available fiber sources and achieve safety and environmental advances while boosting the plants’ combined production by approximately 80,000 metric tons per year. Commissioning on the upgrades is expected to begin during the first quarter of next year.

Pinnacle is also continuing to consider other capacity expansions. “We continue to evaluate and develop additional potential growth opportunities to meet customer demand, including capacity expansions of our existing facilities, new greenfield and brownfield projects and potential acquisitions,” he said.

Pinnacle sold approximately 478,000 metric tons of industrial wood pellets during the second quarter, up 24.2 percent from the same period of last year. Revenue reached $104.2 million, up 22.4 percent from the second quarter of 2018. Adjusted gross margin was $21.4 million, or 20.4 percent of revenue, compared to $18.1 million, or 21.3 percent of revenue, last year. The company reported a net profit of $2.4 million, down from $6.5 million in the second quarter of last year. Adjusted EBITDA was $16.1 million, up from $14.9 million during the same period of 2018.