Rentech reports pellet plants' progress, earnings

Rentech Inc. is seeing robust activity in its fiber business, particularly in Canada, CEO Hunt Ramsbottom reported in a Nov. 6 quarterly earnings conference call.

During an update on the company’s fiber sector, which it acquired from Fulghum Fibers in the spring of 2013, Ramsbottom highlighted finishing touches being made at Rentech’s Atikokan and Wawa, Ontario, pellet manufacturing plants.

Beginning his report with details on the finishing touches at Rentech’s Atikokan facility, Ramsbottom said the plant has reached an important milestone, now in commissioning and startup mode, “the last phase before the plant begins producing pellets in coming weeks.”

Before reporting on progress at the Wawa plant, Ramsbottom provided a general overview how both projects have evolved over time.  “Atikokan and Wawa are first to pellet plants we’re constructing,” he said. “We’ve managed to stay on a very tight schedule, despite some early geotech challenges, combined with performing civil construction during one of the harshest Canadian winters on record.”

By August, Rentech was still on track to complete the projects on time and on budget, but had used up a lot of contingencies at the time. Everything else had to fall perfectly in place to remain on course, Ramsbottom said, and that did not occur. “As a result in delays of delivery of equipment, our schedule slipped, so we had to increase mechanical and electrical construction costs in order to complete the projects within a reasonable time frame,” he said. “There are always issues inherent in construction, especially brownfield conversions. Our challenges were magnified by simultaneous construction two plants in Canada, which increased the amount of engineering required, placed more stress on some of our smaller vendors, and created problems with getting timely delivery of equipment across the border.”

For future projects, Ramsbottom said Rentech expects to better communicate when the company is consuming timeline and budget contingencies. “We’ll also have the benefits of our operations teams at the start of any future project developments,” he said. “We’ve dedicated more back office support in the fiber business, and implemented new enterprising accounting systems across the bus that will facilitate equipment purchasing and tracking functions within that business.”

On the Wawa fiber mill-to-pellet plant conversion, Ramsbottom said Rentech is “feeling very good about the quality of work being done,” and that the company is approaching final commissioning and startup of the plant. “All major equipment is in place, and certain critical items, including the drying system, bark furnace and both log cranes have already been commissioned and are operational today. Final commissioning will run throughout the end of the year, and we expect to begin producing pellets in early 2015.”

Based on the estimated ramp-up schedule of the Wawa and Atikokan plants, Ramsbottom pointed to Q2 2015 as to when Rentech’s first shipment of pellets to Drax is expected to occur, adding that the company will continue to supply third-party pellets to Ontario Power Generation this year, as OPG’s Atikokan Generating Station ramps up. “We also have the option to ship pellets from Atikokan to the port to supplement production from Wawa to make up the first shipment of pellets to Drax expected in the second quarter,” he said. “The quantity of pellets we will need to ship from Atikokan to Québec will depend on how quickly the Wawa plant ramps up.”

During the call, Dan Cohrs, Rentech chief financial officer and executive vice president, reported that Rentech’s three New England Wood Pellet plants, which the company acquired in May for $34.5 million, brought in revenues of $13.9 million for the three months ended September 30, 2014 on deliveries of 71,000 tons of wood pellets.

“NEWP is performing very well, on target to hit our guidance,” he said. “Demand for heating pellets is very strong in the Northeast this year, as it was last year.”

Sales early in the year were higher than usual due to cold weather in the spring, and retailers’ purchases of products to be sold this winter commenced earlier than usual this summer, Cohrus reported.

Gross profit for the three months ended Sept. 30 was $2.5 million, with gross profit margin of 18 percent. Adjusted EBITDA was $2.7 million, with net income of $2 million.