Rentech reports improved industrial pellet production during Q2

On Aug. 10, Rentech Inc. released its results for the second quarter of 2016, reporting improved pellet production at its Canadian plants, with average weekly production increasing by 50 percent and 10 percent at Wawa and Atikokan, respectively, when compared to the average weekly production during quarter one.

Keith Forman, president and CEO of Rentech, stated in regards to the company’s Canadian pellet plants, “We’re not on the medal stand yet, but we’re through the preliminary round and, hopefully, we’ll get there.”

Forman began the call by discussing both Atikokan and Wawa, where they’ve been working on resolving a number of bottlenecks at the facilities, mainly associated with product conveyance. Forman said that he feels the company has a good handle on the remaining issues that need to be resolved to further increase production at the plant’s and that both the company’s CAPEX budget of approximately $145 million and its timeline to reach full capacity remain unchanged.

Rentech’s consolidated revenues for the second quarter of 2016 were $31.8 million, compared to $39.9 million in the prior year period. Gross loss for 2016 quarter two was $1.7 million, compared to gross profit of $3.8 million in the prior year period. Net income attributable to Rentech shareholders for the second quarter of 2016 was $306.3 million, or net income of $12.95 per basic share, of which $9.58 per basic share was generated by discontinued operations and $3.37 per basic share was contributed by continuing operations. This compared to a net loss of $53.4 million, or a net loss of $2.33 per basic share, of which $1.55 per basic share was generated by discontinued operations and 78 cents per basic share was contributed by continuing operations, for the comparable period in 2015. Consolidated adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) loss for the second quarter of 2016 was $5.3 million, compared to $7 million in the prior year period.

Financial earnings for Rentech’s pellet operations were also broken down. First, on the domestic pellet side, revenues for New England Wood Pellet were $4.4 million for the second quarter of 2016 on deliveries of 24,000 tons of wood pellets. This compares to $11.7 million for the same period in 2015 on the supply of 57,000 tons of pellets. According to Rentech, unusually warm temperatures in the Northeast during the last heating season, along with low prices for competitive heating fuels continue to impact NEWP’s sales volumes, and NEWP has scaled back production at its facilities since February. NEWP reported a gross profit for the second quarter of $600,000 compared to $2.6 million in the same period in 2015. Gross profit margin was 13 percent for the quarter, down from 22 percent in quarter two of 2015. Net loss of $300,000 was reported for NEWP during the second quarter, compared to net income of $1.5 million during 2015 quarter two. NEWP’s adjusted EBITDA was $400,000 for quarter two of 2016, down from $2.5 million in the comparable period in the prior year.

On the industrial side, revenues at Atikokan and Wawa were $6.5 million for the second quarter this year on delivery of approximately 56,000 metric tons of wood pellets. In 2015 quarter two, revenues were $2.5 million on 13,500 metric tons of wood pellets. Gross loss for 2016 quarter two was $5.2 million, compared to $3.1 million for 2015’s second quarter. Gross loss margin was 80 percent this quarter compared to 120 percent in 2015 for the same period. The increased gross loss in 2016 was due to higher sales volumes at production costs that exceed sales prices as the Atikokan and Wawa plants ramp up.

Both Atikokan and Wawa were in service during the second quarter this year, and last year during the same period the Atikokan facility was in the ramp-up phase and producing wood pellets, and Wawa was commissioned and producing a limited quantity of wood pellets. The improvement in gross loss margin between periods was due to improvements in production costs and increased revenues as a result of the higher volumes shipped during the second quarter of 2016 when compared to the same period in 2015.  Net loss for the facilities was $7 million for the second quarter this year, compared to a net loss of $10.7 million for the comparable period in 2015. Adjusted EBITDA loss was $4.4 million for the quarter, and in the second quarter of 2015 adjusted EBITDA loss of $9.6 million was reported.

Forman provided an operational update on each of the pellet operations as well. He said, production at Wawa is improving and the facility has been producing at 40 percent of its capacity during the past several weeks. It’s average weekly pellet production during the second quarter was approximately 2,500 metric tons, doubling the average weekly production in the first quarter. Forman added that the plant has at times produced 800 metric tons per day, or 500 tons per 12-hour shift, which “shows that the plant can produce at an annual average equivalent of over 70 percent of our Drax contract requirements, prior to replacing the remaining problematic conveyers,” he said.

Forman explained that the team at the plant is now tackling a number of mechanical improvements identified by the site personnel and the independent engineering firm engaged to assist during ramp up. Rentech plans on taking the plant down Aug. 15 for approximately two to four weeks to complete some of these mechanical upgrades, including replacing the remaining defective conveyers on the dry side of the plant and conducting general repairs and maintenance. “These improvements should remove the remaining identified conveyance bottlenecks and enable the plant to resume ramping up with the expectations of reaching 70 percent of capacity over the next several quarters,” Forman said.

During the second quarter, Rentech shipped its third vessel to Drax, and, for the year, they’ve delivered 95,000 metric tons of pellets. Forman also disclosed that in light of Wawa’s performance and the upcoming shutdown for phase two of the conveyer replacements, they finalized a reduction with Drax in 2016 volumes of 144,000 tons with no monetary penalties.

Atikokan is now typically producing between 80 to 90 percent of its capacity, according to Forman, an average weekly production improvement of 10 percent from quarter one. Rentech delivered a total of 46,000 metric tons of pellets this year to OPG and Drax from Atikokan. The company also plans on taking Atikokan down for around one week this fall to replace conveyers in order to enhance reliability and operational control at the plant. Forman shared that they’re holding off on replacing the last of the conveyers that would allow them to improve to 110,000 metric tons annually until they see an economic justification to make the investment.

At NEWP, Forman again emphasized that the effects of this past winter continued to negatively affect results during the second quarter. “Unseasonably warm winter caused sales volumes to drop significantly during the first five months of the year, until sales began picking up in June in preparation for the next year’s heating season,” he said.

In fact, half of NEWP’s revenues and volumes for the second quarter were earned in the month of June, and Forman expects the majority of NEWP’s EBITDA for the year to be generated in the second half of 2016, as he stated in the first quarter’s reported results for 2016.  “After the unseasonably warm winter, pellet purchases will revert to historical patterns where most of the buying will take place in the fall and winter time frame and we are encouraged that the big box stores started buying from NEWP in June,” Forman said.