Rentech provides update on Canadian operations

Andrew Macklin
March 16, 2016
Written by
March 16, 2016 – Rentech has provided an update on the progress of its pellet operations in Atikokan and Wawa as part of the company's fourth quarter and full year financial results report.

Keith Forman, President and CEO of Rentech, stated, "We shipped approximately 48,000 metric tons of pellets to Drax in the first quarter of this year, produced from the Wawa and Atikokan plants. We are preparing for the final phase of corrections to the conveyors at both plants by this summer. We are optimistic that these final conveyor replacements will enable the plants to continue ramp-up to full capacity."

The capital expenditures estimate for the Atikokan and Wawa plants of approximately $145 million is unchanged, with approximately $21 million remaining to be spent as of the end of 2015. The estimate for capital expenditures does not include contingency costs to address any other unforeseen issues that may arise during ramp-up of the facilities.

Rentech has shipped a total of approximately 65,800 metric tons of wood pellets to OPG since Atikokan began producing, which has to date satisfied its contractual obligations to OPG.

Rentech also provided an update on the state of equipment repairs and replacements that have taken place at both facilities: "All of the truck dump hopper modifications at Atikokan have been completed, and the truck dump hopper is performing as expected. The first group of the faulty conveyors at the Atikokan Facility was replaced at the end of 2015 and the conveyors' performance is currently being evaluated as part of the plant's operations. The remaining work to address problems with the Atikokan Facility conveyor systems is expected to continue through mid-2016. The Atikokan Facility is expected to reach full capacity this year at some point after the conveyor work is completed, barring any other possible unforeseen issues that may arise during continued ramp-up.

All of the equipment at the Wawa Facility has been commissioned and the plant has been producing an increasing quantity of wood pellets. However, as disclosed last year, the company discovered during the ramp-up of the Wawa Facility the need to modify the front-end system of the facility that handles logs and feeds them into the chipping process and to modify or replace a significant portion of the plant's conveyance systems. The modifications of the front-end system and the first phase of modifications of the plant's conveyance systems were completed in late 2015. The remaining work to the conveyor systems is scheduled to be completed by mid-2016."

In light of the setbacks Rentech has experienced at the Wawa Facility, the company is evaluating the production capacity of the plant.

The report goes on to state: "We are investigating whether there are potential design shortcomings similar to those that surfaced with the plant's wood infeed and conveyance systems that might limit capacity. We are also evaluating uptime and operating efficiency rates achievable for full capacity. Our discussions with other pellet producers and engineering firms over the past year have shown that there is a wide disparity of these rates across established industrial pellet manufacturing plants in North America. We believe it is premature to revise the capacity of the Wawa Facility until such time that we have fully tested the design assumptions of the major processes of the plant, remediated all of the material handling issues, and completed the ramp-up of the facility. However, if we apply a range of assumed operating efficiencies typical for the industry, the plant's annual production capacity would be between 400,000 and 450,000 metric tons. The low end of this capacity range would still allow us to fulfill our annual contractual obligations to Drax and to generate positive cash flow.

We have also observed that historically within the wood pellet industry ramping to full design capacities takes considerable time, several years in most cases. Taking into account the amount of time required to complete the repair and modification of the conveyance systems and to ramp up to design operating efficiency rates as historically observed in the wood pellet industry, we do not expect the Wawa Facility to reach full capacity until 2017. We estimate that Atikokan and Wawa would generate stabilized annual EBITDA in the range of CAD$13 - $16 million using the production range cited above and based on today's economic variables. The EBITDA estimate does not include revenues from possible opportunities to aggregate pellets for resale."

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