August 19, 2015 - Rentech’s pellet plants in Atikokan, Ont. and Wawa, Ont. have encountered delays in wood pellet production due to equipment failures and issues with material handling equipment.
By Andrew Snook
“The Atikokan plant has been generating positive EBITDA since May,” stated Keith Forman, president and CEO of Rentech. “At Wawa, we are producing a limited quantity of pellets. We will need to modify and replace the log in-feed equipment and a signification portion of conveyance systems at the Wawa plant this fall and into next year, to address the construction flaws we discovered during ramp-up. Given what we know today, we currently estimate that these modifications will increase our total project spending to approximately $145 million, which is $5 million above the high end of our previous guidance range.”
The Atikokan facility has completed commissioning and is in the ramp-up phase. However, the facility experienced a transformer failure and has been temporarily using a smaller transformer that causes the facility to operate at reduced rates.
Rentech plans to install a larger permanent transformer in the third quarter of 2015, which will allow Atikokan to operate at full rates.
During the ramp-up phase, Rentech identified the need to replace or repair the truck dump conveyor and hopper at the facility, and the need to modify some of the conveyors at the plant.
In spite of the temporary transformer with lower capacity and some material handling equipment issues, the ramp-up phase at Atikokan has been proceeding better than the company’s forecasts, Rentech stated in its second quarter results for 2015.
Atikokan may still reach full capacity in February 2016; however, the timing could shift by several months depending on the degree of modifications needed to correct the material handling equipment issues and any other possible issues that may arise during ramp-up.
Most of the equipment at the Wawa facility has been commissioned and the plant is producing a limited quantity of wood pellets. However, Rentech discovered that it needs to modify the front end system of the facility that handles logs and feeds them into the chipper, and modify or replace a significant portion of the conveyors that handle chips and pellets.
“These issues are preventing us from ramping up the plant to expected production levels,” the company stated. “We expect to correct these issues during this fall and the first half of next year. We currently estimate that correcting these problems will increase our total expected project spending for the Canadian pellet plants to approximately $145 million, which is $5 million above the high end of our previous guidance range of $131 million to $140 million.
“The cost estimates to correct the issues are preliminary and have significant uncertainty. This revised projection for capital expenditures does not include contingencies to address any other unforeseen issues that may arise during ramp-up of the facilities.”
Rentech expects the Wawa Facility to be operating at full capacity by sometime in the second half of 2016.
“We intend to pursue all remedies available to us under our vendor contracts related to issues with the conveyor systems,” the company stated.
Q2 2015 results: Industrial wood pellets
According to the company’s second quarter results for 2015, the industrial wood pellets division suffered a gross loss of $3.1 million compared to a gross profit of $0.1 million for the prior year period.
Revenues for the second quarter of 2015 were $2.5 million earned by delivering to OPG 13,500 metric tons of wood pellets produced at the Atikokan facility. Revenues were $0.7 million for wood pellets sold to OPG for the prior year period.
Gross loss margin was (120 per cent) compared to gross profit margin of 17 per cent for the prior year period. However, results in 2014 reflect the purchase and sale of third party produced pellets before the Atikokan and Wawa facilities were producing pellets.
The gross losses and gross loss margins in 2015 were due to high operating costs relative to revenues during commissioning and ramp up of both the Atikokan and Wawa facilities, including the related write down of inventory at Wawa by $2.7 million during the second quarter of 2015.
In the second quarter of 2015, $2.6 million of settlement costs related to amending the Drax contract in August was recorded in SG&A expenses.
Adjusted EBITDA loss for the second quarter of 2015 was $(9.6) million. This compares to Adjusted EBITDA loss of $(3.3) million for the same period last year.
Net loss was $(10.7) million for the second quarter of 2015, compared to a net loss of $(3.2) for the same period last year.