Fulghum Fibres is the leading provider of contract wood chip processing
services in the U.S., with approximately $10 million of Operating
Income and $20 million of EBITDA expected in 2013.
Two former wood processing facilities to be acquired and converted to
produce wood pellets, projected to have combined stabilized Operating
Income of $3 million and EBITDA of $15 million.
Contracts in place for the sale and transport of approximately 445,000
annual metric tons of wood pellets over ten years; sustainably managed
wood supply from Crown forests in Ontario, Canada; and joint venture
development and construction partner.
Rentech enters wood fibre processing business with stable cash flow,
construction and operating expertise, and long-term contracts
structured for stable margins and cash flow.
Businesses provide Rentech with diversification of margins, products and
markets and entry into rapidly growing pellet industry.
Conference Call Today at 7:00 a.m. PDT
LOS ANGELES, CA, May 2, 2013 /CNW/ - Rentech, Inc. (NYSE MKT: RTK) today
announced the acquisition of Georgia-based Fulghum Fibres, Inc.
(Fulghum Fibres) and the acquisition of two facilities for conversion
to the production of wood pellets in Ontario, Canada, along with
contracts for the sale and transport of more than four million metric
tons of wood pellets over ten years. These steps position Rentech to
develop a world class wood processing business for production of
high-quality wood chips and pellets. Rentech expects these investments
to be funded from cash on hand, expected distributions from Rentech
Nitrogen, and investments from a joint venture partner. Rentech will
host a conference call today at 7:00 a.m. PDT to review additional
details regarding today's announcements as disclosed in its investor
presentation posted on its website.
Fulghum Fibres is expected to have approximately $10 million of
operating income and $20 million of EBITDA in calendar year 2013,
consistent with its stable financial history. The net purchase price,
including assumed debt, is $112 million. The company, founded nearly 25
years ago, has been consistently profitable and maintains a solid
reputation as a producer of high quality wood chips and other services
to a diversified customer base in the pulp and paper industries in the
U.S., South America and Asia. The acquisition provides Rentech with
immediate stable cash flow with growth opportunities, and a platform to
launch into the growing and complementary global wood pellet industry.
The acquisition also brings with it a joint venture with Graanul
Invest, a large European producer of pellets, for the development and
construction of pellet plants in the U.S. and Canada.
Take-or-pay contracts are in place with two utilities to supply a
combined total of 445,000 metric tons of wood pellets annually over ten
years. To supply the pellets, Rentech plans to convert two
decommissioned wood fibre mills in Eastern Canada into pellet mills
that will employ a total of approximately 65 full-time employees and
help to create jobs for construction and wood supply from sustainable
Crown forests in Ontario. These two facilities are expected to generate
$3 million of operating income and $15 million of EBITDA when fully
operational, with combined total project cost estimated at $70 million.
Rentech has contracted for the handling and transport of the pellets.
The two plants would make Rentech the largest producer of industrial
wood pellets utilizing fibre from Eastern Canada, a source of supply
that is highly desired due to its location and wood quality.
"Today's announcements launch us into the wood fibre and pellet supply
business, with immediate cash flow and significant growth
opportunities, and allow us to take advantage of our fibre relationship
in the Province of Ontario," said D. Hunt Ramsbottom, President and
Chief Executive Officer of Rentech. "Fulghum Fibres provides immediate
and steady EBITDA and nearly 25 years of fibre processing expertise
that we can leverage for successful execution in the wood pellet
industry." Mr. Ramsbottom continued, "The wood chip and pellet
industries, which qualify for an MLP structure, are growth sectors with
long-term contracts that should provide stable margins and attractive
returns on project investments. With sustainable fibre supply from
Crown forests, Rentech will continue to pursue First Nations
partnerships and opportunities for economic development associated with
our Ontario projects. With our long-term customer contracts, processing
expertise, and logistics in place, Rentech is positioned to execute on
our objective to be a leader in the rapidly growing global market for
wood pellet production."
Mr. Ramsbottom added, "We expect these new businesses to have stable
cash flows. The pellet facilities are structured around sustainably
managed long-term fibre supplies and long-term off-take and logistics
contracts. Fulghum Fibres' chip processing business is primarily a
fee-based service. The stability of margins we expect here will reduce
our consolidated exposure to agricultural cycles inherent in Rentech
Nitrogen's business. We believe this diversification and pricing
stability creates a stronger and more valuable entity at Rentech in the
short, medium and long term."
Based in Augusta, Georgia, Fulghum Fibres has approximately 420
employees and is a leader in contract fibre processing services.
Fulghum Fibres, which was established in 1989, processes approximately
15 million metric tons of wood and bark annually into wood chips and
residual fuels at its 32 wood chipping mills, 26 of which are located
in the U.S. and 6 of which are located in South America, where Fulghum
Fibres provides chipping services and exports wood chips to customers
who are primarily in Japan. Fulghum Fibres operates primarily under
long-term contracts and services a portfolio of industry-leading
customers, such as Georgia Pacific, International Paper and
Revenues are typically based on per-ton processing fees with minimum
volume requirements. Fulghum Fibres commands an estimated 70% of the
U.S. contract chipping business and approximately 6% of the total U.S.
chipping market that includes in-house chipping operations by large
pulp and paper companies. In the U.S., the majority of Fulghum Fibres'
wood chip production is destined for products with the highest expected
growth in the pulp and paper market, such as containerboard, boxboard,
The senior management team of Fulghum Fibres has signed employment
agreements, and is expected to remain in place for the foreseeable
future. Fulghum Industries, which manufactures wood handling and
chipping equipment and has been under common ownership with Fulghum
Fibres, is not being acquired, but will continue to supply equipment
and expertise to Fulghum Fibres on favorable terms.
Fulghum Fibres Transaction Highlights
Rentech will acquire all of the equity interests of Fulghum Fibres for
$60 million, to be paid from cash on hand. Rentech will acquire
approximately $10 million of cash, repay $3 million of debt, and assume
approximately $59 million of Fulghum Fibres' debt, for a total net
purchase price of $112 million. The acquisition price equates to 5.6
times 2013 forecasted EBITDA for Fulghum Fibres' business.
Fulghum Fibres is forecasted to have revenues of approximately $95
million, operating income of approximately $10 million and EBITDA of
approximately $20 million in calendar year 2013, which are consistent
with Fulghum Fibres' stable historical financial performance. Further
explanation of EBITDA, a non-GAAP financial measure, and a
reconciliation of Fulghum Fibres' forecasted EBITDA to operating income
have been included below in this news release.
Fulghum Fibres as Platform for Pellet Business
Fulghum Fibres provides Rentech with a stable operating and financial
platform with inherent growth opportunities within the sector. The
Company intends to use this platform to launch into the complementary,
growing wood pellet industry, a natural extension of chip production.
Fulghum Fibres brings operating and processing expertise to the front
end of the Company's wood pellet business, as each pellet mill requires
wood handling and production of chips. Fulghum Fibres also brings a
joint venture with Graanul Invest, a European company that is one of
the largest pellet producers in the world, to develop and construct
pellet projects in the U.S. and Canada.
Entry into the Wood Pellet Supply Industry
Global demand for wood pellets is projected to triple by 2020, to 50
million metric tons. Rentech has secured the key elements to quickly
become an industrial scale supplier of wood pellets from Eastern Canada
to the Canadian and European utility markets with:
Deep experience in wood handling and production of chips with the
acquisition of Fulghum Fibres,
A joint venture for development, construction, and investment in the
U.S. and Canada with a major European producer of pellets,
Two take-or-pay ten-year off-take contracts for combined pellet
deliveries averaging 445,000 metric tons annually,
Two decommissioned facilities in Ontario, Canada for conversion to
Exclusive priority access to the only large scale pellet handling
facility in Eastern Canada through a 15-year agreement with Quebec
Stevedoring Company Limited (Quebec Stevedoring), which provides deep
water access at the Port of Quebec and short shipping distance to
European pellet consumers,
A strategic relationship with Canadian National Railway Company (CN)
(TSX: CNR) (NYSE: CNI) for the inland transportation of pellets to the
Job creation, including new employment opportunities for First Nations,
Sustainably managed fibre supply from Ontario Crown forests, and
In-house management expertise in forestry and pellet supply.
Contracts to Supply Pellets
Two ten-year take-or-pay contracts are in place for the sale of
industrial wood pellets totaling over four million metric tons of
production over the life of the contracts.
Drax Power Limited (Drax)
Drax has signed a ten-year off-take contract for the delivery of
approximately 400,000 metric tons of pellets annually to be supplied by
Rentech's Wawa and Atikokan facilities (see below), with prices indexed
for inflation, fuel and fibre supply costs. The contract establishes a
strategic relationship with Drax, which plans to invest approximately
U.S. $1 billion through 2017 to transform the largest coal-fired power
station in the U.K. into an electricity generator fuelled predominantly
by sustainable biomass. With the conversion of three of six generating
units from coal to biomass, Drax is expected to demand approximately
seven million metric tons of pellets per year by 2017.
Dorothy Thompson, Chief Executive of Drax said, "We are delighted to
have entered into an agreement with Rentech for the supply of
sustainable wood pellets. Forming an integral component of our fuel
supply arrangements and supporting the diversification of our supplier
base, this agreement helps to underpin the transformation of Drax into
a predominantly biomass-fuelled generator, providing low carbon, cost
effective and reliable renewable power."
Ontario Power Generation (OPG)
OPG, which is phasing out the use of coal to produce electricity at its
power plants, has signed a ten-year off-take contract for the Atikokan
project (see below) for the supply of 45,000 metric tons of pellets
annually FOB plant gate. The OPG contract is the first long-term pellet
supply agreement for a domestic utility in Canada. OPG has the option
to expand the contract to 90,000 metric tons annually. Rentech will
acquire the OPG contract as part of the acquisition of the Atikokan
Conversions of Fibre Mills to Pellet Production
Rentech expects to convert two decommissioned fibre mills in Ontario,
Canada with significant existing re-usable infrastructure into pellet
mills to fulfill pellet deliveries required under the Drax and OPG
Rentech has exclusive rights to acquire, at a fixed price, a former
oriented strand board processing mill from Weyerhaeuser in Wawa,
Ontario, which Rentech expects to convert for production of
approximately 360,000 metric tons of pellets annually. The full output
of pellets from this facility will be sold under a long-term contract
to Drax, with the first delivery under the contract scheduled for the
fourth quarter of 2014. The facility is expected to consume
approximately 710,000 metric tons of certified sustainably managed
Crown fibre annually and is anticipated to employ approximately 40
"I am pleased to see Rentech's investment in Northern Ontario coming to
fruition and bringing critically needed jobs to Wawa and surrounding
areas. This project will help to diversify the local economy. I look
forward to continuing to work with Rentech in the future," stated
Michael Mantha, Algoma-Manitoulin Member of Provincial Parliament.
Rentech has entered into an agreement to acquire a former particle board
processing mill from Atikokan Renewable Fuels in Atikokan, Ontario,
located just 18 kilometers from the OPG power station, which is
expected to be converted for production of approximately 125,000 metric
tons of pellets annually to supply 45,000 metric tons annually under
the OPG contract, with the balance to be sold under the Drax contract
unless OPG exercises its option on the additional 45,000 metric tons.
The first delivery of pellets under the OPG contract is scheduled for
the first quarter of 2014. The facility is expected to consume
approximately 250,000 metric tons of Crown fibre annually and is
anticipated to employ approximately 25 full-time employees.
Rentech has formed a partnership with Great North Bio Energy to continue
to work with First Nations in the development and operation of the
Financial Forecast for Wawa and Atikokan Facilities
The facilities are expected to generate revenues and EBITDA beginning in
2014, with a ramp-up to approximately 80% of stabilized EBITDA in 2015
and forecasted stabilized operating income of $3 million and stabilized
EBITDA of $15 million in 2016. The total cost to acquire and convert
the two mills is estimated to be approximately $70 million and is
expected to be funded by cash on hand, expected distributions from
Rentech Nitrogen, cash generated by Fulghum Fibres, and anticipated
joint venture investments from Graanul Invest.
Contracts for Transport and Handling of Pellets
The transport arrangements secured by Rentech are central to the
Company's strategy to become a prominent manufacturer and exporter of
wood pellets in Eastern Canada. The long-term contracts described below
establish the costs to transport pellets from the Wawa and Atikokan
facilities, and are structured to reduce per-ton expenses as pellet
volumes increase through future expansions and/or developments.
Port of Quebec
The Port of Quebec, which is located along the Saint Lawrence Seaway and
provides a direct and expedient route from Eastern Canada to Europe, is
an inland port suitable for large Panamax vessels that provides
important economies of scale. Rentech has entered into a long-term
contract with Quebec Stevedoring at the Port of Quebec to provide
stevedoring, terminalling and warehousing services. This agreement is
designed to support the term and volume commitments of the Drax
contract as well as future pellet exports through the Port of Quebec.
Quebec Stevedoring will invest an estimated $20 million to build
handling equipment and 75,000 metric tons of pellet storage exclusively
for Rentech's use at the port, with the same amount becoming a lease
obligation of Rentech. Offering year-round terminal access, the Port of
Quebec is expected to become the largest bulk pellet terminal in
Eastern Canada as a result of this contract.
Rentech has secured a long-term contract with CN, whose freight railway
network spans Canada and mid-America, to transport the wood pellets
approximately 1,110 miles from the Wawa facility, and 1,500 miles from
the Atikokan facility, to the Port of Quebec. Rentech expects to lease
more than 200 covered hopper rail cars from third parties to transport
wood pellets to the Port.
CWT Commodities (USA), a leading solutions provider of integrated
logistics and supply chain management, is providing market intelligence
and logistics advisory services in support of Rentech's Eastern
Canadian wood pellet projects under a long-term strategic relationship
with the Company.
Wood for Pellets Sourced from Crown Timber
Rentech intends to utilize Canadian Crown fibre, which is highly
desirable due to Ontario's long-term forest management regime, which
supports fibre availability, security of supply, and industry-leading
sustainability practices. In addition, mixed hardwood trees in Northern
Ontario have chemical properties that allow for the production of
top-tier quality pellets.
The Honorable David Orazietti, Minister of Natural Resources, said, "Our
government is committed to continuing to improve the competitiveness of
Ontario's forestry industry and are encouraged by early signs of growth
and progress in the sector. We look forward to working with Rentech on
their proposals, which are expected to achieve economic benefits for
northern Ontario and First Nation communities in the Atikokan and Wawa
Joint Venture for Development, Construction and Project Investment
In connection with the acquisition of Fulghum Fibres, Rentech has
entered directly into a joint venture (JV) agreement with Graanul
Invest (Graanul), a European company which is one of the largest pellet
producers in the world. Graanul has designed, built, and operates, 6
pellet facilities in Europe, which produce 830,000 tons of pellets
annually. The JV is an equal equity partnership between Rentech and
Graanul to develop and build wood pellet facilities in the U.S. and
Canada. Under the JV, Graanul will provide EPC services to projects
developed by the JV. Graanul will also provide marketing services for
excess pellets produced by the JV, and allow the JV to acquire pellets
from Graanul's European plants in the event the JV needs to supplement
Wood Pellet Industry: Forecasted for Growth
According to independent industry reports, the global demand for wood
pellets is forecasted to reach 50 million metric tons by 2020, which is
nearly three times the current global demand. Wood pellets provide a
clean energy source for power generation. Much of the global wood
pellet production is consumed in Western Europe by large utilities to
reduce reliance on coal, reduce carbon emissions and avoid regulatory
penalties. Japan, Korea and China are expected to represent growth
opportunities as a result of increasing demand for pellets to be used
as fuel for reliable and diversified power generation. The U.S. and
Canada are seen as the best export supply markets for wood pellets
based on fibre supply availability, logistics capabilities, and
distance to market.
Wood Fibre Strategy: Summary of Benefits
Rentech believes its investment in the wood fibre industry will create
value for its shareholders because of the following key attributes of
the sector, which are consistent with Rentech's announced criteria for
Stability of cash flows,
Long-term customer, supply, and logistics contracts,
Diversification of products and markets,
Targeted returns on capital in the mid-teens and higher,
Commercially available technologies,
Global and growing markets,
Capital requirements to execute on the strategy are within Rentech's
Leverages Rentech's expertise and resources, and
Income qualifies for a Master Limited Partnership (MLP) structure.
Sean Ebnet as Business Lead
Sean Ebnet joined Rentech in October 2012 in the role of Senior Vice
President of Business Development. Mr. Ebnet is responsible for growing
and managing Rentech's wood fibre business. He began his career with
the United States Forest Service before moving into the private sector,
where he worked as a consultant to numerous forest products companies,
power utilities and government agencies. In 2000, Mr. Ebnet became
Executive Director of Alternative Energy Investment Group where he was
responsible for the screening, research and development of privately
funded renewable power projects. In 2008, he joined Drax, operator of
the largest coal-fired power station in the U.K., as Director of New
Business and spearheaded the company's development of the largest
biomass co-firing facility in the world. Mr. Ebnet holds a B.S. degree
from the University of Washington.
Rentech's objective is to increase shareholder value through the
development of a world class wood processing business. This objective
will be achieved, in part, by adopting best practices of sustainable
forest management, and ensuring that the feedstock supplies to the
Company's facilities meet the rigors of independent certification of
environmentally sound practices and procedures for the sale and export
of wood pellets to Europe.
Conference Call and Investor Presentation
The Company will hold a conference call today at 7:00 a.m. PDT to
discuss the transactions. The slide presentation to be used in
conjunction with the call will be available on Rentech's website, www.rentechinc.com, within the Investor Relations portion of the site under the
Presentations section. By dialing 1-866-294-4838 or 1-847-944-7303 and
entering the pass code 9069023, callers may listen to the live
presentation, which will be followed by a question and answer segment.
An audio webcast of the call will also be available on the same web
page as the presentation. A replay of the audio webcast and
teleconference will be available from 9:30 a.m. PDT on May 2, 2013
through 9:30 a.m. PDT on May 12, 2013. A replay of the teleconference
will be available by dialing 1-888-843-7419 or 1-630-652-3042 and
entering the pass code 9069023.
Disclosure Regarding Non-GAAP Financial Measures
EBITDA is defined as operating income plus depreciation expense. EBITDA
is used as a supplemental financial measure by management and by
external users of our financial statements, such as investors and
commercial banks, to assess:
the financial performance of a company's assets without regard to
financing methods, capital structure or historical cost basis; and
a company's operating performance and return on invested capital
compared to those of other publicly traded companies, without regard to
financing methods and capital structure.
EBITDA should not be considered an alternative to net income, operating
income, net cash provided by operating activities or any other measure
of financial performance or liquidity presented in accordance with
GAAP. EBITDA may have material limitations as a performance measure
because it excludes items that are necessary elements of Rentech's
costs and operations. In addition, EBITDA presented by other companies
may not be comparable to Rentech's presentation, since each company may
define these terms differently.
The table below reconciles Fulghum Fibres' forecasted EBITDA to
operating income for the twelve months ending December 31, 2013
(unaudited estimate, stated in millions).
12 Months Ending
December 31, 2013
The table below reconciles the estimated stabilized EBITDA to operating
income for the Wawa and Atikokan facilities (unaudited estimate, stated
About Rentech, Inc.
Rentech, Inc. (www.rentechinc.com) owns and operates wood fibre and nitrogen fertilizer businesses. The
wood fibre business consists of the provision of chipping services and
the manufacture and sale of wood chips, through a wholly-owned
subsidiary, Fulghum Fibres, Inc., and the development and operation of
wood pellet production facilities. Rentech's nitrogen fertilizer
business consists of the manufacture and sale of nitrogen fertilizer
through its publicly-traded subsidiary, Rentech Nitrogen Partners, L.P.
Rentech also owns the intellectual property including patents, pilot
and demonstration data, and engineering designs for a number of clean
energy technologies designed to produce certified synthetic fuels and
renewable power when integrated with third-party technologies.
Forward Looking Statements
This press release contains forward-looking statements about matters
such as: forecasted EBITDA, operating income, and depreciation; the
outlook for the wood fibre business; our ability to consummate the
acquisition of the facilities in Wawa and Atikokan, Ontario; successful
integration and future performance of acquired assets or businesses;
successful design, implementation and execution of growth projects;
Rentech's plans for market share of the wood pellet industry; sale and
transport of wood pellets, and plans for sustainability. These
statements are based on management's current expectations and actual
results may differ materially as a result of various risks and
uncertainties. Other factors that could cause actual results to differ
from those reflected in the forward-looking statements are set forth in
Rentech's prior press releases and periodic public filings with the
Securities and Exchange Commission, which are available via Rentech's
website at www.rentechinc.com. The forward-looking statements in this press release are made as of
the date of this press release and Rentech does not undertake to revise
or update these forward-looking statements, except to the extent that
it is required to do so under applicable law.
SOURCE: Rentech, Inc.
For further information:
Julie Dawoodjee Cafarella
Vice President of Investor Relations and Communications