Rentech announces preliminary 2016 fourth quarter and full year results
US-headed wood fibre processing and pellet producer Rentech Inc., has announced preliminary selected unaudited results for 2016 fourth quarter and full year 2016 providing updates on its troubled Canadian industrial pellet operations.
Rentech Inc., operates three business subsidiaries; Fulghum Fibres, New England Wood Pellets (NEWP) and Wood Pellets Industrial. According to a statement released March 16, operating loss from continuing operations before impairments for the fourth quarter of 2016 was US$(11.1) million, compared to US$(24.3) million in the prior year period. Operating loss from continuing operations before impairments for 2016 as a whole was US$(46.1) million, compared to US$(50.7) million in the prior year period.
Rentech expects impairments, which are non-cash items, related to its Canadian pellet plants of US$110 to US$120 million and is still assessing impairments related to its Fulghum business. Fulghum has approximately US$30 million of goodwill, which may be substantially impaired. In addition, Rentech expects an asset impairment relating to two chip mills for which a customer has indicated its intent to exercise its purchase option.
In February 2017, Rentech announced that it was to idle the Wawa facility due to continued difficulty with ramping up production, additional capital required to increase production to levels near the Wawa facility’s design capacity, projected operating costs which exceeded original expectations and uncertainty around future profitability.
In addition, production at the Atikokan facility has been curtailed to levels necessary to only fulfill the delivery requirements under the Ontario Power Generation (OPG) contract and no longer ship pellets to the Port of Quebec. However, the company says that it will “continue to explore alternatives” for selling additional wood pellets produced from the Atikokan facility to increase its utilization and profitability.
The company agreed to supply approximately 188 000 tonnes of pellets to Drax in 2016 of which approximately 176 800 tonnes were delivered. This includes approximately 45 000 tonnes shipped to Drax in January 2017. Penalties for the delivery shortfall were not incurred because the spot market prices for wood pellets were less than the contracted price with Drax.
Prior the decision to idle Wawa, Rentech had agreed to supply around 336 000 tonnes to Drax in 2017. None of the 2017 deliveries has been shipped and the remaining inventory of approximately 12 000 tonnes at Wawa is insufficient to fill a vessel to ship to Drax in the near-term. Further amendments to the delivery schedule under the Drax contract are expected based on the determination to idle the facility which may incur penalties. Rentech guarantees the payment obligations under the terms of the Drax contract up to a maximum amount of CA$20 million, including potential penalty payments.
Rentech also guarantees the capital lease portion of the agreement under the terms of the contract with Quebec Stevedoring Company Ltd for the exclusive use of railcar unloading services, pellet storage domes, and ship loading services at the Port of Quebec. The remaining amount due under the capital lease is about CA$13.5 million as of December 31, 2016.
The NEWP operations began scaling back production already in February 2016 in response to market conditions and produced at approximately 65 percent of capacity during 2016. NEWP expects some of the trends experienced in 2016 to continue into the first half of 2017. The business is monitoring market demand and inventory levels and will adjust production accordingly.