Rentech scrambles as challenges pile up

Rentech scrambles as challenges pile up

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Atikokan plant remains a bright spot

Rentech confirmed Thursday that it has cut production at its Atikokan plant “to levels necessary to only fulfill the delivery requirements under the OPG contract”.

Its fourth quarter financial report continues: “We continue to monitor the Atikokan facility under the new operating plan. At this time, we expect the Atikokan facility to generate cash flow in the range of break-even to slightly positive under this plan. The Atikokan facility will no longer ship wood pellets to the Port of Quebec. We will continue to explore alternatives for selling additional wood pellets produced from the Atikokan facility to increase its utilization and profitability.”

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Rentech delivered 50,000 metric tons of wood pellets to OPG in 2016.

The Atikokan operation was about the closest thing to a bright note in the company’s preliminary report on its operations during the final three months of 2016. Rentech has faced a long series of setbacks in all three of its areas of operation.

Last month, Rentech announced it was shutting down its Wawa industrial wood pellet operation due to ongoing challenges in reaching production capacity and higher than anticipated operating costs. (In short, “uncertainty around future profitability.”)

The warm winter really hurt New England Pellet (NEWP), the company’s heating pellet division. Executives called 77°F days in Boston during February a major problem. Production at the NEWP facilities has been cut back to 45% in face of the poor demand, and for the quarter both sales and gross profit were down significantly.

Rentech’s best performing asset, Fulghum Fibres, saw declines in production, gross profit, and profit margin. It also faces the prospect of losing two wood chipping mills that will impact its profitability going forward. (“A customer of Fulghum has indicated its intent to exercise its option to purchase two wood chipping mills that Fulghum operates for the customer under a processing agreement.”)

All of that has combined to leave the company facing a liquidity crisis, and it expects to report in its year end that there is “substantial doubt about our ability to continue as a going concern over the next twelve months through March, 2018”. This is a legally required statement given the company’s financial position.

Rentech is acting decisively to try to stave off that liquidity crisis. Its actions include hiring Wells Fargo to explore potential alternative futures for its Canadian wood pellet operations.

Shuttering Wawa means Rentech may face losses on its contract with Drax, the U.K. electricity generator with which it had signed a deal to provide four million metric tons of wood pellets over ten years. The terms of that contract limit Rentech’s exposure to a maximum $20 million (Canadian dollars), based on the price Drax ends up paying for wood pellets on the spot market.

Rentech made its final shipment to Drax (45,800 metric tons) in January. All told it delivered 176,800 metric tons to Drax in 2016; the contract called for 188,000 metric tons. The schedule calls for 336,000 metric tons to be delivered in 2017, but “further amendments to the delivery schedule under the Drax contract are expected based on the determination to idle the [Wawa] facility,” notes the quarterly report.

Thursday, Rentech also indicated it is on the hook for $13.5 million [US] under its capital lease for port facilities at Quebec City.

Rentech earned $6.3 million for delivering 45,300 metric tons of wood pellets during the final three months of 2016. Its industrial wood pellet operations showed a gross loss of $8.9 million for the period, compared to a $5.7 million loss in the same period a year earlier.

The company is reporting gross profit in its other divisions: $2 million from New England Wood Pellet operations, and $2.7 million from Fulghum Fibres. Both are down significantly from a year ago, however.

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