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. The net purchase price, including assumed debt, is $112 million.
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 CEO 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.”
Rentech, Inc. 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.
