Rentech, Inc. is quickly emerging as a growing, diversified supplier of wood chips, wood pellets and nitrogen fertilizers. The Company also owns patented technologies for synthetic fuels and power production that can be licensed by third-parties.
Wood Fibre Processing
The new Rentech has secured the critical foundation of a multi-pronged strategic vision of becoming one of the largest wood processing companies in the world. In May 2013, Rentech acquired Fulghum Fibres, a leader in fibre processing services for wood chips production, with 24 years of operating experience and a portfolio of established customers under long-term contracts.
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.
Rentech orchestrated an impressive and strong entry into the wood pellet industry with long-term contracts with Drax Power Limited and Ontario Power Secured contracts for the delivery of over 4 million tonnes of wood pellets over 10 years using sustainably managed Crown fibre in Eastern Canada. Additionally, Rentech secured the logistical supply chain for the delivery of the pellets under long-term contracts. We are converting two fibre mills in Eastern Canada for pellet production, with the first delivery anticipated for the first half of 2014.
We believe our investment in the wood fibre industry will create value for our shareholders because of the following key attributes of the sector:
- Stability of cash flows
- Long-term customer, supply, and logistics contracts
- Diversification of products and markets
- Commercially available technologies
- Global and growing markets
- Capital requirements to execute on the strategy are within Rentech's anticipated resources
- Leverages Rentech's expertise and resources
- Income qualifies for a Master Limited Partnership (MLP) structure
We intend to grow our wood chip and wood pellet business with the goal of becoming one of the largest wood processing companies in the world.
We formed Rentech Nitrogen Partners, L.P. to own, operate and expand our nitrogen fertilizer business. We own the general partner and approximately 60% of the common units representing limited partner interests in Rentech Nitrogen, which trades on the NYSE under the ticker symbol “RNF.” Based on our current ownership interest in Rentech Nitrogen, we are entitled to approximately 60% of Rentech Nitrogen's cash distributions to unit holders.
Rentech Nitrogen's assets consist of two fertilizer production facilities. Rentech Nitrogen's East Dubuque Facility is located in the northwestern corner of Illinois, and uses natural gas as a feedstock to produce primarily anhydrous ammonia and urea ammonium nitrate solution for sale to customers in the Mid Corn Belt. Rentech Nitrogen's Pasadena Facility is located in Pasadena, Texas along the Houston Ship Channel. Rentech Nitrogen is the largest producer of synthetic granulated ammonium sulfate fertilizer in North America, with sales in the United States and South America. The facility uses ammonia and sulfur as its primary feedstocks.
Given Rentech Nitrogen's structure as a master limited partnership, we are focused on increasing cash available for distribution. Three growth projects are underway at Rentech Nitrogen's facilities, which are expected to be accretive to per unit cash distributions in the beginning of 2014 or sooner. A fourth growth project is also underway to produce approximately 15 megawatts of power from waste steam at the Pasadena Facility, to reduce the facility's electricity expenses and to create an additional revenue stream by exporting the remaining power for sale in the deregulated Texas power market. This project is anticipated to begin contributing to cash distributions upon completion in the fall of 2014. Beyond these growth projects, Rentech Nitrogen has an M&A team working on a prioritized list of opportunities to further enhance the Partnership's growth prospects.
On March 5, 2014, Rentech announced that it has entered into a definitive agreement with Sunshine Kaidi New Energy Group Co., Ltd. to sell its alternative energy technologies and decommissioned Product Demonstration Unit. The sale of the technologies is expected to close in mid-2014. Closing of the transaction is subject to customary conditions, including regulatory approvals in the United States and the People’s Republic of China. (More Details)
Fulghum Fibres provides immediate and steady cash flow and 24 years of fibre processing expertise that we can leverage for successful execution in the wood pellet industry. The wood pellet industry is a growth sector with long-term contracts that should provide stable margins and attractive returns on project investments. With the fibre supply from Crown forests, customer contracts, processing expertise, and logistics in place, we believe we are positioned to execute on our objective to be a leader in the growing global market for wood pellet production.
These pellet facilities are structured around sustainably managed fibre supplies and long term off-take contracts. Additionally, Fulghum Fibres' chip processing is primarily a fee-based service, so these new businesses are not significantly exposed to fluctuations in commodity prices. 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.