Rentech Inc. reported that its nitrogen division, Rentech Energy Midwest Corp. (REMC), had record shipments, revenue, and profits in April. For fiscal year 2009 through April, unaudited revenue and profits for REMC were $120.3 million, up from $89.1 million in the year-ago period, representing a 35 percent increase.
Much of REMC’s revenues come from a ten-year distribution agreement it has with Agrium Inc., which formerly owned the East Dubuque, Ill., nitrogen plant. For the six months ended March 31, 2009 and 2008, the agreement accounted for 84 and 82 percent, respectively, of consolidated net revenues from continuing operations. As of March 31, 2009, and Sept. 30, 2008, 78 percent and 88 percent, respectively, of the total consolidated accounts receivable balance of the company was represented by amounts due from Agrium. REMC pays commissions to Agrium not to exceed $5 million per year.
Nitrogen tonnage shipped in the second quarter was 65,000 st, down from the year-ago 103,000 st, according to Rentech. Six-month tonnage was 180,000 st, down from 274,000 st.
Due to the seasonality, the significant pre-sales of fertilizer, and strong April results, Rentech does not expect the weak second quarter results to be indicative of results for the full year. In fact, Rentech has increased its guidance for EBITDA at REMC for fiscal 2009 to $65 million from previous guidance of well in excess of $50 million. In addition to strong April sales, other positives included significant pre-sales of fertilizer products, natural gas prices below those budgeted, and nitrogen demand driven by continued strong prospects for planted corn acreage. Rentech also increased its consolidated EBITDA guidance for fiscal year 2009 to $15 million, compared to prior guidance of positive EBITDA.
Overall, Rentech reported a net loss of $16.5 million ($.10 per diluted share) for the first quarter ending March 31, 2009, on sales of $16.8 million, versus the year-ago loss of $22.8 million ($.14 per share) and $28.5 million, respectively. The company had a gross loss of $3 million during the quarter, compared to year-ago gross profit of $7.9 million.
Six-month net losses were $20.9 million ($.13 per share) on sales of $66.9 million, versus the year-ago loss of $46.2 million and sales of $76 million. Six-month gross profits were $6.6 million, versus the year-ago $18.2 million.
Rentech traditionally pumps its cash flow into its energy technology business. On May 11, it announced a plan to build a plant in Rialto, Calif., for the production of ultra-clean synthetic fuels and electric power from renewable waste biomass feedstocks. The Rialto Renewable Energy Center (Rialto Project) is designed to produce approximately 600 barrels per day of pure renewable synthetic fuels and export approximately 35 megawatts of renewable electric power that is expected to qualify under California’s Renewable Portfolio Standard (RPS) program, which requires utilities to increase the amount of electric power they sell from qualified renewable-energy resources. The plant will be capable of providing enough electricity for approximately 30,000 homes.
Rentech said RenDieselTM, the renewable synthetic diesel to be produced at the facility, meets all applicable fuels standards, is compatible with existing engines and pipelines, and burns cleanly, with emissions of particulates and other regulated pollutants significantly lower than the emissions from the combustion of CARB ultra-low sulfur diesel.
The carbon footprint of the plant is designed to be near zero, as the fuels and power would be produced only from renewable feedstocks. The low carbon footprint of RenDieselTM would help the transportation sector meet targets established by the Low Carbon Fuel Standard Executive Order 1-S-07 to reduce the carbon intensity of transportation fuels by 2020.
Rentech has entered into a licensing agreement with SilvaGas Corp. for biomass gasification technology for the Rialto facility. Between 1998 and 2001, a 400-ton-per-day plant using the SilvaGas biomass gasification technology successfully operated in Burlington, Vermont, producing synthesis gas (syngas) from wood-based biomass in a series of operating campaigns. That plant was built in partnership with the U.S. Department of Energy, Battelle Columbus Laboratory, and the National Renewable Energy Laboratory (NREL).
Rentech’s proprietary technology for the conditioning and clean-up of syngas will provide the next critical link in the technology chain after gasification. The conditioned syngas will be converted by the Rentech Process in a commercial scale reactor to finished, ultra-clean products, such as synthetic diesel and naphtha, using upgrading technologies under an alliance between Rentech and UOP, a Honeywell Company. Renewable electric power will be produced at the facility by using conventional high-efficiency gas turbine technology. The power is anticipated to be sold to local utilities under the California RPS program.
Rentech has engaged Jacobs Engineering Group Inc. to conduct the feasibility engineering phase of the project, which is expected to be completed over the next several months.
Rentech has an exclusive option on a site for the Rialto Project within the proposed Rialto Eco-Industrial Park, which is located adjacent to an existing City of Rialto Wastewater Treatment Plant and EnerTech Environmental Regional Bio-Solids Processing Facility. The location allows the proposed Rialto facility to take advantage of established infrastructure, including access to water, wastewater disposal, and zoning.
The primary feedstock for the Rialto Project will be urban woody green waste such as yard clippings, for which Rentech is currently negotiating supply agreements. The location of the project will provide local green waste haulers with a cost-effective alternative to increasingly scarce landfills for the disposal of woody green waste. The plant is designed to also use bio-solids for a portion of the feedstock, which is expected to be provided under a supply agreement with EnerTech Environmental.
Construction of the Rialto facility is expected to create approximately 250 jobs, with at least 55 permanent jobs during operation, based on the preliminary design work completed to date.
“Our technology portfolio allows us the feedstock flexibility to produce clean synthetic fuels from biomass, or to use fossil resources in the cleanest ways, supporting the spectrum of the Obama Administration’s initiatives for domestic energy production,” said Doug Miller, Rentech vice president of renewable energy. “We expect the Rialto Project to be the prototype for many waste-to-fuels projects for Rentech. These projects are being designed at smaller scale than fossil-based projects, and feedstock costs are low or negative, resulting in significant potential returns on investment.”
Despite all this news, one analyst lamented to management in the company’s earnings call that the market seems totally unimpressed by Rentech’s news over the past couple of days, and the stock continues to trade at $.67 per share. The analyst was also skeptical of the company’s March 30 announcement about the possibility of selling $100 million worth of stock, since that action could dilute current stock value.
Rentech CEO and President D. Hunt Ramsbottom responded that in light of the global economic crisis, major projects have been cancelled around the world or put on hold. “So the fact that we’re actually here and putting a project out in the marketplace, I think our shareholders should be pleased.”
A private investor, weighing in on the call, said that Rentech’s stock should be trading at $2.00 per share based on REMC’s $65 million EBITDA, especially when compared to fertilizer industry mergers that are occurring in the marketplace.
Rentech announced March 30 that it filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission to replace its existing shelf registration, which was expiring. The new registration, if declared effective by the SEC, would allow the company to sell up to $100 million of various types of securities in one or more offerings. Rentech said the use of potential future proceeds from the sale of securities could enable it to accelerate the development of the company’s planned renewable and fossil synthetic fuels facilities. However, Rentech says it has no current agreements, plans, or discussions to offer any of the shares covered under the Form S-3 for sale.
