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Rentech puts new project ahead of East Dubuque; stable gas prices, high nitrogen prices cited

Featured, News, Nitrogen

Rentech, Inc. said Dec. 4 that it will build its first commercial synthetic fuels plant utilizing the Rentech Process at the site of its proposed Strategic Fuels and Chemicals Complex in Adams County, Mississippi, near the city of Natchez, rather than at its existing fertilizer plant in East Dubuque, Illinois.

Rentech purchased Rentech Energy Midwest Corp., a nitrogen fertilizer facility in East Dubuque, Ill., in April 2006, with plans to improve the economics of the facility by converting the feedstock from natural gas to coal using gasification technology and then using the excess capacity in those gasifiers to run a commercial-scale Rentech reactor.

Rentech explained that the shift away from East Dubuque to Natchez was driven by several factors, including: the uncertainty surrounding proposed greenhouse gas legislation, which could increase operating costs at REMC post-conversion; strong pricing and demand for fertilizer products at REMC; and recent changes in the relative economics for coal gasification versus natural gas feedstock at REMC as a result of stabilized natural gas prices and rising construction costs.

Rentech said the move to Natchez will enable the company to build and operate a full commercial-scale reactor at a lower overall capital cost than the proposed REMC conversion, to lower emissions of carbon dioxide through carbon capture and sequestration, and to achieve design, cost, and efficiency improvements in the overall Natchez project.

The Natchez facility, which will help meet the nation’s growing need for clean-burning, alternative transportation fuels, will now be built in two phases. The company is targeting to complete Phase 1, the production of 1,600 barrels per day, in 2011 or earlier. The company’s preliminary estimate is that Phase 1 will cost less than half the expense of the previously announced plan to convert the REMC facility. Rentech is targeting to produce an additional 28,000 barrels per day during Phase 2 of the Natchez project.

“We are pleased that we have an alternative site which, under current market and public policy conditions, is ideally suited for the commercial scale up of the Rentech Process,” said D. Hunt Ramsbottom, Rentech president and CEO. “By redirecting our initial production efforts to our Natchez facility, we can preserve the enhanced value of REMC resulting from the dramatically improved market conditions for the products produced there, lower our capital costs and reduce our carbon footprint.”

Using the patented Rentech Process, Natchez Phase 1 will be designed to use coal or petroleum coke together with at least 5 percent (as measured by energy content) of biomass as the gasification feedstock. In addition, the captured carbon dioxide that will be produced at this facility is designated to be sold under an existing long-term agreement with Denbury Resources for enhanced oil recovery in the region. With the carbon capture and sequestration plan as well as a biomass blend, the carbon dioxide emissions from the production of fuels at Natchez Phase 1 are expected to be substantially lower than those generated in the production of petroleum-derived fuels. The company believes the fuels produced at this facility will be among the most greenhouse gas friendly fuels available in the country.

The final production mix at Natchez is still to be determined, with jet fuel, diesel, and chemicals all being considered.

Rentech will continue to pursue its permitting efforts at REMC. Receipt of the permits is one of the factors that will enable the company to move forward with the REMC conversion in the event that market and public policy factors change, such as construction of the Midwestern Governors Association’s proposed carbon dioxide pipeline. Ramsbottom told analysts that another positive for Natchez over East Dubuque was that at Natchez, Rentech has a ready buyer – Denbury – for the carbon dioxide.

Rentech also plans to continue pursuing grants from the federal government and state of Illinois for a proposed biomass energy technology center at REMC. The proposed center would focus on the development and production of advanced bio-fuels and/or bio-fertilizer, and is expected to include the installation of biomass gasification technologies at the REMC site.

“We are looking forward to continuing to work with the State of Illinois, including the Department of Commerce and Economic Opportunity, Jo Daviess County, and the Food for the Future Coalition to maintain and improve REMC, which is a significant asset for East Dubuque and the surrounding agricultural community,” said John Diesch, REMC president.

As a result of the shift to the Natchez site, Rentech expects to incur a non-cash charge of approximately $30 million, which is net of payments received from third parties of approximately $10 million, in the fourth quarter of fiscal year 2007 related to costs of the REMC conversion through fiscal year 2007. Rentech also expects to incur additional costs related to the REMC conversion of approximately $8 million in the first quarter of fiscal year.

In the meantime, Ramsbottom told analysts there is nothing new to report on the company’s response to an offer by Sherwood Investments Overseas Ltd. to buy Rentech (GM Nov. 26, p. 1). Ramsbottom said he regarded Sherwood’s letter to the company as more of an offer to make an offer than an actual offer.

During the audio conference, Sherwood’s Julian Benscher asked Ramsbottom if the company would consider monetizing REMC in order to finance Phase 1 of Natchez. Ramsbottom said the company has no immediate plans to do so, and that it is enjoying the cash flow from REMC.

Simplot decision delayed due to selenium concerns

News

The Bureau of Land Management, along with the Forest Service, probably won’t be getting around to issuing a final decision on J.R. Simplot Co.’s Smoky Hollow phosphate mine expansion until February because the comment period has been extended until Dec. 26 on the final environmental impact statement.

BLM officials told Green Markets the 30-day extension wasn’t entirely because of concerns expressed by Gov. Dave Freudenthal of Wyoming about the impact of selenium contamination on residents of his state living just over the Idaho border from the mine location. “His letter was just part of it,” explained BLM Project Manager Bill Stout, who noted that it is agency policy not to issue the final decision for at least 30 days after release of the FEIS. “We’ve received numerous letters. I can’t say exactly how many, but we got a lot.” He added that with all the additional comments to consider it will probably be February before a record of decision is announced.

Freudenthal wrote to BLM District Manager Joe Kraayenbrink that while the Simplot mine is located in Idaho, the people who live in the Afton-Star Valley area are directly affected. “I have received requests expressing concerns over selenium contamination and asking that people be given an extra 75 days to submit comments on the final environmental impact statement before the record of decision is released,” he added. “The mine is already an identified CERCLA Superfund cleanup site. Any mining development approved for the Smoky Canyon mine needs to comply with the water quality standards administered by the Wyoming Department of Environmental Quality. Therefore to provide adequate opportunity for review of the FEIS I respectfully request that the public comment period be extended for an additional 75 days beyond the minimum 30 days required for public comment.”

The BLM’s Kraayenbrink told the local press an extension of 30 days to Dec. 26 was granted about a week after Freudenthal’s letter, which Kraayenbrink said was one of many asking for an extension on what is called the “availability period” of the final environmental impact statement. “What we’d be looking for is significant new information that has not been looked at before,” he said.

Freudenthal spokeswoman Cara Eastwood said of the governor’s letter, “I think that the sense was that it was a complicated enough situation that merited a little bit more time for our Department of Environmental Quality to fully review all the documents.” Simplot reportedly has invited Freudenthal to the site to allay his concerns about selenium leaching out of waste rock from the mine, but no date for a visit has been set.

In the meantime, BLM officials believe they have solved another problem involving a haul road Simplot needs to expand the mine. Stout said the agency’s first choice for environmental reasons isn’t available because the route crosses private property and the owner has refused the company’s $2.1 million offer. Instead, BLM plans to settle on an alternate route after Simplot chose not to invoke a 111-year old constitutional right to condemn property to access mining claims. “We’re not allowing Simplot to construct the road there unless they can reach a mutually agreeable deal with the property owner,” Stout reported.

Coffeyville nitrogen results up despite flood

News, Nitrogen

CVR Energy Inc.’s nitrogen fertilizer operating income was $13.8 million on sales of $40.8 million for the third quarter ending Sept. 30, 2007, compared to a year-ago loss of $3 million on sales of $32.5 million. CVR’s nitrogen unit is Coffeyville Resources Nitrogen Fertilizers. The results were up despite a flood June 30 that took the nitrogen plant down for 18 days. Higher nitrogen prices offset a slight decrease in volumes. Third-quarter ammonia prices were up 28 percent, while UAN was up 66 percent.

Nine-month nitrogen operating income was $34.9 million on sales of $115.1 million, compared to the year-ago $34.1 million and $128.2 million, respectively.

CVR-wide third-quarter net income was $13.4 million on sales of $586.0 million, versus the year-ago $129 million and $778.6 million.

Adjusted for the unrealized gain from the company’s cash flow swap, CVR reported a net loss for the quarter of $40.8 million, versus the year-ago $21.7 million.

CVR reported a net loss of $40.9 million for the first nine months on sales of $1.82 billion, versus the year-ago net income of $170.8 million and sales of $2.33 billion. Nine-month adjusted net income was $18.2 million, versus the year-ago $122.5 million. The current nine month reflects the flood, as well as several months in the spring when the refinery was shut down for a turnaround or periodic maintenance. It also reflects a $251.9 million in derivative losses.

“Our refinery and nitrogen fertilizer facilities in Coffeyville, Kan., recovered rapidly from the devastating floods which swept across the area beginning June 30, and in fact, our refinery is now operating significantly above pre-flood rates,” said Jack Lipinski, CVR CEO. “In addition, the nitrogen fertilizer plant, which was less affected by the flood and therefore lost only 18 days of production, continues to perform well. It is the lowest-cost nitrogen fertilizer producer in North America.”

CVR told analysts that it expects total expenditures for the 2007 flood to be over $130 million, with that amount posted through the end of September. To date, the company has received $20 million from insurers and has not filed its final claim.

Lipinski said CVR will continue to evaluate its options about a possible fertilizer initial public offering. He said there is no timetable for such, but that it is clearly on everyone’s agenda. On Oct. 26, 2007, CVR consummated its own IPO of 23 million shares of its common stock. The IPO price was $19.00. The net proceeds to CVR from the sale were $408.5 million before offering costs of approximately $11.4 million. The net proceeds were used to repay $380 million of debt, including $50 million of outstanding indebtedness under CVR’s revolving credit facility.

Lipinski noted that Moody’s on Dec. 5 upgraded the company’s ratings to stable. They had been downgraded previously due to the flood.

Going into the fourth quarter, CVR confirmed that its UAN plant was down for two weeks in early October for an unscheduled repair.

CVR Chief Operating Officer Stan Reimann expects a very good fertilizer year in 2008, with sizeable corn acreage. He said UAN prices for the first quarter are in the $260s/st FOB, with $275-$280/st FOB for the second quarter. He put first quarter ammonia at $350-$400/st FOB and said spring prepay was sold at $450-$500/st FOB.

CVR is involved in engineering and scoping studies to double its UAN production to 1 million st. This could be up and running by the end of 2009. Lipinski added that ammonia production should go up as new hydrogen capacity has been added at the refinery, so hydrogen will not have to be pulled away from ammonia production.

3Q-06 3Q-07 YTD-06 YTD-07
Production (000 st)
Ammonia 78.3 75.9 283.9 244.9
UAN 136.7 128.0 465.0 432.6
Total 215.0 203.9 748.9 677.5
Sales (000 st)
Ammonia 30.6 24.7 96.8 58.8
UAN 138.4 120.6 477.7 414.2
Total 169.0 145.3 574.5 473.0
Plant gate $/st
Ammonia 283 363 346 358
UAN 141 234 169 203

Manitoba banning detergent phos, eyes fertilizer

Canada, News

Manitoba is on track to become the first province in Canada to ban phosphorus in all household automatic dishwasher detergents, and officials say similar restrictions are in store for lawn and garden fertilizer. Legislation was introduced Nov. 29 which Water Stewardship Minister Christine Melnick described as a key part of a package of water-protection measures designed to stem the flow of excess nutrients into provincial waterways.

Melnick also said in coming weeks regulatory changes will be introduced to limit application of cosmetic lawn and garden fertilizers containing phosphorus in residential areas, as well as in provincial parks.

The Canadian Consumer Specialty Products Association (CCSPA), an industry organization whose member companies produce 86 percent of all household automatic dishwasher detergent sold in Canada, has worked in close cooperation with the province to ensure Manitoba consumers will be able to purchase familiar brands of automatic household dishwasher detergents at competitive prices. Although Manitoba is moving forward now, the minister said a national strategy remains the best approach to reduce phosphorus in household cleaning products because watersheds such as Lake Winnipeg cross multiple provincial boundaries. Manitoba pledged to take action in the absence of a commitment from Ottawa to introduce a nationwide approach.

The proposed Phosphorus Reduction Act would restrict phosphorus content in household automatic dishwashing detergents sold in Manitoba to no more than 0.5 per cent, effective July 2010. The timing of the effective date coincides with voluntary guidelines being brought in by industry and several jurisdictions in the United States that plan to enact or have proposed similar legislation. The minister noted the legislation includes clauses that would enable the province to restrict the sale of additional cleaning products, personal-care products, and chemical water conditioners containing phosphorus by bringing forward regulations.

At the same time, Agriculture Minister Gerry Ritz announced that more than 5,000 farmers across Manitoba have completed environmental farm plans (EFPs) designed to help protect the environment. Ritz explained that by taking part in this program producers identify environmental risks in their farming operations and access financial and technical assistance to mitigate those risks through beneficial management practices. BMPs include improvements in manure storage and handling applications, nutrient management planning, improved cropping systems, and product waste management. The 5,000 completed EFPs represent over 8 million acres, nearly 50 per cent of all agricultural land in Manitoba.

PotashCorp acquisition speculation heats up

News Briefs, Saskatchewan

Saskatoon-Speculation has been heating up that Potash Corp. of Saskatchewan Inc. may be a takeover target. Such has been mentioned before; however, two recent suggestions, one by Canada’s Financial Post and another by a financial analyst, have returned the speculation to the front burner. A PotashCorp spokesman last week said the company does not respond to rumors or speculation. While one of its competitors might try and acquire PotashCorp, others suggest that mining giants BHP Billiton or Rio Tinto, both looking to get into the potash market, might find an easier entrance by buying PotashCorp than going to the trouble of starting their own greenfield projects.

Athabasca Potash announces IPO

News Briefs, Saskatchewan

Saskatoon-Athabasca Potash Inc. announced Dec. 6 that it has entered into an underwriting agreement and has filed its final prospectus with the securities regulatory authorities in each of the provinces and territories of Canada, other than Quebec, in connection with an initial public offering of 10,140,000 common shares of Athabasca at a price of C$4.25 per share, for gross proceeds of C$43,095,000. Closing is scheduled to take place on Dec. 13, 2007. In addition, Athabasca has granted to the underwriters an option to purchase up to an additional 1,521,000 common shares on the same terms as set out above to cover over-allotments, if any, and for market stabilization purposes. Athabasca says it is a company actively engaged in the exploration of potash projects in Saskatchewan. Its objectives are to establish itself as the pre-eminent Canadian public company engaged solely in potash exploration and development, and to provide its shareholders with a unique investment opportunity focused entirely on potash. Athabasca is actively exploring its wholly-owned Burr Project and recently completed a 2D seismic survey of the project, as well as five new exploration drill holes. Following completion of its IPO, Athabasca will proceed with further seismic surveys, drilling, a scoping study, and, if results warrant, a preliminary feasibility study to assess the viability of underground potash mining on the Burr Project. Athabasca also plans to conduct exploration programs over some of the ten exploration permits it holds in Saskatchewan in addition to the Burr Project. The directors of Athabasca are Kenneth MacNeill, Dawn Zhou, Gary Billingsley, James Gardiner, Dr. Edward Schiller, and John King Burns. Dawn Zhou is the president and CEO, and Billingsley is CFO. Genuity Capital Markets and National Bank Financial Inc. are co-lead underwriters for the offering. The other members of the syndicate are TD Securities Inc., Wellington West Capital Markets Inc., and Research Capital Corp. Athabasca has received conditional approval for the listing of its common shares on the Toronto Stock Exchange under the symbol API. Listing is subject to Athabasca fulfilling all of the requirements of the TSE on or before March 4, 2008, including distribution of the common shares to a minimum number of public shareholders.

CHS expects to pay record $388 M patronage

News Briefs, Northern Plains

St. Paul-Based on 2007 results, CHS Inc. expects to return a record $388 million to eligible owners in 2008, including patronage and equity redemptions, up from $253 million returned in 2007 based on fiscal 2006 earnings. This marks the fourth consecutive record cash return for the company. Earlier, CHS reported record fiscal 2007 results, with net income of $750.3 million on revenues of $17.2 billion – the fourth consecutive record year for both financial benchmarks (GM Dec. 3, p. 11).

Landmark named ARA Retailer of the Year

News Briefs

Washington-The Agricultural Retailers Association said Nov. 30 that Landmark Services Cooperative of South Central Wisconsin, managed by Jim Shelton, is the recipient of the 2007 ARA Retailer of the Year Award. This award is sponsored by ARA and Monsanto, and is a recognized symbol of quality and prestige ?Çô the emblem of the very best in the industry. The award was given during the ARA Annual Conference & Exposition, Dec. 5 in Las Vegas. “Landmark has a reputation for consistently outperforming their competitors, while exceeding their customers’ expectations, and is viewed as the premier agricultural dealership in the Midwest,” said Bob Willard, chairman of the ARA board, and president of Willard Agri-Service. Landmark Services’ ancestor company, Farmers Union Co-op, opened in 1933 so that farmers in Dane County could pool their money and get discounted rates on fuel.

Yara Praxair JV established

News Briefs

Oslo-Yara International ASA and Praxair Inc have established the joint venture Yara Praxair. The agreement will result in a one-time net income for Yara of more than NOK 700 million, which will be booked in the fourth quarter 2007. The European Commission has cleared Praxair’s acquisition of a 50 percent stake in Yara’s industrial gases business. The final agreement for the 50-50 joint venture was completed Nov. 30, 2007. The intention of the JV is to jointly develop growth opportunities in the industrial gases sector in Scandinavia.

Tessenderlo Kerley acquires Terbacil assets

News Briefs, Southwest

Phoenix-Tessenderlo Kerley Inc. (TKI) announced Dec. 6 the purchase of the Terbacil crop protection assets from DuPont Crop Protection, Wilmington, Delaware. Financial terms of the agreement were not disclosed. Terbacil herbicide is marketed globally under the Sinbar® trademark. In Japan, terbacil is also sold in a mixture with diuron under the Zobar® trademark. TKI will acquire the rights to the Sinbar and Zobar trade names, a license to the technology required to make terbacil, and the worldwide registrations and data packages for the products. Sinbar and Zobar herbicides are used primarily in niche markets, including mint, fruit, alfalfa, and non-crop applications. These products are currently registered in 11 countries. Jordan Burns, CEO of TKI, stated, “TKI is committed to expanding the current crop protection range of our company. We intend to continue building our NovaSource Crop Protection Group with the addition of other strategic products as they become available.” The development and marketing responsibility for these products will be undertaken by NovaSource (www.novasource.com), TKI’s business unit, charged with developing and marketing registered pesticides for niche crop protection and specialty markets. According to David Cassidy, Group Vice-President, “the acquisition of Sinbar and Zobar herbicides is another step in the planned expansion of the company’s niche crop protection product portfolio. Sinbar and Zobar are the second targeted acquisition and we believe are destined to become an even more important part of growers’ crop protection programs.”