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Delays force Rentech to borrow to finish pellet plants

A California wood pellet manufacturer, which landed a long-term supply contract to fuel the Atikokan Generating Station, said it needs to borrow money to finish off rebuilds at its two Northern Ontario mills.
Rentech-Atikokan_Cropped
Construction at Rentech’s Atikokan site.

A California wood pellet manufacturer, which landed a long-term supply contract to fuel the Atikokan Generating Station, said it needs to borrow money to finish off rebuilds at its two Northern Ontario mills.

Rentech said the cost to acquire and construct pellet plants in Atikokan and Wawa was higher than anticipated and they’re citing delays in construction and high labour costs to install equipment.

The Los Angeles-based company announced Feb. 17 that its capital partner has increased its credit facility up to $63 million. Most of the funds are earmarked for plant completion, which is estimated to be $125 million to $130 million, up from $105 million.

A company release said the Atikokan pellet mill is currently in the commissioning phase as the plant produces and sells pellets to Ontario Power Generation (OPG).

Rentech landed a 10-year contract to supply the generating station with 45,000 tonnes of pellets a year. The company began producing pellets for OPG last May.

Rentech expects its Atikokan mill to be operating at full capacity in six to 12 months.

“We appreciate the support GSO Capital Partners continues to provide us, this time in the form of additional term loans,” said Rentech president-CEO Keith Forman in a statement. “The task at hand remains clear: to complete the construction and commissioning of, and to place into service, our new pellet facilities in Canada.”

One tranche of the term loan allows Rentech to borrow up to $45 million to fund construction, working capital and to other costs in the commissioning of the two mills “until they generate positive cash flow,” which is not expected this year.

Forman said the company is placing an emphasis on “cost containment” over the next year to “preserve profitability for our investors.”

OPG spokesman Neal Kelly said the utility has no concerns about Rentech’s ability to deliver fuel on schedule.

“They’re meeting their contractual obligations with OPG and we’re satisfied. They’ve delivered what we’ve needed.”

The Atikokan Generating Station, a former coal burning plant, underwent $170-million refurbishment and began burning wood pellets late last summer. Rentech and Resolute Forest Products were awarded the contracts to each supply the power plant with 45,000 tonnes of pellets annually.

In May 2013, Rentech announced it had acquired the shuttered Weyerhaeuser oriented strandboard mill near Wawa and former Atikokan Renewable Fuels. But plant commissioning at both sites has taken longer than expected.

The Atikokan plant serves OPG while the Wawa operation will export pellets to Europe through the Port of Quebec City. The company reached a 10-year agreement to supply 400,000 tonnes of pellets annually to Drax Group, a United Kingdom electricity power.