Press release from Marketwire
Canexus Reaches TCP Design Capacity and Provides Outlook for 2011
Thursday, December 16, 2010
CALGARY, ALBERTA--(Marketwire - Dec. 16, 2010) - Canexus Income Fund (TSX:CUS.UN) ("Canexus" or the "Fund") today announced its financial, operations and market outlook for 2011. Unless otherwise noted, the Fund is reporting the 100 percent results of Canexus Limited Partnership ("Canexus LP") of which the Fund indirectly owns 36.8%.
"Canexus LP is positioned to achieve solid financial and operational performance in 2011, having successfully completed six growth projects in 2010, the most significant of which was the technology conversion project (TCP) at our North Vancouver chlor-alkali facility. Following a six-day shutdown in early November to complete minor debottleneck modifications, the facility operated reliably at design capacity of 623 MECU (metric electrochemical unit) /day. We are confident in our ability to run at high rates going forward. The expected benefits of TCP are being realized with improved electricity efficiency, manpower reductions and the elimination of natural gas consumption. With the slower chlorine demand winter months upon us, we expect to manage production to average 515 MECU/day in December (in November with the shutdown we averaged 368 MECU/day). Our payout ratio for 2010 is expected to be between 90 and 95 percent (inclusive of previously announced realized currency gains and the hydrogen settlement in Brazil), the favorable end of our guidance range," said Gary Kubera, President and CEO.
"Our payout ratio for 2011 is expected to be in the 85-90% range, which reflects only modest increases in chlor-alkali plant realized netbacks compared to 2010 (the low point in the current economic cycle for chlor-alkali) due to the current pace of economic recovery, a stronger Canadian dollar (expected to average US$0.97), higher maintenance costs ($20.1 million of maintenance capital in 2011 as compared to $14.0 to $15.0 million expected in 2010) and estimated incremental funding costs of our defined benefit pension plan ($3.0 million). We expect to incur higher maintenance costs at two of our largest plants (Brandon and Brazil) in 2011 and 2012 to recoat electrolytic cells, which is required about every seven-to-eight years. Maintenance costs are expected to return to 2010 levels in 2013. We expect our payout ratio to improve to about 70 percent in 2012 with gradual expected improvement in pricing and slightly higher volumes in North America," Mr. Kubera added.
As previously announced, Canexus expects to seek unitholder approval at its May 2011 Annual Unitholder Meeting to convert to a corporation in 2011. No change is expected in the amount of our distribution of $0.5472 per unit annually. At September 30, 2010, Canexus LP had $426 million of major tax pools to shelter future taxable income in Canada. Distributions paid to unitholders in 2011 prior to converting to a corporation are expected to be a return of capital.
Global pulp markets remain strong. Looking ahead, no further pulp capacity re-starts are anticipated for North America and there are no significant new capacity projects underway which will bring immediate supply to the market before 2012/2013. Global demand for pulp is expected to grow consistent with a modest global economic recovery. As a result, the global market for pulp will stay strong through 2012, providing a backdrop for stable North American pulp production and improving prices for sodium chlorate during this period. Our North American sodium chlorate plants are expected to operate at capacity in 2011. The project to upgrade the power line capacity at our low-cost Brandon plant is expected to be completed in the first half of 2012, setting the stage for additional expansion opportunities at this facility.
North American chlor-alkali industry fundamentals improved over the course of 2010, with economic improvement in chlorine and caustic soda end-use markets. Chlorine derivative exports from the US Gulf Coast increased significantly in 2010 assisted by a weak US dollar and low natural gas prices resulting in favorable industry operating rates which are expected to continue. Moderate natural gas prices in North America favorably position North American chlorine chain petrochemicals for export to Asia in comparison to naphtha-based production in Asia for the near to mid term. MECU netback prices troughed in Q2 2010 and consistent with historical price behavior have been rising since. Forward market dynamics support further price improvement in 2011.
In South America, demand for Brazilian pulp has been strong over the past year and is expected to remain robust into 2011. Consistent with the strong pulp market in Brazil, our recently expanded sodium chlorate plant is operating at full capacity which is projected to continue through 2011. With our new hydrochloric acid (HCL) burner in operation, increased hydrochloric acid sales are leading to optimization of chlorine and derivative sales and maintenance of high chlor-alkali capacity utilization for the foreseeable future.
Canexus LP continues to expand its capabilities at its North American Terminal Operations (NATO) unit at Bruderheim, Alberta, which is now served by both CN and CP rails. A $2.0 million project to construct renewable fuels transloading infrastructure is underway in support of a recently awarded contract that commences in Q2 2011. This coincides with new federal and provincial regulations requiring a renewable component in all transportation fuels. In addition, mechanical integrity re-verification of our two 650,000 barrel salt caverns at the site will be completed in Q1 2011 in support of the potential large scale development of the site to service the oilsands region.
Canexus LP continues its plan to sell more of its chlorine in North America in derivative form. With our new HCL acid burner running at high rates, further acid expansion will be evaluated with a long-term goal of selling 50 percent of chlorine capacity as acid. We are also looking at other chlorine derivatives for possible production at North Vancouver. One being evaluated is calcium chloride, which is currently in short supply. With its regional low-cost position, North Vancouver is ideally situated to serve the western continental need for this product. Additionally, we have identified several other projects for calcium chloride production that could position us as a meaningful supplier to this market.
2011 Annual Operating Plan
The following points summarize the underlying assumptions for the Canexus 2011 annual operating plan:
Sodium chlorate sales volumes in North America for 2011 should be close to capacity of 367,000 MT's; realized netbacks to the plants are expected to increase by an average of seven to eight percent over 2010 levels assuming an exchange rate of US$0.97
Chlor-alkali MECU realized netbacks in North America for 2011 should trend upward from 2010 levels by four to five percent after bottoming in Q2 2010; production (202,000 MECU's) and sales volumes are expected to increase significantly from 2010 levels with the successful completion of TCP and cash manufacturing costs should drop by about $140/MECU over 2010 levels
Brazil performance in 2011 is expected to be very stable with our plants expected to operate at or close to capacity; operating cash flow is expected to improve by about 10 percent over 2010 levels, with the impact of a stronger Canadian dollar on our fixed US dollar margin contract with our major customer being offset by contributions from our 2010 completed growth projects
Our capital expenditure program in 2011 is expected to include:
$20.1 million to be spent on maintenance capital (including $6.7 million on our electrolytic cell recoating programs at Brandon and in Brazil)
$20.6 million on expansion/growth projects (Brandon power line upgrade and debottleneck; North Vancouver – rail yard expansion, acid growth, etc.; and NATO renewable fuels transloading and salt cavern mechanical integrity re-verification)
$2.7 million on high-return continuous improvement projects
Our 2011 annual operating plan and capital expenditure program will be financed from cash on hand, excess distributable cash, DRIP proceeds and our committed credit facilities. We expect our leverage (Debt- to-EBITDA ratio) to fall below 3.0 by the end of 2011.
This news release refers to EBITDA, operating cash flow, payout ratio and distributable cash to assist in measuring the Fund's financial performance. Readers are cautioned that these measures are non-GAAP measures and should not be construed as alternatives to net income or loss or other comparable measures determined in accordance with GAAP as an indicator of the Fund's performance or as a measure of the Fund's liquidity and cash flow. The Fund's method of calculating non-GAAP measures may differ from the methods used by other issuers and accordingly, the Fund's non-GAAP measures are unlikely to be comparable to similarly titled measures used by other issuers.
This news release contains forward-looking statements and information relating to expected future events and financial and operating results of the Fund, Canexus LP and its subsidiaries, including with respect to the levels of sodium chlorate prices or chlor-alkali prices, expected volumes of sodium chlorate or of chlor-alkali products, expected currency exchange rates, the Fund's expected payout ratio, global pulp demand and capacity, expectations for MECU netbacks, expectations regarding North Vancouver and Brazil facility operations, the amount, timing and allocation of capital expenditures, operating cash flow, timing and results of integrity re-verification of salt caverns at NATO, chlorine derivative production and sales from North Vancouver and expectations for the timing of conversion to a corporation and its impact on cash distributions. The use of the words "expects", "anticipates", "continue", "estimates", "projects", "should", "believe", "plans", "intends", "may", "will" or similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those anticipated in such forward-looking statements for a variety of reasons, including market and general economic conditions, future costs, treatment under governmental regulatory, tax and environmental regimes and the other risks and uncertainties detailed under "Risk Factors" in the Fund's Annual Information Form filed on the Fund's SEDAR profile at www.sedar.com. Management believes the expectations reflected in these forward-looking statements are currently reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. Due to the potential impact of these factors, the Fund and Canexus LP disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable law. Financial outlook information contained in this press release about prospective results of operations, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on management's assessment of the relevant information currently available. Such financial outlook information should not be used for purposes other than those for which it is disclosed herein.
Canexus produces sodium chlorate and chlor-alkali products largely for the pulp and paper and water treatment industries. Our four plants in Canada and one in South America are reliable, low-cost, strategically-located facilities that capitalize on competitive electricity costs and transportation infrastructure to minimize production and delivery costs. Canexus also provides fee-for-service hydrocarbon transloading services to the oil and gas industry from its terminal at Bruderheim, Alberta. Canexus targets opportunities to maximize unitholder returns and delivers high-quality products to its customers. Canexus trust units (CUS.UN) and convertible debentures (Series I – CUS.DB; Series III – CUS.DB.A) trade on the Toronto Stock Exchange. More information about Canexus is available at www.canexus.ca.
FOR FURTHER INFORMATION PLEASE CONTACT:
Gary Kubera Canexus Limited President and CEO (403) 571-7300
Richard McLellan Canexus Limited CFO (403) 571-7300 www.canexus.ca