Brazil’s Votorantim Cimentos SA is taking control of the McInnis Cement plant in Quebec, a controversial project championed by Bombardier Inc.’s founding family that will likely result in hundreds of millions of dollars worth of losses for Quebec taxpayers.
The world’s sixth-biggest cement producer will buy control of the new facility in the Gaspé town of Port-Daniel-Gascons from pension fund giant Caisse de dépôt et placement du Québec and combine it with its existing St. Mary’s Cement Inc. operations in Canada, the company and the pension fund said in a joint statement Thursday. Votorantim will hold 83 per cent of the shares in the new venture while the Caisse will hold 17 per cent.
No purchase price was disclosed and no mention was made of the Bombardier family, which instigated the taxpayer-backed McInnis project years ago only to lose control of it to the Caisse when construction costs ballooned. The private transaction is a complex one and the family remains in the picture in the new ownership structure in a more subordinate role, according to people familiar with the matter. The Globe and Mail is not naming the people because they were not authorized to speak to the media.
Quebec meanwhile, is writing down the entirety of its investment in the venture to zero. The province had already taken a provision for estimated losses on McInnis in November and is now writing off the interest due on loans to the company for a total loss of $472-million. It has new paper that it received in exchange for its previous $350-million in loans and equity but might never recoup that money, Economy Minister Pierre Fitzgibbon said.
“I feel bad because Quebeckers lost $472-million in this episode,” Mr. Fitzgibbon said in an interview. “At one point, I was thinking should we get an alternative, Quebec-based ownership [group]? But frankly I thought, we all thought, that there was enough pain for Quebeckers so it was time to turn the page.”
The McInnis saga dates back to 2014, when Bombardier family patriarch Laurent Beaudoin persuaded former premier Pauline Marois’s Parti Québécois government to help finance a new, $1-billion state-of-the-art cement plant on the Gaspé's picturesque eastern coast, one of the province’s most chronically underemployed regions. What’s happened since, however, highlights the perils of using public money to back big industrial endeavours, especially those in sectors in which the province has limited experience.
For the Bombardier family, and the Quebec taxpayers and institutions that backed the venture, McInnis was a bold and ambitious gamble not unlike Bombardier Inc.’s bet on the C Series airliner. In both cases, the family was aiming to break into an exclusive club of existing players with a technologically advanced product: The Airbus-Boeing duopoly in the case of the C Series and an oligopoly including Lafarge SA and HeidelbergCement in the case of McInnis.
The C Series was eventually taken over by Airbus and is now known as the Airbus A220. McInnis, meanwhile, was taken over by the Caisse after more than $400-million in cost overruns in construction of the plant. The pension fund has always maintained that it wanted to bring in a strategic industry player to operate the facility for the long term.
“The creation of this combined entity allows us to partner with a world-class player with an established presence – and strong track record of profitability – in North America,” Caisse executive vice-president Kim Thomassin said in the statement.
McInnis is Canada’s first new cement plant in half a century, an effort to produce up to 2.2 million tonnes a year of cement – the dry powder used to make concrete for construction – employing the most modern technology available. Made using limestone mined at the site, most of the cement is shipped by sea to international markets.
Production at the plant has been under way for roughly three years but the operation still hasn’t achieved peak efficiency and output. The business model centres on a belief that the technologically advanced factory in Port Daniel will fare well against competing installations on the continent, many of which are 50 years old or more.
The Caisse took over control of the project from Beaudier Group, an investment vehicle for the Bombardier family, in 2016. The pension fund invested more money into the project at the time to get it completed and later explored options for McInnis, including a sale. Twelve parties signed confidentiality agreements and three bidders made offers for the asset in 2018, but all were judged too low, a person familiar with the process said. The Globe is not identifying the person because they were not authorized to discuss the matter publicly. Beaudier did not make anyone available to comment Thursday.
The Caisse last year lent another $150-million to McInnis and valued its investment in the company at between $300-million and $500-million at the end of 2019. The new funds were part of a broader $500-million private capital refinancing that also saw the Bombardier family provide a $50-million loan and a group of 11 banks, based in Canada and abroad, commit another $300-million to fund the growth of the cement operations.
Combining McInnis with St. Mary’s will result in a stronger operation with more production capacity and enhanced distribution at a time when demand for cement is growing, the companies said Thursday. McInnis Cement’s assets include a deep-water marine terminal next to the plant, three ships and a distribution network consisting of 10 terminals strategically located in the U.S. and Canada.
Cement making is a highly energy-intensive process, turning the Gaspé operation into a magnet for criticism from almost Day 1. McInnis confirmed in 2014 that at the height of production, the cement plant could produce the equivalent of 2 per cent of Quebec’s total greenhouse gas emissions and nearly 7 per cent of its industrial emissions.
Votorantim and the Caisse said Thursday that they would deploy initiatives at the plant “to support carbon-footprint reduction in the cement industry” without providing more details. The Brazilian company, which operates two existing cement plants in Ontario and three others in the U.S. northeast, has cut its carbon-dioxide emissions per tonne of cement by 23 per cent from 1990 to 2019, according to the statement.
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