RE:Transcript - Canexus - 2015 Whistler Conferenceocean; Thanks’ for the link to the Presentation.
After listening to ALL of it although Canexus clearly has major challenges ahead the situation is NOT nearly as dire as some would like us to believe.
Kherson as usual posts “statements out of context” and or “semi facts” to create negativity. Traditional “Basher” tactics.
On another note. Although I didn’t hear any “earthshattering” new revelations in my opinion a link to this Presentation should have been posted on the Canexus website!
As Always; Due Your Own Due Diligence; It’s Your Money !! ocean112 wrote: You can make your own judgement calls on this. I walked away feeling much more optimistic than before (Kherson apparently didn't). Do your own assessment. My takeaways:
- The CEO is focussed on fixing the ship - so this "bottom" we're at in share price is not expected to be here as a long term norm but is the result of past blunders that is being cleaned up.
- The potential EBITDA contribution for NATO is $78M if phase 4 is added and 14 unit train capacity is acheived. Current potential at 10.5 trains is $50M EBITDA. That is significnat EBITDA contribution in my opinion of a phase 4 - I would almost hope NATO does NOT sell so they can maximize the value over the long term.
- They were not aggressive in securing contracts because E&Ps were the likely buyers - who wanted spare capacity. That has changed whereby midstreams are the likely buyer and they want 100% capacity. They are not seeing any issue getting to 10.5 unit trains. (CEO is confident to get to 10.5 unit train capacity)
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Chemicals Business
Talking about our markets – about 75% of our products go into the pulp and paper industry and we’re certainly encouraged what we’ve heard over the course of the last day or so and hopefully we’ll be hearing over the next day and a half and that is things are very solid, very stable, in the North American Pulp and Paper Industry. Global demand is expected to grow at a compound rate of 2% per year and this is really being driven by the Chinese and is really a result of the increase in income and greater to hygiene. The North American Market is expected to be stable and some may suggest there may be a modest decline. Within our marketing approach to this we like to focus on the key growth areas in Pulp and Paper. That’s the packaging and tissue segments. We will survey the market for acquisition opportunities that fit strategically in addition to strategic fit – we will look for areas for accretive growth…..while change does take time – I am extremely optimistic of the opportunities to create value.
With oil being cut in half – how has that changed the dynamic of the process of the NATO sale.
When we started the process, oil was let’s call it $100 a barrel, it’s now at about $47 or $48, it’s obviously had a significant impact on the industry. What we have seen, particularly announcements in Calgary over the course of the last few weeks, significant announcements by E&P companies with respect to massive cutbacks and capital programs and also significant reductions in in expenses. This has lessened the number of interested E&P companies in the opportunity – but I will say as we push forward with the NATO divestment process, we do have ongoing discussions or negotiations with a number of parties and one of those parties is in fact an E&P organization. And the midstream players there continues to be interest amongst them.
NATO – Is there hope of return on investment?
I would like to say we will be able to recuperate our investment but that’s a pretty significant number. The value of this business is not going to be what we spent, but what the prospective buyer thinks they can generate in terms of cash flow for the business. In the early stages there were some initial indications of value, which were certainly up at the top end, but recognizing the changes within the market, those values have eroded on us as we move through the process.
Does the new unit train – does this hinder the sale of NATO?
Where we are at with a unit train perspective – we are at 5.5 unit trains per week. The site as we have commissioned it and as we gain more and more experience with the site we continue to improve our turnaround times with these unit trains. Where we are at today is 8.5 to 9 trains we have a high level of confidence we can deliver on that. The project is targeting 10.5 unit train, and based on the progress we’ve made I’m confident we’re going to be able to get to that 10.5 unit trains. Then there is an opportunity for a phase 4 which will require some minor capital in the neighbourhood of 20-25 million is our best guess to bring it up to 14 unit trains so that’s the capacity of the facility. With respect to brining on this new contract, as we’ve gone through the divestment process, and we’ve talked to the E&P companies, and the end-users at the refineries, a lot of their interest in the site has to do with having excess capacity so they can move their own crude through the facility. So, with the initial belief we’d be chatting to a significant number of those types of players, we didn’t aggressively go out and attempt to load up the site. You then got the reverse situation when you talk about the midstream players like to have the facility loaded up 100%. So as we looked at this opportunity the question was how does it impact the current pool of interested buyers that we have, is it something that will add or detract from the value of the asset, and our belief was given the size of this, and the relatively short duration (it’s a 28 month contract) that it would have no detrimental impact on any of the interested parties in the process.
In terms of the profitability of moving crude by rail?
Ah – ok - so the numbers we have shared (this is a site that has an exceptionally high fixed cost so its really all labour and then we’ve got some utilities and natural gas and whatever) so a high fixed cost facility – at 5.5 unit trains per week – we’re just cash positive. As we built out to 10.5 trains be week, we see the operating cash flow increase to $50 million. And then, as we look to go from 10.5 to 14 unit trains, there each additional unit trains as an additional contribution of $8M EBITDA (NOTE: So potential EBITDA contribution of NATO is $78M)
What is your relationship like with MEG and the lawsuits?
It’s an interesting relationship. From a day to day operational perspective, it works extremely well. We continue to load their trains, we continue meet our commitments, we continue to provide reliable service for their unit train operations. From an operational perspective – it’s terrific. As was evident in a number of press releases, we did have some disagreement with our ability to connect Cold Lake Blend so we moved forward with an injunction to affect that connection. At that point in time when we sought the injunction we also initiated a statement of claim such that there is a recognition there is a delay in that connection – we incurred some additional project costs and as a result in the delay in the connection we also lost a major contract. So in any event, the statement of claim will be dealt with in the appropriate time and we’re probably talking a number of years down the road. The other legal issue there was a question of ownership with respect to that connection point. That case was heard back on November the 6th, and we’re still waiting for the judge’s ruling – we’re expecting any day now and we’re pretty optimistic that it’s going to be in our favour so hopefully we’ll be able to get the legal issues out of the way and in terms of the business relationship it’s very solid.
Are you still expecting a decision on NATO by end of 1st quarter, end of 2nd quarter?
Ahhhh – we’re suggesting at this stage hopefully by the end of the 1st quarter we’re in a position to announce the go-forward strategy on NATO and on the assumption we’re successful in negotiating with a potential buyer – hopefully closing by the end of Q2.
In the event you are unable to close on NATO where do you look after that – would you consider the possibility of individual assets sales such as North Vancouver or Brazil?
Yeah – hopefully we don’t go down this path – but by the same token – it’s important for us to have a contingency plan in place. We continue to have discussions with a number of different parties with respect to a number of different assets so over the course of 6 months – we’ve had inbound inquiries on Chlor Alkali, we’ve had inbound inquiries on Brazil, and we’ve also had inbound inquiries on Chlorate.
Talk about dividend – your yield is 14-15% - what point do you look at a dividend cut and what would be the genesis of this?
The dividend is question is one that is reviewed by our board at every quarterly meeting, when the board reviews the dividend question, they look at where we’re at with our cash flow position, where we’re at with respect to our future inflow of cash, and they make the appropriate decision at that point in time.
HCL Pricing
What we’ve seen on HCL pricing – because of the significant growth in O&G fracking – we saw the prices for HCL increase significantly. So where we’re at the end of the 4th quarter is we are at some fairly high levels with asset pricing. As we move through the 1st quarter most of that business was committed back in the 4th quarter, so on Q1 we don’t anticipate significant price erosion, but as we move into Q3,3, and 4 – we certainly recognize there is a high probability there will be a reduction in fracking activity, we see some additional capacity coming on stream in North America – and we’re also beginning to get requests from the E&P and oil field services company in terms of going back and sharpening our pencils to lower their cost so those letters are circulating in the industry. As we go into Q2 certainly there is an expectation there will be pricing coming down but recognizing we were at a fairly high level in Q4 of 2014.