CANEXUS CORP 6.5 PCT DEBS T.CUS.DB.D

Q4/YE Results and Conference Call

[BlueCollar51]

I was expecting a 25 – 50 % dividend reduction. All things considered reducing it to a “token” 1 cent / quarter is the right thing to do. On the bright side “Dilution by DRIP” won’t be an issue.
 
The Chemical business results were “underwhelming”. I was expecting better. Due to the nature of “commodity” businesses all a producer can do is control costs and take what the market gives.
 
I wasn’t expecting great results from NATO but there were some major disappointments. The performance of the “Manifest facility” was in a word “terrible”.
 
They stated that the “Unit Train Facility” loaded 31 trains in Q4. That would be abt.2.6 / week. I had a hard time resolving that with 4 / week “Take or Pay” until I found this in the MD&A.
 
NATO Unit Train Throughput Volume Risk
Contracts with NATO unit train customers include partial take or pay terms and changes in transload volumes can have a significant impact on the revenues derived from these contracts. For every 8,500 bbl/day change in unit train transload volumes (approximately 1 unit train per week), loss before income taxes for the year ended December 31, 2014 would have changed by $4 million. This sensitivity to changes in unit train transload volumes is based on average unit train railcar counts, loaded volumes and contract terms for the year ended December 31, 2014. A change in unit train transload volumes of 8,500 bbl/day is considered reasonable given historical fluctuations in nominated volumes and expectations for future market demand.
 
It would appear that “Take or Pay” contracts aren’t quite what I thought they were. On the conference call the last caller asked about the nature of the “Take or Pay” contracts. The answer seemed to be a bit “elusive” to me.
 
Unless I missed it there was no mention re. the Legal Issues with MEG in the reports or on the conference call.
 
I still believe that NATO has a lot of potential and ultimately it will be sold for a decent price. That won’t happen until the Oil market gets back to normal which could take some time. Oil train derailments are not helping the cause but it will be a very long time before any of the proposed Canadian pipelines get built.
 
I suspect that the North Vancouver Chemical business will be sold first. Canexus clearly has to do something to clean up the balance sheet. The dividend reduction will help but not enough. On top of everything else CUS.DB.A matures on Dec. 31 / 15. They will need abt. $60m for that.
 
It was a disappointing end to a lousy year for Canexus!
 
I did get the impression that Doug Wonnacott is serious about turning things around. It will be very challenging and won’t happen next week. He didn’t create this mess but it is his job to fix it.
 
Personally I have decided to hang in for another quarter and give him the opportunity to show some progress.
 
As Always; Do Your Own Due Diligence; It’s Your Money !!