CALGARY, ALBERTA--(Marketwire - Dec. 19, 2012) - Canexus Corporation (CUS.TO) ("Canexus" or the "Corporation") today announced its financial, operations and market outlook for 2013.
"Canexus is well positioned to achieve a third consecutive year of record financial and operational performance in 2013. We expect to begin realizing the benefits of the investments made in our hydrochloric acid growth projects at our North Vancouver chlor-alkali facility, which should start-up in the first and third quarters. Also, we anticipate the expansion of our bitumen blend and crude oil truck-to-rail transloading business at our North American Terminal Operations ("NATO", "Bruderheim terminal" or "terminal") business in Bruderheim, Alberta to solidly contribute to our overall business performance once this is completed in early 2013. Lastly, all of our business units should continue to benefit from stable market conditions," said Gary Kubera, President and CEO.
"In 2013, cash operating profit should increase to between $155 million and $165 million, resulting in distributable cash of $100 million to $110 million, for a payout ratio of 65% to 75%. This is a significant increase over the record cash operating profit anticipated for 2012 of $135 million to $140 million. Management remains committed to delivering sustainable returns and value to our shareholders while driving future business growth," Mr. Kubera added.
The improved outlook for 2013 (over 2012 expected results) reflects:
- Higher sodium chlorate production volumes (6,000 metric tonnes ("MTs") resulting from our Brandon power line upgrade) and sales volumes and a modest improvement in realized netback prices (1%) in our North American Sodium Chlorate business unit
- Higher chlor-alkali plant production (7%) and sales volumes, and higher realized metric electrochemical unit ("MECU") netback prices (4%) as a result of converting more chlorine to higher value hydrochloric acid (an additional 90,000 wet metric tonnes) in our North American Chlor-alkali business unit, and
- Solid performance from our NATO truck-to-railcar transloading business at Bruderheim. In 2013, we expect to transload 30,000 barrels per day of oil, up from an average of 8,000 barrels per day in 2012. The Corporation is anticipating only a modest contribution from the pipeline connected unit train expansion discussed below, with start-up expected in the third quarter.
On December 7, 2012, Canexus announced the expansion of its Bruderheim terminal capabilities to include pipeline connected unit train operations. In this next phase of NATO expansion, Canexus plans to connect the Bruderheim terminal by pipeline (24 inch bitumen blend line and 12 inch condensate line) to MEG Energy Corp. ("MEG") pipelines, which interconnect with MEG's Stonefell Terminal, as well as potentially to a second pipeline connected facility located nearby. In addition, the Corporation plans to build out the rail infrastructure, loading/offloading and above ground tank storage required to allow for unit train movement of up to 118 tank cars (approximately 70,000 barrel movements) in single trains daily. The cost of the project is expected to be approximately $125 million, inclusive of the $25 million to $35 million of pre-spending in 2012 for long lead items and other construction activities that are currently underway.
The major components of this attractive growth project are:
- Two 120,000 barrel bitumen blend storage tanks
- A 10 kilometre 24" bitumen blend pipeline capable of transferring more than 150,000 barrels per day to the Bruderheim terminal
- A 12" condensate line in the same right of way capable of transferring up to 150,000 barrels of condensate per day from the Bruderheim terminal
- Rail loading facilities capable of loading 72,000 barrels in approximately 16 hours
- More than 5 kilometers of 'loop track' that will allow Canexus to manage two unit trains at the terminal at the same time
- An additional 6.3 kilometres of track in a rail spur to allow unit trains to re-enter the mainline efficiently and to facilitate the transloading of other tank cars that do not form a full unit train. With the additional track, Canexus expects to be able to store up to 600 railcars for hydrocarbon service at its Bruderheim Terminal
- A potential second pipeline connection for both bitumen blend and condensate.
"We are very excited about this next phase of expansion at Bruderheim. Not only is this project expected to be accretive to all common shareholders, it also sets the stage for future incremental unit train capability, utilization of the existing 1.6 million barrels of salt cavern storage, development of additional salt cavern storage and pursuit of other attractive investment opportunities at this 480 acre site," said Mr. Kubera.
North America Sodium Chlorate
As expected, major pulp producers have made successive, albeit modest price increases in the first two months of Q4 taking advantage of favorable inventory levels. Combined pulp inventories are in line with historical norms at 33 days (October) despite significant differences between softwood and hardwood. Softwood pulp inventory levels are at their lowest levels (25 days) in more than 18 months. However, hardwood pulp inventories remain relatively high at 41 days, and suggest little room for price increases by hardwood producers. Global pulp shipments continued their positive trend for the year, increasing by 2.9% year-to-date. Most of this growth is fueled by strong Chinese imports which are higher by 14.0% year-to-date. Demand for most pulp segments is expected to remain strong for the rest of the year.
Production of North American bleached pulp has remained steady throughout the year, and, consequently, the demand for sodium chlorate has been equally stable. With new demand recently started in Q3 coupled with further new demand scheduled for Q4, the North American chlorate industry is poised to maintain its high operating rates (±95%) for the foreseeable future.
North America Chlor-alkali
The North American chlor-alkali industry is operating at 78% of capacity in the fourth quarter of 2012, compared with 85% in the prior quarter and 78% in the fourth quarter of 2011. The decrease in industry capacity utilization is due to reduced seasonal demand for water treatment and production of PVC for export. Industry operating rates are expected to remain at this level through the first quarter of 2013 and then increase modestly with expected economic improvement.
North American hydrochloric acid production has been reduced in the fourth quarter of 2012 due to annual maintenance outages at byproduct producers in the gulf coast region. Acid demand is improving due to increased oil well fracturing activity in Western Canada. Demand from well fracturing is expected to strengthen modestly in Q1 2013.
North American caustic soda production has been constrained in the fourth quarter of 2012 consistent with lower chlorine operating rates. Domestic demand remains strong as well as export demand taking advantage of the low cost position of U.S. gulf coast production compared with Asia. Export supply from China to the west coast has improved due to slower domestic demand in China resulting in increased inventories for some export producers. Export supply from China is expected to decline in the first quarter of 2013 due to lower chlorine operating rates in China.
MECU prices did not change during the fourth quarter of 2012. Caustic price improvement has been offset by reductions in chlorine and acid values. Prices are not expected to change in the first quarter of 2013.
Canexus Brazil`s major sodium chlorate customer's pulp production continues to be aligned with our estimate and our overall sodium chlorate sales are close to the 2012 budget. Our chlor-alkali facility in Brazil maintained a 96% operating rate through Q3 and is projected to continue operating at full rates in Q4.
Looking forward into 2013, Management expects to maintain continued high operating rates at our chlor-alkali facility supported by long-term contract positions with key customers. We expect a modest decrease in our sodium chlorate operating rate (about 3,000 MTs) due to lower consumption levels by our major customer resulting from optimization efforts, and to re-align any resulting available capacity with other merchant customers over the next year.
Oil & Gas
Crude oil prices have remained stable during Q4. Prices remain elevated due to global geopolitical concerns but supply-demand fundamentals appear good. Oil inventory levels in the United States and the OECD region remain generally healthy and above five-year norms. Price differentials between Western Canadian grades and other key benchmarks remain wide, supporting demand for oil transportation services based on rail.
Natural gas prices are up slightly in Q4 as colder than normal weather in November accelerated inventory drawdown. However, inventories remain healthy at the upper end of the five year average range. Production is expected to continue to gradually fall in North America into 2013 as drilling rigs are directed to oil wells and until gas prices begin to recover.
Drilling activity in Western Canada has increased slightly in Q4 compared to Q3, with the majority of the activity directed at oil production.
Additional 2013 Annual Operating Plan Assumptions
The following additional points summarize the underlying assumptions for the Canexus 2013 annual operating plan:
- Canadian dollar expected to average US$1.01
- Estimated incremental funding costs of our defined benefit pension plan will be $4 million
- At September 30, 2012, Canexus had $478 million of major tax pools to shelter taxable income in Canada
- Our capital expenditure program in 2013 is expected to include:
- $24 million to be spent on maintenance capital (including $4 million on our electrolytic cell recoating program in Brazil)
- $116 million on expansion/growth projects (Brandon debottleneck to add an additional 6,000 MTs in 2014 - $5 million; North Vancouver acid growth - $11 million, and NATO $100 million)
- $7 million on high-return continuous improvement projects
- The 2013 capital expenditure program will be financed from the common share offering that closed earlier today, excess distributable cash, committed credit facilities and DRIP proceeds. We expect our leverage (Debt-to-EBITDA ratio) to be approximately 2.3 at the end of 2013 (3.1 for Debt plus convertible debentures-to-EBITDA ratio).
This news release refers to EBITDA, cash operating profit, payout ratio and distributable cash to assist in measuring the Corporation'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 Corporation's performance or as a measure of the Corporation's liquidity and cash flow. The Corporation's method of calculating non-GAAP measures may differ from the methods used by other issuers and accordingly, the Corporation'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 relating to Canexus and its subsidiaries, including with respect to the timing and expected benefits of the hydrochloric acid growth projects at Canexus' North Vancouver chlor-alkali plant and the bitumen blend and crude oil transloading business at NATO, expectations regarding cash operating profit, distributable cash and payout ratio for 2013, expectations with respect to North American sodium chlorate industry demand, operating rates, production and sales volumes and realized netback prices, expectations with respect to North American chlor-alkali operating rates, production and sales volumes and realized MECU netback prices, including as a result of expected demand from well fracturing activities, expectations with respect to South American chlor-alkali demand and operating rates of Canexus' facility in Brazil, expectations with respect to the NATO expansion, including the interconnection with MEG's Stonefell Terminal, potentially a second pipeline connected facility, the build out of rail infrastructure, loading/offloading and above ground tank storage and the costs associated therewith, demand from the oil and gas industry for hydrochloric acid and terminal capacity at Bruderheim, fundamentals and demand in the global pulp market, expectations with respect to the relative value of the Canadian dollar, expectations regarding Canexus' 2013 capital expenditures and leverage.
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, Canexus disclaims 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 two at one site in Brazil 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 shareholder returns and delivers high-quality products to its customers. Canexus' common shares (CUS) and debentures (Series I - CUS.DB; Series III - CUS.DB.A; Series IV - CUS.DB.B) trade on the Toronto Stock Exchange. More information about Canexus is available at www.canexus.ca.