Calgary, Alberta, Canada, 15 December 2011 -- Marketwire -- Canexus Corporation (TSX:CUS) today announced its financial, operations, and market outlook for 2012.
"Canexus is well positioned to achieve a second consecutive year of record financial and operational performance in 2012, realizing the full benefits of the investments made in growth projects completed over the past 18 months, the most significant of which was the technology conversion project (TCP) at our north Vancouver chlor-alkali facility, as well as benefiting from stable market conditions," said Gary Kubera, president and CEO.
"We expect 2012 cash operating profit to increase to between CAD 140 million and CAD 145 million, resulting in distributable cash of CAD 80 million to CAD 85 million, for a payout ratio of 75% to 80%. This is a significant improvement over the record cash operating profit anticipated for 2011 of CAD 120 million to CAD 122 million. We remain committed to drive future growth while delivering sustainable returns to our shareholders," Kubera added.
The improvement in the company's outlook for 2012 (over 2011 expected results) reflects the following:
- Higher chlor-alkali plant production and sales volumes (3%), higher realized netbacks (6% -- led by hydrochloric acid price improvements) and lower cash production costs as the company realizes the remaining benefits of TCP through final expected manpower reductions and elimination of natural gas consumption.
- Higher realized netbacks (5%) in the North American Sodium Chlorate business unit on similar sales volumes.
- Solid performance from the North American Terminal Operations (NATO) business at Bruderheim, which is projected to achieve "critical mass" base transload business levels in 2012.
"Since our initial public offering in 2005, Canexus has built a solid track record of growth through project implementation. While we realize the benefits of past investments, we continue to pursue our next phase of visible growth projects," Kubera said.
"I am pleased to announce that today the board of directors of Canexus Corporation approved the first of two expected phases of hydrochloric acid expansion at our north Vancouver chlor-alkali facility in support of growing demand from the oil and gas industry for use in multistage hydraulic fracturing of horizontal wells. This first phase of expansion is expected to increase our hydrochloric acid practical capacity by 111,000 wet metric tons (WMT) to 260,000 WMT at an approximate cost of CAD 25.0 million (including infrastructure to facilitate future growth) and is expected to add an incremental CAD 13 million to cash operating profit (average annual impact over project life) following start-up in Q1 2013.This acid expansion and related infrastructure investment, paves the way for continued growth and further chlorine derivatization. A similar second phase of expansion is currently being developed and will be considered for approval in early 2012," Kubera added.
Global pulp markets have shown some weakness in the second half of 2011, which Canexus expects will continue into early 2012 before stabilizing by mid-year. Mid-term forecasts continue to predict growing global demand for pulp, led by China. Capacity growth, which was postponed in South America during the 2008/09 recession, will continue to be constrained in the short term, with no new capacity expected before late 2012. This is a favorable mid-term dynamic for North American pulp producers. The North American sodium chlorate industry continues to operate at near 95% operating rates that are expected to continue for 2012, with sodium chlorate plants expected to operate at capacity. The project to upgrade the power line capacity at the low-cost Brandon plant is expected to be completed in the second half of 2012, setting the stage for potential additional de-bottleneck expansion opportunities at this facility in the future.
North American chlor-alkali industry fundamentals are being affected by slower global economic growth, with reduced demand for chlorine products, which in turn has constrained caustic soda supply. Caustic soda pricing has strengthened rapidly in 2011 and the company expects this strength to carry into mid-2012 before easing. Chlorine derivative exports from the U.S. Gulf Coast continue to benefit from low natural gas prices, resulting in reasonable industry operating rates (about 85%), 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.
Hydrochloric acid demand has grown quickly in western Canada as a result of new drilling and fracturing technologies and higher oil prices. At the same time, supply has been constrained by lower by-product acid production that accounts for roughly two-thirds of North American supply. The result has been rapid escalation of acid prices, which Canexus expects to persist through 2012. Metric electrochemical unit (MECU) netback prices are expected to remain strong in the mid-term, with continued price escalation for hydrochloric acid mitigated somewhat by caustic soda prices softening modestly as 2012 progresses, with demand easing because of the economic slowdown. Canexus expects to operate its north Vancouver chlor-alkali facility at 95% of practical capacity and will continue to benefit from the hydrochloric acid expansion completed in 2010.
In South America, demand for Brazilian pulp has been strong over the past year and is expected to remain so in 2012, consistent with growing global demand for pulp. As a result, the company's sodium chlorate plant is expected to operate at capacity through 2012. Canexus also expects to operate its chlor-alkali plant at capacity, having the flexibility to derivatize up to 100% of its chlorine production to hydrochloric acid. Cash operating profit is expected to grow modestly from 2011, the consistency of which benefits from the company's fixed margin contract with its major customer.
Canexus continues to expand its capabilities at its NATO unit. The significant hydrochloric acid expansion announced today is facilitated by this strategic asset, which allows for the movement of large quantities of this and other products required by the oil and gas industry in western Canada.
The CAD 6.5 million project announced in November to substantially increase diluted bitumen and conventional heavy oil truck-to-railcar transloading, in response to terminal service demand, is on track to be available in early 2012. Canexus continues to pursue pipeline access agreements that could transition this site into a unit train loading terminal. The company's two 800,000 barrel salt caverns also will support the potential large scale development of the site to service the oilsands region.
Additional 2012 Annual Operating Plan Assumptions
The following additional points summarize the underlying assumptions for the Canexus 2012 annual operating plan:
- The Canadian dollar is expected to average USD 1.01. The company currently has foreign exchange option protection on USD 5 million per month from 01 January 2012 through 30 September 2012, at rates varying from USD 0.95 to USD 0.98.
- Estimated incremental funding costs of the company's defined benefit pension plan will be CAD 4.0 million, and TCP remaining severance payments of CAD 0.8 million and CAD 0.5 million will be made in 2012 and 2013, respectively .
- At 30 September 2011, Canexus had CAD 370 million of major tax pools to shelter taxable income in Canada
- The company's capital expenditure program in 2012 is expected to include:
- CAD 21.6 million to be spent on maintenance capital (including CAD 5.9 million on electrolytic cell recoating programs at Brandon and in Brazil);
- CAD 31.9 million on expansion/growth projects (Brandon power line upgrade: CAD 4.2 million; North Vancouver acid growth: CAD 21.0 million; and NATO diluted bitumen and heavy oil transloading and acid blending: CAD 6.7 million); and
- CAD 4.3 million on high-return continuous improvement projects.
- The company's 2012 annual operating plan and capital expenditure program will be financed from cash on hand, excess distributable cash, DRIP proceeds, and committed credit facilities. Canexus expects its leverage (debt-to-EBITDA ratio) to fall to approximately 2.0 by the end of 2012 (3.0 for debt plus convertible debentures-to-EBITDA ratio).
Canexus produces sodium chlorate and chlor-alkali products, largely for the pulp and paper and water treatment industries. The company's 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.