Canexus Income Fund
TSX : CUS.UN

Canexus Income Fund

December 10, 2009 17:29 ET

Canexus Announces 2010 Outlook

CALGARY, ALBERTA--(Marketwire - Dec. 10, 2009) - Canexus Income Fund (TSX:CUS.UN) (the "Fund") today announced its financial, operations and market outlook for 2010.

"Canexus remains on track to deliver record results for 2009 despite difficult market conditions during the year. Our payout ratio for 2009 is expected to be between 60 and 65 percent, the positive end of our prior guidance. We are proud of having grown operating cash flow by approximately $20 million over the last two years. By maintaining strategic focus on growing our low-cost advantages, we are ideally positioned as the economy continues to recover in 2010 and into 2011," said Gary Kubera, President and CEO.

"2010 is an extremely exciting year for Canexus with six strategic growth projects coming on stream expected to add an incremental $50 million of operating cash flow annually commencing in 2010. The Technology Conversion Project (TCP) at our North Vancouver chlor-alkali facility is expected to add $35 to $43 million of incremental operating cash flow annually once design capacity is reached about mid-year. In Brazil, both our 4,400 MT sodium chlorate expansion and a recently approved project to sell excess hydrogen are expected to start-up at the beginning of the second quarter and our Brazil hydrochloric acid expansion project is expected to start-up in August 2010. These three projects in Brazil are expected to contribute a combined $5 million of incremental operating cash flow annually. Our North Vancouver hydrochloric acid expansion project is expected to start-up in June 2010 and add a further $2 million of operating cash flow annually, as will our North America Terminal Operations (NATO) at Bruderheim once rail infrastructure to allow access by a second major rail carrier is completed in Q2 2010. We expect operating cash flow from our base businesses in the 2011 through 2014 strategic plan period to exceed $150 million annually (assuming US$0.95 in 2011 and US$0.90 in 2012 through 2014) with an after-tax payout ratio, at the current distribution level per unit, of between 50 and 60 percent."

"We expect a transitional year ahead as we bring our portfolio of growth projects on stream, with different outlooks for the first and second halves. Overall, based on the 2010 budget that has been approved by our board, we currently expect a payout ratio of approximately 90 percent for the year. For the first six months, we are prepared to manage a stronger Canadian dollar (US$0.95), softer market pricing in North America and the shut-down period for final commissioning and tie in of TCP. While we have currency options in place protecting approximately 80 percent of our net US dollar exposure in the first half of the year and competitive flexibility from our low-cost position, our payout ratio for the first half of 2010 is expected to exceed 100 percent dropping in the second half to more typical levels of 60 to 70 percent."

"Our performance should markedly improve in the second half of 2010. Pricing and volumes for our products are expected to strengthen and we will begin seeing the benefits of reduced costs from TCP, along with the contributions from our other growth projects coming on stream. The latter half of the year will set the stage for our success in 2011 and beyond as we experience the full-year contribution from TCP and what are expected to be less volatile market conditions. Even with the tax implications for income trusts beginning in 2011, we believe that our performance can support our distributions at their current level with a payout ratio in the 50 to 60 percent range," said Mr. Kubera.

2010 Budget

The following points summarize the underlying assumptions for the Canexus 2010 budget:

  • Sodium chlorate sales volumes in North America for 2010 should increase about 9 percent compared to 2009, but will be more than offset by lower realized prices; a period of relatively lower prices in the latter part of 2009 and into 2010 could result in the closure of higher-cost sodium chlorate production capacity on the continent, supporting supply/demand balance; pulp and paper market fundamentals suggest pulp inventories and prices should remain comparatively stable during the year.
  • Chlor-alkali MECU realized pricing in North America for 2010 should trend upward during the year after bottoming in Q3 2009, but will lag 2009 record MECU realized prices; sales volumes are expected to increase from 2009, particularly in the second half of the year after the start-up of TCP; production volumes are expected to increase 22 percent to 175,000 MECU's in 2010 as we ramp up TCP to design capacity of 210,000 MECU's; the hydrochloric acid expansion at North Vancouver is scheduled for completion in June, providing operating flexibility and an estimated $2.0 million in incremental annual operating cash flow.
  • Brazil performance in 2010 is expected to be very stable with the impact of a stronger Canadian dollar on our fixed US dollar margin contract with our major customer being offset by contributions from our growth projects; approximately $5.0 million in incremental annual operating cash flow will commence with the completion of the following three expansion projects in 2010:
    • 4,400 MT sodium chlorate expansion start-up at the beginning of the second quarter
    • US$6.2 million hydrochloric acid project that enhances the flexibility of chlor-alkali production is scheduled for completion in August
    •  recently approved project to sell excess hydrogen is expected to start-up at the beginning of the second quarter
  • NATO: the $9.8 million project to construct rail infrastructure to allow access by a second major rail carrier is expected to be completed in Q2 2010, enhancing the distribution capabilities for chlor-alkali and hydrocarbon products and generating approximately $2.0 million in incremental annual operating cash flow. We continue to be excited by future opportunities to take advantage of the existing cavern storage we have at this site.
  • Our capital expenditure program in 2010 is expected to include:
    • $17.7 million to be spent on maintenance capital (including $2.7 million to accelerate our electrolyzer recoating programs at Brandon and in Brazil)
    • $87.2 million on our portfolio of growth projects (TCP - $67.0 million; Brazil - $7.7 million; North Vancouver hydrochloric acid expansion - $5.1 million; NATO - $4.4 million; Brandon power line upgrade - $3.0 million)
    • $1.2 million on high-return continuous improvement projects
  • Our 2010 annual operating plan and capital expenditure program will be financed from cash on hand, excess distributable cash, DRIP proceeds and our committed credit facilities.
  • Canexus expects the exchange rate for the Canadian dollar will average US$0.95 during 2010; the following foreign exchange call option contracts have been secured, protecting approximately 80 percent of US$ exposure in the first half of the year:
    • option to sell US$5 million per month and acquire Canadian dollars at a price of US$0.9479 from January 1 to March 31, 2010
    • option to sell US$5 million per month and acquire Canadian dollars at a price of US$0.9302 from January 1 to June 30, 2010.

TCP Update

The TCP at the North Vancouver chlor-alkali facility is expected to contribute an estimated $35-$43 million in incremental annual operating cash flow commencing in the second quarter of 2010. Sixty percent of the project value is generated by established cost savings. The current outlook for TCP includes:

  • Progress continues, though weather and productivity challenges will move startup to the second quarter, approximately four to eight weeks later than originally expected; the following milestones have been achieved:
    • the overall project progress is 70 percent complete
    • construction focus has shifted from completing "bulk" work such as undergrounds, civil, structural, large bore piping, major electrical installations (cable trays, and cable runs) to completing the work by systems. We have identified and scoped the remaining work into 41 systems plus the final shutdown work. Six of the 41 systems are complete and have been turned over to the commissioning team.
  • The expected outage time to transition to TCP from the existing plant is anticipated to be shortened to 21 days from the originally estimated 32 days due to planning improvements. Our existing plant will continue to operate at full rates until the commissioning has been completed and a successful startup of TCP is reasonably assured.
  • The projected final total cost for TCP is expected to be approximately $270 million compared to the previous estimate of $235 million due to scope additions resulting from final changes to the detailed engineering, several of which will enhance safety, reliability and operability. The final projected cost increase also considers productivity challenges due to the brownfield nature of the project and lower productivity than expected. Canexus continues to be proactive in making positive changes to enhance productivity.
  • TCP benefits remain highly attractive with an after-tax IRR in the mid-teens at the projected final total cost, due to stronger pricing than originally projected -- MECU prices remain well above those used in our preliminary project justification (a $50 MECU price movement equates to $10.5 million of operating cash flow on an annual basis). With 60 percent of the project benefits coming from established cost savings, we have a high degree of confidence in the project economics.

Non-GAAP Measures

This news release refers to payout ratio and distributable cash to assist in measuring the Fund'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 Fund's performance or as a measure of the Fund's liquidity and cash flow. The Fund's method of calculating non-GAAP measures may differ from the methods used by other issuers and accordingly, the Fund's non-GAAP measures are unlikely to be comparable to similarly titled measures used by other issuers.

Forward-Looking Statements

This news release contains forward-looking statements and information relating to expected future events and financial and operating results of the Fund, Canexus LP and its subsidiaries, including with respect to the stability of sodium chlorate prices or chlor-alkali prices, expected volumes of sodium chlorate or of chlor-alkali products, expected currency exchange rates, the Fund's expected payout ratio, global caustic soda demand, expectations for MECU netbacks, expectations regarding North Vancouver facility operations, the timing of TCP and other project completion, the expenses related thereto and their respective contributions to operating cash flow. 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, the Fund and Canexus LP disclaim 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.

About Canexus

Canexus produces sodium chlorate and chlor-alkali products largely for the pulp and paper and water treatment industries. Our four plants in Canada and one 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 unitholder returns and delivers high-quality products and services to its customers. Canexus units and convertible debentures trade on the Toronto Stock Exchange under the symbol CUS. More information about Canexus is available at www.canexus.ca.

Contact Information

  • Canexus Limited
    Gary Kubera
    President and CEO
    (403) 571-7300
    or
    Canexus Limited
    Richard McLellan
    CFO
    (403) 571-7300
    www.canexus.ca