Canexus Income Fund
TSX : CUS.UN

Canexus Income Fund

December 11, 2008 17:29 ET

Canexus Declares Special Distribution and Updates 2009 Outlook

CALGARY, ALBERTA--(Marketwire - Dec. 11, 2008) - Canexus Income Fund (TSX:CUS.UN) (the "Fund") today announced that it will pay a special year-end cash distribution to unitholders and updated its financial, operations and market outlook for 2009.

The Fund declared a special distribution of $0.0456 per unit in addition to the $0.0456 per unit regular monthly distribution that was previously declared for the month of December. The special distribution will be paid on January 15, 2009, to unitholders of record as at December 31, 2008.

"The decision to pay a special distribution to our investors reflects the strong performance of our business, particularly in the second half of this year, combined with our solid balance sheet and tax considerations," said Gary Kubera, President and CEO. "We are cautiously optimistic about our market fundamentals outlook and although we have seen some deterioration in volumes since the middle of November, we expect to meet or exceed our pre-special distribution payout ratio guidance of 60 to 65 percent for 2008."

"Based on the 2009 budget that has been approved by our board, we currently expect a payout ratio of 60 to 70 percent for the year ahead, similar to our expectations for 2008. Our budget assumes that current market conditions will persist through 2009 but we will benefit from the weaker Canadian dollar. As previously reported, for 2009 we have foreign exchange call option contracts in place that provide certainty on virtually all of our net US dollar cash flow if the Canadian dollar strengthens above US$0.8185, while still allowing our cash flow to benefit from any devaluation of the Canadian dollar below this level," said Mr. Kubera.

"The investments that Canexus has made in the past position us very well to manage through the current economic conditions. Our low-cost position at our recently expanded Brandon sodium chlorate facility, which accounts for about 80 percent of our North American chlorate volumes, along with the continuous expansions at our Brazil sodium chlorate facility, should support continued cash-flow growth even in a challenging economic environment. The investment we are currently making at our North Vancouver chlor-alkali facility with the technology conversion project ("TCP"), which continues to be on schedule for start-up in the first quarter of 2010 and on budget, will significantly lower our cost structure and solidify our low-cost position in this regional market," he added.

The following highlights summarize the underlying assumptions for the Canexus 2009 budget:

- North American chlorate realized pricing is expected to increase in excess of 10 percent on 5 percent lower volume; realized price increases are largely driven by a lower Canadian dollar (our exchange rate assumption for 2009 is US$0.82 per Canadian dollar).

- The lower Canadian dollar has significantly improved the North American cost position of all our sodium chlorate plants; however, we will continue to monitor demand trends and rationalize capacity at our higher cost plants if needed. Our 2009 payout ratio guidance includes $6.0 million of contingency for closure costs if required. Despite weak economic conditions and lower natural gas prices, electricity rates throughout North America continue to rise, further emphasizing our sustainable Brandon cost advantage.

- The North American chlor-alkali business expects to see generally flat volume and pricing. Overall reduced industry demand for chlorine will keep positive price pressure on caustic soda throughout North America.

- In Brazil we expect sodium chlorate volume levels similar to 2008 and somewhat lower volumes for chlor-alkali. After significant outages to manage inventories in November, pulp producers appear to be returning to normal production levels in December. With the significant devaluation in the Brazilian Real, Brazil has increased its overall competitive advantage as a pulp producing region.

- Capital spending in 2009 is expected to be $172.0 million of which $125.0 million will be spent on TCP; $18.0 million on maintenance capital which includes an additional rectifier transformer in Brazil and significant upgrades to our rectifier transformer units at our Beauharnois, Quebec, plant; $22.0 million on previously announced expansion projects including our 4,400 MT sodium chlorate expansion in Brazil (start-up in Q1/2010) and the North Vancouver hydrochloric acid burner expansion (start-up in first half of 2010) as well as further potential debottleneck spending at our Brandon plant and on other business development opportunities; and $7.1 million on quick return margin enhancing continuous improvement projects.

Financing plan

Canexus will fund all current projects from excess distributable cash, its existing credit facilities which were renewed in 2008 and its Distribution Reinvestment Plan ("DRIP").

Canexus has no debt maturing before August 2011. Peak debt levels of $385.0 million are expected to be reached as TCP is completed in the first quarter of 2010 which still leaves $133.0 million of available capacity under our existing credit facilities. In addition, our budget anticipates the DRIP program continuing at present levels of participation of approximately 70 percent (including Nexen's 100 percent participation) during 2009. We will continue to assess the need to maintain the DRIP at high participation levels as 2009 unfolds.

The DRIP enables participants to automatically reinvest monthly distributions in additional trust units of the Fund. Unitholders' DRIP election will apply to the special distribution. More information on the DRIP is available on the Canexus website at www.canexus.ca.

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 that involve risks and uncertainties. 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. Forward looking 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 for the period ended December 31, 2007, which is 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. Any 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 five 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 targets opportunities to maximize unitholder returns and delivers high-quality products to its customers. Canexus is listed on the Toronto Stock Exchange under the symbol CUS.UN. 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
    Website: www.canexus.ca