LOS ANGELES – Rentech, Inc. has announced a new long-term processing agreement between its subsidiaries, Fulghum Fibres Chile (Fulghum), Forestal Pacifico and Forestal Los Andes, and Astillas Exportaciones Limitada (Astex Ltda.), the Chilean subsidiary of Japan’s Mitsubishi Corporation.
The new processing agreement would expand the volume of eucalyptus wood to be processed and sold under contract to Astex Ltda. The five-year contract includes the mutual option to extend for two additional five-year terms. The contract provides for guaranteed minimum volumes using a base fee, excess fee and shortage fee arrangement, similar to the tolling contract structure of Fulghum’s North American contracts.
Fulghum will rebuild its current mill in Concepción, Chile, near the port of Puchoco to increase production capacity. With the expansion, the annual processing capacity of the mill will increase from 180,000 bone dry metric tonnes (BDMT) to 400,000 BDMT of logs with bark. In addition, the facility’s capacity to process logs without bark will increase from 40,000 to 100,000 BDMT per year. The mill will become Fulghum Fibres’s largest chip mill in South America.
Rentech’s subsidiary, Forestal Pacifico, will process the bark produced from the mill and sell it as biomass fuel to local industrial customers. Rentech’s trading subsidiary, Forestal Los Andes, will utilize uncommitted capacity at the mill to produce chips for sale in South America or abroad.
“This agreement cements Fulghum Fibres’s position as a significant world player in the pulp, paper and packaging industry,” said Sean Ebnet, senior vice president of fibre business development for Rentech. Mr. Ebnet continued, “Our best-in-class proprietary eucalyptus debarking system gives us a unique value proposition in Chile by providing a critical cost competitive solution for the wood processing needs of our customers. Clearly, Astex Ltda. recognizes this value and has expanded its debarking and chipping business with Fulghum Fibres.”
“The growth and demand we are seeing in our wood processing business is outstanding,” said D. Hunt Ramsbottom, president and chief executive officer of Rentech. “This agreement highlights the success of our wood fiber processing strategy and our approach to building and operating complementary platforms in chipping and pellets. The relationship with Astex Ltda. and Mitsubishi will help drive Fulghum’s diversified growth and leadership in the expanding global wood fiber industry.”
The project’s unlevered return is expected to be in the high teens based on the guaranteed minimum volumes under the new agreement with Astex Ltda. Utilization of any uncommitted capacity of the expanded mill would result in higher returns.
The total cost of the new chipping mill and debarker project is expected to be $8.6 million. The full capital cost is being financed with debt from Chilean banks. Construction of the new chip mill is expected to begin within the next several weeks with full commissioning scheduled for early 2015.