Pinnacle provides update of Demopolis, High Level projects

By Erin Voegele | May 12, 2020

Canada-based wood pellet producer Pinnacle Renewable Energy has broken ground on a 360,000-metric-ton-per-year pellet plant in Demopolis, Alabama. Construction has also resumed on the company’s 200,000-metric-ton-per-year facility in High Level, Alberta.  

Rob McCurdy, CEO of Pinnacle, discussed progress being made with both projects during a first quarter earnings call held on May 12. He said the Demopolis plant is expected to begin commissioning during the second quarter of 2021. The High Level facility is expected to begin operations during the fourth quarter of this year.

The Entwistle facility in British Columbia exceeded company expectations during the first quarter. The company experienced its first full quarter of operations since the dryer system was recommissioned and achieved increased production levels.   

The company also detailed several challenges it experienced during the first quarter. Pinnacle reported that sales in the first quarter included a significant volume of high-cost finished pellet inventory from year-end and third-party purchased pellets with no margin, which were used to fulfill customer obligations due to production shortfall that resulted from the Entwistle incident. The company also experienced operational challenges that arose from CN Rail disruptions. This included a January 2020 derailment in British Columbia that damaged Pinnacle leased railcars and resulted in some lost pellets and 10 straight days of cold weather in January that caused CN rail disruptions resulting in some facility downtime. In February, Pinnacle said CN Rail lines and British Columbia ports were disrupted by blockades resulting in downtime at the company’s northern facilities. Pinnacle indicated that CN Rail disruptions resulted in approximately 20,000 metric tons of production loss during the quarter.

The company’s plant in Aliceville, Alabama, was down for five days during the quarter due to flooding at the facility dock. Pinnacle also noted that COVID-19-related supply chain disruptions and international travel restrictions affecting the onsite presence of the company’s external experts has resulted in smaller projects being proactively delayed in order to preserve capital and enforce federal safety standards.

For example, Pinnacle plans to install a chipper and additional pelleter at its Smithers facility. The improvements are expected to boost output by approximately 15,000 metric tons per year. The company said a substantial portion of the project was expected to begin during the first quarter, but due to factors related to the COVID-19 pandemic, company management has decided to extend the project schedule by approximately six months.

In addition, upgrades at the Meadowbank facility have been put on an extended schedule due to COVID-19. That expansion project is currently expected to be complete next year.

Pinnacle also said operations at the Williams Lake facility is continuing with the current dryer in place. A planned dryer upgrade has been temporarily suspended as equipment vendors were not able to travel onsite for commissioning purposes due to travel restrictions resulting from the COVID-19 pandemic. Pinnacle said the project is near completion and company management is investigating various options to engage remote support in order to safely commission the remainder of the project during the second quarter.

"With little foresight on how and when the COVID-19 pandemic will come to an end, management and the board made the difficult but prudent decision to reduce the dividend during this period,” McCurdy, said in a statement released May 11. "We have not seen a change in demand for industrial wood pellets and have strength with our long-term take-or-pay contracts supporting the Company, however the lumber industry, particularly in B.C., is under pressure as the economy continues under stress, and this in turn will impact our fibre supply and increase our costs. Our team continues to work diligently under the safety standards guided by the health authorities and have increased inventories of harvest residuals in preparation."

Also during the earnings call, McCurdy confirmed the company’s 300,000-metric-ton-per-year Lavington facility in British Columbia experienced a small fire on Monday night. He said no one at the plant was injured and safety systems worked as they are supposed to. The plant was expected to resume operations on May 12.

Pinnacle reported revenue of $109.7 million for the first quarter up from $89.6 million reported for the same period of last year. Adjusted EBITDA was $4 million, down from $7.1 million. The company sold 510,-00 metric tons of wood pellets during the three-month period, up from 402,000 metric tons sold during the first quarter of 2019.