Pinnacle Renewable Energy has reported its best quarterly performance due to record production volumes.
The company reported revenues of $131.7 million (€111 million) in Q3 2020, 42% higher than the same period in 2019. Its adjusted gross margin increased by $13.8 million (€11.6 million) to $31.7 million (€26.8 million) in Q3 2020 compared to Q3 2019. Adjusted EBITDA was $10 million (€8.4 million) higher in Q3 2020 at $26.1 million (€22.1 million), compared with $16.1 million (€13.6 million) in Q2, and $13.6 million (€11.5 million) in Q3 2019.
Net income was $7.7 million (€6.5 million) compared with net income of $0.02 million in Q2 and a net loss of $1.5 million (€1.27 million) in Q3 2019. Excluding the net insurance benefits of the Entwistle incident (dryer explosion and fire), AGM in Q3 2020 was $29.1 million (€24.6 million), or 22.1% of revenue, compared to $15.8 million (€13.3 million) of 17.1% revenue in Q3 2019.
The combination of warmer and drier weather, lower fibre costs and the returns associated with the company’s capital investment activities contributed to record production and profitability in Q3. Pellet production in Q3 was 587 kMT, 69 kMT or 13% above the company’s previous record of 518 kMT in Q2 2020, and 145 kMT or 33% higher than in Q3 2019.
Pinnacle reported strong performance gains were recorded at a number of plants in Q3 2020 led by Williams Lake which benefited from the completion of its dryer upgrade project in Q2, increasing production by more than 47% quarter-over-quarter. The Entwistle mill continued its ramp-up process during Q3, increasing production by more than 6% quarter-over-quarter.
Sawmill residues increased to 84% of the firm’s feedstock in Q3, compared with 74% in Q2, as the strong lumber market resulted in higher operating rates in that sector. Overall, Pinnacle’s fibre costs were down 2% quarter-over-quarter. During Q3, the firm reduced its fibre inventories by 10% due to its increased confidence in the growing availability of sawmill residues.
The company’s Q3 results were achieved in spite of service failures at CN Rail and the Fibreco Terminal in North Vancouver that negatively-impacted production in Q3 by an estimated 20 kMT and resulted in approximately $0.6 million (€508,000) in additional rail, distribution, and demurrage costs during the quarter.
Construction of the new 200 kMT at High Level, Alberta, advanced during Q3. The mill will be 50% owned by Pinnacle and 50% owned by Tolko Industries. The project remains on schedule for commissioning in Q4 2020. The total cost of the project, including associated rail infrastructure, is $70.6 million (€59.8 million), with Pinnacle’s 50% share amounting to $35.3 million (€29.9 million).
Construction continued on the 360 kMT-per-year mill in Demopolis, Alabama. The mill will be owned and operated by Alabama Pellets, in which Pinnacle has a 70% interest. The firm reported “good progress” was made in Q3 on underground services, foundations, and structural steel for the hammermill and pellet buildings and dryer area mechanical installations, and the domes for pellet storage. The project is progressing as planned, with commissioning expected in Q2 2021.
Pinnacle completed the Phase 2 Project at its mill in Aliceville, Alabama, in early October. The mill is owned and operated by Alabama Pellets, in which the firm has a 70% interest. This project adds a truck unloading system to the mill’s infrastructure and broadens access to additional supplies of sawmill residues on a go-forward basis, supporting the firm’s goal of boosting production volumes at the mill.
The Meadowbank WESP upgrade, which was halted due temporarily due to the COVID-19 outbreak, was restarted in Q3. This upgrade will enhance the operating flexibility of the facility to allow Pinnacle to continue to adapt to cyclical changes in wood fibre supply within the British Columbia interior. The upgrade is expected to increase the mill’s production capacity by 30 kMT per annum. Commissioning is expected in Q4 2020.
According to Pinnacle, customer demand for wood pellets remains strong. In Q4, the firm expects to see ‘positive’ year-over-year production increases as the Entwistle Facility operates at full capacity, benefits are realised from the upgrades at Williams Lake, Meadowbank, and Aliceville, and the facility at High Level is completed and starts commissioning.
Cooler weather in the upcoming is expected to moderate production and increase fibre drying costs, which is ‘typical’ in the winter, according to the company. Additionally, the spill-over of the Fibreco incident impacted loading operations at the port in the early part of Q4, which may continue through the balance of the quarter and possibly longer, with additional impacts on rail service and production.
The firm expects to increase its fibre inventories in the coming months as a hedge against seasonal factors and other potential disruptions in the supply of traditional feedstock.