Wednesday, May 20, 2020

Challenges of February, opportunities for future mark first quarter report for Pinnacle Renewable Energy

Rail disruptions in Northwest British Columbia and rail incidents elsewhere had an impact on the delivery of product out of the  Port of Prince Rupert in the early stages of the first quarter of 2020 for Pinnacle Renewable Energy. 

As did some lingering economic effects from a 2019 fire at one of energy company's Alberta facilities.

Those are some of the notes of interest from the First Quarter report for the BC based company which ships a large volume of its product out of Prince Rupert's Westview Terminal.

The rail concerns which took place in January and February, make for a significant part of the review of the first three months for company operations.

A January 2020 derailment in B.C. damaged Pinnacle leased railcars and resulted in some lost pellets and ten straight days of cold weather in January caused CN rail disruptions resulting in some facility downtime. 

In February, CN Rail lines and B.C. ports were disrupted by blockades resulting in downtime at the Company's northern facilities; CN Rail disruptions resulted in approximately 20,000 MT of production lost,

Towards the challenges of the first quarter, Pinnacle used some financial measures to address the impact

"The higher costs were partially offset by lower cash conversion costs. During Q1 2020, we sold third-party pellets for a net loss of $0.4 million. Additional production costs were also incurred to manage the impact of the disruption from the CN Rail blockades."

Pinnacle does note that as March arrived, operational progress was realized with solid production volumes and cost performances renewed.

Though the emergence of COVID1-19 in the first quarter has made for a new string of challenges that the company will have to address through its second reporting period to the end of June.

"With the emergence of COVID-19 in Q1 2020 and the resulting supply chain disruptions and international travel restrictions affecting the onsite presence of our external experts, smaller projects have been proactively delayed in order to preserve capital and enforce federal safety standards in light of the pandemic."

Rob McCurdy, CEO of Pinnacle. also noted how the pandemic has impacted on their dividend projections, as well he observed as to how the pressures in the BC Forestry may affect their fibre supply:

"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. 

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."

For the workers at the Prince Rupert terminal, the future should see an increase in activity, with the First quarter report making note of a 15 year leasing arrangement reached earlier this year

As we outlined at the time, the arrangement with the Asian based shipping line NYK will see a dedicated wood pellet carrier service in place for use starting in the first quarter of 2021 when the MV New Pinnacle makes its first port call on Prince Rupert.

Something that should offer increased certainty in shipments out of the Westview Terminal

You can review the full first quarter report here.

More notes on Pinnacle Renewable Energy can be explored here.

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