Agrium Announces Closure of Kenai Nitrogen Facility
Tuesday September 25, 5:37 pm ET
ALL AMOUNTS ARE STATED IN U.S.$
CALGARY, ALBERTA--(MARKET WIRE)--Sep 25, 2007 -- Agrium Inc. announced today it is closing its Kenai nitrogen fertilizer operations due to a shortage of natural gas supply in Alaska's Cook Inlet. Agrium has diligently attempted to encourage development of natural gas supply and to negotiate contracts for 2008 and beyond. Despite these efforts, and after offering what it believed to be competitive prices and incentives, Agrium was unable to secure gas supply.
It is estimated that the facility will contribute approximately $6-million in EBITDA in 2007 and account for less than one percent of Agrium's total 2007 EBITDA. The facility produced about 325,000 tonnes of urea and ammonia in 2007 during the five months it was operational, with the shutdown expected by month-end. It is expected the resulting reduction in nitrogen supply will further tighten the global nitrogen market in 2008.
Agrium purchased 53 billion cubic feet (BCF) of natural gas in 2001 and this supply has steadily diminished to only 10 BCF in 2007. The book value of the asset was written down in 2003 and shutdown costs were accrued at that time, therefore no further impairment charge is required. Incremental costs associated with the shutdown are expected to be less than five cents per share. Agrium's plant was shutdown for the winter period of 2006/2007 but no layoffs occurred. Closing the facility will result in the lay-off of over 100 employees.
"It is a sad day for us to have to close this facility which has added much value to the Alaskan economy for the past 40 years. It has been a major supplier to international markets in the Pacific region and was Alaska's third largest exporter in 2006, despite running at 50 percent of capacity," said Mike Wilson, President and CEO of Agrium. "Our employees at Kenai have been the key to the success of the operation. Had it not been for the natural gas supply situation in the Cook Inlet, we would not have had to make this difficult decision which will impact our employees, customers and the community."
Agrium continues to work on the feasibility of a coal gasification project to use coal as a feedstock instead of scarce natural gas for the Kenai facility. A decision on whether to proceed with the next stage of the project is anticipated later this year. The earliest the proposed facility could be operational is 2012.
Agrium Inc. is a major Retail supplier of agricultural products and services in North and South America, a leading global Wholesale producer and marketer of all three major agricultural nutrients and the premier supplier of specialty fertilizers in North America through our Advanced Technologies business unit. Agrium's Wholesale capacity is over five million tonnes of nitrogen products, over two million tonnes of potash and over one million tonnes for phosphate. Agrium's strategy is to grow across the value chain through acquisition, incremental expansion of its existing operations and through the development, commercialization and marketing of new products and international opportunities. Our strategy places particular emphasis on growth opportunities that both increase and stabilize our earnings profile in the continuing transformation of Agrium.
In the discussion of our performance we make reference to EBITDA (earnings before interest expense, income taxes, depreciation, amortization and asset impairment). We consider EBITDA to be a useful measure of performance because income tax jurisdictions and business segments are not synonymous and we believe that allocation of income tax charges distorts the comparability of historical performance for the different business segments. Similarly, financing and related interest charges cannot be allocated to all business segments on a basis that is meaningful for comparison with other companies.
EBITDA is not a recognized measure under GAAP, and our method of calculation may not be comparable to other companies. Similarly, EBITDA should not be used as an alternative to cash provided by (used in) operating activities as determined in accordance with GAAP.
Source: AGRIUM INC.
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