Pinnacle Renewable Holdings Inc. (TSX: PL) is the parent company of operating company Pinnacle Renewable Energy Inc. (“Pinnacle” or “the Company”). Pinnacle is one of the world’s leading manufacturers and distributors of industrial wood pellets, which are used by large-scale thermal power generators as a greener alternative to produce reliable baseload renewable power. Pinnacle has entered into long-term take-or-pay contracts with customers in the UK, Europe and Asia that represent 106% of its production capacity through 2021 and nearly 98% of production capacity through 2026. The Company currently operates seven wood pellet production facilities throughout western Canada, and one production facility in Alabama. Pinnacle’s Canadian production facilities are all located on major rail lines allowing for efficient rail transport to one of two shipping terminals on the B.C. coast: Pinnacle’s wholly-owned Westview terminal in Prince Rupert, and the Fibreco Terminal at the Port of Vancouver. The Company’s Alabama production facility utilizes shipping facilities on the U.S. Gulf Coast. Pinnacle takes pride in its industry leading health and safety practices.
Pinnacle is the world’s third largest producer of industrial wood pellets. With seven production facilities in Western Canada linked by rail to, ocean shipping terminals on the B.C. coast, as well as one production facility in Alabama with convenient access to ocean shipping via the U.S. Gulf Coast, Pinnacle is one of the only wood pellet suppliers with the scale and capability to serve major global utilities. Pinnacle is a trusted supplier of these utilities, which are expected to drive future growth in demand. Hawkins Wright, a leading, independent industry research body, forecasts that demand for industrial wood pellets will have a compound annual growth rate of 17.7% from 2016 through 2021.
Pinnacle has established vertically-integrated operations throughout the western Canadian and the U.S. southeastern fibre baskets from wood fibre procurement contracts through to shipping contracts with reputable shippers. Pinnacle’s operating flexibility, strategically located production facilities, terminal operations and constant focus on operational efficiency combine to create a cost advantage relative to competitors. The Company is a lowest-quartile cost supplier to rapidly growing markets in both Europe and Asia.
Pinnacle has signed long-term, take-or-pay contracts with major utilities and power generators that represent 106% of its production capacity through 2021 and nearly 98% of production capacity through 2026, resulting in highly predictable cash flows. As at June 29, 2018, the Company’s contracted backlog was $5.4 billion, an increase of 80% from $3.0 billion in contracted backlog at the end of Fiscal 2017. Year-to-date in 2018, Pinnacle has entered into six new long-term supply agreements totalling approximately 735,000 metric tons per annum in Japan and South Korea.
Pinnacle has established a strong track record of developing, constructing, commissioning and operating new production facilities, as well as expanding or converting existing production facilities, on-time and on-budget. The Company’s most recent production facility development – Entwistle – was completed in just 15 months, which was on schedule, and capital costs were at the mid-point of the Company’s 4.0 x to 5.5 x capital cost to run-rate EBITDA target range. Pinnacle’s newest production facility in Smithers, B.C. is scheduled to commence production in Q4 2018, providing further production growth. Several additional project development opportunities are currently being evaluated by Pinnacle.
Pinnacle’s financial performance has improved significantly since Fiscal 2014, with growth in profitability exceeding top-line growth due to increased scale. Adjusted EBITDA has increased at a compound annual growth rate (CAGR) of 46% since Fiscal 2014, Adjusted Gross Margin has increased at a 35% CAGR, and Revenue has increased at a 13% CAGR (to year-end 2017).
Pinnacle’s management team has a combined 35 years of experience in the wood pellet industry and more than 125 years of experience in the industrial sector. The team has a track record of driving growth in production, productivity, and profitability while maintaining industry-leading safety standards.
Hawkins Wright, a leading, independent industry research body, forecasts that demand for industrial wood pellets will have a compound annual growth rate of 17.7% from 2016 through 2021.
Through increasing capacity at its existing production facilities, the construction of the Company’s new Smithers Facility, as well as the addition of other greenfield and brownfield projects, Pinnacle expects to grow its industrial wood pellet production proportionately with increasing global demand.
In addition to organic growth opportunities, Pinnacle will pursue acquisition opportunities, or other strategic initiatives, in Western Canada or other jurisdictions, such as the U.S. Pacific Northwest, Eastern Canada and the U.S. Southeast, to further diversify its asset base, leverage its strong development and operational expertise, and capture increased market share. The Company recently entered the U.S. Southeast through its acquisition of a 70% stake in an industrial wood pellet plant in Alabama.
Pinnacle currently operates seven wood pellet production facilities throughout western Canada, and one production facility in Alabama. Pinnacle’s Canadian production facilities are all located on major rail lines allowing for efficient rail transport to one of two ocean shipping terminals on the B.C. coast: Pinnacle’s wholly-owned Westview terminal in Prince Rupert, and the Fibreco Terminal at the Port of Vancouver. The Alabama production facility utilizes inland waterways to cost-effectively transport pellets for ocean shipping via the Port of Mobile on the U.S. Gulf Coast.