Third wood pellet plant goes bust — on same Nova Scotia property

January 11, 2017

By: Chronicle Herald

It’s déjà vu all over again in Middle Musquodoboit as former wood pellet plant operator Scotia Atlantic Biomass Company’s assets go up for grabs.

The Vancouver-based Viridis Energy subsidiary is in receivership.

“There are booms and busts and sometimes the weak don’t survive,” Sean MacNeil, a senior manager with Halifax-based receiver Grant Thornton, said in an interview Tuesday.

Scotia Atlantic Biomass picked up the wood pellet plant in 2012 and began operating it the following year. But the company, which was selling to European markets, was hit hard by a global downturn in wood pellet prices.

The commodity, primarily for industrial users, was going for $180 per tonne only a few years ago and has since fallen to roughly half of that.

“There’s a global oversupply of pellets,” said MacNeil. “Depending on the quality, they may be $80-$90 per tonne.”

At those prices, Scotia Atlantic Biomass was losing money and it ceased production in July. Viridis Energy tried to sell the plant with the help of Maine-based Future Metrics during the summer and received about 30 offers but none of those was considered credible.

On Nov. 23, Grant Thornton was appointed to be the receiver.

According to MacNeil, the wood pellet operator owes Cornwall Investments roughly $6 million. But there is no dollar value being put on the sale of Scotia Atlantic Biomass’ assets, including the buildings, machinery and 157 acres of land and its woodlot licence. With that, the plant could produce up to 150,000 tonnes of pellets annually.

The deadline for investors to bid on the wood pellet plant’s assets is Feb. 28.

If all of this seems all-too-familiar, it’s because it is. This is the third time a forestry products company on that site has gone into receivership.

It was there that the MacTara lumber mill, the biggest such operation in Atlantic Canada only 17 years ago, used to employ 340 people and created jobs for another 210 people through contractors, John MacLellan, the company’s timber manager, told a standing committee on economic development in Halifax in 2000.

MacTara added the wood pellet facility to use its two sawmills’’ sawdust and bark. But when lumber demand softened and one of the company’s biggest customers went bankrupt, the lumber giant also ran into trouble.

In 2007, MacTara filed for bankruptcy.

German-owned Enligna North America picked up those assets, got a Crown licence to secure more wood fibre, and began making wood pellets with the help of a $2.77-million shot in the arm from Nova Scotia Business Inc.

But only three years later, Enligna shut down too. It had failed to drum up enough business.

Through the sale of Enligna’s assets, receiver PriceWaterhouse Coopers managed to get enough money to ensure the government’s loan to Enligna was all but paid off. Nova Scotia Business recouped about $2.71 million, a loss of slightly more than $60,000.

A Nova Scotia Business Inc. spokeswoman said Tuesday the organization no longer has any stake in that pellet plant.

David Boyd, a senior vice-president at PriceWaterhouse Coopers, said in an interview Tuesday that Enligna’s Achilles’ heel was its inability to secure a suitable supply of wood fibre.

“You have to have a long-term supply of fibre to ensure you can produce your pellets (at a competitive price),” said Boyd.

Even after the demise of three forestry companies on that property, Boyd is still confident the wood pellet plant could be a viable business operation.

“The best (operator) in this case would be someone who owns a large sawmill or craft mill . . . someone who is vertically integrated,” he said.

Companies like Northern Pulp Nova Scotia Corporation or Port Hawkewsbury Paper might have the capability to feed the pellet plant with enough wood fibre, he said.

At Grant Thornton, MacNeil agrees the best use for the property is very likely to keep it as a pellet plant.

“It’s in good working order,” he said. “Some machinery needs to be repaired but it’s in good condition overall. There’s quite a solid business case for that mill. It depends on how much you have to pay for the wood fibre.”

The receiver said Tuesday there have been “interested parties” asking for information about the wood pellet plant but he could not divulge either their identities or how many of them there were.

The wood pellet industry as a whole is hurting because a long-anticipated European growth in demand for pellets simply fizzled out.

Future Metrics president and founder William Strauss sized up the situation in a white paper on the company’s website.

“Growth in demand for industrial wood pellets is currently on hold,” wrote Strauss last June. “The forecasts from several years ago showing an excess of 20 million tonnes per year of demand by 2016 were wrong.

“Those forecasts did not anticipate the changes in the policy environment that underpins the use of wood pellets in place of coal in large power stations. The policy changes in the U.K. have eliminated many of the projects that were expected to be using wood pellets,” he wrote.

By: Chronicle Herald

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