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Rentech (NASDAQ:RTK)

Q2 2011 Earnings Call

May 10, 2011 1:00 pm ET

Executives

Julie Dawoodjee - Vice President of Investor Relations & Communications

Dan Cohrs - Chief Financial Officer, Executive Vice President and Treasurer

D. Ramsbottom - Chief Executive Officer, President and Executive Director

Analysts

Unknown Speaker

Steve Emerson - Emerson Investment Group

Matthew Farwell - Imperial Capital, LLC

Jeremy Sussman - Brean Murray, Carret & Co., LLC

Operator

Ladies and gentlemen, thank you very much for standing by, and welcome to the Rentech Second Quarter 2011 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded on Tuesday, May 10, 2011. It's now my pleasure to turn the conference over to Julie Dawoodjee, Vice President of Investor Relations at Rentech. Please go ahead.

Julie Dawoodjee

Thank you. Welcome to Rentech's 2011 fiscal second quarter conference call for the period ended March 31, 2011. During this call, Hunt Ramsbottom, President and CEO of Rentech, will summarize our company's progress during the quarter. Dan Cohrs, our Chief Financial Officer, will give the financial review of the fiscal period and provide comments on Rentech's financial position. We will then open the lines for questions. [Operator Instructions]

Please be advised that certain information discussed on this conference call will contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. They can be identified by the use of terminology such as may, will, expect, believe and other comparable terms. You are cautioned that while forward-looking statements reflect our good faith, belief and best judgment based upon current information, they are not guarantees of future performance and are subject to known and unknown risks and uncertainties and risk factors detailed from time to time in the company's periodic reports and registration statements filed with the Securities and Exchange Commission. The forward-looking statements in this call are made as of May 10, 2011, and Rentech does not undertake to revise or update these forward-looking statements except to the extent that it is required to do so under applicable laws.

Now I would like to turn the call over to Hunt Ramsbottom, President and CEO of Rentech.

D. Ramsbottom

Thank you, Julie. Good morning, everyone, and thank you for joining us today. This quarter, we announced strong results and some important news about our development of our biomass projects. The quarter's results reflect the strong market fundamentals for nitrogen fertilizer. We are reiterating our recent increase and our projection for the plant's estimated EBITDA to approximately $75 million for the fiscal year. Dan and I will discuss REMC's bullish outlook later during the call. Because this market looks so attractive, we're evaluating an expansion of the plant. The preliminary indication is that the expansion looks like it could generate very attractive returns on capital. In 2009, we launched our renewable energy strategy, and we're seeing tangible progress in this area of our business. We've made significant announcements about our Port St. Joe Project, changes in our plan for Rialto and our selection for the largest conditional award of Crown timber supplies ever made by the Province of Ontario in its competitive wood supply process. We also exercised our option to take ownership of ClearFuels. Together, these developments have brought a lot of momentum to our business development strategy.

Our Port St. Joe Project is a renewable power project located in the Panhandle region of Florida. It's designed to use our Rentech-SilvaGas biomass gasifier to provide synthesis gas to a combined-cycle power plant. We anticipate the plant will produce 55 megawatts of renewable power for about 930 dry tons a day of woody biomass. We've been tracking this project since our acquisition of SilvaGas in 2009. Now that the project has achieved significant commercial financing and permitting milestones, we've decided that the timing was right for us to acquire the project and take over as a developer. We believe that owning and having control of this project maximizes its chances of success and will have greater value to us than licensing our technology into it. We expect this project to be the first commercial deployment of our Rentech-SilvaGas biomass gasifier with a combined-cycle power plant for renewable power production. We acquired the project from Biomass Energy Holdings for no initial consideration. BEH would be eligible to recover from the project its development costs and a small carried interest in the project when it reaches financial close. The Port St. Joe Project is now our most advanced stage alternative energy project. We have a 20-year Power Purchase Agreement for about 90% of the project's power output. The remaining 10% of the power output will be sold on a merchant basis. 100% of the project's biomass supply is covered under letters of intent from local suppliers. We've signed a detailed term sheet with White Construction for the engineering, procurement and construction work for the project. We're currently completing the engineering activities that enable us to negotiate definitive fixed price, lump sum turnkey EPC contract based on the commercial terms defined in the term sheet.

All preconstruction permit applications have been filed, the draft air permit has been issued for public comment by the Florida Department of Environmental Protection. The documents for the federal environmental review of the project are being written and will soon be ready for submittal. The project is expected to qualify for federal cash grant equal to 30% of eligible project costs under the U.S. Department of Treasury's Section 1603 Grant Program for renewable power projects. This equates to approximately $65 million of cash that would be received within 90 days of the facility's in service date in 2013. The project's total cost is estimated at $225 million, based on feasibility engineering. We've received a detailed term sheet from the DOE for Section 1705 loan guarantee, which would provide the majority of the capital for the project. We're engaged in due diligence, in negotiating of terms and we're working with the DOE to close on financing before the September 30 deadline. The project's relatively smaller size and simplicity maximize its chances of success. The key milestones for Port St. Joe Project under 1705 are as follows: finalize the definitive lump sum turnkey EPC contract in July; turn letters of intent for the biomass supply into long-term definitive supply agreements; begin construction by the end of September. We have a project team dedicated to this project working to ensure that these deadlines will be met on time.

The Rialto Project's application for loan guarantee program is in due diligence review. With the 2 projects, Rialto and Port St. Joe, in the 1705 due diligence process, we were faced with 2 projects that would have been required to start construction by September 30, 2011. We worked with the loan guarantee office of the DOE on the best path for success for the loan guarantees for both projects. We determined that the Port St. Joe Project is better positioned to complete the Section 1705 process and begin construction before September 30, 2011, for all the reasons I discussed earlier. Therefore, in agreement with the DOE, our Rialto Project loan guarantee application was moved into the due diligence phase of the Section 1703 program. This allows the project to have the opportunity for DOE loan guarantee but without the constraints of a deadline to start construction by September 30. The Port St. Joe Project under the 1705 program has a very targeted and aggressive timeline. The Rialto Project under 1703 program has greater flexibility in its timeline, allowing us the opportunity to optimize the project.

With the commercialization of Rentech's biomass of power technology to Port St. Joe, we will focus Rialto on commercialization of our synthetic fuels technology by shifting from the co-production of renewable power and fuels to a maximum renewable fuels configuration. We'll adapt the project's front-end engineering and design work recently completed by Fluor to maximize the fuels production and conduct a competitive RFP process for EPC contractors. We currently expect the Rialto Project will be designed to produce approximately 1,200 to 1,500 barrels per day of liquids, primarily certified for renewable diesel or jet fuel from approximately 1,000 tons of green waste. The final choice between production of jet or diesel will be determined by the highest value that can be commanded in the market for the renewable and low-carbon attributes of the fuels. Our drop-in renewable synthetic diesel is expected to generate a premium in California due to the state's Low Carbon Fuels Standard. Our certified renewable synthetic jet fuel can offer significant value to airlines by helping them to comply with the European Union's Emissions Trading Scheme, which takes effect in 2012. We're currently in discussions with several airlines regarding the potential purchase of fuels from the Rialto Project. We're targeting a financial closing by the end of 2012 for the Rialto Project with the support of a DOE loan guarantee under Section 1703 or with commercial financing.

After working with the Province of Ontario for more than a year, they selected our new Olympiad Project for the largest conditional allocation of Crown timber awarded in its competitive wood supply process. We're excited to be working with the provincial and federal governments of Canada, the First Nation Aboriginal groups and the Township of White River on this project. Canada offers significant government support for the development of renewable energy projects. We're working with Sustainable Development Technology Canada, a federal government program for funding of the project. The Province of Ontario is a world leader in environmental sustainability and has an aggressive approach toward building its clean energy economy, as well as reenergizing its struggling forestry sector. We started a process in the fall of 2009 that led to our submission of a business plan to the Provincial Wood Supply Competitive Process, which is administered by the Ministry of Northern Development, Mines and Forestry. The Ministry decided that our project proposal was the best use for the timber out of more than 100 applicants and awarded us a conditional allocation of up to 1.3 million tons per year. The selection of our proposal is the first step in making the wood supply available to our project. This is significant as the award will put us in control of a reliable long-term supply of biomass for the Olympiad Project. The project is being designed to produce approximately 36 million gallons per year of products, primarily renewable jet fuel.

The Olympiad project, scheduled to be in service in 2015, will be designed using the Rentech-ClearFuels gasification system and the Rentech Process to produce the only type of alternative jet fuel certified for use in commercial aviation today. These technologies will enable us to turn primarily unmerchantable and underutilized timber into clean, renewable jet fuel and create jobs in Northern Ontario, which has been hit hard by the decline of the timber-related industries. We’ve forged a significant partnership with the Pic River First Nations, including equity investment in the project of up to 18%. We're also in the process with the Canadian federal government's SDTC [Sustainable Development Technology Canada] program for funding. After working closely with the SDTC for over a year, our application was formally accepted and is currently in review. If approved, the federal program could fund up to CAD $200 million of the Olympiad Program's development and construction costs, which would be repaid without interest from a percentage of the projects cash flows.

We estimate that the renewable jet fuel and naphtha to be produced at the Olympiad Project would displace approximately 600,000 metric tons per year of CO2 from the atmosphere compared to the same products produced from petroleum, the equivalent of removing more than 100,000 cars from the road. The key milestones for the Olympiad Project are as follows: continue to work with the province to turn the conditional supply of biomass into definitive agreement; work through the SDTC application process to secure up to CAD $200 million of funding; continue to work with First Nations to secure their equity investment in the project; apply for preconstruction permits; work through the engineering and construction phases of the project through EPC and financial closing with a target of completion in 2015; secure a definitive fuel supply agreement. The Province of Ontario, the Township of White River, the First Nations groups and SDTC are all supportive of this project. We have an engineering and project development team dedicated to working on this project.

Turning our focus to ClearFuels. As I mentioned, the ClearFuels gasifier will be included in the design for the Olympiad Project. This gasifier is ideally suited for the project's timber feedstock in the production of fuels. In April, we exercised our option to acquire additional equity in ClearFuels. Upon closing of the transaction this month, we would own 95% of ClearFuels. We're looking forward to working even more closely with a small and very capable ClearFuels team to bring all of our technologies to the market. With the acquisition, we added the ClearFuels gasifier to our suite of energy conversion technologies, which includes the Rentech-SilvaGas biomass gasifier, Rentech's process to produce drop-in fuels from synthetic gas -- from synthesis gas. We can now offer multiple integrated systems to convert a wide variety of cellulosic materials into renewable low-carbon fuels certified for commercial aviation and ground vehicles, all of which qualify for RINs cellulosic fuels. The integration of the ClearFuels gasifier with the Rentech Process at our PDU [Product Demonstration Unit] in Colorado remains on schedule. By the end of this year, we anticipate producing certified renewable jet and diesel fuels at the facility for biomass. With the successful demonstration of the ClearFuels gasifier PDU, we will be able to offer to market another integrated solution to transform biomass into high-value products. ClearFuels is developing biomass to energy projects in southeastern U.S., Hawaii and internationally that would use the integrated Rentech-ClearFuels design to be co-located at sugar mills and wood processing facilities. ClearFuels is in active negotiations with Hawaiian Electric Company for a long-term conditional off-take contract for renewable diesel for power generation. The fuel would be produced at ClearFuels proposed Hawaii project that would utilize the ClearFuels gasification process and Rentech's fuels technology to produce synthetic diesel from bagasse. For our Natchez site, we continue to work on the project that would use multiple feedstocks, including biomass. We're having detailed discussions with large-scale resource holders who could provide biomass and fossil feedstocks for the potential project.

Now turning our attention to REMC. Our nitrogen fertilizer business continues to generate strong cash flow. Strong global grain demand and crop economics supported by low-grain inventory levels have contributed to a robust environment for nitrogen fertilizer demand and prices. Product margins are very attractive due to relatively low and stable natural gas prices. We are reiterating our guidance for REMC's 2011 EBITDA of approximately $75 million. We continue to see strong demand as we are already signing pre-sale contracts for delivery in the fall of '11 and early 2012. The feasibility study to evaluate the possibilities to expand REMC's production and increase efficiency of the plant is well underway. Preliminary results indicate that the output of the plant could be expanded very efficiently and profitably.

Dan will now provide more details on REMC and our financial performance for the period. Dan?

Dan Cohrs

Thank you, Hunt. As Hunt said, REMC's outlook for fiscal year 2011 is very strong. We expect a record EBITDA of approximately $75 million compared to the previous record of $65 million and compared to $32 million in 2010, which reflected product prices that had been set during the recession. Results for the second fiscal quarter and for the first 6 months were substantially better than last year, with year-to-date EBITDA up almost $24 million from last year. The results reflect higher volumes of delivered product and the significant rebound in nitrogen fertilizer prices.

Consolidated results for the second quarter are as follows: revenues were up about 23% to $23.6 million this quarter, up from $19.2 million last quarter. That reflects increased volumes, as well as higher prices across the board for REMC's products. Gross profit increased significantly from $3 million up to $10.2 million. The net loss declined from a loss of $16 million down to $7.6 million, which meant that net loss per share declined from $0.07 to $0.03. SG&A was up about 9% for the quarter, reflecting a few additional headcount and some additional back-office type expenses, some increased professional services, and all of that was partially offset by declines in stock-based compensation. R&D was up more significantly. We showed a 49% increase in R&D from $4.5 million up to $6.7 million. That reflected mainly operations at the PDU. We operated the PDU for significantly more days this quarter after our winterization of the PDU. We had some plant modifications and repairs that run through the R&D line, and we also had $444,000 of expenses due to the consolidation of ClearFuels.

Results for the 6-month period showed similar trends, with revenue up 42%, SG&A up 7%, R&D up 51% and other expenses for the 6-month period increased mainly due to the loss on extinguishment of debt that we recorded when we increased the size of our term loan back in November. We ended the quarter with consolidated cash of more than $77 million. At REMC, we saw the average delivered price per ton at very favorable levels for ammonia. The average price this quarter was $589 per ton compared to $368 a year ago. UAN [urea ammonium nitrate] deliveries averaged $201 per ton, up from $176 a year ago. And we're seeing prices in the market today that are higher than those second quarter delivered prices. Spot prices are at about $650 for ammonia and above $350 per ton for UAN. We've now delivered or locked in about 80% of our expected product sales for fiscal 2011 and the natural gas required to produce those products.

For the first 6 months of fiscal 2011, we had consolidated EBITDA of $2.9 million, and REMC generated $28.4 million of EBITDA. We continue to project that REMC's EBITDA for fiscal year 2011 will be approximately $75 million. Our budgeted activities for fiscal year 2011 are fully financed. These activities include continued project development, including development of the Port St. Joe Project; operation of the PDU; continued research and development of the Rentech technologies; and funding of general working capital needs. We do expect to close on additional capital during fiscal 2011 to provide funds for construction of the Port St. Joe Project.

We are also actively working with our financial advisor to investigate refinancing the 2010 credit agreement. The loan market today is very liquid, with lower interest rates and more attractive terms than those that were available as recently as November, when we restructured the REMC term loan. We believe we may be able to take advantage of more attractive terms available in the market today. Of course, we cannot assure you that any such transaction will take place, but we're very encouraged by the strong market conditions.

Several of the projects that Hunt discussed will produce renewable synthetic fuels, and these fuels are expected to qualify for RINs as fuel made from cellulosic feedstocks. These RINs, or Renewable Identification Numbers, can add a lot of value. A RIN is a serial number attached to a gallon of renewable fuel for the purpose of tracking production, use and trading, as required by the U.S. EPA's Renewable Fuel Standard, or RFS, implemented under the Energy Act of 2005. Fuel marketers, blenders and obligated parties receive RINs for each gallon of renewable fuel that they buy, then they turn them into the EPA to demonstrate their compliance with the mandates for blending of renewable fuels under the RFS. There are 5 categories of renewable fuels under RFS2: cellulosic biofuel, biomass-based diesel, advanced biofuel, renewable fuel and cellulosic diesel.

Our fuels produced at the Rialto Project and any other project using our technologies to produce renewable fuels from cellulosic biomass will qualify for RINs for each gallon of renewable fuels produced. The number of RINs assigned per gallon is based on the energy content of the fuel compared to ethanol, and our fuels have about 70% more energy per gallon than ethanol. The value of these RINs has increased significantly over the last year. Currently, they're trading at about $1.25 per RIN. Based on today's price per RIN and our estimated production of 1,200 to 1,500 barrels per day of cellulosic fuel, the fuels at the Rialto Project would generate in the range of $30 million to $40 million annually in potential RIN value.

We intend to sell the renewable jet fuel to be produced at the Olympiad Project into Canadian domestic markets, which allow us to take advantage of Canadian renewable fuels requirements, including programs that currently provide for up to $1 per gallon of fuel credit. In addition, airlines flying into Europe will be incentivized to use our Low Carbon Fuels as an alternative to the EU Emissions Trading Scheme carbon tax, which becomes effective in 2012. The Olympiad Project will also be designed to generate about 40 megawatts of renewable power. Considering the project's needs for power, we expect to effectively be selling about 20 megawatts of net renewable power at or near the published feed-in tariff rate of $136 per megawatt hour.

I'll now turn it back to the operator, and then Hunt and I will answer questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Jeremy Sussman from Brean Murray.

Jeremy Sussman - Brean Murray, Carret & Co., LLC

You mentioned, Hunt, obviously, dynamics are quite favorable for the fertilizer market right now. Prices are high. Natural gas prices are low. So on that front, when do you think we may hear something more definitively on the potential expansion at REMC?

D. Ramsbottom

I would say probably next quarter's call would be the time that we would be more definitive about it. We have completed, I would say, the early scoping and feasibility. We're now going into more detailed engineering on it for the next 2 or 3 months. And as I said, we're very encouraged about it, and we want to present it to the board, and then I think by the next quarterly call we'll be in a position to talk in more detail about it.

Jeremy Sussman - Brean Murray, Carret & Co., LLC

Okay. And any chance of locking in gas prices a bit longer term given that we're in just above $4 right here? Any thought on that?

Dan Cohrs

Hey, Jeremy, it's Dan. We have actually restrictions in the credit agreement on the amount of gas hedges we can put in place. So I think you know our policy is basically to lock in margins on product tons as we sell them under pre-sale contracts. So we've continued with that policy. As we forward sell the product, we lock in gas to produce that product. But to go beyond that, we're taking a pretty definite view on gas prices, and we don't tend to do that ourselves, and we also do have restrictions in the term loan about going further than that.

Jeremy Sussman - Brean Murray, Carret & Co., LLC

Okay, no, no, understood. And then just as a follow-up, is there any way you can give us a broad set of kind of financial parameters as to how we should be looking at Port St. Joe? I know we have something like that for Rialto, but just trying to get a sense for that.

Dan Cohrs

Yes, here's the -- we put out very detailed numbers on Rialto very early on, and we've decided we're not going to do quite so much detail quite as early on with some of these other projects. What we can tell you is that we think the returns are acceptable. They would be financeable and attractive if we go forward with that project, as we go forward with that project. We just, at this point, are not quite ready to put out detailed guidance.

Jeremy Sussman - Brean Murray, Carret & Co., LLC

Okay. Well, we look forward to that when you can.

D. Ramsbottom

Yes, we absolutely will. And we know folks in the marketplace want this. And there's other reasons, we're still in some negotiations with EPC contractor and others, and I think it's lessons learned along the way. So as long as we can -- we know it's frustrating to investors, but as long as we can do this and get more finely tuned while we're finalizing EPC, it’s also more prudent for the company.

Jeremy Sussman - Brean Murray, Carret & Co., LLC

Okay. No, understood, and I'll go back in queue.

Operator

And our next question comes from the line of Matt Farwell from Imperial Capital.

Matthew Farwell - Imperial Capital, LLC

Just interested in what you're seeing for fertilizer pricing next year since you're considering expanding the facility. Do you have a view of whether or not the levels will plateau here or remain high? Or do you have kind of a macro outlook there?

Dan Cohrs

Hey, Matt, this is Dan. We haven't put out specific forecast, as company forecast, but what we can tell you is if you look at the standard forecasting service for prices in the Midwest, which is Blue, Johnson. They show spot prices coming down a little bit in 2012 compared to 2011 levels. I would also note that if you can access the Blue, Johnson and looked at those prices that even though the spot prices may decline a little bit, that doesn't necessarily mean that delivered prices for REMC would go down. Because remember in 2011, we're still delivering product that was priced last year during the pre-sale season last year. So as I said earlier, the delivered prices for REMC in the second quarter are averages of prices that have been set over the last months. And so our average delivered price today is below today's spot price. So even if spot prices come down a bit in 2012, which is what Blue, Johnson does forecast, that doesn't necessarily mean that REMC's delivered prices would go down on average.

Matthew Farwell - Imperial Capital, LLC

Okay. And also, regarding your capital structure, you mentioned the $225 million price tag on the Port St. Joe facility requiring -- to require say, $40 million in equity capital. I guess how are you thinking about your capital structure? You’re looking at refinancing the term loan. Are you thinking about going to the high yield markets or perhaps using the equity markets?

Dan Cohrs

We are looking, as we've said, we are looking at restructuring the term loan. The term loan market is very liquid, and terms are much more attractive even than a few months ago. And so we think we can significantly increase the proceeds from that term loan, and sitting here right now, we don't think we really have a need to access the equity market to handle the Port St. Joe Project.

Matthew Farwell - Imperial Capital, LLC

Okay. So it sounds like you'd be looking to sort of debt finance those capital needs? Would internal cash flow also contribute to the equity commitment?

Dan Cohrs

Well, a combination because if we are able to restructure that loan, we would be able to bring some cash flow up out of REMC along with incremental loan proceeds.

Matthew Farwell - Imperial Capital, LLC

Okay. And I guess last question is, do you have sort of a bogey of what the IRR might be on the Port St. Joe Project?

Dan Cohrs

Not that we're putting out publicly yet.

Operator

[Operator Instructions] And our next question comes from the line of Robert Polak [ph], private investor.

Unknown Speaker

Just a quick question on St. Joe, I understand you're not giving details there. But when we think about the revenue line, beyond looking at the power prices in Florida, is there any renewable credit we should be thinking about or adding to that price of power there? Or is Florida not a renewable state at this point?

Dan Cohrs

Well, it's the power revenue only. There's no separate renewable credit that you can add. I mean, every -- all the pricing of all of that is embodied in the PPA.

Unknown Speaker

Okay, okay. And on the last call, when you were just talking about Rialto, you did highlight that the federal funding on DOE loans where prior, maybe 12 months ago, you were thinking 80%, those levels have maybe come down 50% to 60% [indiscernible]. Can you just comment on -- I guess I'm curious, is that on -- is that percentage, though, would that be considered on the total capital cost or on the capital cost less the grant?

Dan Cohrs

That would be on a percentage of the total project costs. The Department of Energy program has specific definitions of eligible project costs, and so you would have to be -- to be really precise, you would have to go through that. But it's very close to all of the project costs, including total installed costs and soft costs. There are a few items that are not included in eligible costs, but it's very close to the total project costs. And what we've said is the program authorized up to 80% leverage, but we're not seeing the DOE approve up to 80% leverage. So the capital structures are being more conservative. So we don't expect that we would get 80%. We would get something less than that.

Unknown Speaker

Okay, okay. And it sounds like the grant that you mentioned, that could be given 90 days after the project is complete. Is that after the project is completed or once construction begins? Just help us think the ability to finance that grant ahead of time.

Dan Cohrs

The Treasury cash grant, the way that program works is you apply before construction and you qualify. Then, when the project goes into service, you notify the Treasury Department, and then they send you your check within 90 days. So it's after the project is in service, when the cash comes in. So we believe that, effectively, that we would be able to sort of pre-borrow that amount of money during construction.

Operator

And now our final question comes from the line of Steve Emerson from Emerson Investment Group.

Steve Emerson - Emerson Investment Group

Well, congratulations for a great quarter and excellent update on all your projects. Recently, one of your competing single plant fertilizer companies floated an MLP at about, call it, an 11% yield. Applying these metrics to REMC, let's say at $65 million EBITDA, we could have a value of $600 million or, call it, $3 a share in value. Pure financial engineering would lead to the conclusion that the renewable fuels business be sold or spun out and the REMC be basically value recognized for shareholders, which as I said, could be $3 a share assuming no value for the renewable fuels. I'm curious to what extent you've given this serious thought recently.

D. Ramsbottom

We are fully aware of the transaction that you're talking about, Steve. And as we've always said along the way, we're always evaluating REMC and the value that it has to our corporation and the shareholders. So we understand what they've done, we understand the metrics, and given those metrics, we certainly understand the value of REMC assuming those metrics would apply to us, which is no guarantee. It's a very different plant that has a guarantee locked in supply of petroleum coke through gasification. So they have a different feedstock supply than we do. We have the volatility of natural gas. They do not, and it's a much larger plant. That being said, I do agree that there is some value locked up there, but I wouldn't say it's apples to apples here. So as we've always said, we evaluate these opportunities and talk to the board about it, and it's our obligation to do so.

Steve Emerson - Emerson Investment Group

Could you give some flavor as to the incremental expansion and cost you're talking about for REMC? I know you did say earlier that you didn't want to give definitive detail, but can you give range and ballpark?

D. Ramsbottom

We could, but we prefer to talk to the board first before the shareholders. So all I can tell you is that so far, it's showing us very attractive returns, which is why we're proceeding forward with it.

Steve Emerson - Emerson Investment Group

And finally, the MLP, floating the MLP public to fund or an MLP dividend yielding MLP at 9x or 10x EBITDA floating a vehicle like this public to fund both the expansion of REMC and fund your negative cash flow at the parent company level is -- to what extent is this in the front burner or a likely possibility?

D. Ramsbottom

I don't think we can comment, but all I can do is tell you that these activities in the marketplace don't go unnoticed here. So we certainly look at it and we've got some very astute bankers around us and we look at these things and we have to look at these things. There's significant value creation over there at CDR. And like I said, it's our obligation to look at these and bring it to our board and shareholders.

Operator

Mr. Hunt Ramsbottom, I'll now turn the call back to you for your closing remarks.

D. Ramsbottom

Thank you. So in summary, we've made significant progress in our renewable energy strategy, with all of our announced projects having a biomass component. It's clear that the immediate and future value of alternative energy, both domestically and internationally, will substantially be driven by low carbon opportunities. Our unmatched, fully integrated value chain enables us to target multiple biomass feedstocks for the production of both renewable, certified fuels and power. Our other business segment, REMC, is benefiting from strong market fundamentals for nitrogen fertilizer. The plant's bullish outlook for this year and beyond have prompted us to look into an expansion of the plant, which looks like it could generate a very attractive return on capital. We look forward to sharing with you our continued progress in our alternative energy and fertilizer segments, and we'll speak with you tomorrow at our annual shareholders meeting. Thank you all for your time.

Operator

Thank you, sir. Ladies and gentlemen, that does conclude the conference call for today. We thank you all for your participation and ask that you please disconnect. Thank you once again. Have a great day.

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