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Executives

Julie Dawoodjee - Vice President of Investor Relations & Communications

Dan J. Cohrs - Chief Financial officer, Executive Vice President and Treasurer

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

Analysts

Unknown Analyst

Lucas Pipes - Brean Murray, Carret & Co., LLC, Research Division

Pavel Molchanov - Raymond James & Associates, Inc., Research Division

Joseph Pratt

Matthew Farwell - Imperial Capital, LLC, Research Division

Rentech (RTK) Q4 2011 Earnings Call December 15, 2011 2:30 PM ET

Operator

Welcome to the Rentech Fourth Quarter and Fiscal Year End 2011 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, December 15, 2011.

I would now like to turn the conference over to Julie Dawoodjee, Vice President of Investor Relations. Please go ahead, ma'am.

Julie Dawoodjee

Thank you. Welcome to Rentech's 2011 Fiscal Fourth Quarter and Full Year Conference Call for the period ended September 30, 2011. During this call, Hunt Ramsbottom, President and CEO of Rentech, will summarize our company's activities during the year. Dan Cohrs, our Chief Financial Officer, will give a 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 December 15, 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 law.

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

D. Hunt Ramsbottom

Thank you, Julie. Good morning, everyone, and thank you for joining us today. We're ending 2011 as a financially strong company with a solid balance sheet and we're well positioned in both our energy and fertilizer businesses. Today, we have a strong cash position, we own 61% of Rentech Nitrogen valued at approximately $400 million.

We expect to receive cash distributions of approximately $54 million from Rentech Nitrogen in fiscal 2012. We are significantly reducing our operating and project costs. We expect to build on our cash position during this coming fiscal year. We're currently expanding our fertilizer business and seeking further expansions and growth opportunities in that segment. And we have changed our approach to energy project development, looking only at high return investments that do not require significant spending from us before all the financing and/or partners are in place.

On November 9, we closed the initial public offering of Rentech Nitrogen Partners, which is a Master Limited Partnership we formed to own, operate and expand our nitrogen fertilizer business. We own 100% of the general partner of Rentech Nitrogen, which means that we will continue to manage that business. In the IPO, we priced 15 million common units at $20 per unit, raising $300 million in gross proceeds and establishing an initial market value of $765 million.

We completed the IPO process within 3 months of the filing of the registration statement. We believe that we're able to have a successful IPO during a challenging market due to strong sector fundamentals and our position within the market. We believe that, that asset was undervalued under the previous structure as a wholly-owned subsidiary of Rentech and the current valuation of the fertilizer business now supports that view.

Prior to the announcement of the contemplated IPO, the market cap of Rentech as a consolidated company was $218 million. As of yesterday, the market capitalization of Rentech, which now owns approximately 61% of Rentech Nitrogen was approximately $365 million and the market capitalization of Rentech Nitrogen is about $665 million.

A portion of the net proceeds of the IPO were used to repay the plant's debt removing the restrictions that had previously limited our access to the cash flows from the plant. Now, under the current structure, we're entitled to receive approximately 61% of the plant's cash available for distribution. Our expected distribution for 2012 is forecasted to be approximately $54 million. We received approximately $137 million in connection with the close of the IPO, which brought our cash position to roughly $200 million at that time.

Based on our current forecast, we expect to build cash as we receive distributions from Rentech Nitrogen in fiscal 2012 absent any unplanned investments, debt repayments or acquisitions. We're on the path to reduce our cash spend outside the fertilizer business by approximately 40% from fiscal year 2011 with the expectation of further reductions.

Our balance sheet is the strongest it's ever been. We intend to maintain our strong liquidity position by being very cautious and deliberate about any capital deployment with a focus on relatively small projects and attractive returns for any investments that we may make. In August, we started to implement a business strategy to reduce the amount of capital we're willing to invest in order to deploy our technologies and commercial projects and to be much more open to partners and their technologies.

The strategy evolved from our recent experience of attempting to develop commercial projects designed around the United States' Department of Energy funding opportunities for our technologies. Historically, our strategy focused primarily on getting our technologies into the marketplace through the DOE loan guarantee programs. The impetus for the investment into these projects was to try to take advantage of what appeared to be inexpensive capital through government stimulus programs and to get debt finance to commercialize our technologies.

As we all know, the DOE programs, which initially appeared to be well designed to promote commercialization of technology like ours, did not work out as expected. Today, our approach to investing in energy is very different, one that is relatively low risk and conservative with a focus on smaller sized investments with attractive returns. We believe the opportunity exists to create shareholder value in the energy space through partnerships, investments and/or acquisitions. We recognize the market is challenging. We intend to be very cautious in our approach and seek targeted investments in a conservative manner.

We're looking at opportunities to invest in projects or companies that may include technologies other than ours. And we will prioritize these investments that can accelerate cash flow in the short to medium term in our energy business. Our current strategy centers on projects or investments that are both partners to share the development and capital funding as well as defined, incredible financing options. This is different from our previous approach. We do not intend to fund expensive development activities such as front-end engineering and design for development projects on our own. But we may co-invest alongside partners when financing for a project that's in place and our investment is limited.

For example, we may seek to invest in projects that would combine our biomass gasification technologies with third-party technology for the production of renewable fuels or power. In which case, Rentech's investment may be intended to fund the commercial deployment of a gasifier, which would require $30 million to $40 million and be contingent on a complete financing package for that project.

Our expenses for the project development before finance -- before financing package is in place and are expected to be no more than a few million dollars per year. And the number of projects is expected to be limited. We also do not intend to rely on the Department of Energy financing for commercial projects. Consistent with the strategy, we're pursuing initial development activities and seeking partners for our Olympiad Project in Northern Ontario. In the fourth quarter of 2011, we abandoned our large-scale projects that relied on DOE funding. It impaired the assets that had been capitalized in connection with these projects. We do not intend to pursue projects like these in the future.

Our current R&D activities are focused on completion of the Integrated Bio-Refinery project at the Rentech Energy Technology Center in Denver. The successful completion of the IBR project is important as it will demonstrate the Rentech-ClearFuels biomass gasifier at demo scale, which is a necessary step in order for the gasifier to be considered for commercial and licensing opportunities.

Additionally, our application for assistance of the CAD $200 million with the Canadian federal government for our proposed project is tracking the IBR project. As part of the DOE grant terms, we're required to operate the IBR for a minimum of 2,000 hours which will take place through early April 2012. At the completion of the demo, we'll assess whether additional testing or demonstration is required at the PDU. We're currently in discussions with large companies and educational government entities who do have interest in potentially funding our R&D related activities and that PDU and IBR are viewed as assets that have value.

We're reducing project development expenses and related overhead with the expectation to cut cash spend in alternative energy by 40% from fiscal year 2011 with a potential for further reductions. Our capital expenditures in alternative energy were $16 million last year, the vast majority of which was capitalized project development expense [ph]. This figure is currently budgeted at $0 for 2012. If we identify a compelling opportunity that meets the investment criteria I laid out, we would consider investing in [indiscernible].

So in summary, we know the alternative energy sector is challenged. We'll be thoughtful and patient with our new operating paradigm, much like we were thoughtful and patient and analyze how best to create value from our fertilizer business.

In our fertilizer business, we intend to consider acquisitions related to our assets and expertise that may benefit from the partnership structure of Rentech Nitrogen. We believe our liquidity currently gives us significant leverage in negotiating transactions and that undervalued assets may be available for acquisition. Our objective in any acquisition is to achieve returns on investment appropriate with that type of investment.

We currently have 2 expansion projects underway at Rentech Nitrogen, each with returns currently projected above 20%. [indiscernible] tons annually and on-site ammonia storage capacity by 20,000 tons by the end of calendar year 2013. The other project entails increasing urea production by 17,500 tons annually and installing equipment to enable the production and sale of diesel exhaust fluid or DEF. The urea expansion and DEF build up project is expected to be completed by the end of 2012.

The plant recently completed its biannual turnaround as well as the replacement of catalyst tubes in the steam methane reformer. The plant is in excellent condition and benefiting from the investments we've made over the past 6 years.

Rentech Nitrogen's results for the year 2011 exceeded our public guidance due to the strong demand, favorable product prices and low natural gas cost. We continue to see positive agricultural fundamentals and economic incentives for farmers to plant corn and use nitrogen fertilizer to increase yields. Pricing is relatively strong for the nitrogen fertilizer products in the Mid Corn Belt, which has historically been the top corn producing region in the United States.

Rentech Nitrogen has delivered or entered into prepayment contracts for approximately 77,500 tons of ammonia and approximately 120,000 tons of UAN, which accounts for 59% and 47% of estimated deliveries for the respective products during 2012. Rentech Nitrogen has already purchased or contracted, at fixed prices, for those natural gas required to produce that product. With natural gas cost expected to remain at lower levels, we expect gross margins to remain healthy due to low input costs and favored product pricing.

Dan will now give you future details and our results for the period. Dan?

Dan J. Cohrs

Thank you, Hunt. Good morning, everybody. Our liquidity position today is strong. We have cash of almost $200 million at the closing of the IPO of Rentech Nitrogen on November 9. With the projected distributions, we expect to end fiscal 2012 with more cash than we have today, absent any new investments for acquisitions or repayment of debt.

Rentech's financial results reflect the consolidated results of our alternative energy business and Rentech Nitrogen. Since the period end September 30, the results do not reflect the IPO and repayment of Rentech Nitrogen's term loan. I'll start with the results from the fourth quarter consolidated basis.

Revenues, which of course were driven by Rentech Nitrogen, were up 10% from the quarter a year ago, mainly due to higher sales prices and strong demand for products. Shipments were slightly lower, which I'll talk about in a second. The gross profit margin was up very significantly. 45% gross margin in this quarter compared to 23% gross margin in the quarter a year ago. Those margins are adjusted for turnaround expense, we incurred $4.4 million of turnaround expense in the most recent quarter and there were no turnaround expenses in the quarter a year ago.

SG&A on a consolidated basis was down year-over-year by 28% from 7.1% last year to 5.1% this year. R&D expenses were up 9.6% this year versus 6.3% last year, that primarily related to the ClearFuels Integrated Bio-Refinery project, which was under construction at the technology center in Denver through the end of this period.

During this quarter, we also recorded noncash loss on asset impairments equal to $58.7 million, that related to the Natchez, Rialto and Port St. Joe projects. That was partially offset by $7.9 million where we reduced -- where we reversed a liability that had been on the books related to the conversion project back in the days of REMC.

This all led to a net loss of $59.1 million. On a per share basis that's $0.27, adjusting for the one-time items or the nonrecurring items, the loss on impairment, the reversal of that liability and we would've recorded $0.04 per share loss, which is the same loss that we had in the year ago quarter.

Focusing on the fertilizer business for a second. As I mentioned, tons delivered this quarter were down from the quarter a year ago. We delivered 18,000 tons of ammonia compared to 35,000 tons last year and 77,000 tons of UAN compared to 100,000 tons last year. That's due to the fact that we had a turnaround this year, in this quarter, whereas there was no turnaround in the prior quarter. The turnaround does affect our production, but the big effect is that we cannot ship product while the plant's down for a turnaround.

As you know, this business is very seasonal and the fourth fiscal quarter is usually not a strong one. We typically ship the highest volume during the spring planting season, which occurs during the quarter ending June 30. The next highest volume is shipped after the fall harvest during the quarter ending December 31.

Prices were up significantly from last year. In the most recent quarter, the average ammonia price per delivered product was $636 per ton, up significantly from $398 per ton a year ago. UAN prices averaged $298 per ton, up significantly from the $168 recorded a year ago. Gas prices in the quarter were actually slightly higher than the gas prices a year ago, but that really reflects timing of gas purchases and also timing of how those gas costs flow through inventory and then into cost of goods sold. We all know gas prices are actually lower than they were a year ago in the marketplace, and that will show up in our annual results.

Focusing on the entire fiscal year for 2011, the trends are very similar. Revenues were up almost 37% driven by higher sales prices in the ammonia business. We delivered fewer ammonia tons and more UAN tons this year in order to capture higher margins on UAN. The gross margin comparison is very similar to the quarter, 45% gross margin this year versus 24% last year. That number is adjusted for turnaround expenses but turnaround expenses were virtually flat, so it had very little effect.

SG&A on a consolidated basis was flat year-over-year at $28 million. R&D was up from $19.6 million last year to $30 million this year. That's almost solely due to the IBR project, the Integrated Bio-Refinery project, which is the ClearFuels gasifier construction in Denver.

The noncash loss for impairments, of course, shows up in the annual numbers, $58.7 million. That all brings us down to a loss per share of $0.29 for the year, if you were to adjust for those nonrecurring items that is the loss on impairment, the reversal of the liability and the debt extinguishment costs, we would have recorded $0.04 loss for the year, that's an improvement from last year's loss of $0.18 per share.

I mentioned that tons delivered were lower for ammonia, higher for UAN. This year we delivered 125,000 tons of ammonia, down from 153,000 last year. UAN deliveries were up at 315,000 tons compared to 294,000 last year. The pricing comparisons for the full year are very similar to the patterns for the quarter. Ammonia was at $5.88 per ton, up from $3.77 in the prior year. UAN was at $2.69 per ton, up from $1.80 from the prior year. And gas prices in our P&L declined to $4.76. The year ago comparison was $4.95 per million BTU.

Rentech Nitrogen has reiterated guidance for its projected annual distributions of $2.34 per unit for the fiscal year ended September 30, 2012 before any debt service. We're currently in discussions with a lead lender and arranger for a term loan to finance the ammonia expansion. But given the timing of that syndication and the need to keep the project on schedule, Rentech may provide the initial debt financing for the expansion as a bridge loan to a syndicated term loan.

For Rentech's energy segment, excluding Rentech Nitrogen, we expect to build cash as we receive distributions from Rentech Nitrogen in fiscal year 2012, absent any unplanned investments, debt repayment or acquisitions. At the close of the IPO, we had approximately $200 million of cash and $57.5 million of debt at the parent.

We expect to receive approximately $54 million in cash distributions during fiscal 2012 because of our ownership in Rentech Nitrogen. Those distributions will initially attract very little corporate tax as we have about $90 million of NOLs to offset the income allocated to us by the partnership. If we use the NOLs or if they expire, then our income, including the income that we get from Rentech Nitrogen, would be subject to corporate tax.

So in closing, the key elements of our strategy going forward are these: We intend to support and expand the fertilizer business. The most obvious and immediate opportunity we have to create shareholder value is to be sure that the ammonia expansion at the plant goes forward. So we intend to use our corporate resources to support that project.

We also believe there will be opportunities to take advantage of the MLP structure to expand the partnership's cash flow through additional expansions and acquisitions. As I said, we may use our corporate structure and cash to facilitate those investments.

Number two, we will reduce spending in our energy business. Our cash spend in energy should be down about 40% from last year to an estimated $40 million in 2012. SG&A before noncash comp expenses will be down slightly, R&D will be down more than 50% and CapEx will be down about 85%, because we will not be spending on large capitalized projects. As we complete the ClearFuels Integrated Bio-Refinery operations that are required by the DOE grant, we will then assess the need for more operations and the status of our R&D partner funding. And then we'll decide if we would continue to operate the demo plants and whether we would bear any additional costs ourselves.

Number three, a different approach to development. We will not commit large sums to expensive project development. Any commitments that we make beyond low-level, initial development expenses will be made only after financing is in place for any project. We expect to work with partners who will share the funding in development. We will not be doing more projects like Natchez, Rialto and Port St. Joe, where we took on all of the development spend in order to try to meet government deadlines for financing.

Number four, we will consider smaller scale investments with development partners. We'll focus on smaller investments possibly as part of larger projects developed by partners. We'll not develop large integrated system on our own. We may focus on individual technologies like our gasifiers combined with technologies and capital provided by others. We will look at acquisitions that can benefit from our technical and operating expertise and that have cash flow.

Number five, we will look at partnerships for R&D. Our PDU and our technology center can be very valuable assets for any partner who needs to prove a technology at demo scale. And we've showed that with our ClearFuels transaction in the past. Several potential partners are very interested in collaborating R&D at our center in Denver. We do not believe that we need to continue funding all of the R&D ourselves.

Number six, disciplined use of cash. Our spending will go down, and we expect our cash balance to go up. Again, absent any investments that we don't know about today. We'll require any investments to show attractive projected returns appropriate for the type of investment. And our priority is to create value for shareholders by deploying the capital that we have patiently and wisely.

I'll 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 Matt Farwell from Imperial Capital.

Matthew Farwell - Imperial Capital, LLC, Research Division

Just a question on R&D. You're talking about what I read as about a $15 million predicted R&D expense in fiscal '12. Could you give us any more color on what expense might look like in fiscal [indiscernible] or what the run rate look like once the [indiscernible].

D. Hunt Ramsbottom

You're really breaking up, Matt. I don't know if that's our line or your line. Dan, did you hear that?

Dan J. Cohrs

I think we got the question. Let me just repeat it. You were breaking up badly, Matt. I think your question is we said that R&D expense should be down more than 50% in 2012. And you're asking what that run rate would look like.

Matthew Farwell - Imperial Capital, LLC, Research Division

I'm asking about the sort of what will the R&D expense be in the second quarter, so that I can back into a run rate once the DOE project ends in April at PDU.

Dan J. Cohrs

Here's what we're saying. We expect that R&D expense will be down and we said more than 50%. In 2011, the R&D number is about $30 million. So we expect it to be down by 50%. Now what we're saying in that press release is that assumes that we complete the requirements under the DOE grant, in other words, we will continue to operate the Integrated Bio-Refinery and the gasifier and the PDU and that's what that's based on. Then as we near the end of that project, we're going to decide what we need for R&D going forward. And we also will decide who will be funding it. What we're explaining here is we're in negotiations with partners who are interested in funding R&D at our facility. We do not expect to just go forward at that run rate on our own and continue to fund R&D at that level.

Matthew Farwell - Imperial Capital, LLC, Research Division

Okay. So the R&D [indiscernible].

D. Hunt Ramsbottom

Matt, I apologize, but you're breaking up so badly, we can't really hear you.

Matthew Farwell - Imperial Capital, LLC, Research Division

Is that better? So you -- so there is a possibility that R&D expense would continue but it would be funded by a partner but it's possible that in future years, the R&D line could remain at a $15 million level.

Dan J. Cohrs

It's very unlikely. The other fact that we put in the press release is that if we continue to operate those facilities for the second half of the year, the cost would be $6 million to $8 million, okay. That's if they operate and if we pay for it, the cost of operating those facilities would be $6 million to $8 million. But we're trying to emphasize that we don't yet know exactly what operations are required and we don't intend to pay for all that ourselves.

Matthew Farwell - Imperial Capital, LLC, Research Division

Okay. Another question is on potential projects. You had mentioned in prior meetings that there may be some targeted projects and potentially an acquisition of a project or a company that would generate cash flow as soon as the second fiscal quarter. Can you sort of update us on what targets or how -- do you have definitive targets at this point? Or else, in the next earnings call, will we sort of be discussing the similar sort of -- I'm not sure what the right word is, nebulous but not quite concrete plans for uses of cash?

Dan J. Cohrs

Well, acquisitions always sound nebulous until you're ready to announce them, and the problem is we're not at a point where we can announce one of those. We can tell you we are engaged with targets, but we're just not at a point where we can announce anything like that.

D. Hunt Ramsbottom

And I think the second part is more concrete use of cash next quarter, we certainly believe so. We alluded to we may loan capital to RNP, so there will be a lot more clarity on all of that. Because I think -- we've just completed this 45 days ago, so these are things that are just now we have the ability to start focusing on now that we actually have the cash and separated the companies. So we expect we'll be able to get more clarity knowing that -- granted that the next call, I think, is early February. But I think some of these things we'll be able to provide more clarity on at that point. That's the goal.

Matthew Farwell - Imperial Capital, LLC, Research Division

Okay and then just last question, I asked about the potential bridge financing on the other call, but what would the time frame be? How long would that bridge financing take in order to bridge to the syndication, would it be 4 to 6 months?

Dan J. Cohrs

Here's our plan. We are in the final stages of negotiating the major contracts for the ammonia expansion, so we would propose to our board that we would put that bridge loan in place very quickly, as soon as those contracts are signed. So that could be done in the very near future. We would expect that syndication process to be completed in the very early spring. Let's say February, possibly March, to complete the syndication process. If the syndication process is complete, we would immediately take out the bridge loan. But we will design the bridge loan with plenty of flexibility so that the project, the RNP, or Rentech Nitrogen Partners, knows that project can go forward.

Matthew Farwell - Imperial Capital, LLC, Research Division

Okay and would there be any interest in looking towards a more longer-term use of that cash as an investment in RNF or would you prefer to have that taken out with the term loan?

Dan J. Cohrs

Well, I think our first thought is to take it out with the term loan because we think there are going to be attractive terms in the market for commercial debt. We will, of course, have to make that determination at the time. But we're not averse to using our capital at the parent to ensure that the fertilizer business and the partnership expand this cash flow.

D. Hunt Ramsbottom

And there may be other opportunities like this, where the relationship is symbiotic, where we can work together like this and going forward, if that's the question.

Operator

Our next question comes from the line of Pavel Molchanov from Raymond James.

Pavel Molchanov - Raymond James & Associates, Inc., Research Division

Regarding the renewable energy projects, is there kind of a best case scenario for when the first one might be up and running, assuming the timing and the financing works out in the best possible way?

Dan J. Cohrs

I think if you're talking about an actual new project, you're going to be looking at probably a 2-year construction period, if it's a real project. If it's an acquisition of course, which is some of the things that we're looking at, the acquisitions that we're looking at right now have cash flow.

D. Hunt Ramsbottom

That would be 12 months or less in terms of up and running.

Pavel Molchanov - Raymond James & Associates, Inc., Research Division

Okay. Have you looked at the possibility of acquiring an existing operating asset for purposes of retrofitting using your technology?

D. Hunt Ramsbottom

Yes. We actually have. We find a number of those opportunities out there with folks that may have feedstock and an asset there that may be shut down in the paper and pulp industry, for instance. There's lots of opportunity like that globally, where you can partner and have feedstock and have those folks partner both on feedstock and capital. So those are the types of things, and there's others out there in the marketplace. Those are the types of things. And frankly now that we've had -- now that we have these other projects and DOE time lines behind us, we have the time to spend to really understand what those projects look like and the return profile. And I think the risk profile is much lower on those types of opportunities.

D. Hunt Ramsbottom

Let me just add one thing there. We would look at operating assets with a possibility of converting, but we're also looking at operating assets that might not use our technology. So an operating asset that has cash flow that in some way we can improve. So if we can bring something to bear to improve that asset or negotiate a good deal to acquire it, we're open to that. It's not solely limited to deploying our technologies. There may be -- one of our targets here is to find assets that could also benefit from the MLP structure and try to work somehow to take advantage of the currency that we have.

Dan J. Cohrs

And I'll say, in addition to this, I think it's important for everybody to understand what we don't do is critical. And I think since we do have this luxury of a balance sheet and 2 public currencies already in the first 45 days, we've got significant opportunities out there. And we are going to be very diligent and patient in how we look at these opportunities, because I think it will be just as important what we don't do as what we do, do.

Pavel Molchanov - Raymond James & Associates, Inc., Research Division

Understood. And just a quick housekeeping item. Following the IPO and I'm not sure whether the greenshoe was exercised or not, but what's the precise percentage that RTK owns in RNF?

Dan J. Cohrs

61% today.

D. Hunt Ramsbottom

Yes just short of 61%, and the greenshoe was not exercised. Given the conditions in the market since then, the underwriters did not have a chance to exercise the greenshoe.

Operator

Our next question comes from the line of Lucas Pipes with Brean Murray, Carret.

Lucas Pipes - Brean Murray, Carret & Co., LLC, Research Division

Kind of when we look at your PDU, I understand that it really brings together a number of different technologies that I think all have merit in and of themselves, could you maybe walk us through the various pieces that you bring together there?

D. Hunt Ramsbottom

I think we have this -- I think everybody in this space has I'm sure this internal discussion we have every year. We know it's an R&D center, we know it's a great asset and when you look at it, the investment dollars we put in that, and now I think it's become more clear that it's not a straight line when you're in that business. And I'll give you a great example where the latest runs that we're having right now, we're running off the steam methane reformer on Run 12 and we're having exceptional results right now on our catalyst and our yields. And now as we move off the steam methane reformer to the ClearFuels gasifier, which is starting up as we speak, the integrated solution which if you think of the marketplace today of course, low gas cost, and we've been doing gas-to-liquids for 3 years, and now switching over to biomass and sugarcane to gas [ph], the next integrated solution we'll have there is just that running woodchips and sugarcane separately and together over the next, call it, 90 days, 120 days to have the first integrated solution as we can see in North America, if not the world, producing jet fuel on a fully integrated solution from feedstock right through end product on both diesel and jet. And so that's been, I would say, a very successful relationship with the Department of Energy. In fact, I think they say it was the first project -- first IBR project that came in on time and on budget that they funded. So that is the current technology that is underway there and just based on customer inquiries globally, we're hopeful that, that will turn into some opportunities for -- if not the whole integrated solution but certainly the gasification technology.

Dan J. Cohrs

Let me just add one thing there to that, some of the partners that we're talking about to help fund any R&D that we do. Some of those partners are interested in our existing technologies, which of course is our biomass gasification and synthetic fuels. Some of those partners are interested in bringing other technologies to the PDU. So the theme would be, it's all centered around thermomechanical or thermochemical version of substances in the fuel or power, but it's much broader than just our technologies. We're talking to partners who want to bring other technologies, because the fact that we have the facilities there actually are very attractive to other parties to bring their technologies and then jointly do R&D and jointly fund R&D.

Operator

Our next question comes from the line of Josh Collinson [ph] with Millennium.

Unknown Analyst

So if I'm reading the release right, it looks like you're still going to have almost $20 million in SG&A at RTK next year, and I'm just curious as to how that breaks down given there's no operating business anymore.

Dan J. Cohrs

Well, there are several operating businesses, right? There's a fertilizer business and we're operating the facilities in Denver. So, I mean, there actually are operating businesses.

D. Hunt Ramsbottom

There's still engineering that has R&D, there's still development, even though scaled down, and there's still folks that will be looking for these opportunities we described.

Unknown Analyst

And that equates to $20 million? I mean, is any of that allocated to RNF or how does that work?

Dan J. Cohrs

Yes, there is some SG&A allocated to RNF.

Unknown Analyst

In addition to the $5.8 million you say is for RNF. The 20 or so at RTK is actually for RNF?

Dan J. Cohrs

No, no. I'm saying there is a portion of SG&A allocated to RNF, right? We have several senior executives who are shared executives. Part of their time and part of their compensation is allocated to RNF. We have people below that level who spend a lot of time in our accounting and legal departments on matters that relate to the partnership. Some of their compensation and expenses will be allocated down to RNF. So there are expenses allocated to RNF.

D. Hunt Ramsbottom

As I think as I said in my portion of the call, we expect that number to continue to trend down.

Unknown Analyst

Okay. And then I guess, I think you guys did a pretty good job in the release laying out the book value of the company, which seems to me to be obviously materially above where the stock is currently trading, just based on the numbers in your release, somewhere north of $2 between your stake in RNF and your cash on the balance sheet, especially it doesn't look like you're kind of burning through any cash in the next 12 months most likely. So I would hope that on your list of capital commitment opportunities, one of them could and should be buying back an extremely undervalued stock.

Dan J. Cohrs

We're well aware that, that's a possibility and we're not ruling anything out. I think what we are saying is we do see possible uses for the cash including supporting the expansion within the partnership. So that's our first priority. We do think there may be other possibilities, but we're not ruling anything out. If we do not believe that we can deploy that capital in a way that's going to help the shareholders, then we may consider using that cash for other purposes such as a share repurchase.

Unknown Analyst

Okay. Good. I would hope so, because it seems like a pretty prudent use of it given how materially undervalued your stock is, especially as I'm sure you guys have seen what it's done today for no apparent reason.

Dan J. Cohrs

Absolutely, and I think what we're trying to convey here is we're very aware of that. But we also don't want to make any decisions that are really too hasty here. We have things that we're trying to accomplish. Those things do take a little bit of time, but we are very aware of the kind of thoughts that you're talking about there.

Operator

Our next question comes from the line of Eric Ward [ph] with [indiscernible] Management.

Unknown Analyst

I just wanted to follow up on the SG&A question a little bit and kind of try to better understand, when I look at what you guys did just purely Rentech, excluding Rentech Nitrogen for the fourth quarter, it looks like you were at a run rate of about $3.3 million for the quarter. That compares to the $20 million annually that you're kind of implying in your guidance. So can you help me try to understand how you go from the fourth quarter run rate to what you guys are talking about for the full year?

Dan J. Cohrs

There was -- it's a little difficult to understand all the trends here without backing out the noncash comp. The run rate in the fourth quarter was affected by noncash comp and it's hard -- since we haven't disclosed all the detail here, it's hard to make this tie out perfectly for you.

Unknown Analyst

Is there any additional detail that you can provide to help us kind of understand what -- why the 2012 SG&A is as high as it is?

Dan J. Cohrs

Yes. I think -- we'll work on trying to disclose more detail. I'm a little hamstrung here because we haven't disclosed it. So let us try to figure out a way that we can give you better granularity on SG&A. I mean we can't just start making new disclosures on the call here.

Unknown Analyst

Okay, well let me ask a slightly different question, can you talk about how about much of that SG&A is specifically devoted to people who are looking at some of the new investment opportunities and acquisition opportunities that you talked about, maybe how many people you have at corporate who are specifically focused on those tasks?

Dan J. Cohrs

I don't think we can give you all the -- that level of detail, but what we have disclosed is that the entire corporate organization consists of about 115 people, most of those people are in Denver, operating the assets there. So we have by far the bulk of those people operating the PDU and now the gasifier and they're engineers and people actually doing things like developing catalysts. The actual headquarters employees that you might be thinking of as SG&A here are probably less than 25 people.

Unknown Analyst

And going forward, is there -- do you see opportunities to reduce the cost structure? Especially as you kind of move away from some of the legacy projects that you guys have been working toward?

D. Hunt Ramsbottom

Yes, I mean, I said that in my prepared remarks that we've already reduced 40% and I said we're continuing to identify more.

Operator

Our last question comes from the line of Joe Pratt with Wells Fargo Advisors.

Joseph Pratt

I guess if you add up your cash and the RNF it's 240. The reasons for the discount, I think, is the historic pattern of quite a bit of a capital being applied to biomass, let's just say, unproductively. What do you think about -- and that's just a remark, what do you think about the strategic idea that you just simplify things here and say look, we got this great nitrogen producing asset. Its biggest raw material cost is natural gas. Natural gas is down, so what we try to do here is buy 20 year live natural gas reserves and basically shut everything else down and then take some cash and between here and the end of the year do a stock buyback, because a lot of the people have talks while [ph] selling, it's a horrible market and it's such a discount to the NAV.

D. Hunt Ramsbottom

Did you say biogas reserves?

Joseph Pratt

Yes. I mean, strategically does that make sense because isn't that your biggest input?

D. Hunt Ramsbottom

Well, it is. But I think that's a business we certainly haven't been in and we certainly would look at those types of opportunities. And I think that's what we've alluded to here. I think, again, in my prepared remarks say we're going to be thoughtful and deliberate. I think if you played back what we did in the fertilizer segment. Let's go back even further when we bought the fertilizer asset and gas was at $12, ammonia was at $2.80. And we were running shutdown scenarios on that plant. So I think I've cautioned the team, I've cautioned the board and I'll caution investors that, certainly things have changed in the marketplace, but I think people have already seen, just from the last few days, how quickly the products' pricing can soften. Now, we do like the business, which is why we've kept it. And I will tell you that we spent the better part of 2 years studying the trends in this. And we publicly stated that we looked potentially of selling the asset, all or a portion of it. And then we finally ended up with this structure, which we think was the appropriate structure and the best return for our shareholders for that asset through better part of 1.5 years of really understanding the marketplace. That kind of delivered approach, I'm not saying we're going to take 1.5 years, 2 years, but I think that where we ended up in the fertilizer business was the right decision, and we'll continue to explore the things that you've articulated and others in the energy space. And I would just go back and I say that it's -- today, the technology investment has not been deployed, but I'm caution to say it's wasted capital. Time will tell whether it is. But I would say that, again, the approach we take in energy will not be the accelerated [ph] approach we took. And having all your eggs in a single entity which is volatile is also an interesting place to be. So I cautioned you, granted gas prices have changed, but that business can also change dramatically. That's also a commodity business.

Joseph Pratt

I guess I was thinking on the gas not to be on an active manager, but let's say one of the securities firms, some Anadarko needed -- was doing a $500 million deal and needed an extra $100 million from a passive investor that in effect you'd lock in your -- if there were going long, buying long-term natural gas reserves, in effect, you're locking in your costs through your most important input.

D. Hunt Ramsbottom

Yes, those are things that we will absolutely look at. I think we'll look at, I think, different opportunities in the energy complex, let's put it.

Joseph Pratt

I just know if my mother were chairman of the board, she'd be saying, "Joe, try to buy as much stock as you can before the end of the year at $1.40."

Operator

Mr. Ramsbottom, there are no further questions at this time. I will now turn the call back to you.

D. Hunt Ramsbottom

Great, thank you. Just in closing, 2011 has been a transformative year for Rentech. By unlocking the value of our fertilizer business through a publicly traded MLP structure, we've greatly increased shareholder value at Rentech. Our liquidity position has been enhanced with significant cash in our ownership, and Rentech Nitrogen provides us with an equity in a publicly traded entity, as well as a vehicle for ongoing cash flow from anticipated distributions. We've been executing on our strategy, reducing our cost structure and diligently evaluating opportunities to grow both businesses to ensure the capital is deployed conservatively and in opportunities that will maximize shareholders returns. We look forward to joining with you on our next call in the next quarter. Have a great holiday.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Thank you very much.

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