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Rentech, Inc. (NASDAQ:RTK)

F3Q08 Earnings Call

August 11, 2008 1:00 pm ET

Executives

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

Douglas M. Miller - Interim Financial Officer, Chief Operating Officer, Executive Vice President

Dr. Harold A. Wright - Senior Vice President and Chief Technology Officer

Julie Dawoodjee - Director of Investor Relations

Analysts

Michael Molnar - Goldman Sachs

Jeremy Sussman - Natexis Bleichroeder, Inc.

[Brian Gambel] - Simmons & Company International

Pavel Molchanov - Raymond James & Associates, Inc.

[Robert Kasevis - Alla Enterprises]

[Zack Holcom] - Private Investor

[Hal Liner] - Private Investor

[Bill Tody] - Private Investor

Operator

Welcome to the Rentech 2008 fiscal third quarter conference call. (Operator Instructions) I would now like to turn the conference over to Julie Dawoodjee, Director of Investor Relations.

Julie Dawoodjee

I would like to welcome all of you to Rentech’s 2008 fiscal third quarter conference call for the period ended June 30, 2008. Before we begin our prepared marks I would like to cover some administrative aspects of this conference call.

Hunt Ramsbottom, President and CEO of Rentech, will provide opening remarks. Dr. Harold Wright, Chief Technology Officer of Rentech, will discuss our technology, and Doug Miller, our Chief Operating Officer and Interim Chief Financial Officer, will give a fiscal review of the third quarter and will provide comments on Rentech’s financial position. We will then open the lines for questions and ask that you limit your call to one question so that we may get to as many questions as possible.

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 beliefs 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 August 11, 2008 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

As you’re all aware we recently achieved a significant milestone in our company’s history with the completion and operation of our synthetic fuels facility. Given the importance of the Rentech process and our commercialization efforts, today’s call will be focused on our technology. All of us here at Rentech are very proud of the fact that we are now producing synthetic fuels at our Product Demonstration Unit or PDU in Commerce City, Colorado. We believe having the only operating synthetic transportation fuel facility in the country provides us with a competitive advantage. With the PDU operational we can provide synthetic fuels and chemicals for testing and also exhibit a fully integrated Fischer-Tropsch operating facility to potential customers, licensees and partners. This accomplishment would not have been possible without the support of investors, employees particularly of the operations team led by Doug Miller, and the technical team led by Dr. Harold Wright. Dr. Wright is a world renowned leader in Fischer-Tropsch technology, development and commercialization, having been responsible for the development of several synthetic fuels facilities.

With the PDU now completed the Rentech technology is instrumental in moving our commercialization efforts forward. Dr. Wright and his team are working very closely with our development efforts to serve the technology and business needs of our potential customers, licensees and partners. Just since the start-up of the PDU we’ve been contacted by several significant potential customers and licensees who have informed us that they’re firming up their project plans to use our technology. We have seen significant international interest in our technology and have received inquiries regarding potential opportunities to deploy our technology from regions including India, China, Australia and Europe.

In addition we continue to progress on our commercial pipeline which includes are proposed Natchez facility.

I would now like to turn the call over to Dr. Wright who will describe the Rentech process and how our operating facility will better position Rentech to sign contracts with the customers, licensees and partners.

Dr. Harold A. Wright

As Hunt mentioned we now have a successfully operating small scale synthetic fuels facility. The PDU will play a critical role in strengthening Rentech’s commercialization efforts. Rentech’s PDU is the only synthetic fuels facility in the United States today producing transportation fuel. With the PDU operating we have demonstrated successful design, construction and operation of a fully integrated synthetic fuel facility utilizing the Rentech process. The Rentech process is a patented and proprietary technology that converts synthesis gas from practically any carbon-bearing resource into hydrocarbons that can be processed and upgraded into ultra-clean synthetic jet and diesel fuel, specialty waxes and chemicals.

Rentech’s Colorado facility provides the platform for the production of products from a wide variety of resources into fuels that could significantly reduce or even eliminate the carbon footprint. These fuels are also substantially cleaner burning than petroleum-derived fuel. The PDU is current producing synthetic fuels from natural gas and once gasification is added, it will also be capable of producing fuels from biomass and other resources. We have space at the PDU to add gasification and we have material handling equipment and storage silos already in place on site. We are currently speaking with several gas product suppliers for potential placement at the PDU.

The flexibility of the Rentech process lies in our iron-based catalyst which works well with a wide variety of syngas composition thus enabling our process to use a variety of feedstocks. In addition, the ingredients of our proprietary iron-based catalyst are relatively inexpensive and more economical to use than other catalysts. Our catalyst is also non-toxic and does not require hazardous disposal handling.

The PDU provides us with valuable engineering, design and process knowledge that will be transferred to the planning and construction of commercial scale facilities. Also we believe the design of the PDU will verify the engineering parameters for scale up to commercial operation. I’ve been asked many times, “How does Rentech plan to go from 10 barrels per day of production at the PDU to a commercial scale facility?” The answer lies in the diameter of the reactor. The height of the reactor determines the amount of the time [inaudible] and the syngas needs to successfully react with the catalyst inside the vessel. The height of the PDU reactor provides the proper reaction time. Our reactor of PDU size produces the same chemical reaction condition as a commercial reactor with a larger diameter. Therefore, to process additional syngas with the catalyst to produce more products only the width of the reactor needs to be expanded. The width of the commercial reactor will be extended to a size that we have determined will enable ease of logistics, fabrication, transportation, and modular scale up. The reactor size of the PDU produces the same multi-phase glow regime as in the commercial sized reactor. This means the syngas, the wax and the catalyst each flow in the same manner in the PDU reactor as they do in a commercial unit. We have detailed models of the reactor performance that can be validated from the PDU experience and will be highly predictive for commercial design.

I am confident we can successfully scale our reactor technology to a large commercial scale. To produce at a commercial scale we will utilize multiple reactors at a single facility. For example, a 30,000 per day barrels plant is expected to require eight commercial scale Rentech reactors identical in height as the one at the PDU but with larger diameters. The Rentech process uses a slurry bed column reactor which is simpler in design, less expensive to build and operate, and also provides for an easier scale up than the alternative fixed bed reactor. Additionally, a slurry bed reactor provides better product yields than the alternative.

The Rentech catalyst resides in the reactor along with the wax. Syngas enters and bubbles through the reactor. Wax-like long hydrocarbons are produced which exit the reactor and flow to the separator where the hydrocarbon wax is separated from the catalyst. The catalyst is then recycled back into the reactor. The hydrocarbons are then upgraded into jet and diesel fuels utilizing new OP upgrading technology. We have successfully demonstrated this process at the PDU.

What have we already learned and what firsts have already been accomplished at the PDU? Well, Rentech has operated for the first time an integrated facility. Prior to the PDU Rentech and its partners had only successfully performed the various individual steps in the production process at separate locations. At the PDU we noticed upon start up that the Rentech reactor that our iron-based catalyst was more active and had higher productivity than we had anticipated based on our smaller scale testing. This means that our catalyst has demonstrated greater efficiency and yielded more product than predicted.

We were also able to produce a quality of syngas at the PDU that is typically created from solid feedstocks. We believe this demonstrates the Rentech catalyst can successfully react with syngas streams from a wide variety of feedstocks including natural gas, biomass and fossil based resources. At the PDU we have now also demonstrated the operation of our proprietary catalyst wax separation system at scales above the laboratory and pilot scale. This is also the first time that large commercially relevant quantities of Rentech catalysts have been manufactured in cooperation with large commercial catalyst vendors. This is significant because it means that we can have our catalysts mass produced to our specifications for commercial scale requirements.

You can see that we’ve already accomplished many critical elements necessary for the commercialization of the Rentech process at the PDU. Going forward with the PDU successfully operating, we will focus on confirming and refining the design parameters of the Rentech process during longer term production runs as well as the effect of various operating parameters on product yields and composition. We’re doing a significant amount of work in preparation for commercialization of the Rentech process. We have commenced commercial discussions with fabrication shops to manufacture the Rentech reactors. We’re also moving forward to create a commercial design package. In July we launched a major engineering program with Jacobs Engineering to assist us in completing a full Process Design Package or PDP and a reactor design process package for the Rentech process. This effort will allow us to have a completed process and reactor design that can proceed to detailed engineering. This work will not only enable us to have a design package ready for commercial projects but it will also allow us to optimize the capital costs for our process in more detail.

We are developing relationships with world class technology leaders to provide a complete commercial offering. The work we are doing with Jacobs Engineering Group, Inc. is one example as they are one of the world’s largest and most diverse providers of engineering and construction services. We have also recently created a marketing alliance with UOP to provide a one-stop solution to developers of commercial synthetic fuels facilities worldwide for synthesis gas conversion and product upgrading.

The PDU is located at our Rentech Energy Technology Center in Commerce City, Colorado. At this site we have built a sophisticated computer data center that allows us to operate much of the facility from a central control room and enables us to conduct online analyses of feed, gases and product streams under different operating conditions. We have consolidated our Denver operations and all of our research and development activities at this site.

The results at the PDU have exceeded our expectations. Technology and engineering have been at the core of the company. We have now more closely aligned these efforts with our commercialization activities to bring the Rentech process to the market place.

With that I’ll turn the call back over to Hunt.

D. Hunt Ramsbottom

I’d now like to spend a few minutes talking about our ammonia fertilizer facility, Rentech Energy Midwest Corporation or REMC. REMC produces nitrogen products that are in high demand by the American farmer and other industrial users. Our products are critical in the production of corn and other coarse grains and play an important role as the United States does its part to improve record low levels of global grain inventories. Demand for our products remains extremely high with selling prices significantly higher than this time last year. Eastern Iowa experienced record rainfall during the spring planting season which reduced application of UAN and ammonia in the region. However, the weather did not have any meaningful financial impact on REMC due to our ability to move product beyond our normal trade zone at or above our budgeted levels.

According to the USDA demand for planted corn acreage is expected to remain high, estimated at over 90 million acres in 2009 up from 88 million acres in 2008. As a result of this continued robust demand as well as strong product pricing we are increasing our expected 2008 EBITDA guidance for REMC to $50 million or greater. We’re also expecting REMC in 2009 EBITDA to exceed fiscal 2008 levels.

I look forward to your questions in a few moments, but first I’ll turn the call over to Doug Miller who will provide details on our financial performance for the period.

Douglas M. Miller

During the third quarter of fiscal year 2008, which I’ll refer to as FY08, we generated revenues of $60.4 million and a gross profit of $17.6 million. This compares to revenues of $50.4 million and a gross profit of $9.2 million in the corresponding period FY07. This represents a 59% increase in gross margin. During the current quarter we reported a net loss applicable to common shareholders of $7.8 million a loss of $0.05 per share for the quarter compared to a net loss applicable to common of $6.9 million or $0.04 per share in the corresponding period of last year.

During the first nine months of FY08 we generated revenues of $136.4 million and a gross profit of $35.8 million. This compares to revenues of $102.7 million and a gross profit of $13.8 million in the corresponding period in FY07. This result is a 95% increase in gross margin. We reported net loss to common of $54.0 million a loss of $0.33 per share for the period compared to a net loss applicable to common of $32.8 million or $0.22 per share in the same period FY07.

Selling, general and administrative expenses were $26.1 million during the first nine months of FY08. That’s up $4.3 million from the corresponding period last year when these expenses were $21.8 million [inaudible] or $2.6 million of the current period increase while consulting costs accounted for $1.1 million and professional fees accounted for $0.7 million. These increases were partially offset by declines in stock-based compensation, public company [inaudible] quarter ended March 31, 2008.

Research and development expenditures during the first nine months of FY08 were $53.9 million as compared to $27.2 million during the same period last year. Most of these expenses related to the design, procurement of equipment, and construction of the PDU which accounted for 72% or $38.9 million of the current period R&D expenses. Construction of the PDU was completed in the period and these expenses are not expected to recur going forward. Post-construction efforts including commissioning and start up expenses during the first nine months of FY08 were $10.1 million. The remaining $4.9 million of the period’s R&D expenses are related to catalyst and process development work which we believe represents the level of technology development spending we can expect going forward. Through the end of the third fiscal quarter, construction costs for the PDU were approximately $83 million.

Operating expenses for the first nine months of FY08 included an impairment charge of $9.3 million related to the postponement of the REMC conversion project. This impacted earnings per share for the period by $0.06 per share. We do not expect to incur a similar charge in fiscal 09. During the first nine months of FY08 REMC generated operating income of $32.8 million and net income of $32.9 million. This is before an intercompany management fee of $1.8 million.

As of June 30, 2008 we had cash, cash equivalents and available for sale securities of $49.4 million. This amount includes $4.4 million of auction rate securities of which is net of $3.8 million in advances from a line of credit backed by these securities.

Our ammonia fertilizer facility operates very efficiently with an on-stream factor of over 96%. We’re considering opportunities to enhance the efficiency of the plant to further capitalize on the strong demand for fertilizer in the Corn Belt region. I’m pleased to say that we’ve achieved a new UAN production record as well as record product sales for the nine month period. We have sales agreements on ammonia for 95% of our projected fiscal 08 shipments at an average sales price of $520 per ton. This compares to our average selling price for ammonia of $351 per ton in fiscal 07 and $300 per ton in fiscal 06. We also have UAN sales agreements for 100% of our projected fiscal 08 shipments at an average sales price of $286 per ton. This compares to average selling price for UAN of $209 per ton fiscal 07 and $161 per ton for fiscal 06.

We have 100% of our fiscal 2008 prepaid product sales margin locked in with gas purchases, inventory produced or product produced. As a result we have increased our fiscal 2008 REMC EBITDA projection to $50 million or more, up from over $40 million. In addition we have executed prepaid product sales for 40% of our fiscal 09 UAN shipments and 57% of our fiscal 09 ammonia shipments and have locked in the sales margin or these sales with gas purchases, inventory purchased or product purchased. Based on this we already expect fiscal 09 REMC EBITDA to exceed fiscal 08 EBITDA levels.

The excess cash flow generated at REMC has historically been utilized by Rentech to fund working capital needs. The credit agreement that REMC executed in June limits our flexibility to continue to do so resulting in the need to raise additional working capital during fiscal year 09. With the success of the PDU as well as better visibility of strong expected fiscal 08 and 09 EBITDA at REMC, we believe we can put in place a more permanent capital structure that provides greater flexibility and better serves the nature of our business going forward.

[Inaudible] the middle of a company-wide cost review program that we expect will result in significant overhead reductions in fiscal 2009. It’s also important to note that several large expenditures and cash outflows incurred during fiscal 08 totaling $63 million are not expected to be incurred during fiscal 09. These costs are related to the construction of the PDU, costs related to the conversion of REMC, the Natchez project land purchase, and the implementation of a financial accounting and enterprise resource planning system.

In summary, we expect continued strong performance at REMC, significant reductions in R&D expenditures as well as overhead, and a path to a stronger financial position in fiscal 2009.

With that I’d like to hand the call back to Hunt.

D. Hunt Ramsbottom

I’d like to turn the call back to the operator for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Michael Molnar - Goldman Sachs.

Michael Molnar - Goldman Sachs

I think you’re using gas as the feedstock for the PDU, is that right?

D. Hunt Ramsbottom

That’s correct.

Michael Molnar - Goldman Sachs

When are you going to, if at all, start using coal and/or biomass? And number two, maybe if you could just elaborate on some of the technical challenges in doing this or is simply financial in getting the equipment up and running?

D. Hunt Ramsbottom

We’re in conversations with multiple, as we mentioned earlier, gas companies and I expect over the course of the next 12 months we’ll have chosen and have selected and put somebody in construction at the site at the PDU.

Michael Molnar - Goldman Sachs

What are some of the technical challenges besides using gas from actually converting a gas line? Do you see that as very limited or are there certain technical challenges.

D. Hunt Ramsbottom

Since I’ve got Dr. Wright here, I don’t so I’ll defer to Dr. Wright for that question.

Dr. Harold A. Wright

Biomass gasification has not been practiced widely on a commercial scale so undoubtedly there will be some challenges with the construction and then the start up of any new technology at the PDU. But that’s of course why we do it at the PDU so we can learn how to do it before we do it commercially.

Michael Molnar - Goldman Sachs

Let’s say I’m a big potential customer that believes in the FT technology. Can you detail what other companies besides Rentech I would be looking at, number one? And then number two, can you detail the metrics that you would use to convince me to use the Rentech process versus someone else? What I’m trying to do is understand why I would finance the Rentech process versus other operations some of which some people would argue are a bit more commercially proven at scale? Maybe if you can walk me through that process?

D. Hunt Ramsbottom

Well I think when I look at the only operating company at scale I think would be [Sasaul] that’s operating at scale and Shell. So I think the question would have to be from a customer’s perspective who you’d want to do business with - Shell, Sasaul or Rentech - and I’ve said this before, I think obviously all very good companies but they all have a very big project pipeline especially Sasaul on a worldwide basis, a huge project pipeline. So I think we would hope that we would convince them with certainly the early findings that we’re getting off our yields and conversion with our exceptional results at the PDU and the fact that I think we could probably be more flexible in our conversations with them than maybe Sasaul or Shell could be and that we could convince them. A lot of it’s going to come down to technical data which I think Harold and the team are, again it’s early on, but extremely confident in the results of the PDU. We’ve got folks out there constantly now looking at the technology, the yields and all the things that have been going on at the PDU. So I think it’s a question of whose attention they think they can get. And certainly we’re new to the market place so we are possibly a little bit hungrier than the others.

Operator

Our next question comes from Jeremy Sussman - Natexis Bleichroeder, Inc.

Jeremy Sussman - Natexis Bleichroeder, Inc.

Looking at the PDU, what are the next steps that we should look for? Should we be looking for specific announcements regarding testings? Should we be looking at licensing agreements or is it a little too earlier?

D. Hunt Ramsbottom

I think you will be getting some, certainly any results that we want to share with the market place without giving away our secret sauce. Harold will be glad to do that. We’ve already announced today on the yields and certainly we will share with our investors in the market place and the goal, the reason we did this is to attract customers. So it’s full steam ahead in working with the licensees and partners and off-takers from the PDU. I can’t tell you when; I can’t tell you how; but I can tell you that we are aggressively working it.

Jeremy Sussman - Natexis Bleichroeder, Inc.

Any change or update in the way Washington might be looking at this given that we do now have an operating synthetic fuel plant in the US?

D. Hunt Ramsbottom

I think from our perspective it continues to get more positive and here’s why I say that. I think synthetic fuels technology has gotten a bit of a, for a lack of a better word, bad rap in the last couple years and I think in terms of our education in Washington [Tom Sales] is sitting here with us on the call today. I think we’ve done a good job in educating Washington of the flexibility of this technology; I think they recognize that we can use not only coal but natural gas and biomass resources. So I think we will be part of the energy equation. The driver is still the military; the Navy is now getting involved. So we’re seeing Washington accept the technology because we are using non-food resources and it’s cost competitive. So it’s hard to argue, and I love flashing that little picture up with the smoke; you can’t argue the fact that it’s cleaner when we put our pictures of the fuels up there.

Operator

Our next question comes from [Brian Gambel] - Simmons & Company International.

[Brian Gambel] - Simmons & Company International

On the cost structure you mentioned locking in margin for about half of the ammonia and half of the UAN for next year. Any sense on where you’re locking in those hedges on the GAAP side of things?

Douglas M. Miller

We have those margins locked in because based on the cost of gas and the sales price of product going forward I don’t think we’re real keen to signal beyond that.

[Brian Gambel] - Simmons & Company International

You mentioned essentially the stripping out of a lot of the costs next year. I think you threw out $63 million is essentially what would relate to non-recurring if you look at 09 over 08. What does that mean for the overall R&D line and SG&A line we looked at over the next quarter and then starting in 09?

Douglas M. Miller

That was one of the things that always frustrated me Brian was that R&D included these things that would either be big iron going into the ground. Obviously they can’t be capitalized or expensed so they roll through that line. As we indicated though, the normal run rate of the R&D effort Harold’s team out there is really the number that I wanted to highlight and that’s that $4.5 million to $5 million type of a normalized R&D number going forward.

[Brian Gambel] - Simmons & Company International

Finally, do you want to talk any more specifics on Natchez specifically and just go over any other details in regard to that?

D. Hunt Ramsbottom

I think as we outlined everybody knows we closed on the purchase of the site I think it was June; that’s when we purchased the site. So we completed feasibility study on Phase 2. We are finalizing technology selections or seeking partners very aggressively right now to support our efforts and push the effort forward. I think everybody knows that’s critical for us. We are in active discussions with a number of potential customers and partners for that facility and we’re looking at the existing equipment and infrastructure for near term use. We’re also looking at logistics options for feed and product movement pipeline barge availability and contract structures. So I think in the next few months you’ll be able to see more specific milestones hopefully on that basis.

Operator

Our next question comes from Pavel Molchanov - Raymond James & Associates, Inc.

Pavel Molchanov - Raymond James & Associates, Inc.

Could you give an update on where things stand with regard to federal loan guarantees?

Douglas M. Miller

The focus right now really is on extending the airport stability to do the longer term contracts. Of course there’s still talk about a loan guarantee program in terms of future loan growth would be appropriate. There is a RP coming out which is going to come out shortly for a second round of loan guarantee programs. Those should be coming out in the next month or so. And we fully expect to be bidding at the project process.

D. Hunt Ramsbottom

There’s another round of talks that come out in the next month or so and we’ll be involved in that.

Pavel Molchanov - Raymond James & Associates, Inc.

Have you received any responses to the prior loan guarantee applications that you’ve put in?

D. Hunt Ramsbottom

We have and we know what went well and what did not go so well and we are making adjustments on this round. I think we’ve got more support in our efforts in terms of folks that might be involved with us at the plant to help facilitate in this round. But we know exactly what didn’t go well before.

Operator

Our next question comes from [Robert Kasevis - Alla Enterprises].

[Robert Kasevis - Alla Enterprises]

Can you tell me what the nature of the basis of the auction rate securities that you hold; in other words are they municipal bonds, are they mortgages, are they preferred securities? What is the handle of that?

Douglas M. Miller

They seem to be garden variety auction rate securities. I don’t think that there’s any characteristic that’s different than any of the others that are out there. They’re all AAA rated; we’re in the same bucket as everybody else who’s wrestling with the same problem.

[Robert Kasevis - Alla Enterprises]

I know the municipal bond market has pretty well cleared 80% whereas the mortgage market is hardly cleared. Are you saying it’s a compilation of all of these? Usually it’s a specific segment.

Douglas M. Miller

As far as segments we’ve got some insured student loan pieces in there, there’s -

[Robert Kasevis - Alla Enterprises]

CDOs? Do you have CDOs in there?

Douglas M. Miller

No. I don’t believe there are any mortgage issues in there. I don’t think there’s any one specific issue that dominates the portfolio.

Operator

Our next question comes from [Zack Holcom] - Private Investor.

[Zack Holcom] - Private Investor

What’s the cost going to be per month to run that PDU?

Douglas M. Miller

It smoothes out around $800,000 per month. It depends on exactly the structure of the individual runs, the gas burn, how much field modification goes in, but the smooth rate is about $0.8 million per month.

[Zack Holcom] - Private Investor

You mentioned something about the mother reactors that you may get on line down the road. That really isn’t taking effect until that happens, right?

Douglas M. Miller

I think those are gasifiers. There are one or two potential gasifiers that could be co-located at that site potentially reducing the gas burn if we’re generating syngas. What impact that may have is difficult to tell at this point?

D. Hunt Ramsbottom

And I think it’s important to note, and Harold can talk a little bit about this, we’re not going to be running every month at the PDU. Harold, I don’t know if you want to add anything.

Dr. Harold A. Wright

We’re looking at a campaign schedule that gets us the data we need to move forward and produce this product for our customer. We’re going to supply thousands of gallons of fuels to customers before the end of the calendar year and we’ll also be getting the data we need to move to the next step. This is not a production facility in the classic sense of the word, that you just turn it on and it runs forever. We’ll run it when it makes sense to run it; we’ll make product when it makes sense to make product.

[Zack Holcom] - Private Investor

Have any of the politicians been around there to take a look at it?

D. Hunt Ramsbottom

Yes. And there will be more.

Operator

Our next question comes from [Hal Liner] - Private Investor.

[Hal Liner] - Private Investor

The question I have is a hypothetical situation. I recall the 1970s when we had all kinds of gas problems and there was all kinds of talk about alternative energy companies and this and that, and then all of a sudden the cost of gas and the cost of crude went barreling downward and everybody forgot about the alternative energy stocks. I’m just curious if you have any thoughts about that with the cost of gas heading downward and who knows where it goes. Let’s assume that crude goes down to $75 a barrel. Will there be the same focus and the same interest in companies like yourselves if this situation happens? Also, Mr. Ramsbottom, do you have any more appearances scheduled for the Larry Cutler show?

D. Hunt Ramsbottom

I don’t know about that. I’m worn out from all those right now frankly, but if we have milestones I’m sure we’ll be doing more of that stuff. To your question about gas prices going down, I think it’s going to take a fortitude and I said this a lot last week when I was out there in the public eye that I think both candidates right now are using it as a cornerstone. They’re running both on energy right now and I think had we not pulled back 25 or 30 years ago we probably wouldn’t be in this position today. So it wouldn’t only be Rentech; you’d think of solar, wind, all the biofuels, all the hundreds of millions of dollars and billions of dollars have been put into this new energy programs would probably be impacted. And I do believe that the country has the will now, at least we see it, to keep moving ahead and again I keep sliding back to the 30 years ago when this happened. If we had stuck with it, we wouldn’t be in this position today. And both candidates are on the stump about it so we feel pretty good about it.

Operator

The next question comes from [Brian Gambel] - Simmons & Company International.

[Brian Gambel] - Simmons & Company International

I was looking over my notes from last quarter. Your average sales price for 08 on the committed tonnage on the ammonia side I believe went up from $520. I was wondering how that relates to what you mentioned during the call of softness during the quarter and what types of pricing you’re thinking about for next year when you mention the EBIDTA from the plant being higher than 2008?

Douglas M. Miller

I don’t know the number that you’re referring to and it’s all a matter of perspective. If you think that record prices are soft when they stop escalating at these astronomical types of growth rates, that they are posted numbers, they’re market numbers. We’re in a unique trade area that has even higher pricing generally than some of the Gulf Coast out of the New Orleans posted or even the Tampa posted prices. I don’t know which particular softness you are talking about. We did have a potential dislocation due to some farm flooding that we were able to move product out of the trade zone without in any way affecting our margins. So we are locking in what we feel is prudent with these prepays and forward sales contracts. We’re locking in gas against it because we’re not speculating on gas prices. We’re just not prepared to take that risk. And based on those locked in numbers is why we do have very high confidence in our EBITDA numbers for the rest of this year and for next year.

[Brian Gambel] - Simmons & Company International

I wasn’t trying to say there was softness in the quarter; I was just caveating in the flooding impact that I think you mentioned during opening remarks. And the question really was just trying to get at you’re assuming you’ve got prices locked in for a portion of your output for next year. Is it safe to say that you’re just assuming those same types of margins for the unlocked volumes that you’re getting to that EBITDA number for next year? Is that how you’re going about calculating it?

Douglas M. Miller

We’re looking forward with pricing that we know is on offer both for ammonia and for gas. I’m not going to speculate. Gas has actually come up sharply in the last few weeks. It’s easy to look back and replay the hand but we’re very confident with what we have going forward.

Operator

Our next question comes from [Bill Tody] - Private Investor.

[Bill Tody] - Private Investor

If you were able to find a well capitalized partner to build and operate a commercial synthetic fuels plant at Natchez with you folks providing the site and the Rentech process, would the $2.75 billion bond inducement package be available to that partner?

Douglas M. Miller

Yes.

Operator

Mr. Ramsbottom, there are no further questions at this time.

D. Hunt Ramsbottom

I’d like to make a few closing comments. Our company has reached a pivotal stage in our history. We now have proven the successful build-out and the use of the Rentech process in a fully integrated synthetic fuels facility. This is the only operating synthetic fuels facility in the United States producing transportation fuels. Our company is now in the best position it has ever been. Interest from potential customers, licensees and partners has increased significantly and we expect to sign off-take and licensing agreements with them. We have a proven proprietary technology that can be scaled up for commercialization which will be validated with the data we collect from the operating PDU.

We also have an ammonia fertilizer facility that is performing very well exceeding our expectations with projected 2008 EBITDA of over $50 million and fiscal 2009 EBITDA in excess of that figure.

The milestones we reached last week with the successful operation of the PDU and the production of synthetic fuels at the facility further increased our commercialization opportunities. Just in the few days since we’ve made our announcement we’ve received several inquiries from parties interested in our technologies and fuels that we can produce. I look forward to sharing the outcome of these and other potential opportunities with you in the future.

Thank you all very much.

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Source: Rentech, Inc. F3Q08 (Qtr End 06/30/08) Earnings Call Transcript
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