Should paper companies own timberlands?
SHOULD MANUFACTURING COMPANIES remain vertically integrated back to the forest? Long after most capital-intensive industries have abandoned vertical integration, many paper and wood products companies have huge legacy timberland holdings. Because timberland is carried on the books as historical cost, plus any improvements (planting, roads, etc.), there can be a big disconnect between book value and market value.
In assessing whether companies should own big tracts of land, there are several factors to consider. First, there is the question of whether integrated companies have managed their timberlands to maximize net present value as opposed to managing them to simply insure wood for mills. Despite their insistence to the contrary, we are also skeptical that paper companies will sell wood to higher return external customers at the expense of their own operations.
A second issue is whether shareholders are getting full value recognition for landholdings. We don’t think so. Equity markets usually discount the timberland cash flows of paper companies, with too many companies squandering cash flows from timberlands on value-destructive downstream operations.
There are other issues as well. Among the most important is double-layer taxation on timberland earnings in a traditional C-Corp. Also, institutional timberland investors have typically had lower return expectations than investors in paper stocks. Putting it together, timber investment managers seem to pay about 20 times EBITDA for U.S. timberland, while paper companies trade at 7-8 times.
Why not separate? It’s hard to break the integration mindset. Moreover, integrated firms have problems separating/ monetizing timberland tax efficiendy. There are tax issues in both an outright sale or a real estate investment trust (REIT) conversion. However, there appear to be tax minimization strategies, such as a tax deferred note structure on outright sales.
The explosive growth of TIMOs
Timber investment management organizations (TIMOs) are growing explosively. This is partly because timberland is gaining credibility as a viable asset class with stable cash returns, capital appreciation, and little correlation with otiier asset categories.
There are more than 25 TIMOs in the U.S., and we estimate they have $10 billion available for new timberland investments. Whether these funds will stay available for the next 12-18 months is unclear, but timber monetizations of unprecedented size are possible. And while capital is flush, there wasn’t much timberland for sale until the recent IP announcement.
Some TIMO managers are concerned about a “bubble” from over-valued timberlands, but others are eager to put money to work, so transactions continue at very healthy valuation levels. Until the IP news, there was far more money than there was available timberland. We don’t expect things to get so hostile that a TIMO would purchase a paper company, but, with lots of capital and discount rates on timber deals at 5-7% or lower, they could play a roll in break-up/restructuring situations.
Good for the industry or not?
We don’t think TIMOs “threaten” a healthy forest products industry. Almost all the land they are acquiring will be working forests for the investable future. Their owners have every incentive to manage productive forests with marketable products. Conservation easements, mineral and hunting rights, and better use opportunities may sweeten returns, but the value driver for TIMO performance over time is apt to be timber. Timberland owners can’t prosper long-term if customers steadily decline.
Most TIMO’s are prepared to accept supply agreements, especially for pulpwood. Some are extremely long-dated (e.g., 50 years). The issue is paper company fears about long-term wood supply. Personally, we find those fears overblown.
For one, if a mill can’t bid competitively for resources (labor, energy, fiber), it’s probably not an asset anyone should own. But at the moment the reality is that supply agreements are the price of getting paper companies to shed timberland. Like most restrictions on asset use, long-dated supply agreements carry hidden costs that TIMO managers can “price” into a deal.
Finally, industry managers were raised on speeches about undervalued timberland and vertical integration benefits, but this hasn’t “enriched” shareholders, as results show. However, over the past eight years, G-P Louisiana-Pacific, PCA, and others have de-coupled timberland from operating assets. The companies and their owners are better off today.
SRI International Launches Revolutionary Program for Managing Age-Related Degradation in the Energy, Aircraft, Chemical and Insurance Industries
The first phase, diagnosis, helps clients understand the likelihood and timing of degradation to reduce the risk of unscheduled downtime. During this phase, SRI evaluates system characteristics and existing conditions, assesses the risk of future degradation and projects service life.
Preventive actions help minimize age-related degradation, enhance reliability, reduce the risk of unscheduled downtime and extend service life. SRI develops improved operating protocols, mitigation techniques and remedial actions, and applies predictive models to quantify expected improvements.
Through inspection and monitoring, SRI confirms actual system conditions and provides input for predictive model calculations. Activities include degradation surveillance, measurement of environmental conditions, experience tracking and artificial neural network development.
SRI’s strategic decision analysis provides structure to the decision-making process and ensures that the most appropriate solutions are implemented. SRI performs technical, business, economic and regulatory analyses to assess the strategic value of alternatives and to select optimal, cost-effective solutions to age-related problems.
The LifeX program is founded on the extensive theoretical and experimental work of Digby Macdonald, vice president of SRI’s Pure and Applied Physical Sciences Division. Dr. Macdonald has spent nearly twenty years developing deterministic models for the prediction of damage in complex industrial systems such as thermal power plants (nuclear and fossil). On October 16, Dr. Macdonald will describe one application of the LifeX Aging Systems Management program at the International Conference on Water Chemistry in Nuclear Power Plants. The conference, sponsored by the Japan Atomic Industrial Forum, will address technical innovations for improvement of plant reliability and safety.
SRI’s LifeX team, drawn from SRI International and SRI Consulting (SRI’s strategic business and technology consulting subsidiary), comprises scientists, engineers, and business analysts from the energy, advanced materials and chemical industries.
Silicon Valley-based SRI International is one of the world’s largest independent research, technology development and consulting organizations. Founded in 1946 as the Stanford Research Institute, SRI has been meeting the needs of strategic, global markets for more than 50 years. SRI provides corporations, governments and other organizations worldwide with the innovative solutions needed to compete effectively in today’s changing global environment.
LifeX is a trademark of SRI International.
Minerals Technologies Inc. to Construct a Specialty Precipitated Calcium Carbonate Merchant Plant in Brookhaven, Mississippi
NEW YORK–(BUSINESS WIRE)–April 14, 1999–
Company to Invest $20 Million to Spur Growth of
Specialty PCC Business
Minerals Technologies Inc. (NYSE: MTX) announced today that it will construct a merchant manufacturing facility in Brookhaven, Mississippi, for the production of specialty precipitated calcium carbonate (PCC). Specialty PCC is used mainly in applications other than paper. The company will invest approximately $20 million in the facility. Construction will begin in July on a 15-acre site at the Brookhaven Industrial Park Number 1; the plant is expected to be in operation during the second quarter of 2000.
“In order to insure continued growth in all the markets for our specialty PCC product line, we must expand our operations,” said Jean-Paul Valles, chairman and chief executive officer. “When completed, this facility will be capable of producing between 50,000 and 70,000 tons of specialty PCC a year.”
Paul R. Saueracker, president, Specialty Minerals Inc., a wholly owned subsidiary of Minerals Technologies, said: “Brookhaven will be the company’s third manufacturing facility for specialty PCC. We now produce specialty PCC at our plant in Adams, Massachusetts, and at the facility in Lifford, England, which we purchased in April of 1998. While the majority of our PCC production is used by the worldwide paper industry, specialty PCC is supplied to manufacturers of automotive and construction sealants; antacids, food and nutritional supplements; and vinyl siding and rigid polyvinyl chloride (PVC) compounders.”
Mr. Saueracker said that Specialty Minerals expects to establish a long and mutually rewarding relationship with the people of Brookhaven. “We take pride in being a good corporate citizen in the communities in which we operate,” said Mr. Saueracker, who added that SMI would be employing approximately 15 people at the new facility.
“We look forward to having Specialty Minerals in our community,” said Tillmon Bishop, executive vice president of the Brookhaven-Lincoln County Chamber of Commerce. “Working with the people from SMI over the last few months, I am sure they will be a great neighbor and an asset to our community.”
Minerals Technologies Inc. is a resource- and technology-based organization that develops and produces performance-enhancing minerals, mineral-based and synthetic mineral products for the paper, steel, polymer and other manufacturing industries on a worldwide basis.
Should paper companies own timberlands?
SHOULD MANUFACTURING COMPANIES remain vertically integrated back to the forest? Long after most capital-intensive industries have abandoned vertical integration, many paper and wood products companies have huge legacy timberland holdings. Because timberland is carried on the books as historical cost, plus any improvements (planting, roads, etc.), there can be a big disconnect between book value and market value.
In assessing whether companies should own big tracts of land, there are several factors to consider. First, there is the question of whether integrated companies have managed their timberlands to maximize net present value as opposed to managing them to simply insure wood for mills. Despite their insistence to the contrary, we are also skeptical that paper companies will sell wood to higher return external customers at the expense of their own operations.
A second issue is whether shareholders are getting full value recognition for landholdings. We don’t think so. Equity markets usually discount the timberland cash flows of paper companies, with too many companies squandering cash flows from timberlands on value-destructive downstream operations.
There are other issues as well. Among the most important is double-layer taxation on timberland earnings in a traditional C-Corp. Also, institutional timberland investors have typically had lower return expectations than investors in paper stocks. Putting it together, timber investment managers seem to pay about 20 times EBITDA for U.S. timberland, while paper companies trade at 7-8 times
Why not separate? It’s hard to break the integration mindset. Moreover, integrated firms have problems separating/ monetizing timberland tax efficiendy. There are tax issues in both an outright sale or a real estate investment trust (REIT) conversion. However, there appear to be tax minimization strategies, such as a tax deferred note structure on outright sales.
The explosive growth of TIMOs
Timber investment management organizations (TIMOs) are growing explosively. This is partly because timberland is gaining credibility as a viable asset class with stable cash returns, capital appreciation, and little correlation with otiier asset categories.
There are more than 25 TIMOs in the U.S., and we estimate they have $10 billion available for new timberland investments. Whether these funds will stay available for the next 12-18 months is unclear, but timber monetizations of unprecedented size are possible. And while capital is flush, there wasn’t much timberland for sale until the recent IP announcement.
Some TIMO managers are concerned about a “bubble” from over-valued timberlands, but others are eager to put money to work, so transactions continue at very healthy valuation levels. Until the IP news, there was far more money than there was available timberland. We don’t expect things to get so hostile that a TIMO would purchase a paper company, but, with lots of capital and discount rates on timber deals at 5-7% or lower, they could play a roll in break-up/restructuring situations.
Good for the industry or not?
We don’t think TIMOs “threaten” a healthy forest products industry. Almost all the land they are acquiring will be working forests for the investable future. Their owners have every incentive to manage productive forests with marketable products. Conservation easements, mineral and hunting rights, and better use opportunities may sweeten returns, but the value driver for TIMO performance over time is apt to be timber. Timberland owners can’t prosper long-term if customers steadily decline.
Most TIMO’s are prepared to accept supply agreements, especially for pulpwood. Some are extremely long-dated (e.g., 50 years). The issue is paper company fears about long-term wood supply. Personally, we find those fears overblown.
For one, if a mill can’t bid competitively for resources (labor, energy, fiber), it’s probably not an asset anyone should own. But at the moment the reality is that supply agreements are the price of getting paper companies to shed timberland. Like most restrictions on asset use, long-dated supply agreements carry hidden costs that TIMO managers can “price” into a deal.
Finally, industry managers were raised on speeches about undervalued timberland and vertical integration benefits, but this hasn’t “enriched” shareholders, as results show. However, over the past eight years, G-P Louisiana-Pacific, PCA, and others have de-coupled timberland from operating assets. The companies and their owners are better off today.
Beyond freeing up real value, stripping away timberland earnings and cash flows forces everyone to deal with poor performance of underlying manufacturing businesses.
Heavy blow to overflow
Vibronic point level measurement for overfill protection.
You’ll find liquids handling in all process facilities, including tank farms, food plants, chemical or pharmaceutical production sites, and water and wastewater industry facilities. Some of these liquids are toxic, flammable, and reactive, or they cause explosive gases and pose a risk to personnel and the environment. A facility operator has to assure these dangerous liquids stay in the appropriate pipes, tanks, and vessels. In particular, they need to avoid over-spilling a tank during filling processes.
Local laws, government regulations, pollution control agencies, and insurance companies require preventive measures to inhibit tank overruns (see Fig.1), especially during unattended automated filling processes. Irrespective of the federal and state regulations of a certain country, automated filling processes always require a high-level alarm that causes an automatic flow shutoff to prevent an overfill. The reliability and degree of functional safety of this overfill protection system are related to the potential danger of the liquid and the surrounding plant or facility.
Overfill protection systems
An overfill protection system should stop product flow during delivery before the tank becomes full and begins releasing liquid into the environment. As a general rule, such a system consists of a high-level sensor, a logic solver, and a final element that shuts off the flow into the tank. The system in Fig. IB consists of a vibronic point level measurement device, an appropriate power supply, and a switch amplifier unit in the control room. A PLC- or DCS-based logic solver and a supply pipe shut-off valveThe combination of these components has to fulfill the high functional safety demands defined in ANSI/ISA-84.00.01-2004, Functional Safety: Safety Instrumented Systems for the Process Industry sector, or IEC 61508 and IEC 61511. High functional safety means these components either have to work reliably or give an alarm whenever maintaining the protection system. Thus, you must define different types of failures when discussing a safety system.
Failures
A system’s mean-time-between-failures (MTBF) generally characterizes that system or device. That number represents an average lifetime value for the system or device and includes all failures. With regard to a functional safety classification, not all failures are relevant. Failures the system detects and the alarm announces do not lead to critical situations. But failures leading to a malfunction and not detected and announced automatically are dangerous.
In the case of an overfill protection system, an operator would still rely on the system. In case of a demand, the system would fail. To track down these dangerous failures and to quantify the likelihood of a dangerous failure on demand, do a failure mode, effect, and diagnostics analysis (FMEDA). The guidelines for this appear in the standards IEC 61508/IEC 61511 and ANSI/ISA-84.00.01-2004. Using these guidelines, you can calculate a probability of a dangerous failure on demand (PFD). According to the different safety integrity levels (SIL1-SIL4), the probability of a dangerous failure cannot exceed given values.
To make the determination of a SIL classification manageable, divide the safety considerations into different components. Split the PFD values into the different components. A general recommendation is to weight the PFD value 35% on the sensor system, 15% on the logic solver, and 50% on the final element (see Fig.2). Finally, review the whole system. Account for statistical failures, and avoid systematical dangerous failures.
Point level measurement
Point level measuring devices for liquids see use in all process facilities. Numerous measurement technologies are available for these kinds of applications, such as float switches, vibration limit switches, ultrasonic gap switches, and capacitive or conductive limit switches. When considering high functional safety, choose a measurement method with low PFD values and no systematical failures during operation. Also, do a thorough investigation of the measurement sensor systematical failures, and consider the know-how gained from a large number of applications. Also, do a proven-in-use evaluation.
Vibronic point level
Vibronic measurement devices or tuning-fork systems fulfill the highest demands with regard to safety and reliability. The main advantage of vibronic point-level measurement devices over float switches with regard to functional safety is they use an active measurement principle. The device stays in vibration continuously, and an evaluation electronics always monitors it. It immediately detects sensor failure in almost all cases and avoids dangerous failures. Vibronic measurement devices meet the requirements of almost all point-level applications for liquids. A vibronic device is independent of the installation position. You can mount the same device from the top, the side, or the bottom. State-of-the-art devices have a broad application band-width where no calibration of the sensor is necessary. This sensor is independent of process influences, such as pressure and temperature. It’s independent of substance characteristics, such as conductivity, dielectric constant, and viscosity, and is independent of gas bubbles, foam, and solids in the process liquid.
Heritage Homes and Certified Rehabilitations - What You Need to Know For Valuable Tax Breaks
If you are considering buying a guillotine style paper cutter you have most likely discovered that there are literally hundreds of options available on the market. However, not all paper cutters are created equal. This article is designed to give you a set of guidelines that will help in deciding what paper cutter is the best fit for your needs. Here are four things to consider:
1. Size: The first thing to consider when choosing a paper trimmer to fit your needs is size. Trimmers are available with blades as short as 4″ and as long as 36″. A quick survey of the items that you need to cut will help to narrow the selection of machines that will best fit your needs. In addition to the length of the blade, it is also important to consider the size of the cutting table. If you are going to cut larger items it is extremely helpful to have a cutting table that is large enough to support the entire document.
2. Cutting Capacity: The second thing to consider when choosing a paper cutter is the capacity of paper that you need to cut. Higher quality paper cutters will have sharper blades and will be capable of cutting larger amounts of paper. Keep in mind that even if you aren’t going to need to cut larger stacks of paper, cutters with higher capacities will generally be more efficient at cutting individual sheets of paper. It is also important to remember that you will get a much higher cut quality if you don’t cut the full rated capacity of the trimmer.
3. Safety Features: Depending on the environment where you intend to use your cutter, safety may be the most important thing to consider when choosing your trimmer. In order to protect users, guillotine cutters should have several safety features. If the machine you are considering doesn’t include these features you might think twice before buying it. All guillotine-cutters should include a tension spring to prevent the blade from falling when in the raised position. Machines without this tension spring are not safe and should not be used. You should also look to make sure that the model you are considering includes a blade lock that allows you to secure the blade in the closed position when it is not in use. A blade guard should also be included. At a minimum, a small metal bar should prevent users from sliding fingers under the blade. However, ultra sharp cutting machines capable of handling large capacities should have plastic blade guards that make it impossible (or virtually impossible to slide your fingers under the blade). Keep in mind; even with these safety features it is essential to be extremely careful when using your paper cutter.
4. Other Features: After considering size, capacity and safety there are several other features that are useful to look for. Larger models should have clamps to hold the paper in place while the stack is being cut. Without these clamps larger stacks can slip when being cut keeping the finished product from being square. Another thing to keep in mind is that most models will have measurement markings to help you align your documents. It is extremely helpful if these markings run the entire length of the cutting table to help ensure that you get your documents square before cutting them. Finally, machines that have an adjustable paper stop make cutting large volumes of paper simpler than ever. However, it is important to ensure that the paper stop is solid and square or else it won’t be helpful.
If you consider these four features when choosing a guillotine paper trimmer, you will be able to find a model that will best fit your needs. Keep in mind that you may not need all of these features for your office and that models that include all of the best features will certainly be more expensive than those without these features. Thus, it is up to you to find the best possible balance between cost and features to best meet your needs.
Choosing A Guillotine Paper Cutter
If you are considering buying a guillotine style paper cutter you have most likely discovered that there are literally hundreds of options available on the market. However, not all paper cutters are created equal. This article is designed to give you a set of guidelines that will help in deciding what paper cutter is the best fit for your needs. Here are four things to consider:
1. Size: The first thing to consider when choosing a paper trimmer to fit your needs is size. Trimmers are available with blades as short as 4″ and as long as 36″. A quick survey of the items that you need to cut will help to narrow the selection of machines that will best fit your needs. In addition to the length of the blade, it is also important to consider the size of the cutting table. If you are going to cut larger items it is extremely helpful to have a cutting table that is large enough to support the entire document.
2. Cutting Capacity: The second thing to consider when choosing a paper cutter is the capacity of paper that you need to cut. Higher quality paper cutters will have sharper blades and will be capable of cutting larger amounts of paper. Keep in mind that even if you aren’t going to need to cut larger stacks of paper, cutters with higher capacities will generally be more efficient at cutting individual sheets of paper. It is also important to remember that you will get a much higher cut quality if you don’t cut the full rated capacity of the trimmer.
3. Safety Features: Depending on the environment where you intend to use your cutter, safety may be the most important thing to consider when choosing your trimmer. In order to protect users, guillotine cutters should have several safety features. If the machine you are considering doesn’t include these features you might think twice before buying it. All guillotine-cutters should include a tension spring to prevent the blade from falling when in the raised position. Machines without this tension spring are not safe and should not be used. You should also look to make sure that the model you are considering includes a blade lock that allows you to secure the blade in the closed position when it is not in use. A blade guard should also be included. At a minimum, a small metal bar should prevent users from sliding fingers under the blade. However, ultra sharp cutting machines capable of handling large capacities should have plastic blade guards that make it impossible (or virtually impossible to slide your fingers under the blade). Keep in mind; even with these safety features it is essential to be extremely careful when using your paper cutter.
4. Other Features: After considering size, capacity and safety there are several other features that are useful to look for. Larger models should have clamps to hold the paper in place while the stack is being cut. Without these clamps larger stacks can slip when being cut keeping the finished product from being square. Another thing to keep in mind is that most models will have measurement markings to help you align your documents. It is extremely helpful if these markings run the entire length of the cutting table to help ensure that you get your documents square before cutting them. Finally, machines that have an adjustable paper stop make cutting large volumes of paper simpler than ever. However, it is important to ensure that the paper stop is solid and square or else it won’t be helpful.
If you consider these four features when choosing a guillotine paper trimmer, you will be able to find a model that will best fit your needs. Keep in mind that you may not need all of these features for your office and that models that include all of the best features will certainly be more expensive than those without these features. Thus, it is up to you to find the best possible balance between cost and features to best meet your needs.
Choosing A Paper Folding Machine For Your Church Office
Paper folding machines are commonly used by all types of organizations. You might find a paper folder in a corporate mail room, a government office, a school, a church or a print shop. All of these organizations process large numbers of documents and can greatly benefit from the assistance of a folding machine.
However, each of these types of organizations has a special set of needs that need to be considered when choosing a machine. This article is designed to provide a list of five things that Churches need to ask themselves before they buy a unit for thier office.
1. What types of folds do you need to produce? This is the first and most important question that you need to consider. In general, most churches will need to fold their church bulletin and letters to congregation members. This means that they need to choose a paper folder that can do a z fold and half fold. However, some churches fold large format documents, legal sized church bulletins, tri-fold brochures or other materials. It is important that before you go shopping for a folding machine that you know what types of folds that you will need it to do.
2. How much folding are you going to need to do? This is an important question to ask when choosing a paper folder. More than likely the paper folder will be used to fold Church bulletins more than any other type of document. Ask yourself, “how many bulletins do we print each week?” If you are going to need to fold hundreds of bulletins every week you are going to want to make sure that you buy a paper folder that will hold up over time.
3. How often are you going to need to change folds? I know a lot of churches that very rarely ever change the settings on their folding machine. They use their machine for their weekly bulletins and nothing else. For these churches, a heavy duty paper folder with folding plates that are adjusted manually is ideal. However, other churches are constantly changing the settings on their machine to produce different types of documents (think back to question one). If you plan on folding lots of different types of documents or are going to need to change the fold settings more than once a week it would be a really good idea to get a folder that has either easy to adjust fold plates or is completely digital.
4. What types of papers are you going to need to fold? If you are going to need to fold heavy duty card stocks or glossy papers with your folding machine you are going to want to make sure that the folder can handle it. Many paper folders are not capable of handling heavy or coated paper stocks. In fact, even expensive folders often require card stock to be pre scored before being run. It is always a good idea to have your special papers tested in the paperfolder of your choice before you make your purchase. That way you will know for sure if they will work or not.
5. What sizes of papers are you going to need to fold? Again, it is important to try to anticipate the different types of documents that you are going to need to fold. If you think that you will need to make brochures out of 11″ x 17″ paper it is important to choose a folding machine that can handle this size of paper. Likewise, if the Church uses legal sized bulletins you will need a paper folder that can handle legal sized paper. Generally if you choose a folder that can handle 11″ x 17″ or larger paper then it will be able to handle all of the smaller sizes as well.
Settlement at weapons plant and lab - Martin Marietta Energy Systems Inc.-Atomic Trades and Labor Council
Settlement at weapons plant and lab A 3-year agreement between Martin Marietta Energy Systems, Inc. and the Atomic Trades and Labor Council covers about 2,500 production, maintenance, and service workers at the Oak Ridge nuclear weapons plant and an additional 900 such hourly workers at the Oak Ridge National Laboratory. This was the first time in the parties’ bargaining history that negotiations did not require intervention by the Federal Mediation and Conciliation Service, the Federal agency that conducts mediation in most industries involved in interstate commerce.
Terms of the agreement called for 4-percent wage increases on June 22 of 1990, 1991, and 1992. Enhanced health insurance and pension benefits; and, effective in 1991, the option to take off on Martin Luther King, Jr.’s birthday instead of a second day off around the July 4 holiday.
“Developments in Industrial Relations” is prepared by Michael H. Cimini of the Division of Developments in Labor-Management Relations, Bureau of Labor Statistics, and is largely based on information from secondary sources.
Riverview seen as mecca for alternative energy
FULTON - Eric Will II, the co-owner of Riverview Business Park, is still enthusiastic about the ethanol plant currently under construction at the site of the former Miller Brewing Company plant.
“There is a unique opportunity here to create something that hasn’t been done before,” Will said in a presentation at the Syracuse Technology Garden on March 28. “One of the lessons I’ve learned is to have more than Plan A in mind, and that Plan C isn’t such a bad idea either.”
Will refers to the chain of events following his and partner Thomas Denney’s purchase of Riverview Business Park in 2000. The co-owners planned to sell the brewing equipment in the Miller facility at a huge auction featuring buyers from all over the world. The auction would have fetched “…millions of dollars,” Will says. Unfortunately, the auction was scheduled for three weeks after the Sept. 11, 2001, terrorist attacks.
Will and Denney went to plan B: emptying the facility and commencing leasing activity. During the process and in the midst of an alternative-energy boom, the partners decided that the Miller facility could be converted to brew ethanol instead of beer.
Ethanol, an alternative fuel, is produced through the fermentation of corn.
Riverview Business Park is a 420-acre campus located at 1800 Route 57 in the town of Fulton. The park has 1.3 million square feet of buildings.
A strategic partnership with Canadianbased global biofuels company Permolex International L.P. resulted in the creation of Northeast Biofuels L.P. (NEB), the company that would run Will’s prospective ethanol plant and in which he is a minority partner.
NEB commenced construction at the Fulton site on July 13, 2006. The piping,’ bottling, and palletizing operations in the brewery have been removed and all the cooking vessels will be re-used for the fermentation of corn into ethanol, Will says.
As a “destination plant” making ethanol in the area in which it will be used, Will says NEB will enjoy between a 9-cent and 14-cent advantage per gallon over the ethanol plants in the Midwest.
At more than 100 million gallons of capacity, NEB is among the five largest ethanol plants nationwide, Will says. By reusing the existing brewery equipment, NEB has avoided $25 million in capital costs, according to Lurgi Inc., a global construction firm and one of the partner/ suppliers retained by NEB.
NEB’s other partnerships include Perdue, Permolex, BOC, CSX, Noble Americas, O’Brien & Gere, Jeffiies, and Citigroup.
Will describes NEB as a logistics challenge. The plant will consume 41 million bushels, of corn annually, consequently producing ethanol, carbon dioxide, and distillers’ grains.
The carbon dioxide will be sold to The BOC Group - a subsidiary of The Linde Group, a global supplier of industrial gases. BOC is building a $10 million to $15 million plant on the property, to liquefy and sell the carbon dioxide. The grains will be sold to dairy farmers as a high-protein feed for dairy cows, Will says.
“We are investigating extracting oil out of the distillers’ grains which makes it attractive feed because it’s less fatty,” Will says. “The oil we can sell elsewhere.”
Eight months after construction commenced, it is ramping up and engineering is well under way, according to Will. “There are currently 75 workers onsite and we anticipate 600 union workers on the premises in June, putting this thing together,” Will says.
Lurgi is subcontracting a lot of work to local companies, including Hueber-Breuer Construction Co. Inc.
“Without that local partnership and help, this doesn’t get built,” Will says.
If everything proceeds as planned, Will hopes to eventually call his property the Riverview Energy Park.
“There are lots of interesting opportunities presenting themselves to us,” Will says.
GS Fulton Biodiesel LLC, a subsidiary of GS AgriFuels Corp., is leasing a small building from Will to build a 10 million gallon-a-year biodiesel plant on the campus, the square footage of which is yet to be determined.
“We could buy the biodiesel to drive the biodiesel generators on the site for NEB,” Will says.
Will and Denney are also overseeing a comprehensive study to investigate the possibility of producing coal gasification, wind energy, bio-digestion, and synthetic gas on the property.
How it works
Bio-digestion captures the methane from cow manure and uses the gas to generate electricity.
“The biggest expense involved is the tanks, but we have 12 million gallons of tankage sitting empty which could be used,” Will explains.
A group from the United Kingdom demonstrated the creation of synthetic gas to Will.
“They call it ‘incineration’ which means zero emissions,” Will says. “They say the feedstock is shredded tires.”
In two years, Will anticipates making ethanol from wood chips from a separate facility on the site.
In 2004, Will and Denney met with rating agencies on Wall Street to get financing for NEB.
“They had no idea what ethanol was about,” he says.
Citigroup came in and provided the lead equity to Permolex International, which in turn invested in NEB.
Back home, out of time and money, Will asked the labor unions in Oswego County for help. They loaned him $300 million to keep the project going and he gave them a project-labor agreement in return. The unions do not have an equity share in NEB.
“Their motive was just to put their people to work,” Will says.
Will also challenged Goldman Sachs to find a way to hedge the project.
“Corn comes in and ethanol goes out and these things are not linked and no one had been able to figure out how to link them,” Will says. “Goldman Sachs did and we bought ourselves an insurance policy that is fully hedged and allowed us to proceed with the project and get the highest credit rating.”
NEB closed on the financing June 30, 2006. The agreement featured three debt facilities, including a $60 million, fully funded letter of credit that guarantees the plant’s performance under the hedge agreement.
As for aid, Will says New York State has helped NEB immensely. Former Governor Pataki appropriated $2 million for the project, federal grants totaled $250,000, and state Senator Wright donated $2 million from the New York State Senate.
“Our project is also a great indicator of how the Empire Zone should be used,” Will says. “Without it, we never would have survived.”
Will says that the window for financing ethanol projects that opened on Wall Street in the middle of 2006, is now closed. The reason: the federal renewablefuels standard that mandates 7.5 billion gallons a year of renewable fuels into the fuel supply.
According to Will, the existing ethanol plants already have the capability to produce 7.5 billion gallons of ethanol yearly.
“Wall Street thinks there will be an over capacity,” Will says. I believe that in the not-so-distant future, we will see an ethanol mandate stronger than the current standards.”
Lessons learned
“This entire project has validated the idea of thinking regionally in my mind and not burning bridges,” Will says. I would suggest anyone trying to arrange something like this have a lot of availability on their personal credit cards.”
Will also advises potential entrepreneurs to be prepared not to meet any deadlines.
“We didn’t meet one deadline in the past five years,” Will says. “We had incredibly dark days,. but if you believe in what you are doing and the people you’ve surrounded yourself with, you’ll succeed.”
When asked about the backlash surrounding ethanol lately - the claims that it takes more energy to create ethanol than the alternative fuel produces - Will remains a strong proponent of the product.
“The rap you read about ethanol isn’t true,” he says. “Research says ethanol creates two-thirds more energy than it takes to make.”
Will says that yield - or the number of gallons of ethanol produced from one bushel of corn - isn’t discussed enough.
He says that four years ago, one bushel of corn produced 2.65 gallons of ethanol. Today, because of enzyme improvements, one bushel of corn produces 2.8 gallons of ethanol.
“On 41 million bushels of corn, that is immediately $6 million added to your bottom line,” Will calculates. “There is a lot of good research going on to improve the energy yield of ethanol.”