A Toronto company building a commodity logistics hub in Saskatchewan’s southeast corner has cut its ties with the U.S. agrifood firm set to bankroll the hub’s planned grain elevator.
Toronto’s Ceres Global Ag Corp. announced Thursday it has “terminated its arrangements” with The Scoular Co. and will instead bring the design and development of the proposed elevator “in-house” through Ceres’ own grain-handling arm, Riverland Ag.
Ceres’ decision was announced late last month to Omaha-based Scoular, which said in a separate release Thursday it “has vigorously objected to this unilateral action” on Ceres’ part.
Scoular announced in February last year it would fund, own and operate the grain handling portion of Ceres’ planned $90 million hub, to be built on 1,500 acres at the North Dakota border at Northgate, Sask., about 60 km southeast of Estevan. [Related story]
Ceres’ termination of Scoular’s relationship to the project “remains under discussion,” Scoular said, but would not release details.
“This decision is disappointing to Scoular and, more importantly, is a setback for customers at Northgate who will be deprived of access to our long-established international shipping networks serving end-use customers,” Scoular chief operating officer Bob Ludington said in the company’s release.
Northgate, he said, was expected to be “a prong in Scoular’s much larger strategy to add value for producers and efficiency for end-users through an extensive transportation and logistics network supported by best-in-class grain merchants.”
Scoular, he added, will still “continue aggressively to pursue that strategy in Canada and elsewhere.”
Ceres said its decision to cut Scoular loose from the grain-handling project follows a “strategic review” Ceres launched last September “in the wake of a substantial change in the composition of (Ceres’) board of directors.”
That change followed a shareholder revolt at Ceres last summer, led by VN Capital Management and ending in August with Ceres’ board agreeing to terminate a management contract it had with Front Street Capital — a firm run by Ceres’ board chairman, Gary Selke. Ceres then brought its management in-house, with Ceres president Michael Detlefsen as CEO.
Ceres said Thursday it now plans to spend up to $17.4 million at Northgate during the 2014 construction season on planning and designing the grain elevator and on planning, design and “initial construction” of oil and natural gas liquids transload facilities.
Site preparation, track installation and “associated port infrastructure” for the Northgate project are expected to be completed early this summer, Ceres said.
Ceres “looked at all the options for Northgate and concluded that building out the site, advancing the energy transload business and having Riverland design and develop the grain elevator was the best risk-return option,” Selke said in a release Thursday.
Ceres’ Riverland Ag arm last year was expected only to be a “major customer” for Scoular at Northgate, where the elevator was expected to be able to handle up to 40 million bushels of grains per year.
Riverland has grain handling sites in the midwestern U.S. and at Port Colborne, Ont., where it runs a 2.3 million-bushel capacity terminal — a former Robin Hood Flour mill which Riverland bought from Cargill in 2009. It also owns a 25 per cent stake in Winnipeg-based Canterra Seeds.
For Ceres, Northgate now is seen as an opportunity to “fundamentally re-tool its grain business, transforming Riverland’s passive storage model into an active grain trading company,” Detlefsen said in Thursday’s release.
Having “enhanced Canadian grain origination” directly from farmers through Northgate is now expected to feed Riverland’s customers and drive higher volumes through Riverland’s downstream assets, “generating higher system utilization and greater operating efficiencies, and increasing profitability,” Detlefsen added.
To that end, Ceres said it expects to “optimiz(e) its Riverland grain elevator capacity” by way of “enhanced strategic partnership agreements” and selling off other “non-core” assets.
Site prep work at Northgate is now about 75 per cent complete, Ceres said Thursday, with 1,150 metres of installed rail track running north from the Canada-U.S. border into the site.
Burlington Northern Santa Fe (BNSF) Railway has also started “significant upgrades” on the U.S. side of the border, Ceres added, with a rail connection “installed and ready to connect” to the Northgate site. — AGCanada.com Network