Federated Co-op (FCL) on Monday announced a memo of understanding has been signed with Regina grain and pulse crop processor AGT Foods on a joint venture that will “look to construct” a canola crush plant.

The joint venture, to be majority-owned by FCL in a 51-49 split, will see a $360 million plant built to supply about 50 per cent of the feedstock for a one billion litre-per-year renewable diesel operation, the companies said.

The j.v. crush plant facility is expected to use about 1.1 million tonnes of canola seed to produce 450,000 tonnes of oil, the Saskatchewan government said in a separate release. The balance of the feedstock would be contracted from other canola crushers.

FCL on Monday described the joint-venture plant as part of a bigger $2 billion investment it plans to make in building what it called an integrated agriculture complex (IAC) at its chosen Regina site, just north of the Co-op Refinery Complex (CRC).

The IAC would include both the crush plant and the renewable diesel plant, the latter of which has been on FCL’s drawing board since before April 2021, when it bought the assets of Calgary-based True North Renewable Fuels.

Before the sale, True North had been doing preliminary work toward development of a biofuel plant in Regina and its assets are expected to allow FCL to speed up its own planning timeline.

FCL in November 2021 locked in an option to buy the land north of the CRC and said it would begin “formally assessing” the feasibility of a renewable diesel project. If approved, the renewable diesel plant would be scheduled to start operating by 2027, FCL said at the time.

FLC said Monday that both IAC investments remain “subject to continued due diligence” as well as environmental, regulatory and board approvals.

Monday’s announcement also doesn’t include a timeline for construction or the start-up of the j.v. crush plant — but it’s expected that a renewable diesel facility in Regina in 2027 wouldn’t need to look far for canola oil either way.

Cargill and Viterra last April separately announced plans to build their own canola crushing plants in the Regina area, and Ceres Global Ag in May announced plans for a crush plant near its grain terminal at Northgate, Sask., about 60 km southeast of Estevan near the U.S. border. Also, Winnipeg-based Richardson International in March announced plans for a major expansion of its existing canola plant at Yorkton, about 185 km northeast of Regina.

The FCL/AGT venture “demonstrates Saskatchewan’s leadership in plant-based foods, fuels and feeds and brings together two Saskatchewan companies with the shared goals of decarbonizing our economy and adding value to western Canadian crop production,” AGT CEO Murad Al-Katib said Monday in FCL’s release.

“We believe that AGT’s capabilities in grain logistics and plant protein ingredients combined with FCL’s strong history in energy and farm inputs creates a powerful partnership that will benefit the communities in which we operate.”

FCL’s Co-op Retailing System is believed to be “well-positioned to integrate and capture the full agricultural value chain in the production of fuel and value-added products,” FCL CEO Scott Banda said in the same release.

An FCL-AGT crush plant would “ensure” Saskatchewan beats the target laid out in its 2030 Growth Plan of processing 75 per cent of the canola grown there, the province said in its release Monday.

With an estimated gross economic output of $4.5 billion across “all economic realizations” connected with the facility, the proposed IAC also “supports the Growth Plan goal of increasing agriculture value-added revenue to $10 billion,” the province said. — Glacier FarmMedia Network

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The Churchill Marine Tank Farm and associated assets are also part of the deal, according to an Arctic Gateway Group release.

Pulse and durum processor AGT Foods and Ingredients and Toronto-based Fairfax Financial Holdings had held the other 50 per cent of the assets, up until the transition earlier this month, the partnership said.

“A tremendous amount of hard work has seen northern communities reach this critical milestone,” Churchill mayor and OneNorth co-chair Mike Spence said in the news release. “Together with our partners we are taking the next important steps to realize our vision for a national Arctic trade corridor.”

The OneNorth consortium of Indigenous and northern communities said it’s committed to the long-term success of the rail line and trade corridor.

The port and rail line have seen a significant turnaround since 2018, the partnership said, citing work to establish a local governance structure, which includes leadership from across northern Manitoba, to form the partnership.

“Our communities are ready to step up,” OneNorth co-chair and Opaskwayak Cree Nation Onekanew (chief) Christian Sinclair said. “We have a multi-generational socioeconomic development vision that will take this work forward as a truly northern Canadian success story.”

Under a 2018 partnership agreement supported by the federal government, AGT and Fairfax assisted OneNorth leadership in taking the Arctic Gateway Group through a “critical transition.”

Since then, passenger and freight rail service have been restored and port services have fully resumed for both import and export, including six cargo re-supply vessels for Nunavut.

Regina-based AGT will continue to provide management services during the transition period and plans to negotiate a terminal handling agreement to ship grain through the Port of Churchill.

Health and safety upgrades were undertaken on all operations, and environmental remediation and decommissioning of the former fuel tank farm was undertaken with the installation of new tanks., the partners said.

“We are very proud of all that we have accomplished over the past two and a half years with our partner, OneNorth,” AGT CEO Murad Al-Katib said in the same release.

“The long-term economic and social impact of this critical national infrastructure corridor will provide benefits to Canadians for generations.”

The port and railway had faced an uncertain future when its previous owner, U.S.-based rail operator OmniTrax, closed the rail line in 2017, after sections were washed out in high water.

After three years of no rail traffic to or from Churchill, OmniTrax sold the line to the Arctic Gateway Group consortium.

Compared to other Canadian grain-handling ports, Churchill is plagued by a much shorter shipping season, and the rail line is hampered by the shifting whims of the northern tundra.

However, loading at Churchill shaves off significant travel time for grain vessels bound for major export destinations such as in Europe, relative to ports in southern Canada such as Thunder Bay.

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“We’ll have an active program on durum wheat and lentils going into the Mediterranean,” said Al-Katib, who’s also CEO of Regina-based AGT Foods, one of the group’s major partners.

There will be four vessels coming to Churchill this season, the same number as last year, he said. In 2019, about 137,000 tonnes of durum and lentils past through the port, which marked the first grain shipments in four years, according to the Hudson Bay Route Association.

Al-Katib said work is being carried out to stabilize the track bed. When under the ownership of Omnitrax, there were a number of washouts along the route that cut Churchill’s only land link. It wasn’t until the Arctic Gateway Group acquired the line and the port, that the link was re-established.

“We remain very optimistic that when we go forward into 2021 and beyond, that Churchill can start to get back into that eight- to 10-vessel range,” Al-Katib said, noting the group is working with the federal and provincial government to achieve that goal.

Shipments of grain through Churchill began to drop after 640,000 tonnes in 2013. The following year saw a 17.1 per cent decline, followed by a 65.2 per cent dive in 2015 before ending altogether due to the washouts.

— Glen Hallick reports for MarketsFarm from Winnipeg.

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“We’re in the early days of harvest, so it would be very normal to expect the first vessels to arrive in the first half of September,” said Al-Katib, who’s expecting a September-October shipping season.

“Things are looking good on yields and quality, so there should be an opportunity to durum, lentils, and maybe [Canada Western Red Spring wheat] as well, going through Churchill,” he added.

At this time, Al-Katib didn’t say how much in grain and pulses would pass through Churchill this year, noting that it’s a public-use port.

“It depends on who steps up and does what. We have the capacity and space,” he said, noting the railway is ready for this season’s shipments.

“There was a good, slow melt in [northern] Manitoba this year, so the tracks are in good shape.”

The latter was a grave issue for the port’s viability a few years ago, when sections of the railway south of Churchill were washed out by high water. Omnitrax, the line’s owners at the time, was reported to have refused to foot the costs for repairs without sufficient government assistance.

After three years of no rail traffic to or from Churchill, Omnitrax sold the line to an AGT-led business consortium, the Arctic Gateway Group, which includes a number of northern Manitoba communities.

While Churchill is plagued by a much shorter shipping season, and a rail line hampered by the shifting whims of the northern tundra, the port is much closer to major export destinations such as in Europe, relative to ports in southern Canada such as Thunder Bay.

During the 2019-20 marketing year Churchill there were 137,200 tonnes grains and pulses that passed through its port. Of that, almost 75 per cent was amber durum and the rest was lentils, according to the Canadian Grain Commission. In 2015, the year before the line was closed, 184,600 tonnes of grain were shipped via Churchill.

Ten years ago, about 659,000 tonnes were shipped through the port, according to the Hudson Bay Route Association.

That said, Churchill pales in comparison to a year-round port such as Vancouver, or a spring-to-fall port such as Thunder Bay — but Canada’s only major northern port has an important niche role.

“With a big crop coming, we need all of the ports in Canada. This is why we believe Churchill is a great surge port for the Canadian grain sector,” Al-Katib said.

— Glen Hallick reports for MarketsFarm from Winnipeg.

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Also, he said, those Canadian exporters must realize they need to switch from being solely dependent on commodities to adding value by shipping food and ingredients.

“We need to accept the reality that these tariffs are there and they are not going away,” said Al-Katib, the CEO of AGT Food and Ingredients, at the recent Grain World conference in Saskatoon.

India’s import tariff on peas is at 50 per cent and chickpeas at 44. Lentils are at 33 per cent, except those from the U.S., which are levied at 50, he said.

“Put it in place, reduce it, continue to collect billions of dollars and protect your domestic agriculture all at the same time. That’s the new reality,” Al-Katib said during his presentation Thursday.

Changes in those tariffs will inevitably be made by the Indian government, in accordance to how well the country’s domestic crops are doing. The better the crop, the higher those tariffs will remain, he explained.

After back-to-back years of good crops for India, Al-Katib said 2020 will likely be quite different due to the timing of the monsoons this year, as the season lasted much longer than normal.

“Up to 60 per cent of the October-November harvest was damaged,” he said, adding the extended rains also meant the planting of the next crops was late.

“The March-April harvest is the key harvest for Canada. That’s when [India] harvests lentils, chickpeas and pigeon peas,” Al-Katib commented.

Should there be a poor crop, the India government is likely to reduce its tariffs on pulses.

Also, Al-Katib doesn’t want Canada to remain an exporter of only commodities. He said India views Canada as another country that dumps its pulses on it.

“We have the opportunity to produce food, not just commodities, but getting out of the ‘commodities ghetto’ where we have no control,” he said.

The Indian market alone, he said, has about 400 million vegetarians with another 700 million people who also consume a tremendous amount of vegetable-based protein.

Furthermore, Al-Katib said Canada shouldn’t be just focused on India, but the entire Asian market as the continent’s ballooning middle class is projected to be spending US$33 trillion a year by 2030.

“There’s enough of the pie to go around for everybody,” he said.

— Glen Hallick reports for MarketsFarm, a Glacier FarmMedia division specializing in grain and commodity market analysis and reporting.

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AGT was delisted from the TSX earlier in 2019, as Al-Katib moved to take the company private after 12 years of being publicly traded. Its new ownership group is comprised of Fairfax Financial Holdings owning 60 per cent of the shares, AGT with 28 and Point North Capital, 12. Al-Katib said he’s the largest single shareholder running the company.

Also earlier this year, AGT opened a new rail consolidation centre at Delisle, Sask., southwest of Saskatoon.

“It’s what we consider to be the largest processing unit for grains, maybe in the country,” Al-Katib said during his presentation Thursday.

All of AGT’s short-line rail traffic winds up in Delisle, where AGT has eight spurs of four kilometres each. The grain cleaning operation there can process a 10,000-tonne train in less than 12 hours, he explained.

“It cleans to less than 0.5 per cent foreign material,” Al-Katib said.

In adding up all of AGT’s rail lines, he said the company has become the third largest railway in Canada, behind only Canadian Pacific and Canadian National Railways.

The company’s Churchill port facility was put back into operation, a year after it and the rail line were acquired from its previous owners. Al-Katib said approximately 150,000 tonnes of grains were shipped through the port in 2019, with the goal 300,000 tonnes for 2020. In subsequent years, he wants Churchill’s capacity boosted to 500,000 tonnes per year.

“With icebreakers we can stretch Churchill’s shipping season from June to the end of November,” Al-Katib said.

Among the cargo vessels leaving the port were three loaded with durum and one with lentils, destined to the Port of Mersin in southern Turkey, a voyage that takes three weeks, he said.

The last of the four departed Churchill on Nov. 7, which Al-Katib said was very likely the latest a grain vessel left the northern Manitoba port.

“That was the day we were told if we didn’t pull out by three o’clock, we might not make the ice in the strait. We left at 11 in the morning,” he said.

— Glen Hallick reports for MarketsFarm, a Glacier FarmMedia division specializing in grain and commodity market analysis and reporting.

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Rehabilitation efforts at North America’s only deep-water Arctic port are still underway, but there are expectations business through the facility will eventually include grain as well.

OmniTrax, the previous owner of the port and rail line servicing it, abruptly halted grain shipments in the 2016 season, after less than 200,000 tonnes moved through the facility the previous year. Grain movement had slowed since the demise of the Canadian Wheat Board’s single desk in 2012.

Sections of the rail line washed out in 2017 and were left in disrepair until the Arctic Gateway Group (AGG) took over in 2018 and began repairs. AGG is a partnership of Indigenous First Nations and other northern communities, Toronto financier Fairfax Financial Holdings and Saskatchewan-based pulse company AGT Food and Ingredients.

“It’s great to see goods arriving by freight train to the port and loaded for export,” Churchill Mayor Mike Spence said in a release, adding “we have a lot of work to do to continue the reinvestment in the Churchill port and Hudson Bay railway, but today is a great day.”

Elden Boon, head of the Hudson Bay Route Association, which advocates for moving grain through the facility, had heard of modest grain shipments slated for this season.

“We’re optimistic,” said Boon, adding “we knew that things were in pretty dire straits when (AGG) took over.

“When we look down the road, two, three, or four years, I think we’ll see significant amounts (of grain) through there,” said Boon, adding “Churchill has always been a surge port… In years of high production, we always saw larger shipments out of Churchill, and I’m assuming it will continue down that road.”

The HBRA is holding its annual meeting in Flin Flon Aug. 6-7. “This will be the first positive one we’ve had for three years or more,” said Boon.

AGT Foods has previously said it expects to see wheat, canola, lentils and other commodities shipped through the railway and port.

While future grain shipments are a consideration, the current focus is on the Arctic re-supply business and on repairing the rail and port facilities, Omer Al-Katib, director of corporate affairs and investor relations with AGT Foods, said Wednesday.

“We’re taking a very measured approach on what’s being done,” he said.

— Phil Franz-Warkentin writes for MarketsFarm, a Glacier FarmMedia division specializing in grain and commodity market analysis and reporting.

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The Feb. 11 court date in Toronto comes after AGT shareholders voted Tuesday at a special shareholders’ meeting in favour of privatization, according to a company news release.

Shareholders, representing a total of 74.8 per cent of AGT’s outstanding shares, voted 72.5 per cent in favour of the privatization with 27.5 per cent against, AGT said.

Following the court ruling, the company expects to be delisted from the TSX sometime during the first quarter or early in the second quarter. A company official declined to comment publicly on the privatization when contacted.

The buyer group has been led by AGT CEO Murad Al-Katib and includes other top AGT executives, plus Fairfax Financial Holdings and Point North Capital. As part of the group’s privatization plan, they will acquire all outstanding shares for $18 per share.

The group announced its intentions to take AGT private last July. Company shares that day leapt from $13.17 per share to $17.76, but by early December the price slipped to $15.84. The price fluctuated over the next couple of months and gained $1.56 this week alone, closing Friday at $17.86.

However, that price is a far cry from the $42.05 at which AGT traded in May 2016. AGT’s share values were hurt by India increasing its import duties on pulses. India had been Canada’s largest pulse customer.

Shareholders opposed to AGT’s privatization, led by the investment management firm Letko, Brosseau and Associates, have argued the company has been undervalued.

Letko Brosseau, which manages an 18.6 per cent stake in AGT, reiterated in a Jan. 29 statement that it would vote against the going-private deal.

AGT’s financial performance, Letko Brosseau said, has been “negatively impacted by industry factors and the proposed transaction comes during this time of weak performance and low share price.”

The investment firm said it “believe(s) these industry pressures will ease and expect(s) that the company’s financial performance should strengthen as industry conditions improve.”

Al-Katib started AGT under the SaskCan Pulse Trading banner in 2003. By 2009, it had evolved into Alliance Grain Traders, when the Alliance Grain Traders Income Fund became a publicly-traded corporation. Alliance then morphed into AGT Food and Ingredients in 2014.

— Glen Hallick writes for MarketsFarm, a Glacier FarmMedia division specializing in grain and commodity market analysis and reporting. Includes files from Ashley Robinson of MarketsFarm and Glacier FarmMedia Network staff.

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The organic pea protein fractionation facility at Vanscoy, about 20 km southwest of Saskatoon, has been running since last year and the new agreement will see it expand operations to include more pulses.

“We’ve identified plant-based proteins as a high growth, high value market opportunity that is on-trend with consumers’ desire to find sustainable and good tasting alternatives to animal based proteins,” Ingredion CEO James Zallie said in a release.

Ingredion announced the deal in December as part of a US$140 million investment in plant-based proteins. The announcement also included the expansion of Ingredion’s Vitessence pulse protein isolate line.

That expansion will be done through the conversion of a soy processing facility in South Sioux City, Neb., which Ingredion bought last year, into a pulse processor.

The Verdient facility is run by PMC Management, which manages several processing ventures owned by Academy Award-winning film director James Cameron and his wife Suzy Amis Cameron. Saskatoon-based PIC Investment Group also has ownership of the plant.

The Vanscoy plant, announced in 2017, was online by 2018.

Ingredion “share(s) our vision for plant-based proteins and other ingredients from pulses, and with their resources, expertise and worldwide reach, together we can be leaders in the new wave of global food production,” James Cameron said in Ingredion’s release.

Ingredion, based near Chicago, processes grains, fruits, vegetables and other plant materials into value-added ingredients for various industries. Its products are available in more than 120 countries.

According to Verdient’s website, it plans to increase annual production volume to over 160,000 tonnes at the Vanscoy plant. In a release on the latest partnership, it said investments are being made within the existing facility to make pulse-based protein concentrates and flours from peas, lentils and fababeans for human food applications.

This isn’t Ingredion’s first business with the Saskatchewan pulse industry. In 2014, Ingredion signed a deal with Regina-based AGT Food and Ingredients to be the exclusive distributor of AGT’s pulse flours, protein and bran ingredients for its consumer foods and ingredient divisions.

However, the two companies recently agreed to end the exclusive distribution agreement.

According to a spokesperson with Ingredion, AGT and Ingredion “anticipate that a supply relationship may continue on a non-exclusive basis in the future.”

— Ashley Robinson writes for Commodity News Service Canada, a Glacier FarmMedia company specializing in grain and commodity market reporting. Follow her at @AshleyMR1993 on Twitter.

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If all conditions are met, the deal is expected to go through in the first quarter of 2019.

The buyer group, including AGT CEO Murad Al-Katib, Fairfax Financial Holdings Limited and Point North Capital, will indirectly buy all issued and outstanding AGT common shares it doesn’t already own, for $18 per share in cash.

“Following a fairly lengthy process to consider the interests of all stakeholders of AGT and the future of the company, the management group, together with the other members of the buyer group, are excited at the prospect of a new chapter of AGT,” Al-Katib said in a release Tuesday.

The share purchase price represents a premium of 36.7 per cent above the closing price of AGT’s shares on the TSX on July 26, when the buyer group first announced its intent for the company.

As of Tuesday morning, AGT will stop paying any further dividends on its shares, whether the privatization is completed or not.

AGT stock hit its market high in May 2016 at over $40 a share but has since fallen steadily in value as trade issues have hit the pulse crop market. India, Canada’s largest pulse buyer, has placed tariffs on pulse imports into the country.

Regina-based AGT has diversified in recent years, acquiring railways and increasing its holdings in food processing. It also recently became part of the Arctic Gateway Group consortium, which now owns the Port of Churchill and Hudson Bay Railway.

A special AGT committee which reviewed the privatization deal, receiving advice from independent financial and legal advisors over the past few months, unanimously recommends the company’s board and shareholders approve the deal. It will require approval from at least two-thirds of votes cast by all common shareholders.

The buyer group represents about 17 per cent of AGT shares, according to its July 26 announcement.

TD Securities provided the special committee with an updated opinion that as of Monday, the fair market value of AGT’s common shares is between $17 and $21 per share. AGT stock closed Monday at $15.84 per share.

AGT shareholders had spoken out against the privatization when it was initially announced. Letko, Brosseau and Associates, a Montreal investment management firm, said in July it believed the proposal “significantly undervalued” AGT.

Letko Brosseau, which said it holds an 18.7 per cent stake in AGT, reiterated Tuesday it still plans to vote against the proposed going-private deal.

The investment firm said Tuesday it “continues to believe” the proposed deal undervalues the company and AGT “could generate greater value for its shareholders over the long term as a public entity.”

The deal will be subject to approval from the Ontario courts as well as regulatory approval in Canada, the U.S. and other countries where AGT operates or owns assets. According to AGT’s website, those include Turkey, Australia, China and South Africa.

The privatization agreement also prohibits AGT from soliciting competing bids and imposes a break fee of $11.5 million, payable to the buyer group, if the company instead pursues another offer or changes its recommendation to shareholders.

— Ashley Robinson writes for Commodity News Service Canada, a Glacier FarmMedia company specializing in grain and commodity market reporting.

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