US speciality chemicals supplier Cabot Corporation’s subsidiary, Cabot Norit Americas has entered into a long-term supply agreement with ADA Carbon Solutions, a producer of lignite-based activated carbon and a subsidiary of Advanced Emissions Solutions. Under the supply agreement, ADA will manufacture and supply Cabot Norit’s proprietary portfolio of lignite-based activated carbon products exclusively to Cabot Norit.
In conjunction with the supply agreement, Cabot Norit has also entered into an agreement for the sale of its lignite mine in Marshall, TX to ADA Carbon Solutions (Operations) for a nominal amount. ADA has announced separately its intent to close the mine. Per the agreement, ADA assumes the majority of the costs associated with the closure of the mine. Cabot’s total cash outlays associated with the closure of the mine are capped at US$10 million and are amortised over the next 14 years.
In an effort to better align its supply with its current demand for lignite-based activated carbon, Cabot has also announced that it will idle activation kilns at its manufacturing facility in Marshall, TX. Going forward, Cabot will continue certain operational activities including post-treatment of activated carbon, as well as packaging and warehousing operations at its Marshall facility. In addition, Cabot will continue to source lignite-based activated carbon from its joint venture in Estevan, Canada.
“We believe this long-term supply agreement and the sale of the lignite mine in Marshall enables us to adapt to present market conditions in North America and to better position Cabot’s cost structure to compete in mercury removal applications,” said Sean Keohane, President/CEO. “We remain committed to our customers and believe the long-term supply arrangement ensures that we will continue to deliver the same high-quality products and service that our customers have come to expect from us.”
The operating cost structure of the Purification Solutions business is expected to improve through fixed cost savings from the sale of the lignite mining operations and idling of activation assets at Cabot’s manufacturing facility in Marshall.
Keohane continued, “This transaction is the next step in the execution of our transformation plan, which began in 2019 and is aimed at simplifying the organisation, focusing on specialty applications, rightsising capacity, reducing fixed costs, and maximising the future value of the business. We believe selling the mine and further reducing our cost structure will improve the attractiveness of the Purification Solutions business to potential buyers.”
Cabot estimates a pre-tax charge to earnings of approximately US$129 million, mainly related to the loss on sale and impairment of certain fixed assets, to be recorded in the fourth quarter of fiscal 2020 in connection with these transactions. Excluding mine related cash outlays, Cabot expects US$5 million in annual cash benefits with an incremental US$10 million benefit in the first year related to the depletion of inventory of Marshall manufactured product. In addition, it expects a further annual business EBIT benefit of US$10 million per year from lower depreciation.