Chemtrade Logistics focused on diversified income: chemical removal and distribution firm mitigates risk through a diversified customer base

Money Digest, May, 2002 by Doug Hawkins

Chemtrade Logistics Income Fund (TSE: CHE.UN; Recent price: $14.20) is a limited-purpose trust established to hold the securities of Chemtrade Logistics Inc. -- one of the world's largest independent providers of removal services for producers of commercial chemical by-products and a leading distributor of these chemicals to clients worldwide.

Removal services are critical for producers, such as oil refineries and base metal producers, that create the by-products during normal processing activities. By-products must be recovered to avoid production interruption and to ensure producers meet environmental regulations.

Chemtrade has a 70-year history of providing these services safely and reliably.

Results for the quarter ended December 31, 2001, reflected smooth operations for both its North American and international business. Excellent performance during a time of economic slowdown underscores the stability and reliability that the fund can expect from Chemtrade's business model. The nature of Chemtrade's contracts mitigates commodity risk as the diversity of its end-clients limits exposure to any one industry.

In North America, Chemtrade has operations in Eastern Canada and the United States. Key producers supplying to Chemtrade are base metal smelters Inco and Falconbridge, and Marsulex, which provides outsourced environmental services to oil refineries. Chemtrade has extensive facilities that allow significant economies of scale, including a conversion plant in Timmins, Ontario, a service storage centre in Niagara Falls and intermodal transfer stations in Quebec and New Brunswick.

For the post-IPO period of July through December last year, Chemtrade earned $0.93 in cash flow and $0.86 in distributable cash flow after capital expenditures. It paid out $0.69 in distributions, resulting in a $0.17 cash flow "cushion" that resides on the balance sheet. This represents 11% of anticipated distributions this year, and gives extra visibility to the achievement of the distribution level. Management has not commented on the eventual payout of the $0.17 other than stating that distributions will increase to a sustainable level when it is prudent to do so.

Due to its strong management team, and better-than-expected results, Chemtrade represents a unique, attractive vehicle for income fund investors.

Doug Hawkins; MBA, is an investment advisor with Canaccord Capital; a member of major stock exchanges and the Canadian Investor Protection Fund. Phone (905) 6839824; email: doug-hawkins@rogers.com.