Victor Wells , VP Finance & CFO

Thank you... and good morning, ladies and gentlemen.

     
 

Chemtrade's key financial objective is to deliver reliable, sustainable and growing distributions.

   
 

Since our 2001 IPO, we have:

•  Increased our distributions by more than 20% from $1.47 per unit to our current level of $1.80 per unit;

     
 

•  Increased Chemtrade's asset value by 100%, and market capitalization by 200%; and

•  Most importantly, significantly diversified its earnings base.

We have achieved these results by focusing on four strategic themes.

   
  1. Financial Prudence - specifically, a conservative distribution policy and leverage position. Under our distribution policy, we plan to meet our indicated distributions despite holding back some distributable cash to provide stable distributions even in the event of unforeseen interruptions to the normal course of business, which indeed happened in 2003. I will comment later on our capital structure.
     

2. Business Model - our business model seeks to mitigate the effect that changes in commodity prices and volume could have on our earnings. I'll illustrate this a little later when I'm reviewing our operating segments.

3. Sustainable Earnings - our strong focus on operational excellence, including integration of our acquisitions, attention to cost control, relationship management and incremental growth, are key elements in delivering long-term sustainable earnings from our businesses.

4. Growing Distributions - the increased scale and diversity of our earnings, which was clearly evident in 2003 with our acquisitions, results in lower overall business risk.

   
  With the increased array of income trusts now in existence, and the great variety of businesses they cover, I think it's important to understand Chemtrade's business; how it has evolved; and how it all ties back to our business model, which is the cornerstone of our success. Some of you have no doubt heard parts of this before, but I hope you will bear with us for a few minutes.
     
  Chemtrade provides industrial chemicals and services to customers in North America and around the world. In North America we operate two business segments - Sulphur Products & Performance Chemicals, or SPPC, and Pulp Chemicals. SPPC encompasses our original North American sulphur products operations, and sodium hydrosulphite, or SHS, operations. Pulp Chemicals was acquired in August last year. BCT Chemtrade conducts our international business.
     

Through marketing services agreements and our own production facilities we are one of the world's largest suppliers of sulphuric acid, liquid sulphur dioxide and SHS. We are also a leading regional supplier of sulphur and sodium chlorate.

Our business model is intended to mitigate the effect that changes in commodity prices and volumes could have on our earnings. As a general statement we seek to mitigate the effect that commodity fluctuations could have on distributions by:

     
 

•  Following a conservative distribution policy;

•  Entering into contracts that mitigate typical commodity risks;

•  Enhancing our competitive position; or

•  Differentiating the products or services we offer in the market place.
     
  Outside of our Pulp Chemicals business, we have primarily focused on sulphur-based chemicals. We obtain sulphuric acid, SO2 and sulphur primarily from base metal smelters and oil refineries. These products are produced as a result of environmental laws requiring industries to capture sulphur emissions resulting from the production of their core products.
     

Removal of these products is critical to producers, as they could not operate without Chemtrade's removal services. Chemtrade provides guaranteed removal services for approximately 40 key producers, and in its 70 year history has never caused unscheduled downtime for a producer.

The products we remove are valued core ingredients for other industries. So Chemtrade markets and distributes the products it removes to a number of different industries and over 300 customers.
     
 

Most of these products are commodities. Therefore, it is important to minimize our exposure to commodity price and volume fluctuations.

Our business model follows the general premise that the less you can differentiate your product in the market place the more the commodity risks should be allocated to the producer of the product.
     
Accordingly, through long-term contracts with our producers, the majority of price and volume risk is borne by the producers and not by Chemtrade. These contractual provisions are a significant stabilizing influence on our earnings.
   
 

Following the acquisition of the Performance Chemicals assets at the end of 2002, Chemtrade became the largest North American producer of SHS and one of the largest producers in the world.

This is a great fit with our original business since one of the key raw materials is liquid SO2. The SHS operations are the largest purchaser of SO2 in North America and Chemtrade is North America's largest supplier. Our SHS operations allow us to use the SO2 we obtain from our producers to produce SHS, a higher valued sulphur product.
     
  The majority of our SHS sales are to the pulp and paper industry, where it is used primarily for bleaching mechanical and recycled pulps used in newsprint production. Most of the remainder is sold to the textile industry for bleaching indigo and vat dyes. We are the sole supplier to most of our customers and have excellent long-term customer relationships.
     
 

We are the clear market leader in North America, with a market share more than double that of our nearest competitor.

Finally, Chemtrade is the only North American producer of powder SHS and, accordingly, is the only producer able to offer product in either powder or liquid form.
     
  From a business model perspective, SHS is a product that can be differentiated in the market, we have a strong competitive position, and through the SO2 linkage we can add further stability to the cost of the commodity inputs.
   
  We acquired the operations and assets of BC Chemicals, a wholly owned division of Canfor In August last year, and named this segment Pulp Chemicals.
     
 

Based in Prince George, British Columbia, Pulp Chemicals produces sodium chlorate and crude tall oil, or CTO, both of which are chemicals used by the pulp and paper industry.

Sodium chlorate is used to bleach pulp, and crude tall oil is used as a less expensive alternative energy source to natural gas. The bulk of Pulp Chemicals' earnings are generated from sales of sodium chlorate.

     
The Pulp Chemicals business diversifies Chemtrade's contractually based cash flow among a broader group of customers, products and geographies, reducing the risk associated with any one factor.
     
 

From a business model perspective, the majority of the Pulp Chemicals earnings are generated from the long-term contracts we have with Canfor.

Pulp Chemicals has 10-year exclusive contracts with Canfor under which Canfor will continue to purchase about 70% of the sodium chlorate capacity at a price that adjusts for changes in raw materials, and pay a fee to Chemtrade for toll processing Canfor's soap skimmings into CTO.

     

From our unitholders' perspective, these contracts substantially mitigate a significant portion of price and volume risk on the Pulp Chemicals products.

Turning now to Chemtrade's financial performance, you will see the positive impact that the increased diversity and scope of our operations has had on our financial results.

     
   
  As you know, the Performance Chemicals acquisition at the end of 2002, and the Pulp Chemicals acquisition in August 2003, substantially changed Chemtrade financially as well as operationally.
     
  For example, revenue for 2003 was $291 million compared with $207 million in 2002, and EBITDA for the purposes of calculating distributable cash was $45.8 million compared with $26.3 million in 2002. The most important metric, distributable cash increased by 59% from $21.9 million in 2002 to $34.9 million.
     
 

The key measurement of our performance is cash distributions, and the Performance Chemicals and Pulp Chemicals acquisitions allowed us to ioncrease our distributions from our IPO rate of $1.47 per unit to our indicated annual distribution rate of $1.80 per unit.

     
Our practice is to establish a distribution rate that permits us to hold back a portion of the distributable cash generated in good years. This hold back assists us in maintaining a consistent distribution rate, even if we experience unexpected interruptions to our normal business.
   
 

Let me now briefly summarize our results for the first nine months of 2004.

     
 

For the nine months ended September 30, 2004, cash available for distribution was $33.5 million, or $1.46 per unit, generated from revenue of $261 million and EBITDA of $40.5 million. In the first nine months of last year, distributable cash was $24.5 million, or $1.46 per unit, revenue was $210 million, and EBITDA was $32.2 million.

The principal reason for the year over year increases was the acquisition of Pulp Chemicals at the end of August 2003.

     

Although cash available for distribution in the first nine months was $1.46 per unit, distributions for the first nine months were only $1.35 per unit. That's a payout ratio of approximately 93%.

Overall, the results for the nine months were slightly ahead of our expectations.
     
 

Looking at the segmented results, SPPC generated EBITDA of $31.9 million in the first nine months before the non-cash book loss of $1.7 million on the transfer of the Kidd Creek facility to Falconbridge in the third quarter. This compared with $33.6 million last year. The 2004 year-to-date results reflect a solid performance from sulphur products, driven by higher sulphuric acid volumes and favorable product cost in both the first and second quarters.

     

In the third quarter, Chemtrade extended the term of its marketing agreement with Falconbridge Ltd. to 2010. Under the previous agreement, the Fund was obligated to transfer ownership of its Kidd Creek SO2 assets to Falconbridge in December 2005 for a nominal amount. Under the renewed agreement, the Fund transferred its Kidd Creek facilities to Falconbridge, resulting in the non-cash book loss of $1.7 million I just mentioned.

Performance Chemicals is slightly behind our expectations for the year. As mentioned in our last two quarterly conference calls, sales of liquid SHS have been solid, but powder SHS have been lower than expected as a result of competitive pressures from Chinese manufacturers, particularly in our export markets.
     
 

Pulp Chemicals reported EBITDA of $15.1 million for the first nine months. Of course there is no comparative for last year. This was slightly below our expectations for the year-to-date, reflecting lower sales of sodium chlorate as a result of some weather-related and operating issues at Canfor in the first and second quarter. The third quarter was strong, exceeding our expectations. Canfor sales returned to normal and we had additional sales to third parties. The quarter was also enhanced as Canfor delayed a maintenance shutdown from Q3 to Q4.

     
It's now over a year since we completed the Pulp Chemicals acquisition and we're pleased with the smooth integration and the contribution the business is making to our overall results.
     
  Our third operating group is International, which is conducted by BCT Chemtrade. EDITDA for the first nine months of this year was $4.2 million essentially level with last year. Although revenue was higher this year by about $18 million, this is essentially a matched contract business and the flat EBITDA reflects the tight international market for sulphuric acid.
   
 

In terms of results for the full year, we have said we expect the second half of 2004 to be similar to the first half of the year. As stated in our most recent MD&A, we do not expect the fourth quarter to be as strong as the third quarter. There are three principal reasons for this view.

First, the third quarter typically generates the highest seasonal demand for SHS. Accordingly, we expect less sales volume of SHS in the fourth quarter, which will negatively affect SPPC results.

     

Second, we are experiencing raw material price increases, primarily in caustic soda, which we may not be able to recover.

Third, although Pulp should continue to benefit from stronger sodium chlorate volumes than realized in the first half of 2004, we expect results will be affected by planned maintenance shutdowns during the fourth quarter at one of our major chlorate customers.
     
 

Let me turn for a minute to our capital structure. In early March, we finalized a new bank deal, which ensures that the earliest maturity date of our term bank debt is now March 2008. Our previous bank deal required a repayment of principal in May 2005.

At the same time as we extended the term of our debt, we also entered into a four-year interest rate swap. This transaction currently results in an all-in interest rate of less than 5%.

     
Further to our earlier comments on our distribution policy, we believe that the extension of the term of our debt and fixing our interest rate are key components of financial prudence.
     
 

One of the factors that adversely affected our 2003 results was the stronger Canadian dollar, and I would like to comment briefly on the impact of foreign exchange on Chemtrade, and actions we have taken to manage it.

Prior to the Pulp Chemicals acquisition, approximately 60% of the Fund's EBITDA was generated in US dollars. With the inclusion of Pulp Chemicals, this has declined to approximately 50%.

     

We do have some natural hedges such as US dollar bank interest, certain capital expenditures and transportation costs that mitigate the impact. However, we have now adopted a policy of hedging a portion of the US dollars generated that must be converted to Canadian dollars. We roll these hedges forward for an 18-month period.

For example, we have now entered into a number of contracts that lock in 100% of our expected cross-border flows for 2004 at a rate essentially equal to the exchange rate assumed in our Plan.

We have also hedged approximately 57% of our expected 2005 cross-border cash flows, and we will continue to increase our hedged position throughout the year.
     
   
Concluding Remarks    
     
 

As I mentioned at the outset, to ensure sustainable earnings we are focusing on operational excellence, relationship management and incremental growth.

The benefits of the broadened earnings base and increased scale are clearly evident and distributions to unitholders have increased over 22% since the IPO despite unexpected operational interruptions, cost pressures, and the strengthening Canadian dollar that affected distributable cash.
     
 

Relationship management is important, and I mentioned earlier the new agreement with Falconbridge. This was an important, and mutually beneficial achievement for both Falconbridge and Chemtrade. Falconbridge knows it can rely on Chemtrade's removal, marketing and distribution services to enable it to continue to meet environmental standards critical to its operations, and also maximize the value of by-product sales. 

     

Looking ahead, the acid market both internationally and in North America remains tight, and the SO2 market appears to have stabilized. 

Our liquid SHS products are expected to continue performing well.  However, excess capacity in China is resulting in our powder SHS facing competitive pressures from Chinese products in both North American and the export markets. 

We are taking steps to improve our competitive position and defend our customer base, however we expect contribution from this product to be negatively impacted for the balance of 2004.
     
 

As stated, we remain confident in our goal of continuing to deliver reliable and sustainable distributions.

Thank you for your interest.