Scalper1 News
Executives Ross Beaty – Executive Chairman John Carson – CEO Lindsay Murray – Interim CFO Jay Sutton – VP, Hydro Power Paul Rapp – VP, Wind and Geothermal Power Analysts Rupert Mercer – National Bank Financial Jonathan Lo – Raymond James Marin Katusa – KCR Fund Mike Plaster – Salman Partners Aram Fuchs – Fertilemind Capital Alterra Power Corp ( OTCPK:MGMXF ) Q3 2015 Earnings Conference Call November 11, 2015 11:30 AM ET Operator Welcome to the Alterra Power Corp Third Quarter Results Conference Call. [Operator Instructions]. I would now like to turn the conference over to Ross Beaty. Please go ahead. Ross Beaty Thank you very much operator and good morning ladies and gentlemen and welcome to Alterra’s Q3 financial and operating results conference call. It’s an absolutely beautiful day in Vancouver today between storms I should add. We have a room full on people of Alterra’s senior management team with John starting [ph] just a moment. But I first to recognize we’re doing this on National Holiday in Canada for Remembrance Day, remembering [indiscernible] and also I want to remind everybody that we do have forward-looking statements today and our materials will be saying something’s about our future plans and we do seek Safe Harbor for these comments. Q3 was a reasonable quarter for us, had a lot of normal operational results I would say, no big surprises. I will go through those of course and the real highlight was continuing successful development of our Shannon and Jimmie Creek development projects and those are really progressing well and you’ll get a flavor of those as we go through the presentations today. So without any further comments from me I’d like to turn the meeting over to John Carson, Alterra’s Chief Executive Officer. John? John Carson Thanks, Ross. I echo your comments about the quarter and we are indeed very excited about the advancement of Jimmie Creek and Shannon. This time in the room with me I’d like to introduce folks on the phone, we’ll have Lindsay Murray, our interim CFO who will lead the financial discussion along with Ben King [ph]. Then on the engineering side we have Paul Rapp, of Head of Geothermal and Wind and then Jay Sutton, our Head of Hydro. Also in the room with me is Shannon Webber, our General Counsel, Murray Kroeker, who heads up our solar activities and John Schintler, who is our VP of Project Finance. And from Iceland joining us is our CEO of that business, Oscar Martison [ph]. So we’re fully equipped to answer questions today and we look forward to fielding any questions that you may have. With that I will like to start the discussion. Over to Lindsay for wrap up of our financials. Lindsay Murray Thanks, John. As you all have seen from our financial statement and MD&A released yesterday, Q3 was another great quarter for Alterra, our operating facilities achieved fleet wide generation of 97% of budget while our construction projects progressed on schedule and on budget. Although our generation was down quarter on quarter at total amount Toba Montrose and in Iceland our operating facilities have achieved 101% of budgeted generation for the nine months ended September 30, with Toba Montrose leading the way. Toba has had record high generation for the year meeting its annual generation target on October 8, and generation subsequent to this remaining strong. For those of you that are following the presentation on our website. I refer you to slide 4, third quarter consolidated results. Consolidated revenue and EBITDA decreased 25% and 17% respectively due to foreign exchange, the sale of so Soda Lake in January 2015 as well as decreased generation at Toba Montrose and Reykjanes plant. Although our operating results are down quarter-on-quarter this is largely due to foreign exchange as the Canadian dollar weakened 19% and the Icelandic krona weakened 13% against the U.S. dollar. You will see on slide 5 our operating results in each entity is functional currency which are down quarter on quarter but significantly higher than in our reporting currency. I’d also like to highlight what an amazing quarter Dokie had, in Dokie’s functional currency the Canadian dollar, revenues and EBITDA increased 38% and 71% respectively due to higher winds coupled with lower repair and maintenance costs. Turning back to the consolidated results. You will see equity income increased significantly compared to the third quarter of 2014. As a reminder we closed our project financing and a partnership agreement in the second quarter of 2015 with respect to our Shannon project and have been accounting for the project as an equity investment since then. As a result equity income increased $5.2 compared primarily due to a large non-cash gain at Shannon associated with movements in the power hedge. Other significant changes against the comparative quarter continue to be movements in other income and expenses which declined by 6 million against 2014, this decrease is predominantly due to noncash items including the unfavorable movements in foreign exchange and the fair value of the embedded derivative due to decrease forecasted future aluminum prices. The end result for the quarter was a profit before tax of $1.4 million versus 2.4 million in the comparative quarter. Moving on slide 6 and 7 show that the company’s net interest in generation revenue and EBITDA of our operating assets, these numbers reflect the company’s 66.6% interest in HS Orka, 40% interest in Toba Montrose and 25.5% in Dokie. Turning to the balance sheet on slide 8, total assets decreased 4% to 600 million since December 31. This is due to the sale of Soda Lake, repayments of loans and foreign exchange. Loan repayments in the period amounted to 13.9 million with a majority of that being at HS Orka. Current liabilities look uncharacteristically high this quarter due to the classification of the ISK denominated holding company bond in Sweden from long term to current as it is maturing in July 2016. The company plans to retire this bond through a refinancing and negotiations are well underway. Interest of 1.9 million was paid on this holding company bond during the quarter. The company’s revolving credit facility was also repaid in full during the quarter and the company currently has CAD20 million available under this facility. The reclassification of the bond and spend associated with the construction of Shannon has also impacted our working capital which is sitting at a deficit of 49.4 million compared with working capital 46.2 million at December 31. If we were to exclude the short term bond which is expected to be refinanced working capital of 3.2 million. Well speaking about the balance sheet I’d like to draw your attention to the embedded derivative, the derivative rose due to the power sale contracts in Iceland that are linked to the price of aluminum which expire in 2019 and 2026. This balance is currently a $59 million liability with the noncash loss of 5.5 million recorded for the quarter in the statement of operations. The accounting treatment for this derivative is complex but I’d like to remind users that the liability is headed toward zero as the contract approach maturity and the gains and losses seen in the income statement are non-cash in nature. These gains and losses arise from marking to market the future prices of aluminum each quarter. That concludes my update on the third quarter results and I’ll hand it back to John. John Carson Thank you, Lindsay. I appreciate that and at this time we will turn it over to discuss our operations beginning with Jay Sutton, our VP, Hydro Power. Jay, over to you. Jay Sutton Thanks, John. Referring to slide eleven, TMGP had a successful third quarter of 2015 producing 375 gigawatt hours of versus our forecast of 380 gigawatt hours. The extended hot summer and rainfall in September results in continuing high flows allowing team TMGP to achieve 99% of it’s forecast in the third quarter and 111% of its forecast generation year to date. Our strong generation has continued into the fourth quarter and we achieved a 127% of the forecast for the month of October. As Lindsay mentioned for 2015 we had reached our full year forecast generation on 8th of October which is 10 days ahead of 2014 dates and is the earliest since [indiscernible] start operations in 2010. At the plants the third quarter are generating period so we performed a routine maintenance and started preparing for the upcoming order season. We continue to make improvements on the plants to increase the amount of water we’re capturing and decrease the amount of sediment entering the facilities. Our crews continue to operate and maintain the plant safely and within our environmental commitments and we have now operated for over two years without a recordable incident for employees or our contractors. That’s all for Toba Montrose, John. John Carson Thanks, Jay. I would like to remind folks that the same exact crew that works on our Toba Montrose plant has done such an incredible job. We will also be managing and operating the Jimmie Creek plant. So, good news all around there and to the asset continues to perform exceptionally well, we had a record breaking year and it looks like we’re going to break last year’s record this year. Paul, over to you for wind. Paul Rapp Thanks very much, John. So moving to slide 12 for our Dokie operations, The Dokie wind farm had a great third quarter and we produced. 78.4 gigawatt hours of electricity or 109% of the planned generation. Production year to date is a 100% of plan and generation is very strong month to-date in November. Vestas, our service contractor at site has completed all their scheduled maintenance for the year and this is going to help us maximize production for the remainder of the year. And overall the Dokie facility continues to operate well, no safety or environmental issues. No equipment issues and continuing to exceed our availability targets. John Carson Thank you, Paul. And we’re really cheering the generation on at Dokie. If we achieve 100% by years end we stand to earn in and earn out of $750,000 so we’re all cheering for that over here in the business. With that let’s look at our geothermal side. Paul? Paul Rapp Sure. So at our Svartsengi and Reykjanes plant in Iceland, both plants performed well in the third quarter and production was at 97% of plan where 96% year-to-date, production is below plan due to the exceptionally high hot water demand we had an early 2015 due to the very cold weather meaning that less steam is available then for electricity production and also due to reduced production at the Reykjanes plant. We’ve seen a decline in the reservoir pressure at Reykjanes and we have work in progress that we’ve reported on previously to increase reinjection to provide the needed pressure support for the field. So further on that, work is nearly completed on a pipeline at Reykjanes s which will transport geothermal fluid from the power production to the previously drilled RN33, 34 drill hole area north of the plant for reinjection. This new reinjection site will provide pressure support for the Reykjanes geothermal field and will increase the long term stability for the plant. At Svartsengi, earlier this week we completed the first of two planned production drill holes the first holes for Svartsengi 25 is a makeup hole to provide additional steam to the plant and logging testing in that hole is underway early indications are very good for that hole. The second hole Svartsengi 26 is an exploratory hole to look to expand the field and drilling about second hole will commence shortly after the testing on Svartsengi 25. Also at Svartsengi we continued work on a new fluid disposal pipeline to the ocean and including completion of the outlook works at the seashore and construction of the pipeline and this pipeline will be completed in Spring of 2016 and will allow better control of the fluid discharge at Svartsengi and will allow for increased power production at the plant. And back over to you John. John Carson Thanks, Paul. Let’s look at our construction assets both of which are been on time and on budget. Let’s get to the good news starting with you, Jay. Jay Sutton Okay. So referring to slide 14, contracts at Jimmie Creek made great progress in the third quarter. At a high level we’re expecting to complete the civil work on the project by the end of this year and continue the electrical and mechanical installations through to the spring when we will begin our commissioning. At the intake we’ve completed the concrete for the intake and rubber dam in our schedule to divert the flows back into the new and take structure next week and finish the overflow spillway by the end of this year. As you can see in the photo on the slide the rubber dam down was commissioned in October and the installation and the commissioning of the gates have started. On the Penstock construction over 95% of the Penstock is complete, on the final two pieces are scheduled to be installed by the end of November. The contractors install all of this Penstock on the challenging steep section is commenced remediating to site. Finally down to powerhouse, the installation of the generating [ph] equipment has started with the installation of the housings and distributor, both generators have arrived in Vancouver and will be delivered to the site at the end of November. All the switchyard equipment including the transformers have been stalled and the contractors now starting to pull and terminate the cables. Project has achieved a high standard of quality, safety and environmental compliance and it remains on budget and schedule and we’re looking forward to generating electricity in the third quarter of 2016. Thanks, John. John Carson Paul, Shannon? Paul Rapp Sure. Moving on to slide 15 for our Shannon wind projects look at North Texas, construction at Shannon has moved along very well and the project is very close to reaching commercial operations. We remain on budget and on schedule at Shannon. As of this morning we have only three of the total of 19 turbines left to complete erection and the project cranes are at the final turbine locations, commission and energization of the turbines is progressing well behind the turbine erection and the remainder of the balance of plant is completed. And we expect to reach commercial operations at Shannon in early December. At that point our tax equity — our $212 million tax equity fund will close and the proceeds from this funding will pay off our construction loan. Things are going very well at Shannon. John Carson Thanks, Paul. Really happy to hear the construction news on both fronts. With that we’ll take you to slide 16, and just a bit about looking ahead. First of all what we’re focused on is wind development with two prongs, number one greenfield development on some projects in United States our team is actively working on right now and number two multiple new development projects that we’re currently analyzing for prospective acquisition etcetera. So two different methods of development there, but we’re active we haven’t actually added any team members, we’re all just working very hard to get these new opportunities. Number two, as we mentioned on our last call we’re also advancing multiple hydro development projects not only here in our own field here in British Columbia, also in Iceland and other places so team remains very active and the photograph that you see on the slide is actually work that’s being done at our Tahumming site, a beautiful site in British Columbia that are type of run a river projects can work very well and are very unobtrusive. Next we are continuing to work on that solar opportunity we mentioned on our last call and hoping that we can achieve success there and finally we did have a blow come against us down in South America we had planned to begin drilling this South American Summer it’s going to be moved until next South America summer, our partner elected to make that delay. So in the meantime we and they are continuing to work on engineering and environmental permitting and other activities. So we are fully remaining busy we’re not hanging up the [indiscernible] by any stretch, we are merely delaying that program for a year. So that’s where our focus is today. We love the fact that we’re developing and growing our ownership of capacity here and generating more clean power. There are headwinds in the business, things like lower oil prices make it more difficult to get new projects but we know and believe that with our skills for development and ability to step into a project and make it happen. As we’ve proven multiple times, we know that we will get new growth opportunities and we’ll be telling you about those as they come. With that Ross, I will turned it back to you. Ross Beaty Thanks, John. I think I’ll end it there as well and open the call to questions now. Thank you very much, Operator. Question-and-Answer Session Operator [Operator Instructions]. and your first question will be coming from Rupert Mercer of National Bank Financial. Please go ahead. Rupert Mercer Wondering if you could give us a little more color on the South Toba projects that you’re looking to acquire if you can talk a little about the economics of those projects maybe a little color on what permitting might be required to bring them to the point of construction and how long could it take to get those to market from where you stand today? John Carson Sure. So silver [ph] projects are located under a transmission line. There just south of the Toba inlet. We expect them all to be between 10 and 15 megawatt so which fit under the standing offer program that BC Hydro offers they’re very early in the development phase so we have to do hydrology work and environmental work on them still so I would suspect that they would be at least three to four years out and we would like to put them on after our Tahumming project center. So right now we’re looking at Tahumming starting hopefully in 2017 and then we would look at these South Toba projects to come in line after that once completed. Rupert Mercer And how much excess liquidity does the company have today to fund to organic growth or project acquisition? John Carson Now let me start by answering that by saying that we have a lot of financial dry powder that we have not tapped in the company. We well publicized the fact that our original credit agreement with AMP Capital Partners had a Tranche C [ph] that we never closed on. We deliberately chose not to, we felt that we could actually perhaps get a larger amount if and when we needed it. So what we’ve done is we’ve kept that dry powder dry, it remains poised and they are anxious to move ahead and grow that loan if we wanted to. There are other financing options that we could look at as well and we’ll look at. We also have had a good appreciation on our equity side. So we feel as if we have a good liquidity all around in the business and a lot of financing capacity to tap. Operator Your next question will be from Jonathan Lo at Raymond James. Please go ahead. Jonathan Lo Can you talk about potential dividend? Last quarter you said maybe you might have an update this quarter? John Carson There’s no new update. What we’re looking at is something which we could roll out in 2016 in sometime, but it’s still very much an active discussion for us. Jonathan Lo And is there a ramp up period for Shannon or once December comes, commercial operation is that like fully running or is there period of like six months or something that or? Paul Rapp Yes there is no ramp up, we will put all turbines in service and we will be fully operational at that point, sometime in December. John Carson Yes, should be full steam out the gate. Operator Your next question will be from Marin Katusa of KCR Fund. Please go ahead. Marin Katusa On page 19 of your MD&A you quite touched on John, regarding the Tranche C, what would that look like — what are we talking about size wise, and more cost to that capital and I’m assuming that that would go either towards potentially the Canadian projects for U.S. but I’m wondering what that cost of capital would look like? John Carson You will recall in the original facility with AMP, we were in mid-7s on all in cost to capital until we swapped it out. We swapped it up to about 8.5% and that’s where that sits today. To us that was an acceptable cost of capital and I’ll remind everyone that that piece of financing accepted construction risk so it was a little higher than the others you might see. Now having Shannon put into operation everything will be — have been significantly derisked. So one could contend that if we were to go out and refinance or renegotiate with AMP we could probably get to significantly lower cost of capital than what we experience there. If you look around at other financings in this space for derisked projects i.e. operating assets, assets that are operating well you’ll see that probably you’ve got at least a couple of 100 basis points of headroom on that AMP piece. So long term we think we have a lot of different options to look at, we enjoy the relationship with AMP and we certainly plan to continue that. But we’ll see what the future holds just in terms of when we finance. We’re mindful lastly that the Shannon wind farm is fully outside of that facility and is again part of the dry powder that we’d have to finance from. Marin Katusa Okay. Now second question regarding the eco-logo [ph] credit with the liberals coming in, I’ve talked to a couple of government that expect some new infrastructure incentives or stimulus however you want to call it. Have you guys touched base with any of the federal legislators regarding what the evolution of the eco-logo credit will be? John Carson No we haven’t, Marin. Marin Katusa Okay. I’m just wondering if that will change Dokie 2s destiny at all? John Carson Dokie 2s destiny is significantly impacted by BC Hydro’s needs for power, not for anything else really and right now BC Hydro is pretty full up with development of the Site C [ph] project. For the time being anyway and the real change in BC’S energy demand is going to come from either development of the LNG business and/or advancement of other large load sources like electric vehicles, new mines that kind of thing. Marin Katusa My last question is regarding Iceland, looking at the expansion from a 100 megawatts to 180, any updates on how the tie-in is going or how you expect to move — what’s the next 12 to 18 months look like on that expansion program and also the arbitration status? John Carson We have Oscar Martinson on the phone, Oscar do want to give a quick run through some of our growth projects in Iceland and how they look over the next 12 months? Unidentified Company Representative Absolutely. First of all we have been working on bringing one of the two steps in expansion close to construction and that is a matter of very few months now, people are excited to move on with that [indiscernible]. Then we’re working actively on some smaller hydro projects aiming to start construction of one of these in 2016. We’re just about getting ready and full permitted for exploration drilling at geothermal [indiscernible] and we’re working on few other projects in hydro a little bit further out in time or development status as of now. So hopefully starting construction with two projects during next year. John Carson And on the question regarding arbitration, the arbitration is in progress, the hearing will be next Spring and it’s very much proceed in accordance with the procedures for typical international arbitrations. Operator And your next question will be coming from Mike Plaster at Salman Partners. Please go ahead. Mike Plaster Just continuing on with HS Orka, the new 32 megawatt PPA that you announced, are able to give any more detail on that in terms of when it might get underway and how you sort of meet that additional supplies from some of the additional construction work? John Carson Right, no at this time really we’re — it is subject to several conditions that need to be fulfilled first. We’re really not divulging in any other detail that’s not relevant yet to discuss those details so that’s really just where we’ll leave it for now on that contract. Mike Plaster Presumably it doesn’t have any implications though for the arbitration proceedings at this point? John Carson No. Mike Plaster And just I guess back at the corporate level. Are you able to provide some detail on how your CapEx budget is shaping up overall for 2016? John Carson CapEx on non-Iceland side is really next to zero until and when we make a new project announcement for example if we move forward on the project in South America, Chile that would indeed jump onto the screen and we’d have all the details and good economics around that, but moving over across the pond to Iceland. We are still completing some capital projects which we can get into in detail with Oscar if you would like but we’ve already mentioned them for example the new effluent system as far as singing and the new rejections at Reykjanes, those projects will be either wrapped up right at the end of the year or will extend a bit in 2016. Any other larger project for example the Reykjanes 4 project which Oscar mentioned will likely — you know first of all be pushed into 2017 or if it’s a — that would be a subsequent after much research and analysis. So that’s what’s on cap for CapEx for the company right now. Mike Plaster Okay. And on the Iceland ones are you able to sort of quantify what we might expect next year? Jay Sutton I would say not yet. We are working very actively. I was in Iceland day before yesterday to meet with the team and the board on this, it’s going to be a very significant program that we expect going forward for the next few years. They’ll be coming here next week, we’re going back there in December so we’re really very active in that area right now but we haven’t sort of finalized anything for the market, we will let you know as soon as we can. John Carson That’s right, we’re working on it right now. Operator Your next question will be from Aram Fuchs at Fertilemind Capital. Please go ahead. Aram Fuchs Couple of questions, John you’re able to really come in to Shannon and show value there. I’m curious with all the yield-cos now coming in with very cheap capital, what you see you know without showing your hand what you see as a strategy to get U.S. development because the power prices I see don’t seem to be too attractive. So can you just talk about your strategy there? John Carson There is a lot of variation that we’re seeing Aram, in power prices. You’re right generally it’s a challenge to get to the kind of return levels that we want to get to and we have as I’ve referenced earlier made some acquisition attempts in the last year we didn’t win them all and we were beaten by some yield-cos at various times. You’ve probably seen though like we have that yield-cos are suddenly faced with a big question mark and the economics and the growth stories that they had been called into question and their stocks have tumbled significantly since about mid-year. So I think that they are now retreating to the sidelines in terms of project acquisition, that doesn’t mean that everything’s going to turn back to the way it was. There are still lots of appetite amongst infrastructure investors etcetera who aren’t public, who don’t have the yield-co story overhang that currently exists. So we don’t think that all the competition is going to suddenly head for the exits but I think there will be some easing from the froth or the frenzy I guess you’d say that we faced. So we feel a little confident. We actually feel like going back and checking on a couple of opportunities that we pursued vigorously this year and we’ll see what that does. So I feel good about our ability to get projects and I feel like the what we’ve faced in the market this past year that was daunting is going to subside a bit. Aram Fuchs And then this might be for you or Oscar, but can you just talk about — it was nice little surprise to have that pressure by PPA in Iceland and seems like the demand there might be an uptick in demand in Iceland and I was wondering is that true and just talk about why that might be when you don’t see demand increases in other jurisdictions? John Carson We won’t be able to talk with too much given, we’ve got this arbitration with an order all coming, but maybe you can put some context on the Icelandic market together Oscar and provide what you can. Unidentified Company Representative First of all, as we would after class post-2008 was a time of very little investment and development within the different industries and services. Now we have totally changed the economic client, there is a lot of investment going on. Tourism booming, different industries are doing well and the silicon industries are investing, the data centers are developing also and even new ones popping up. This all needs power. The power production industry as such has not picked up in the same pace mainly because the time to develop a power project is much longer than to develop industrial project. So the optimism [ph] is quicker to develop than the producers and this is part of the reasons for there is shortage foreseen in the market, buyers are lining up and there is a great opportunity now to produce more and sell at higher prices than before. This is kind of the short version of the story. Operator [Operator Instructions]. And at this time Mr. Beaty we’ve no further questions registered. You may proceed. Ross Beaty Very good. Thank you, Operator and again thanks to everybody who joined us today and asked questions and if you’ve any further ones by all means contact us and we will do our best to answer further questions over the telephone. Thanks again for joining us and good day. Operator Thank you, sir. Ladies and gentlemen this does conclude your conference call for today. We want to thank you again for participating and ask that you please disconnect your lines. Have yourselves a great day. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com . Thank you! Scalper1 News
Scalper1 News