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Executives

Ross J. Beaty – Executive Chairman

John Carson – Chief Executive Officer

Lynda Freeman – Interim Chief Financial Officer

Donald A. McInnes – Executive Vice Chairman

Paul Rapp – Vice President-Wind and Geothermal Power

Jay Sutton – Vice President-Hydro Power

Murray Kroeker – Vice President-Solar Power and Engineering

Asgeir Margeirsson – Vice President-Geothermal

Monte Morrison – Country Manager

Analysts

Jeremy Mersereau – National Bank Financial

Ian Tharp – CIBC World Markets

Matt Gowing – Mackie Research Capital

Jonathan Lo – Raymond James Ltd.

Aram Fuchs – Fertilemind Capital

John McIlveen – Jacob Security

Jared Alexander – Canaccord Genuity

Alterra Power Corp. (OTCPK:MGMXF) Q1 2013 Earnings Call May 13, 2013 11:30 AM ET

Operator

Good morning, ladies and gentlemen, and welcome to the Alterra Power Corporation’s First Quarter Results Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. the instructions will be provided at that time for you to queue up for questions. (Operator Instructions) I would like to remind everyone that this call is being recorded on Monday, May 13, 2013. I would now like to turn the conference over to Mr. Ross Beaty, Executive Chairman. Please go ahead.

Ross J. Beaty

Thank you, operator and good morning and afternoon to everybody who is listening in. Welcome to our Q1 financial and operating results conference call. We have once again put together a short presentation, which is on our website and it’s available in real-time, you can access it by going to www.alterrapower.ca.

So we’re going to start out. the very first slide is our forward-looking statements slide. I’ll remind you that we have a number of forward-looking statements and we see Safe Harbor in this connection. Joining me on this call today are John Carson, our Chief Executive Officer; Lynda Freeman, our CFO; Paul Rapp, VP, Wind and Geothermal Power; Jay Sutton, Vice President, Hydro Power; Murray Kroeker, our Vice President of Solar Power and Engineering and also Donald McInnes is here with us, our Executive Vice Chairman and we have on the line from Iceland, Asgeir Margeirsson and from Nevada, Monte Morrison, if we need them at all to answer your questions at the end of the call.

Our financial results reported on Friday night come just a few weeks after we reported our year-end results. When we hosted the conference call and went over in some detail, I think, we spent more than an hour on that call, all of our operations and projects in significant detail. So today, I think we’ll have an abbreviated session with just a few updates for you and I’m going to ask John Carson to start things off right away with an overall summary and then presentation from our team.

John Carson

Great, thanks, Ross. The highlight for this quarter to me was our consistent generation over the previous quarter last year, and also consistent revenue and EBITDA. We have just completed our Iceland drilling program, two wells and are actually now doing a well work-over in addition to the two well program, the initial results are positive and we’re very pleased that that’s moving forward. Also, at Montrose, where we’ve experienced a rock slide last year, repairs are well underway, and we think that we’ll have that asset back up in full quarter water flow by August of this year. In South America, we are just on the very last stages of documentation of our joint venture agreement with EDC, the Manila based geothermal operator. And we entered just recently into a new seller partnership in Puerto Rico, pursuing a 100 megawatt development opportunity.

Finally, we just added a new team member Jon Schintler, a Director of Project Finance and M&A, very happy to have him on board in helping the company with his growth.

And now I’m going to turn it over to our CFO, Lynda Freeman, to give you a full update on the numbers for this quarter and just reminding all of the folks joining us on the call today that the first quarter is typically our lower production quarter seasonally at Toba Montrose plant less than 5% of generation occurs during this during. So it’s a lower quarter for EBITDA on the run rate, but nonetheless, we were very close to last year.

Linda, over to you.

Lynda Freeman

Thanks, John and good morning to everyone. I’m going to commence my presentations with a discussion on the first quarter consolidated results of the company. Consistent with the comparative quarter ended March 31, 2012, the company continues to consolidate a 100% of the results of HS Orka and Soda Lake while the company’s interest in Toba Montrose and Dokie 1 are accounted for its equity investment.

For those of you that are following the presentation on our website, I refer you to slide 4, consolidated results and generation. As demonstrated and explained on the slide, revenue is up 5% against the competitive quarter at $17.2 million versus $16.4 million, due to new sales contracts entered into late 2012 and early 2013 at HS Orka, an increased generation at Soda Lake due to an additional production wells that was put in service late in 2012. The gross profit margin remains steady at 29.1% against 28.6% quarter-on-quarter.

During the first quarter, the company recognized a net equity loss of $3.8 million against the loss of $5.4 million for the same quarter of 2012, representing the company’s interest in Toba Montrose, Dokie 1 and the Blue Lagoon. This reduction in loss was predominantly due to a non-cash movement in the Toba Montrose interest rate swap and other income recognized on the Montrose rockslide insurance proceed in the quarter, offset by lower generation at Dokie 1 due to higher wins in the comparative quarter where wins were 111% of budget.

The Montrose facility was offline during the entire quarter due to the damage incurred as a result of the December 13, 2012 rockslide. The project insurers have confirmed that the incident is covered by property and business interruption insurance with insurance deductibles recognized in full at December 31, 2012.

The proceeds from the insurance claim will be recognized in equity income in Alterra’s statement of operations. A move reflects both business interruption proceeds and reimbursement of repair costs. income received for reimbursement of repair costs represents amount over and above the original cost to build the damage section of the penstock, as those repair costs were incurred.

As of March 31, 2013, $0.7 million is reflected in equity income, reflecting reimbursement of repair costs incurred in the quarter. Business interruption proceeds were minimal in the first quarter. These amounts are expected to grow significantly in the second and third quarter as repair work continued and business interruption proceeds increased with seasonal [floats].

Included within other income and expenses are general and administrative costs, which increased from $4 million to $4.2 million against the comparative quarter. Recurring general and administrative costs have declined quarter-over-quarter and this increase is primarily due to non-recurring costs associated with the reduction in personnel in the period.

Our results continued to be affected significantly by non-cash movements in the embedded derivative and bonds payable, both affected by the forward aluminum price. Movements in both these balances are also reflected in other income and expenses. The end result was a loss before tax of $14.2 million against $10.2 million in the comparative period.

Moving on to slide five and six, and also contains in the company’s management discussion and analysis, we are demonstrating the company’s net interest in the 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, 51% interest in Dokie 1 and 100% interest in Soda Lake.

Due to the change in ownership of HS Orka in the first quarter of 2012, the company has shown pro forma comparative information reflecting what the company’s net interest would have been had Alterra own 66.6% of HS Orka for the entire comparative quarter. As shown in the slide, and reflected in the MD&A, revenue and generation remained consistent quarter-on-quarter with higher revenue and generation at HS Orka and Soda Lake offset by lower revenue and generation at Dokie 1, the movements of each have been explained earlier.

Quarter-on-quarter EBITDA was down $0.9 million due to the cost of seasonal repair work at Toba Montrose, lower generation and revenue at Dokie 1 discussed above and higher administrative cost of HS Orka due to ongoing discussions and negotiations in Nordural. The $0.7 million rockslide related insurance proceeds received for repair costs discussed above have not been included in the EBITDA calculation.

The following slide on page 7 contains balance sheet highlights. It is worth noting the value of assets and liabilities fluctuate significantly as a result of foreign exchange, most significantly movements in the Icelandic Krona which strengthen against the U.S. dollar at March 31 against December 31, 2012. With regards to liabilities and as mentioned previously, fluctuations and liabilities is most significantly due to fair value adjustments for bonds and embedded derivatives that are linked to the future price of aluminium.

The reduction in cash and working capital was primarily due to the cost of the two new geothermal wells at HS Orka in addition to the classification of Alterra’s revolving credit facility to short-term liabilities at March 31, 2013.

The long-term debt position is analyzed on the next slide, slide 8. As of March 31, 2013, the company's net interest in project long-term debt was $359.7 million, representing a $181.9 million out of Toba Montrose, $88.3 million at Dokie 1 and $89.5 million at HS Orka.

During the quarter, principal repayments of $3.8 million were made against the HS Orka debt. And in accordance with the credit agreements of Toba Montrose and Dokie 1, no repayments were made in the period. Interest payments of $5 million were made during the quarter, reflecting $2.9 million at Toba Montrose, $1.5 million at Dokie 1 and $0.6 million at HS Orka.

In addition to project debt, the company also hold $117.4 million in long-term bonds that resumed and unsecured on the holding of HS Orka and $7.9 million in the revolving line of credit. The company is currently working with the lender to obtain financing capital to be secured against distributions from Toba Montrose and Dokie 1. The proceeds of which are expected to be used to repay the revolving line of credit and to fund future cash requirements including any needed project equity for construction of Jimmie Creek forecast for later in 2013.

That concludes my updates in the first quarter results, and I will now hand back to John.

John Carson

Thanks very much, Linda. With that I like to start our operations update and first step is Paul Rapp, who is our Vice President of both Wind and Geothermal Power. Paul, over to you.

Paul Rapp

Thank you, John and good morning, everyone. I’ll start with updates on the Dokie 1 wind farm page 9 on the slides for those who are following along. In Q1, the Dokie wind farm performed very well producing 93 gigawatt hours of electricity or 102% of the budgeted generation. Production remains on track and as of Friday, we were at 102% of generation.

Dokie wind turbines continue to perform well in Q1 and our turbine operator, Vestas has exceeded their contractual guaranteed wind turbine availability at over 97%. There is a big message at Dokie is it steady as she goes.

So with that, I'll move over to our Icelandic operations. Slide 10, both the Svartsengi and Reykjanes plants performed well in Q1, producing 328 gigawatt hours of energy or 101% of the budget generation for the quarter. As John mentioned earlier, our two well drilling program commenced at May 2012 adjacent to the Reykjanes plant, we’ve now completed both of two plant reserve holes. Flow testing of the first hole is confirmed that it will be a good production well. Second hole is currently shut in (inaudible) prior to flow testing, but early indications are positive for that hole.

We are currently performing a planned work-over of an existing production well with the intent of improving its yield and obtaining important knowledge and techniques for future maintenance of other production wells. Driven activities are expected to be completed this month and the $9 million estimated total cost has been fully funded from cash on hand at our Icelandic subsidiary.

Over to Soda Lake, slide 11. Soda Lake achieved 103% of the budgeted energy in Q1 or 19 gigawatt hours. As of the end of February, the plant was generating 107% of budgeted generation year-to-date. All of the turbine generators in production wells are currently performing well with no issues. So that should be end of April, the plant has generated 107% of budgeted generation.

And that’s it for Wind and Geothermal. So next, I’ll hand over to Jay Sutton, our VP of Hydro Power.

Jay Sutton

Thanks, Paul, good morning, everybody. Please refer to slide 12, Q1 2013 generation for the Toba Montrose plants was under budget due to the repair at the Montrose plant, annual maintenance outage at East Toba and lower than forecast inflows. It’s important to note that less than 5% of the forecast annual generation occurs in Q1, which is typically our lowest producing period.

These Toba plant has been in operation since February and have to report that with recently warm weather, East Toba plant has currently operating at its maximum capacity. To date in May, we are at 150% of our forecast for the month.

At the Montrose plant, the work to repair the penstock is continuing. The intake access really has been restored and construction of the rockfall protection berms has commenced. Replacement penstock pipe is scheduled to arrive onsite at the end of May and we are continuing to forecast completion of the work this summer. There will be no long-term effect in the generation of our performance of the plant.

We continue to work closely with our insurers, FM Global, on the project, and the work is fully insured, including revenue losses as John previously indicated. We are constructing protective berms above the penstock sections and other exposed areas to decrease the likelihood of a similar event in the future.

That’s all I have for TMGP. With that, I’ll hand it over to Murray Kroeker, our Vice President of Solar.

Murray Kroeker

Thanks, Jay, and good morning. On ABW Solar, Alterra were still getting preparing to purchase our 10% of the 50 megawatt ABW Solar plant, which consist of three separate sites in Southern Ontario. The transaction is scheduled to close in July, provided we can complete all the contractual conditions. The operations have commenced at all three sites and construction is completed and currently being operated by First Solar.

With that, I’ll pass it back to you, John.

John Carson

Very good, thanks, Murray. Thanks to all the operations team. and now I’d like to look at some of the growth opportunities and give you updates on each one of those. Let’s start with the Jimmie Creek hydro update; you’ll recall that this is actually what we used to call the Upper Toba River plant. This is the first phase of the Upper Toba River complex; it’s called Jimmie Creek plant.

Currently, we’ve got management negotiations underway for the construction of the project with our EPC manager, SNC-Lavalin. Secondly, we have project financing discussions underway and we are currently developing at term sheet with a prospective lender there. Meantime, partnership arrangements are still in discussion, you’ll recall that GE is the current 51% owner there.

And so finally, we are now engaged in holdco level financing discussions to source any required equity capital that will need for the project. And with respect to that, as we previously disclosed, we currently estimate that if we are to be continuous of 51% owner there then the equity requirement would be somewhere between $25 million and $30 million. The holdco level financing that we’re currently discussing and acting around would be in the neighborhood of $50 million to $60 million.

As a reminder, the highlights of this project are, number one, a 40-year power purchase agreement with BC Hydro. The project is fully permitted and has this environmental assessment granted, it will share services with the Toba Montrose project, which fits right next door to it, it will share a transmission line and it will share operation services. This achieves operational synergies for the owners of these plants. And finally, the construction for this plant we currently position as early as summer of 2013.

Moving on to slide 15, the Reykjanes 3 and 4 plant which would sit immediately adjacent to the current Reykjanes 1 and 2 plant is currently being advanced by us and discussions with its offtake. The offtake there is a subsidiary of Century Aluminum and we've been in PPA discussions for sometime with them trying to solve final and last issues to be able get this project underway. There are other items also that this project will need in order to be advanced. First of all, project financing will have to be obtained for the project and lastly, we've noted their confirmation of resource will have to be confirmed as well.

The drilling program that Paul mentioned earlier is going to be helpful in understanding the Reykjanes field further for potential tapping of the field for this plant. Also we have a well work-over underway at an old well, well RN-22. All of this is together further data to make sure that the plant will be optimized with respect to its resource. So that's what this plant moving forward depends on.

As a reminder, this is an 80 megawatt expansion, it’s a brownfield opportunity and we already have a 50 megawatt Fuji turbine onsite, it’s the same technology that we have in the Reykjanes plant 1 and 3 and these plants frequently deliver over budgeted performance and have been extremely reliable since they were installed in 2006. Finally, the plant is already fully permitted for operations.

Moving on to slide 16, the Dokie 2 wind project, we’re still pursuing PPA opportunities there in 2013. As we mentioned on our last call, this might be waiting for a bid to the latter half of the year until we see how certain things here in British Columbia turn out. Growth here is strongly tied to LNG plant development. There are several consortium of LNG plant developers who planned to put an LNG liquefaction facility, Fairways North of Vancouver and that LNG development could potentially called for energy needs to developing in the province as we might be able to take advantage of.

Other industrial growth in the province may accomplish the same thing such as mining and continued residential growth. However, at this time, we don’t think that this will be an opportunity that will be filled in the very near term. We are again positioning and working toward potentially getting a Power Purchase Agreement for Dokie 2 in the latter half of the year.

As a reminder, the highlights for this project are it’s a 156 megawatt capacity versus 144 for the currently operating farm. The wind resource there is extremely well proven and we have several meteorological towers onsite to fine-tune the data in preparation for the projects financing. We’ll have a permit for the project and environmental impact assessment has been finalized and almost all of the First Nations agreements that will be relevant for this project are in place. Our partner there remains GE Energy Financial Services, who is our 49% partner for the project.

Let’s move on to slide 17 and discuss a new opportunity that Alterra has begun working on the previous quarter. It’s a 100 megawatt solar development opportunity in Puerto Rico. Puerto Rico is a new domicile for Alterra. For that reason, we partnered with somebody there who has strong Puerto Rico expertise. As with Greenbriar Capital Corp., we are happy to be partnered with them in a co-development arrangement for this project. This partnership owns 100 megawatts master agreement with the Puerto Rico Electric Power Authority. Under that agreement, we intend to have PPAs granted to the project and to develop up to 100 megawatts again of solar power in Puerto Rico with our partner, will own 50% of that partnership.

Turning to slide 18, a reminder about our Chile and Peru geothermal opportunities, where we feel we have some of the best resources that are available on the continent there and we continued there in late-stage documentation with our prospective partner there, Energy Development Corporation or EDC, a Manila based geothermal operator with more than 1,300 megawatts of geothermal capacity and operations.

The primary deal term is there remain unchanged. We'll get nearly $60 million or a 70% partnership interest by EDC due put into the project to drill the next set of wells. The operating plant remains to drill, but are possible in the next South American summer, which will be our North American winter for the end of 2013.

Also in Peru, which is in earlier stage opportunity, the agreement calls for $8 million of earn in for select Peruvian concessions that Alterra owns. As a reminder, in our Chile asset, we have 320 megawatt inferred asset by the Canadian Geothermal Code and we have multiple components in place for infrastructure including a base camp and other facilities, 26 kilometer road. Three slim holes have been drilled at this site with positive results, very high temperatures. And in Peru, we feel we have again some of the best early stage concession areas and high probability areas.

We are very excited as we are moving forward here about A, the base that we’ve created, the base of geothermal, solar, wind and high growth operations here, which have strong and continuous cash flows and we are also excited about our growth both internally through projects such as Jimmie Creek and externally through new project such as the AG Solar One, solar development opportunity in Puerto Rico. So we are excited as we look toward the future.

And with that, Ross, I’ll turn it back to you.

Ross J. Beaty

Great, thank you, John. So I’m not going rehearse what you just said, you summed up what we are doing very well in the rest of the group. We did go over and said a full overview of operations and projects just a few weeks ago. So I think I'll close the presentation now and open the call up to questions if anyone wanting further information. Thank you again for joining us today and we'll take questions now, operator.

Question-and-Answer Session

Operator

Thank you (Operator Instructions) And your first question comes from Jeremy Mersereau from National Bank. Please go ahead.

Jeremy Mersereau – National Bank Financial

Good morning, everyone.

Ross J. Beaty

Good morning, Jeremy.

Jeremy Mersereau – National Bank Financial

Just I thought I’ll start with the East Toba, could you confirm that the $0.7 million in insurance proceeds was not included in that EBITDA calculation?

Lynda Freeman

The one relating to the Montrose Creek, it was not included in the EBITDA calculation. We will in the future be including the business interruption proceeds component, but we won’t be including the repair cost reimbursements in that number.

Jeremy Mersereau – National Bank Financial

Oh, I see, because I think in the MD&A it says that it was included, but maybe it’s just missing a knot or maybe I misread it, all right. So like you said, Q2, Q3 then we should see relatively elevated EBITDA levels there as though the operations are, as the project is operating.

John Carson

Yeah. And I wouldn’t characterize as those elevated, I would characterize them more as on target. It will be as if the plant had operated, we have a good system for measuring the water flow in at that plant Jeremy. So it will be just as if the plant we’re operating, so not elevated, but on target is the way I would phrase it.

Jeremy Mersereau – National Bank Financial

Sure. I just meant from Q1, that’s all. Next on the corporate facility, I’m guessing then that or I’m asking then if that will be used to repay that $11 million drawn on the credit facility and to fund AG Solar?

John Carson

Just missed the first part of your question, but I think you’re asking about the uses of funds, and yes, we wouldn’t tend to repay our credit facility and keep that available as we always have. But secondly, AG Solar would be one source, a minor source this year of capital, but really more sensitively Jimmie Creek would be our next major investment of capital and again we’ve kind of given an indication there that at the 51% ownership level, which is what we project, our equity input there would be $25 million to $30 million with some potential offset there for previously spent development expenses. So there will be other project expenses there, but I think Jimmie Creek is really focused for 2013. AG Solar will be lesser investment this year. We’d expect AG Solar, if things progress well there, to be an investment in 2014.

Jeremy Mersereau – National Bank Financial

Okay. And what exactly would you need in order to move your projects forward at AG Solar?

John Carson

At AG Solar to go into construction under our current modeling, which is early stage and so we’re not publishing these numbers yet, but just to give you just rough guidance, we’d expect somewhere in the neighborhood of $20 million to $30 million to get a plant of 100 megawatt up at a fully financed plant.

Jeremy Mersereau – National Bank Financial

That’s all the equity for that 100 megawatt you’re saying?

John Carson

That’s correct.

Jeremy Mersereau – National Bank Financial

And not just AXY?

John Carson

Sorry, that’s AXY…

Jeremy Mersereau – National Bank Financial

Yeah, okay, okay. That makes sense. And you did mention in the MD&A that you do have an agreement in principle to purchase the 49% share of the GEs, I guess that GE’s ownership of Jimmie Creek, just wondering if you can tell us anything at all what that would entail?

John Carson

Yes. No, we haven’t disclosed anything about that because it’s not finalized yet. We’ve preferred to wait until that is finalized. But, Jeremy, in the meantime, we have reached new agreement in principle. And so we’ll tend to further news updates there on that one.

Jeremy Mersereau – National Bank Financial

Okay. Thank you.

Ross J. Beaty

Thanks, Jeremy.

Operator

Your next question comes from Ian Tharp from CIBC World Markets. Please go ahead.

Ian Tharp – CIBC World Markets

Thanks and good morning. So just going back to Jimmie Creek, if I could, first, I know you have environmental permits for Upper Toba. So is there any need to modify the environmental permits now that you are just going ahead with Jimmie Creek at this point?

John Carson

No, the Upper Toba permits cover both Jimmie Creek and Upper Toba projects. So there is no change in the permitting.

Ian Tharp – CIBC World Markets

Okay, great. All right, thanks. And then – sorry, go ahead.

John Carson

No, no, over to you.

Ian Tharp – CIBC World Markets

Okay. So, Jeremy had asked about the financing there. John, you’ve talked about $50 million to $60 million in equity for that holdco piece. So I mean you’ve got the holdco piece being negotiated, do you also have the debt piece being negotiated. So I wonder if you can talk about how the debt negotiations are going. And your equity requirements, should you be successful in securing the GE piece, I’d assume would go up. So how would you propose to cover it in the event that you are successful in securing the GE piece?

John Carson

Sure. So first of all, just with respect to the debt, just recognized, I am sure you know, there are two components of debt here related to Jimmie Creek. One is at the project level and we’re under in negotiations and in discussions with a perspective debt provider there and it will be debt providers with whom we’re very familiar. And the second piece is really to raise our construction equity. It is also debt financing, but that’s debt financing raised on our strong cash flows, which currently are about $14 million, $15 million a year in British Columbia, our free cash flow to equity at each of the projects. Based on that cash flow, again, we project a financing there of $50 million to $60 million. We are at the gate on some discussions and looking at that financing and things are progressing and we’ll provide further updates as they become relevant.

With respect to GE’s piece and the purchasing of that piece, the agreement in principle that we referenced in our MD&A, that would be the case that we would then maybe for a bit own 100%. It is still possible and potentially likely that we would partner it out with someone else, possible to date that we would partner with GE, but again, since we’ve reached this agreement in principle, that’s the less likely scenario. So, Ian, I would think, it is highly possible that we would still partner at a 51% level there and you could think of prospective people we would partner with there in the Toba Valley.

Ian Tharp – CIBC World Markets

Okay, helpful. And then was I right in kind of sensing in the language in the MD&A that you’ve softened your construction timelines around Jimmie Creek to later in 2013. So just thoughts based on a lot of financial engineering that needs to happen in advance on start of construction?

John Carson

Sure. We applied to carefully as early as summer of 2013, we are still actively targeting it, but look there are plenty of things that could push this out prospectively, the project financing et cetera. So we did soften our language just to kind of keep it where we think it should be. So if you are here internally with us, you wouldn’t see anything changed here. We are still targeting July, but really it could be pushed out. So the language is appropriately stated as early as some of 2013.

Ian Tharp – CIBC World Markets

Okay, okay. So just moving on to HS Orka, I know you talked before about the collective of the two wells, the production wells and the work-over well being used either for production of the expansion and/or support of current operations that you seem to have changed it to the two wells being reserved for production at Reykjanes 1. So I know you've got nine to 12 wells there, you have PPA negotiations underway and, Ross, you and I’ve had this discussion before where you don't necessarily like to have PPAs ahead of a confirmed resource. So almost you have to turn the speed up on your production efforts at Reykjanes this summer to get confirmation of resource. So just wondering what are your thoughts around de-risking production capacity against the negotiation of the PPA with Nordural?

Ross J. Beaty

Thanks, Ian. So it’s a little bit of a chicken and egg situation there of course PPA before your resource confirmation or vice versa and we’re kind of trying to combine this a bit. We’ve done these two wells in part because we have – you better look after existing production and that requires constant make up wells over time, which are in some way and are budgeted in some way we have to look after the integrity of the existing field first and foremost. And it is something that given it’s a very young field for us, it is evolving in our understanding. We just had a conference about a month ago in Iceland, which really dealt with the existing field and how does it look compared to the very, very stable and steady Svartsengi field. And Reykjanes is a much younger plant. Svartsengi has been producing for more than 20 years. Svartsengi has just been going for – Reykjanes has just been going for about five or six years and the two wells that we’re drilled into the existing resource of steam are given as helpful information. But it’s in the context of more of the existing production than an expansion.

And what we’re doing is we’re looking at all of the data for all of the region around Reykjanes to make sure that we have enough capacity there to sustain the expansion prospects for the current hope for Power Purchase Agreement with Helguvík that we are actively negotiating.

And the plan is to have that work completed in the next few months, the work that we’re engaged and right now that is going to assess what the capacity is, where the best place to drill is and since we have a good – very healthy financial position in HS Orka with the funding intended to be used for drilling, for the expansion, we certainly don’t like for capital. But we don’t really have the field worked out properly yet from a standpoint of the best place to drill for the expansion. And that works ongoing, the sooner we can get it done, the sooner we can get some holes drilled into it. I don’t know when the next plan for additional drilling is, but we’ve got some very promising targets there and it could be as early as this summer, Vancouver time. Asgeir, do you have any additional comments to that?

Asgeir Margeirsson

No, not really, Ross. This was perfect.

Ross J. Beaty

Okay. So, Ian, it’s little early to say then just to sum up how we’re going to tackle the team required for the new plant. But we have some very good ideas. We’ve done a lot of work. It’s a matter of trying to produce some model for the entire field. Right now that’s been worked on with all historic data, all historic holes and the benefit of these two new holes, the benefit of the work-over data for the holding work-over right now. Put all that together, we’re going to have a plan that we’ll be able to talk about.

Ian Tharp – CIBC World Markets

Okay. Thanks, Ross. And is it fair to say that the PPA, if you were to enter that say in the next six months or so, it’s going to have to be contingent on the confirmation of resource and I guess some kind of final budget, is that fair to say?

Ross J. Beaty

We’re not sure just how we’re going to set that up, because in addition to the Reykjanes area alone, we have other very, very attractive targets for geothermal power that we already hold title to, we’ve already done some drilling in, this includes the Eldvörp area and the Krýsuvík area, which are not too far from Svartsengi. And so we have alternatives to the Reykjanes field potential, but the first step for us is to try to get this 80 megawatt expansion off of the Reykjanes field and that needs 50 megawatts of new power at Reykjanes. So that’s definitely a priority for us. Any other comment on that, John?

John Carson

Really, just as far as those parameters wrap into the final PPA as they would be realized between us in the offtake in, that will remain to be part of those final negotiations. So, yeah, I’d expect that – that’s how I’d expect those to be wrapped. and we’ll disclose those further details as they get negotiated at later date.

Ian Tharp – CIBC World Markets

Okay, great. And then finally, very quickly on the solar front, it sounds like you’re now commissioned, which is great and working towards your financing. So can you remind me, $6 million for your buy-in there, how do you intend to fund that? Is that something that’s somewhat trapped behind this project equity at west that you’re going to do?

John Carson

No, nothing trapped at all. This is really just all further in the course of our 2013 anticipated cash flow. We cited Jimmie Creek as the largest use of equity this year. ABW would be a smaller use of equity. we’ll either fund that if it’s prior to the holdco financing closing. we’ll fund it out of our current sources of working capital cash. if it’s post that then effectively that will cover it. So all well within plan and again, this hopefully we’ll fund, as Murray indicated, by June.

Ian Tharp – CIBC World Markets

Okay. So it is June. I think there was a reference to July before.

Unidentified Company Representative

Yeah. June-July, right about there,

Ian Tharp – CIBC World Markets

Fair enough. Those are my questions for now. I’ll get back in queue. Thanks.

Ross J. Beaty

Thank you, Ian.

Operator

Your next question comes from Matt Gowing from Mackie Research Capital. Please go ahead.

Matt Gowing – Mackie Research Capital

Good morning, everyone. Thanks for taking the questions. Ross, I’m wondering if you could talk a little bit about ABW Solar and potentially, break out the cash flow contributions that provides the Alterra both on the 10% project cash flow. But then separately what sort of cash flow Alterra could get from managing the facility please?

Ross J. Beaty

Sure. John?

John Carson

Yeah. We anticipate about $3 million of EBITDA annually for the asset, for our 10% share, the 50 megawatt facility. That will translate to about $1 million of free cash flow of equity from project cash flow. In addition to that, we will get an administrative number as well and as I recall that’s about $200,000 a year.

Lynda Freeman

It’s about $160,000.

John Carson

$160,000 a year. So there you go, that’s really our prospective cash flow from that project.

Matt Gowing – Mackie Research Capital

Great, thanks very much for that. And then with respect to Puerto Rico, and the master agreement there, understand is the format of that is almost similar to a conditional PPA as you get to certain conditions on the projects in Puerto Rico, you essentially entered into a firm PPA. Could you just maybe give us some color on what sort of conditions you need to get to, to firm those Power Purchase Agreements up?

John Carson

Yeah, the general conditions, I’ll speak broadly here, are getting the proper substation interconnection rights and capacities delineated, and of course, having the proper land positions that are permitted et cetera. So it’s pretty standard project development. Let me emphasize, this is an early stage opportunity. It happens to have a PPA or the progenitor of a PPA. Typically, it’s really the opposite situation of the Dokie 2 wind farm for example, where at Dokie 2, we have a permitted project, we have land, we have everything done except for the PPA. Here it’s basically the inversion of that where we have a PPA and we’re already working on getting some of the other items that we’ll need to get this plant up. So there’s a real quick thumbnail for you, Matt.

Matt Gowing – Mackie Research Capital

Okay, fantastic. And switching over to Chile, you mentioned there, talks encouraging with EDC for that company to come in for an earn-in $60 million to get to 70%. So once that’s done, looking a little bit farther, what needs to be spent at the project in total you think to get to 50 megawatts of operating capacity and what’s the financing strategy to get there?

John Carson

Yeah, by the time we get to 50 megawatts, which is a bit down the road, of course, the initial drilling has to occur next, we’d say for a 50 megawatt plant, right now we’re ballparking about $300 million of total cash flow for that project. So at $300 million, and if we target a 70% debt level and the financing for that will be pursued as a typical global class project financing, which are available in Chile and there are many, many projects that have been done under such financings previously. But at a 70% level that would indicate $90 million of net equity put in total. So at 30% of $90 million, you can do the math there. we’re about $27 million of all-in equity there. That project build is at least a couple of years out, I’d say late 2016 at best, but that’s about where we position that project at this time capital wise, broad strokes.

Matt Gowing – Mackie Research Capital

Okay, great. And then I’ll just ask one quick one on Iceland there, capital is being tied up there owning this Fuji turbine. I’m wondering if it’s relevant to think about the market value of that turbine and potentially look at monetizing that somehow, recovering the capital and then maybe, not for sake the project entirely, but ways of things kind of heat up maybe from the Nordural’s perspective to advancing PPA discussions. Is that something that you think about or it’s not really possible?

John Carson

No, we have thought about it now, but currently, it’s out of the question; it has been out of the question really, since we are still hopeful that we will get to a PPA with Nordural at some point this year and be able to utilize that turbine in the near future.

Matt Gowing – Mackie Research Capital

Okay, great. Thanks for the answers.

Lynda Freeman

I think, Matt, can I just – one correction in the ABW filed, it’d be 260, not 160.

Matt Gowing – Mackie Research Capital

Okay, got you. Thanks very much.

Lynda Freeman

Thanks.

Matt Gowing – Mackie Research Capital

Thanks.

Operator

Your next question comes from Jonathan Lo from Raymond James. Please go ahead.

Jonathan Lo – Raymond James Ltd.

Can you hear me?

Ross J. Beaty

(Inaudible)

Jonathan Lo – Raymond James Ltd.

Hello, can you hear me?

Ross J. Beaty

Yeah, we can hear you.

Jonathan Lo – Raymond James Ltd.

Hi. I just have a quick question, so what was your net interest cash ending the quarter?

Lynda Freeman

So net interest, I’ll come back to you. Give me two minutes.

Jonathan Lo – Raymond James Ltd.

Okay. That was actually my only question. So…

Ross J. Beaty

Once I get to you…

Jonathan Lo – Raymond James Ltd.

Okay.

Ross J. Beaty

Get to another question, go on operator, then we’ll get to the number.

Jonathan Lo – Raymond James Ltd.

Okay, thanks.

Ross J. Beaty

On page seven, yeah, it’s $35.7 million.

Lynda Freeman

Yeah. It was net interest.

Unidentified Company Representative

Net interests, right?

Lynda Freeman

Yeah.

Ross J. Beaty

Yeah, go ahead. Hello?

Operator

(Operator Instructions) Okay, great. Thank you.

Jonathan Lo – Raymond James Ltd.

Thanks.

Operator

Your next question comes from Aram Fuchs from Fertilemind Capital. Please go ahead.

Aram Fuchs – Fertilemind Capital

Yes, I was wondering, Asgeir, if you can give a little more details, it was good to see that you are drilling cost for under budget. Was there any particular reason? And is this something that we can look forward to in future in Chile?

Asgeir Margeirsson

I would certainly hope so. The main reason is, I will tell you, was properly budgeted and we got a very good contract on drilling and one of the wells was a bit shallower than planned.

Aram Fuchs – Fertilemind Capital

Okay. And does that imply that the resource might be a little more efficient or can we – too optimistic?

Asgeir Margeirsson

That is possible, but I wouldn’t dare to explicitly state so. But at least we found what seems to be what you were looking for shallower depths. That well in particular is being heated up, so we don’t know the exact results. But as stated before, it looks clearly positive.

Aram Fuchs – Fertilemind Capital

And then on the make over of the other operating well, is – was that – could you give us details on why that needs to be turnover again? Is it scaling or what is going on there?

Asgeir Margeirsson

After rescaling we decided pull out the [liner] of the well, we were successful in doing so. And we’ve been re-drilling into the bottom of the hole now and so far so good in that operation, it’s been going smoothly. We have yet to figure out the results at a later stage, but the operation is going well.

Aram Fuchs – Fertilemind Capital

Okay. Then on the political front, you had the election, is there any, of course, we’re talking publically, but what can you say that the change of government in the context of HS Orka and Alterra’s wish to monetize some of their investment?

Asgeir Margeirsson

Well, first of all, the elections went pretty much as we’re forecasted and as we discussed at the last call. The majority of the votes went to the progressive center party and the independence party, which are the conservatives. They gained about 51% of the votes. There is a threshold rule that each party that runs has to get at least 5% of the votes to get on parliament. There were a few parties that did not reach that limits or about 12% of the votes fell dead so to speak. So the 51% of the votes to these two parties gives them 38 out of the 63 members on parliament. So they have pretty strong majority in parliament. They are now in formal coalition discussion agreement has been going on now for a week and it is expected that we will have more news above that towards the end of this week or early next one. But so far everything points out these two parties joining, which as I have stated before, would be the best alternative for us in terms of what, which parties would be in government. And both of these have a very strong focus on spinning the wheels of Icelandic businesses in general, creating more jobs, even building more power plants and industries. So looks fair to us.

Ross J. Beaty

And, thanks, Asgeir. And just to comment on the latter part of your question. We don’t see any significant change in our own situation here to the extend that we – if we were to monetize our investment there, we don’t think there is any substantial change with the new government and allowing it that is to say we think we would allow it easily and would be positive.

Aram Fuchs – Fertilemind Capital

Okay. And then, Ross, one of the questions, in the last couple of quarters calls you’ve mentioned that you’ve observed that the price for operating assets is high and development assets is low. With that as the background, why would you be looking at possibly acquiring the GE stake, it seems like there is so many different buyers out there, infrastructure funds, pension funds and the like maybe you can give us a little more detail on that?

Ross J. Beaty

Sure. The reality is, our Plan A is really not to buy the GE stake and keeping it’s divide and then turn it over to another partner and recover it all make sense at that way, it’s a much better return for us. And so that is the scenario where we are looking at this time. Plan B, would be if we don’t get an appropriate transactions settled to keep it, but especially in the Toba Montrose area, there are so much synergies to working with, for example, our existing partner there as one choice that we have to put down that road and see how it ends up.

Aram Fuchs – Fertilemind Capital

Okay, great. Thanks for your time.

Ross J. Beaty

Okay, thank you.

Lynda Freeman

Just in response to the couple of questions from Jonathan, the Alterra’s net interest and free cash flow at March 31 was $31.3 million.

Aram Fuchs – Fertilemind Capital

Cash, right?

Lynda Freeman

Cash.

Aram Fuchs – Fertilemind Capital

Thank you.

Lynda Freeman

Free cash, sorry.

Aram Fuchs – Fertilemind Capital

Thank you.

Operator

(Operator Instructions) Your next question comes from John McIlveen from Jacob Security. Please go ahead.

John McIlveen – Jacob Security

Yes, good morning. Just a one item that used to be missing from past disclosures and that was the amount of corporate overhead. So of the $4.2 million, how much of that is non-Orka?

Lynda Freeman

$2.5 million is non-Orka.

John McIlveen – Jacob Security

Very, good that’s all I need to know. Thanks.

Lynda Freeman

Thanks.

John Carson

Thanks, John. Sorry if we missed that.

John McIlveen – Jacob Security

No problem.

John Carson

There you go.

Operator

Your next question comes from the Jared Alexander from Canaccord Genuity. Please go ahead.

Jared Alexander – Canaccord Genuity

I’m wondering can you just tell us what the exploration head office amount that should come off of the EBITDA here?

Lynda Freeman

Exploration head office…

Jared Alexander – Canaccord Genuity

Yeah, and…

Lynda Freeman

Yeah. Because that raise is not in the EBITDA number, but it was minimal in the quarter…

Jared Alexander – Canaccord Genuity

Right. I’m just thinking back to previous press releases that had all four facilities plus an exploration head office category to get to EBITDA?

Lynda Freeman

Yeah. The number you’re looking for then is $2.3 million.

Jared Alexander – Canaccord Genuity

$2.3 million?

Lynda Freeman

Yeah.

Jared Alexander – Canaccord Genuity

Okay, great. Is there a reason that you made that change?

Lynda Freeman

No, it was just the clarity, we were trying to show comparative this time. and it will become the best. on the yielding, when you start showing these numbers in, but if that’s the useful number, we’ll make sure, we’d put that in future ones.

Jared Alexander – Canaccord Genuity

Okay, great. Thank you. And then on the same table, I was wondering if you could tell us what the gross profit was on the four facilities?

Lynda Freeman

Gross profit, I’ll have to look at it, it is disclosed in our statement. you’d be able to see it for Toba and Dokie. But if you can give me a moment, I’ll calculate that one too.

Jared Alexander – Canaccord Genuity

Great, thank you. Those are my questions.

Unidentified Company Representative

Thanks very much. And still on macro or anything, the other thing to note on the number that you were given there is that it does include some one-off expenses to shrink overhead at least not immaterial. So you’re going to see, I think, a significantly reduced number in Q2 and subsequent quarters this year and next year I hope. Operator?

Operator

Mr. Alexander, have you completed your questions or?

Jared Alexander – Canaccord Genuity

Yeah. Those are my questions. Thank you.

Operator

Okay.

Lynda Freeman

We can take it offline and then I’ll then call you back with the answer to the gross profit question.

Jared Alexander – Canaccord Genuity

Great, thank you.

Lynda Freeman

Okay.

Operator

Your next question comes from Ian Tharp from CIBC World Markets. Please go ahead.

Ian Tharp – CIBC World Markets

In part, I was trying to make some time here, but if you can email me the gross profit numbers as well, I’d appreciate it. So just quickly while we some time here, I know one of the key gating items for Dokie 2, and I know it’s a futuristic project is the Saulteau First Nations negotiation. so I wonder if you can talk to the stage of the negotiations with that First Nations group at this point.

John Carson

Certainly, we have ongoing discussions with them. we are not – because the project is not defined in terms of schedule, size and layout, we’re not at the stage where we can finalize an agreement with them. But we have regular updates with them and we are keeping them abreast of situation with the project and our current thoughts on layout. We recently participated in the community meeting at site where we presented the potential project to the entire community, we received their feedback. So it’s a process and we need a little bit more certainty around timelines et cetera before we can finalize those agreements.

Ian Tharp – CIBC World Markets

Great, helpful. And then Bulandsvirkjun, hopefully, I’m saying that right, I think this it’s the first time you mentioned it by name. So I wonder if you could talk to who your partner is there and what activities we might see through 2013 on that project?

John Carson

Yeah, I’ll start it off and turn it over to Asgeir for any supplement. We are a 50% holder of Bulandsvirkjun. And currently our partner is a small developer who owns the other 50% of the project. So we with them are working together on that. And currently the state of that project is under environmental assessment. Asgeir, what else can you add of color with respect to the Bulandsvirkjun project?

Asgeir Margeirsson

Not really, John, we will be working on the environmental impact assessment. And this partner of ours, they have developed few smaller hydro plants earlier, so they’ve been in the business a while.

Ian Tharp – CIBC World Markets

Okay, thanks very much.

Operator

There are no further questions at this time, please go ahead.

Ross J. Beaty

Very good, thank you everybody who participated today and I think we'll wind up the call with that. I appreciate everyone on the table here as well as answering your questions and call today and talk to you at our next conference call. Thank you again and thank you operator.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect the lines.

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