Alterra Power's CEO Discusses Q3 2013 Results - Earnings Call Transcript

| About: Alterra Power (MGMXF)

Alterra Power Corp. (OTCPK:MGMXF) Q3 2013 Earnings Conference Call November 13, 2013 11:30 AM ET


Ross Beaty - Executive Chairman

John Carson - Chief Executive Officer

Paul Rapp - Vice President of Wind and Geothermal

Lynda Freeman - Chief Financial Officer

Jay Sutton - Vice President of Hydro

Murray Kroeker - Vice President of Solar and Engineering


Jeremy Mersereau - National Bank Financial

Jonathan Lo - Raymond James

Mike Plaster - Salman Partners

Jared Alexander - Canaccord Genuity


Good morning, ladies and gentlemen and welcome to the Alterra Power Corp Third Quarter Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for a question. (Operator Instructions). I would like to remind everyone that this call is being recorded on Wednesday November 13, 2013.

I would now like to turn the conference over to Ross Beaty. Executive Chairman. Please go ahead.

Ross Beaty

Good morning ladies and gentlemen and thank you for joining us today. As we've reported on Alterra Power Corp’s Q3 financial and operating results. I would like to start by reminding you that we will be making some forward looking statements today, we have a disclosure statement in our online website which you can at look at as we are going to this today. And also our news release today under MD&A had extensive forward looking statement language. So we seek Safe Harbor on these comments.

Joining me today in Vancouver is our senior operating and financial team, led by John Carson, Chief Executive Officer; Paul Rapp, Vice President of Wind and Geothermal; Lynda Freeman, our Chief Financial Officer; Jay Sutton, Vice President of Hydro; Murray Kroeker, our Vice President of Solar and Engineering. And from Iceland on the call will be Asgeir Margeirsson who heads up our Geothermal business in Iceland through HS Orka.

We had a pretty good quarter, typically it’s our best quarter and this year was no exception we had strong generation and decent financial and operating results. And I am going to ask John Carson to walk us through these with the assistance of his operating and financial team here in Vancouver. John?

John Carson

Thanks Ross. And let me just remind everyone by echoing Ross that there is a website presentation at and you can’t miss it on the right side, I invite you to click into the presentation we’ll walking through that presentation in just a moment. It has been a good quarter, we are up on generation of revenue and EBITDA from the comparative quarter and very happy about that. I am about to turn it over to Lynda Freeman but first I would like to point out that on the last call when we met with you Lynda was our Interim CFO as of October she has now been appointed our full CFO. We’re extremely happy about that. And she is a great member of our team.

With that let’s take a look at our financials which again are on our website and Lynda over to you.

Lynda Freeman

Thank you John and good morning to everyone. I am going to commence my presentation with a discussion on the third quarter consolidated results of the company. Consistent with the previous quarter of 2013, and comparative quarter ended September 30, 2012, the company continued 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.

During the quarter with the acquisition of ABW Solar, a 50 megawatt solar facility in Ontario of which the company holds a 10% interest and it’s a managing partner. The acquisition completed in August 2013 and is accounted for as an equity investment.

One final change to the presentation of the company’s results in the period is the accounting for certain South American geothermal assets, which on completion of an agreement with EDC such assets are recorded as equity investments. Previously they recorded a geothermal development costs.

For those of you who are following the presentation on our website, I refer you to slide four, consolidated results for the third quarter of 2013. As illustrated and explained on the slide, revenue results 6% against the comparative quarter of $14.1 million to $13.3 million. Due to increased generation and contractual sale of HS Orka an increased generation of Soda Lake due an additional production well that was put in service in late 2012. The gross profit margin decreased against the comparative quarter from 16.4% down to 15.8% due to maintenance drilling at HS Orka.

During the third quarter, the company recognized a net equity profit of $17.9 million against the profit of $10.4 million for the same quarter 2012, representing the company’s interest in Toba Montrose, Dokie 1, the Blue Lagoon and the newly acquired ABW Solar. This increase in profit was due impart the high revenue generated at the Blue Lagoon due to increased visitors and at Toba Montrose, due to high water flows, when encoding business interruption proceeds.

These increases in income will offset by low wins at Dokie 1 in the period. The increase in equity income was also due to the recognition of $6.3 million related to the property insurance proceeds on the Montrose workside. The Montrose facility was offline until September 22nd, due to the damage incurred as a result of December 13, 2012 rockslide.

Consistent with the prior quarter, the proceeds from the insurance time of recognized in equity income in Alterra’s segment of operations and will reflect both business interruption proceeds and reimbursement of repair costs as required by accounting standard.

I refer you to appendix 1 which details the accounting for the rockslide repair in further detail. For the three months ended September 30, 2013, $6.3 million and $5.1 million is recorded in equity income representing reimbursement of repair costs and business interruption proceeds respectively.

Included within other income and expenses are general and administrative costs, which remain consistent with the comparative quarter. Despite companywide reductions in G&A costs, this is due to non-recurring costs associated with the reduction in personnel in the period and legal fees related to transactions.

Our results continue 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 other significant change in other income and expenses related to the rise of development cost and other income expenses was up $2 million on the comparative quarter, primarily due to a write-off of certain development costs in Chile and Peru of $2.6 million not included in the EDC partnership. The end result was a profit before tax of $18.1 million against a profit of $18 million in the comparative period.

Moving on to slides five and six, and also contains with 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% of Toba Montrose, 51% in Dokie 1, 100% Soda Lake and 10% interested ABW Solar.

As shown in the slides, revenue and EBITDA increase to 3% and 4% respectively quarter on quarter, when including Toba Montrose business interruption proceeds of $5.1 million. Primarily due to increased revenue from HS Orka, Blue Lagoon and Toba Montrose as explained previously. The increases were offset by the lower winds resulting in lower revenue at Dokie 1.

The EBITDA numbers reported here [in our slides] the Toba Montrose do not include the $6.4 million in rockslide related insurance proceeds for repair costs discussed previously.

Generation was down 9.7% in quarter due to the Montrose Creek facility being offline for the majority of the period. However an improvement on the loss generation of Montrose Creek 57,636 megawatt hours which is attributed for calculation of business interruption and insurance proceeds generation was up 4.8% quarter-on-quarter and a 103% of budget.

The following slide on page seven, contains balance sheet highlights. It is worth noting the value of assets and liabilities fluctuate significantly as a result of foreign exchange with the Icelandic krona strengthening at September 30th against December 31st and the Canadian dollar weakening over the same period. Total asset increased by 6% in part due to foreign exchange in additions for new investment in ABW Solar of $7.1 million and an increase in the investment of Toba Montrose of $22.4 million due to recognition of the company’s share of income in the period which includes $11 million in property insurance proceeds in the nine months.

Total liabilities fluctuate significantly due to non-cash movements in the value of embedded derivatives a movement of $20.2 million against December 31, 2012. Other fluctuations and liabilities is due to repayments of debt and draws on the revolving credit facilities. The reduction in working capital was primarily due to the classification of Alterra’s revolving credit facility to short-term liabilities at September 30, 2013. At December 31, 2012, this was recorded as a long-term liability. The company plans to repay the outstanding amount from the revolving credit facility by December 31, 2013 through either a holding company financing or a partial assets sale down.

The long term debt position is analyzed on the next slide, on slide eight, and further information on projected debt services contained in Appendix 2 to this presentation. As of December 30, 2013, the company’s net interest and long term project debt was $369.6 million consistent with the December 31st, number despite repayments in the period. The total represents $179.4 million count at Toba Montrose, $86.2 million at Dokie 1, $85.2 million at HS Orka, and new project debt of $18.8 million are ABW Solar.

During the quarter principal repayments of $3.5 million were made about the HS Orka debt and in accordance with the credit agreement of Toba Montrose, Dokie 1 and ABW no repayments were made in the period.

Interest payments of $5.1 million were made during the quarter reflecting $2.9 million at Toba Montrose, $1.5 at Dokie 1 and $0.7 million at HS Orka. Now interest has been paid the debt on the ABW Solar project debt with the first interest payment due on December 31st. In addition to project debt the company holds $121.2 million in long term bonds that received and all secured on the holding of HS Orka and a $25 million in a revolving line of credit, interest paid on the bonds and line of credit in the quarter was $2.3 million and $0.5 million respectively.

That concludes my update on the first quarter results. And I will now hand you back to John.

John Carson

Thanks Lynda. And really good story. Love to hear that generation is up 5%, revenue is up 3% and EBITDA is up 4% over the same quarter last year so a great story. And I’m happy to report that our assets are now fully back online with positive results and want to talk about where a lot of the action has taken place this year I am going to give it over in one second to Jay Sutton, VP of Hydro. And just to say that we couldn’t be happier that the unit is fully back online. And Jay, it was quite a job I am going to turn over to you to explain where we are at the asset.

Jay Sutton

Great thanks John and good morning everybody. Toba Montrose was a great influence in generations in the third quarter of 2013 with actual generation at East Toba and pro forma generation at Montrose is totaling 130% of forecast. The East Toba plant ran flawlessly at near maximum capacity for mid-June to mid-September with no unplanned outages or equipment issues.

In September we reached a significant milestone with the completion of the penstock repair work and restoration of the Montrose facility. During the penstock repair we made a number of improvements to the penstock significantly reduce the likelihood of any future damage or interruption. These include increasing the fix of the penstock steel and casing the penstock and concrete, creating additional protection warms above the penstock and placing additional protective fill over the penstock both in the rockslide area and much of the remaining sections of penstock. Final cleanup was completed in early October and the crews and equipment have now fully demobilized from the site.

In September we also secured project insurance coverage with Voice of London including interim land slide coverage. Now that the penstock repairs are complete and the additional protection is in place we are working with insurers to increase the land slide coverage in early 2014 and resume project distributions. Overall we are very happy to have Toba Montrose back in full operation and look forward to strong generation out of that full 2014.

With that John I will pass it back to you.

John Carson

Thanks Jay. And a great story and again great to have that asset fully inline and I hope you did notice the picture there of the Montrose unit after the repairs fully flowing. Paul Rapp, over to you to give us the update on our wind and geothermal assets.

Paul Rapp

Thanks very much John. I will start with Dokie 1. The Dokie 1 wind farm performed slightly below plan in the third quarter producing 51.8 gigawatt hours of electricity or approximately 72% of budgeted generation primarily due to lower than planned wind in July and September, overall the production remains on track and generation has rebounded strongly through October and early November and we’re currently over 92% of planned year-to-date and in November we are at approximately 110% of the plan with the wind still blowing strongly.

The Dokie wind turbines performed very well in Q3 and our turbine operator, Vestas continuing exceed their contractual guaranteed wind turbine availability. The balance of plant equipment, performed well through the quarter with no issues and the plant continues to maintain a sound environmental and safety record.

At our Soda Lake plant. Moving on to slide 11, the plant continues to perform well and has generated 53.9 gigawatt hours year-to-date or 98% of the budgeted generation. All turbine generators and production wells are currently performing well with no issues and the plant continues to meet or exceed all safety and environmental requirements.

Moving on to slide 12; in Iceland, at our Svartsengi and Reykjanes plants. Both plants performed well in Q3 and year-to-date production was at 102% of budget generation at the end of Q3. The main activities in Iceland focused in Q3 on work at the Reykjanes geothermal field, the new production well RN-31, which was drilled in late 2012 and connected in Q2 of 2013 continued to provide strong steam supply to the plant. Drilling for a fluid reinjection well RN-33 was completed in October, northeast of the existing Reykjanes field, the well is currently undergoing testing and early results show very positive indications that the well will be a good injector to support the Reykjanes field. The $9 million total estimated cost for the drilled program completed to-date is being fully funded from cash on hand at our Icelandic subsidiary.

And I'll pass it back over to John.

John Carson

Thanks Paul. And good to hear about that production and good to hear month to date at Dokie 1, right now it's 107%, so nice resurgence here in the fourth quarter. Murray, over to you we have a new asset in our house here, solar asset and tell us where we are Murray.

Murray Kroeker

Thanks John. Good morning, for reference to ABW highlights are provided on page 13. As noted by Lynda previously, we completed the purchase of 10% of the ABW Solar project on August 23rd. We're very happy to have completed the acquisition, final completion under the EPC contract was achieved on October 31st. The facilities have been operating as or better than expected, since they started commercial operations earlier in 2013 and for the third quarter, taken from the August 23rd purchase date to the end of September.

The combined three facilities at ABW have generated a 107% of plant energy, primarily due to higher than planned installation. At purchase Alterra also commenced project administration duties as the managing partner in the project.

Thanks John.

John Carson

Alright. Thank you for that Murray. Now let's move on to our growth opportunities and I'll talk a bit about these and I'm going to highlight two in particular and then show you a slide basically that shows all the rest of our development assets. I am going to start with our prime Hydro development asset, the Jimmie Creek Hydro asset.

We had two great developments on this projects very recently and we just put on a news release yesterday about these, where we finalized an EPA, energy purchase agreement. And we also finalized an agreement to purchase the rest of the project.

So first of all, I am on slide 14, we are calling this really an expansion of the Toba Montrose facility. There is the Toba site of Toba Montrose and the Montrose Creek site of Toba Montrose. Jimmie Creek sits right in the middle of those two assets. So you can really see it’s firmly squarely within the footprint of the existing project. For that reason we're calling this project an expansion. It will also flow its electron through its electricity over the same transmission lines that the Toba Montrose facility currently uses. And as you’ll see in a moment we also hope to keep most of the things stakeholders that are involved in Toba Montrose also involved in this project.

So we did revise the PPA, the power purchase agreement with BC Hydro just at the end of October. In that PPA we confirmed that the capacity of Jimmie Creek will be 62 megawatts of capacity and we also pushed out our revising service date with no penalties out to August 01, 2016. So we've got a good run rate to build this project and we’ll talk in a moment about when we're actually going to start building it.

In the PPA negotiations we did shrink the overall project from an original Jimmie Creek plus Upper Toba River to only Jimmie Creek. This was agreed with BC Hydro, but it’s important to point out that we took no price concessions in the power purchase agreement when we wrapped it in with Jimmie Creek.

The next big thing that happened very recently is we've signed an agreement with an affiliate of General Electric to acquire the remaining portion of the project that we didn’t already own or 49%. That agreement has been signed executed and is expected to close by the end of the year. We’ll be acquiring 100% of the project at that point. We’ll own it all and we look forward to building this into our portfolio of Hydro assets being a leading hydro electric producer in British Columbia.

Looking to our construction, we signed a limited notice to proceed with SNC Lavalin and they will manage our EPC process for us and long side of us. They’ve been working with us for several months and we've been working with multiple contractors and we have a good structure of contract to build this project, it will be a managed engineering procurement and construction process and contract. And we are targeting full commencement in the first half of 2014.

I know that all permits and water licenses for this project are final. So this really is [shuttle] ready so to speak project. You see a photograph on the right side of the screen on the presentation. That's a photograph I actually took myself when I was up at the site in October of 2013. And you can see it’s just another day at Jimmie Creek it has exceptionally strong waters flows and one of the most amazing things about this is that it has a tremendous glacier water shed up and above the project that feeds this project if it never participated for decade, I think this project would continue to flow as you see it here.

Looking ahead to where we are with preparing for construction financing, we have a lender group that we’re working with including our lead lender, we've had a few terms on a term sheet with them and we are actively in dialog. We’re also in touch with and preparing to be in closer touch with the rest of the lenders in that group as we look toward a first quarter-over- first-half financing close.

How much will be equity taken this project now that we own 100%? I’ve given you an indication on the left there. We've been using the numbers for 100% at around $50 million to $60 million. I’m looking down there and saying perhaps it’s as low as 45. We look to get portion of our development expenses, the good money that we put toward the development this project back when we close it. And so I think my best estimate and our team’s best estimate of what our 100% number would be for this project would be around $45 million.

Where we are going to get it? As Lynda mentioned before, we have capital plans in the work very near-term. We target either a holding company’s financing or a partial asset sell down and again this is to cover many equity needs going forward. So I feel good about our excess of capital for this project and for the other things that Lynda mentioned.

With that I would like to go to slide 15 and discuss the new development asset that we haven’t discussed with you by name before. It’s a Texas wind project Shannon Wind. We are currently in process of acquiring this project from the early stage developer Horn Wind LLC. Horn Wind has successfully developed a couple of prior projects. Jimmie Horn is the principal there. We’ve had a good working relationship with him that’s continuing to this date. We’ve also agreed to terms skipping down to the next -- We have agreed the terms for us to ultimately acquire 100% of the project ownership and all agreements are flowing smoothly there between us and the early stage developer.

Meanwhile Alterra is completing the late-stage development on this project. We’re in active dialog and/or documentation on almost every single major agreement to get this project over the finish line. On the project side that means the turbine supply agreement and a construction agreement full wrap, an O&M agreement and other similar agreements. On the financial side, this project will probably have a 12 or 13 year power hedge, in this case it actually is a power purchase agreement the offtake is purchasing title to the power. We will also have a tax equity investment team at the project level. And we'll also lend or finance it above the project. So we are accessing several pools of capital, either very typical pools of capitals for a US wind project and we have a great dealer experience on this team to effect financing structures.

Both our newly appointed VP of Project Finance and M&A, Jon Schintler and myself have closed multiple deals on the US production tax credit side. So this is a write-down Alterra strike zone, believe it or not. And we are probably as well equipped as anybody in the country to structure a tax focused deal.

This deal will be eligible for 2013 USA Production Tax Credits Section 45 Tax Credits. And we're making sure and confirming with multiple tax council that our strategy for PTC eligibility will be a right one.

I mentioned that this project will be contracted through a PPA, which is similar to, it is a power hedge and it's a PPA. Approximately 75% of the project output will be contracted for 12 or 13 years. Vat contract plus the PTC benefit makes this quiet and plus the strong wind at the site makes this quite an attractive economic project for us. We're very excited about it and we have a large team here at Alterra that's working on this project every day.

We are positioning this project to commence operations in mid 2015 with the construction start in the first quarter or first half of 2014. So that's the schedule for Shannon, we’re very excited about it. In the upper right, I have indicated their ownership [TPV], we will be the 100% owner soon, it's possible we make bring a partner in with this project and we're currently reviewing the project with the partner, but that's all there is to say on that subject right now. So these are the two featured development projects at this time and two projects that we intent to put into construction in 2014.

With that I'll turn to page 16 and talk about other growth projects that we're still working on and these probably won’t have the same early time horizon of the two I just mentioned. On the wind side I'll briefly note a couple of these. There is Dokie 2 which sits nearly adjacent to our Dokie 1 project is fully permitted, 150 megawatts plus. GE remains our partner there and we're happy to have them as our 49% partner.

You’ll also recall last year we agreed to a deal to acquire four projects in the BC Coastal area three of those projects are near where we believe perspective LNG facilities maybe constructed. And so they maybe well positioned to meet future energy needs. And also we're looking at other growth opportunities both in Canada and the US where Alterra’s team is well equipped and historically has a strong knowledge base in both of those areas.

On the hydro side, I'll remind you our Bute Inlet project which has been a longer-term project, but it’s a very bold project and a very large project. It will be closer to where some of the industrial growth maybe in British Columbia and with transmission additions and with growth that we envision in the province, we may yet get this project back in the strong active track at a later date.

I’d call out the Europa project which is a North BC opportunity also near the possible LNG locations. And I've also called out the Fir Point plant which is one early stage pump storage opportunity that could be as large as 1,000 megawatts is something that we remain excited about is for the future. And then we have an array of multiple early stage opportunities in British Columbia and in Iceland on the hydro side.

I have a map, this is one my favorite maps that here in the company of all of our hydro assets in that British Columbia they are many, this team has worked hard over the years to assemble and together and we're excited that we have this basket or this portfolio of development assets for the future.

On the geothermal side, we've mentioned to you the Reykjanes asset many times before where we have planned an 80 megawatt expansion that expansion does remain subject to a final PPA agreement with our offtake there and would remain subject to project financing. And as Paul mentioned earlier we're also doing a resource assessment just to ensure where that resource is. And so that project will have a four firm timeline on that probably into the New Year once we received the results from in reinjection study.

On the Mariposa side down in Chile, you’ll recall earlier this year we signed an agreement with EDC the large Philippians geothermal operator to partner with us and they’re going to put the next $60 million of capital into that asset. Both Paul and I received on our desk just last week a plan for next stages of activity on this site, road buildings as a preparation for drilling which we hope to occur in late 2014. Both we and our partner plan that and we're excited about that that will be exciting thing for Alterra in this coming year.

Just North of Chile in Peru where we have some earlier stage assets you’ll recall the same entity EDC, Energy Development Corporation signed an agreement with us to put the next $8 million into those early stage assets. What this will do is take our basket or portfolio of assets there and find the best assets and make a determination as to which ones to focus on. These also our projects for the future and we're very happy to have a partner like EDC that’s well experienced and has multiple successful geothermal projects globally to be partnering with us and to be putting the next close to $70 million of cash into these deals to earn their stake in the partnership.

I’ve also called up in Mensano/Roccastrada, Italian development assets. We actually believe that we’ll be signing a partnership agreement there very soon be there early stage assets this is for the future, but I’m calling it out, because we do have quite interesting pipeline into the future which is costing us very little here at Alterra.

Finally there I mentioned something in our own backyard in the geothermal side, there has never been a successful geothermal project in British Columbia. There will be one day. We hope ultimately it will be us. We have some very well positioned land leases and this will be something in the future that we’ll look at with interest.

Lastly on solar, where we just made an acquisition here in the last quarter. We are examining new solar opportunities in the USA and in a couple of other locations as well. So that's our story of growth. It’s exciting and we have two assets in the forefront that we’re working very hard on and this portfolio of assets I just mentioned to you as well.

With that Ross, I’m going to turn it over to you.

Ross Beaty

Okay. Thanks John and thanks everyone else who have [spoken] today. I think as I listen myself I really am struck by the team and strength we have here in Alterra to execute well and to operate well. And of course behind people have spoken today is a very strong team at the operations at Soda lake and Dokie and Toba Montrose and Iceland. And these are the people who really make things happen. With the strong generation and strong financial results, good growth prospects our very strong management I think we really still look forward to 2014 with great excitement and anticipation.

The only other note is on the financing and I hope John has given you some color on our plans for financing our growth and financing the repayment for example of the corporate revolver. Our plans are to do this without resorting to any equity financing, any share sales for the foreseeable future and to the extent we can keep that our focus. I hope that you will understand we are trying to do this without any equity dilution in the foreseeable terms.

So with those comments, I am going to open the call to questions. Operator and look forward to answering those as fully as we can.

Question-And-Answer Session


Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) Your first question comes from Jeremy Mersereau from National Bank Financial. Please go ahead.

Jeremy Mersereau - National Bank Financial

Good morning, everyone. I guess starting with Jimmie Creek, just wondering if there are any permitting hurdles to overcome in next little while?

Ross Beaty

Go ahead, Jay.

Jay Sutton

No we’ve received our final [wire] license with confirming all of our in-stream flows and we’ve also got our [EAC] certificate. So there is actually no further permit required and we’re working now on permits for construction.

Jeremy Mersereau - National Bank Financial

And did you have to make any pricing concessions for the renewed scope?

Jay Sutton

No change in pricing for the reduction from two plants to one.

John Carson

And Jay you might also mention that we got the numbers we wanted on in-stream flow requirements. We had asked for something to come in our way and it did. So we’ve ended up very happy with that.

Jeremy Mersereau - National Bank Financial

Okay, great. And finally for that project, was there a offer on the sale, was there a competitive bidding process for the other portion?

John Carson

No, it was a deal between us and affiliate of GE. We’re good friends, we talk basically everyday still, we've had a long history together and this is a very friendly deal that have been planned for some time. You’d notice Jeremy in our last two financial -- sets of financial statements we’ve stated that we had an agreement with principal with GE. So yeah, this is a friendly one-to-one transaction.

Jeremy Mersereau - National Bank Financial

Okay, great. And next point to (inaudible), I guess, if you want to qualify for that [PTC] have to spend 5% of the entire capital before year-end. Wondering if you’ve already done that, or will you require capital to do that? I guess it also requires that you keep a steady pace thereafter. So just wondering if you could comment on that.

John Carson

Yeah. Actually Jeremy, if you look in September, you will notice that new guidance came out and we won’t go too deeply on it in this call, but what you just stated was true, several months ago. If you look at the September guidance, you will note that continuous efforts is no longer required and you will note and that really changed the structure of PTC eligibility. We had planned 4%, 5% structure. We’re no longer planning that way. So Jeremy perhaps one off I could walk you through a little more on the strategy and bring you up to latest what we've talked to and we are in full dialogue with and basically this is everyday with two of the top tax counsel in the United States and we feel very strongly about our strategy and what we’re doing and it’s pretty different from what you just described. So I won’t walk you through it here, let’s talk after the call Jeremy.

Jeremy Mersereau - National Bank Financial

Okay. And finally for that project, I realized that it’s still not finalized, but just wondering if you can either comment on what you think the total costs would be for the project and maybe your target IRRs for it?

John Carson

Yeah. If you look at other flattish land projects in this area, centrally located, good transportation, you're going to expect that we're going to be somewhere between $1,600, $1,700 a KW, we're going to be right around there, maybe even lower. We're still working on that. So it's going to be a much lower cost than a ridgeline project like the Dokie 1 project for instance.

On returns and this is a expressed to you, this is one of the stronger teams here. Look I have always said that wind deals are very hard to get up naturally to a 15% levered IRR these days without some distress note or something in there to change the character of a transaction and this is though we're approaching that. We are looking at third-party consultants for each part of longer-term dues, we have to do that for to make the project financeable and looking at the hedge price that we believe we'll get, looking at the long-term merchant price power in Texas provided the contract is expired, it's easy to see ourselves in getting healthily into mid-teens returns. And so we're very happy about that.

Jeremy Mersereau - National Bank Financial

Okay. Thank you very much.


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

Jonathan Lo - Raymond James

Can you shed some more light on the financing options and what assets you may sell at the Jimmie Creek?

Ross Beaty

Sure. The assets that we might sell are those which we would consider small assets or non-core assets that we could happily trade an excellent if we would book an excellent return offer and put it into other relatively high yielding development projects. So it's a trade-off of an asset that we make a great return by selling it to a low cost of capital entity and then followed back into development project in much higher return potential. Just classic good business swap in our assets (inaudible).

Jonathan Lo - Raymond James

Okay. And then just on the cash flow statement, the share of results from equity accounted investees, I noticed I think maybe you can help me reconcile the $21 million versus the last quarter was 3.3, just a little bit confuse about the jump there?

Lynda Freeman

From the cash flow statement?

Jonathan Lo - Raymond James


Lynda Freeman

The cash flow statement is purely adding back the 21.2 is the total value that we've recorded in the income statement for the nine months period and then we’ve recognized distribution earnings, so the cash impact actually a distribution from Toba, Dokie or (inaudible).

Jonathan Lo - Raymond James

Okay. And then on the distributions, you said that you’re going to defer that distributions at Toba Montrose until the insurance until you can get I guess better insurance coverage. So what should we expect the, I guess the overall distributions to be going forward for, I guess all three Dokie occur and Toba?

John Carson

Yeah. Jonathan if you look at our projections in our materials, you’ll see we've shown EBITDA. I will tell you probably run rate from our BCS that’s what you’re asking there about is probably close to $15 million of annual distributions that we’d expect in a typical year and with your pensioning there the temporary situation at Toba Montrose, we expect that to resolve no later than the second quarter, hopefully a lot earlier and to be very much back to normal there and Jay is working hard to make that happen right now. But yeah, I think from the BCS, yes that we currently owned about $15 million of annual cash flow.

Jonathan Lo - Raymond James

Okay. And do you have the net interest cash number?

Lynda Freeman

It's $36.5 million.

Jonathan Lo - Raymond James

36.5 million great. Thank you. That's all for me.


Thank you. Your next question comes from Mike Plaster from Salman Partners. Mike, please go ahead.

Mike Plaster - Salman Partners

Just a couple of questions for me. First off on the Jimmie Creek buyout, are you able to provide any details on the terms of that purchase, if there is a cash payment or royalties or how that might be structured?

John Carson

No, really not, we agree we weren't going to disclose, it is a modest transaction, I'll state that. But again it's a prime transaction and one-off and we're not currently disclosing, it's not material to our financials.

Mike Plaster - Salman Partners

Okay, fair enough. And secondly on the Shannon wind project, John I'm not sure if you mentioned this in your earlier comments. But what's the status on the permitting environmental approvals side of things did as a lot of that in place or is there more to be sort?

John Carson

Yeah. Almost all the permitting aspects of projects in Texas is much different from where it is elsewhere. In fact, our team that works here not only in British Columbia but also in Texas is sometimes just honest that the differences in oversize from regulatory agency et cetera maybe not oversize is not the right word, but the level of processes involved and getting a project.

So if you look at the number of projects that have come on in Texas over the years, it really is a unique environment and it is a friendly place for renewable energy projects to be developed. So there are very small amount of permitting et cetera that needs to be done modest amount and we're basically there on all of that. We're tying down the last cores of our environmental aspects of the project with our attorneys and with our lenders and et cetera. And so there are no issues there, no surprises and we don’t consider there any discretionary permits open.

Mike Plaster - Salman Partners

Great. Thanks very much.


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

Jared Alexander - Canaccord Genuity

I just wanted to get back to the distribution at Toba Montrose and kind of ask you about the timing there. So should we not expect to see any distribution until Q4 of 2014?

John Carson

No, that’s not what we’d expect Jared and I appreciate the question. We would expect that we have distribution starting no later than the second quarter or June that’s fully our expectation. It’s not impossible to do something before then, but I am sticking with second quarter as a good and most likely occurrence.

So yeah, we won’t be wait until fourth quarter. And also let me point it’s not as if there are some loss like a distributions loss through that’s not going to come back. If there were distributable funds, if we don’t distribute on December 31st, if we don’t then those funds would remain basically held for us at the next possible point of distribution. So that’s the story around those distributions.

Jared Alexander - Canaccord Genuity

Okay, great. Thanks for that. And then I wondered looking at ABW, I noticed there isn’t income statement like there is with the other equity investments. And I don’t know if it’s possible to do this on the phone, but can you quickly run through maybe what the line items where to get to the equity income on that asset?

Lynda Freeman

We can take it offline (inaudible) was extremely small this quarter so there was no need for the disclosure but we can definitely give you that information.

Jared Alexander - Canaccord Genuity

Okay, that’s great.

John Carson

We just had a month -- just over a month generation attributable to our interest stock.


(Operator Instructions) There are no further questions at this time, you may proceed.

Ross Beaty

Okay, thank you very much. Well, I think that wraps it up and thank you all for joining us today. Without any other comments from anyone I think we will [call it off]. Thank you operator and thank you everyone for listening.


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

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