Alterra Power's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Mar.28.14 | About: Alterra Power (MGMXF)

Start Time: 11:30

End Time: 12:19

Alterra Power Corp. (OTCPK:MGMXF)

Q4 2013 Earnings Conference Call

March 28, 2014, 11:30 AM ET

Executives

Ross Beaty - Executive Chairman

John Carson - CEO

Paul Rapp - VP of Wind and Geothermal

Lynda Freeman - CFO

Jay Sutton - VP of Hydro

Murray Kroeker - VP of Solar and Engineering

Analysts

Jeremy Mersereau - National Bank Financial

Andy Krystal - Royal Capital Management

Jared Alexander - Canaccord Genuity

Mike Plaster - Salman Partners

Operator

Good morning, ladies and gentlemen and welcome to the Alterra Power Corporation Fourth 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 now remind everyone this call is being recorded on March 28, 2014.

I would now like to turn the conference over to Mr. Ross Beaty. Please go ahead, Mr. Beaty.

Ross Beaty

Thank you very much operator and good morning ladies and gentlemen. Thank you for joining us today as we report on our operational and financial results for the Q4 2013. The first thing I want to do as always is remind you that we will be making a lot of forward-looking statements and we seek Safe Harbor and we have a disclosure statement or a disclaimer statement in the second of our slide this morning and that provides more details.

First off, I want to introduce who's around the table here in Vancouver and on the telephone. Besides myself we have John Carson, Alterra CEO; Lynda Freeman, our CFO; Jay Sutton, Vice President of Hydro; Paul Rapp, Vice President of Wind and Geothermal; and Murray Kroeker, Vice President of Solar and Engineering. On the telephone from Nevada we have Monte Morrison who runs our Soda Lake operation; and from Iceland, Asgeir Margeirsson who is the Chief Executive Officer of HS Orka.

A couple of comments first and then I'll open it to John and he'll carry on. I also, of course, refer everybody to our website where we have our slides this morning showing the summary of what we'll be speaking to today for everyone to look at as we go through things and to review after the call.

To sum up, the fourth quarter of 2013 was marked by steady operations. We had a good quarter for the results of our six operations. We had good progress on a couple of our development projects; Jimmie Creek and Shannon, the wind project in Texas and we did a lot of housekeeping of our financial statements.

We did a lot of reviewing of the carrying value of many of our development projects we've had on our books for a long time and we did a housekeeping by writing off or writing down many of the historic costs in these projects which we feel are not immediate development assets for us.

There are things that are on the backburner to a large degree and it was a prudent thing to do to take a write-down while at the same time, of course, regaining our interests at all the projects should they come back to a development mode in the future. Our main operations are in good shape and we've made good progress on some of our growth projects.

With that, I'll ask John Carson to start off with describing these in more detail for everybody on the call today.

John Carson

Thanks, Ross. With that, I refer to Slide 4 in our presentation which is on the website and just wanted to briefly touch the highlights of what we've accomplished in 2013. I look at 2013 as a year of challenges for the company. The biggest challenge we faced was a rockslide at one of our large assets, the Montrose hydro asset in the last month of 2012. We dealt with that all through the year and finally wrapped up repairs, replacements in September. It was a great accomplishment for the company, a great accomplishment that was done in a very safe manner and a very deliberate and thoughtful manner by our team. It was also done in an expeditious manner. It took nine months but I don't think it could have been done in a quicker way and it took a lot of corporation, teamwork, good leadership and smarts.

So looking at our highlights; while meeting that major challenge here is what we got done. Our fleet-wide generation was at 101% of budget and that includes what we would have received at Montrose had the facility been running the whole year. We did get paid for that through our business interruption proceeds, so it's just the same as if it had been running; 101%, a great year of generation. That resulted in increased revenue and cash flow and recurring EBITDA for the company. The only reason that EBITDA wouldn't have been higher itself without the recurring portion is because of Montrose related one-time events.

The third bullet there, again the Montrose facility repair has been completed. We have fully verified the asset as running just as it was before. It's back to full strength, a great achievement for the team. Number four, we did have two asset sales this year. Number one, we bought and sold a solar asset, the ABW Solar asset with a partner GE EFS and then we sold it to another partner, Fiera Axium. That was a sale that – but we held the asset only three months. It was a perspicuous sale for us bringing very quick and early returns on a project and bringing good value to shareholders. It's a great way to do business.

With Dokie 1 we sold half of our assets there, and again this is to our existing partner there, Fiera Axium who has proved to be a very strong, good, reliable partner for us and also a good business partner as both of these transactions suggest. These asset sales were very accretive for us. The money that we got from these assets will be very effectively redeployed into our growth assets causing the company to grow larger on account of that, larger in terms of cash flow, EBITDA and owned capacity.

The next bullet, we completed several geothermal joint ventures during the year in Chile for our largest geothermal development asset. We completed a $60 million partnership with our partner EDC, Energy Development Corporation, a Philippine-based company and we are full speed ahead. There have been major activities onsite, road build-out, et cetera, and we expect to commence substantial drilling activities at the end of this calendar year.

In Peru, which is earlier stage, we have the same partner there, Energy Development Resources and again full speed ahead but on much earlier stage activities there. And lastly, we also partnered out with a company called Graziella Green Power in Italy, so a lot of deal activity in 2013 that really puts the company in a good place with well capitalized partners to move those earlier projects forward.

Next to last, we advanced our growth assets echoing what Ross had just mentioned, especially our two most prominent growth assets, Shannon wind and Jimmie Creek hydro which we'll speak to shortly. And finally that set the stage for very strong, I believe, organic growth for this company. In 2014, how will we fund those things? We've mentioned many times that we've been working toward a holding company level financing for the company. We continue down that pathway and we feel optimistic this year and that's the best and cheapest source of capital that this company can get. We're real excited about where the company can go in 2014.

With that, I'd like to turn it over to our Chief Financial Officer, Lynda Freeman, who will give you a financial summary for the year.

Lynda Freeman

Thank you, John, and good morning to everyone. I'm going to commence my presentation with a discussion on the consolidated results of the company. Consistent with the comparative quarter and the comparative year, the company continues to consolidate 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. You will also note for three months, our results also included our 10% interest in the ABW Solar facility prior to its sale in November 2013.

Starting my presentation on the fourth quarter consolidated results, Slide 5, for those of you following the presentation. Revenue was marginally up quarter-on-quarter but the gross profit margin fell to 21.7% due to planned maintenance at HS Orka. The equity pickup decreased against the comparative quarter by 3.9 million predominately due to expensing 4.4 million one-time costs in relation to the Toba Montrose rockslide. The most significant changes against the comparative quarter also impacts the year-on-year results and are addressed in more detail on the next two slides, mainly gains and strategic asset sales and write-downs in the year.

Especially with regards to strategic asset sales on Slide 6, as John has previously mentioned, in November Alterra sold its 10% interest in the ABW Solar project to Fiera Axium, the proceeds of 9.8 million. The company recognized a pre-tax gain on the sale of 2.8 million in the year resulting in nearly 40% gain in just three months. Then in December, Alterra sold half of its 51% interest in Dokie 1. This was sold to Fiera Axium the cash proceeds of 26.8 million plus up to a total of C$2.3 million over the next three years, subject to asset performance. The company recognized a pre-tax gain on the sale of 17.6 million in the year. The company retains a 25.5% interest in Dokie 1 and continues to operate and manage the project.

Secondly, with regards to write-downs in the quarter and the full 12 months period, Slide 7 provides a listing of the write-downs taken. In the fourth quarter a total of 117.6 million in write-offs were taken and 120.5 million for the whole year. The most significant write-downs relate to hydro assets in BC, specifically Bute Inlet, Upper Toba River and a number of smaller hydro projects for a total write-down of 63.5 million. These assets were written down due to a decline in the market outlook for renewable energy as a result of the new BC Government Integrated Resource Plan.

In addition to this, we wrote down the Soda Lake operating facility to 12 million and the U.S. geothermal assets to 4.5 million, resulting in a 34 million write-off. This was as a result of recent market indicators at fair value. And we wrote off the Iceland geothermal development assets by 18.9 million due to decreased opportunities for power sales in Iceland at this time. In addition to these write-downs, a total of 3.4 million was written off in relation to joint venture agreements in Chile, Peru and Italy. Despite these significant write-downs in the year, the company continues to explore and collect data for the hydro assets in BC and the geothermal assets in Iceland and may look to develop these projects in the future when the market outlook improves. Until that time any future costs will be expensed as they are incurred.

Now moving on to Slide 8, annual results. Consolidated revenue increased by 4.6% due to the new south contract entered into by HS Orka in late 2012 and early 2013. This revenue increased as HS Orka was partially offset by a decrease in aluminum-linked revenue as the price of aluminum was on average 8% lower than the prior year. Gross profit fell year-on-year from 23.7% to 20.3% due most significantly to planned cleaning and repair of two geothermal wells in the year.

Earnings from our equity interest increased significantly against the comparative year although this is most predominately due to the inclusion of property insurance proceeds from the Toba Montrose's rockslide of 10.4 million. The Montrose facility was offline until September 22 due to the damage incurred as a result of the December 13, 2012 rockslide. During the year proceeds from the insurance claim are recognized in equity income in Alterra's statement of operations and reflects both business interruption proceeds and reimbursement of repair costs as required by accounting standards. I refer you to Appendix 1 which details the accounting for the rockslide repair.

An explanation for the 146.3 million loss from other income and expenses in the year has largely been explained previously and is due most significantly to the write-down with operation and development costs of 120.5 million in the year. In addition to this, there was a non-cash loss of 21.7 million due to the movement in the fair value of the embedded derivative in the year.

Moving on to slides 9 and 10, 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 to December 19, 2013 and 25.5% thereafter; 100% interest in Soda Lake; and for three months at 10% interest in ABW Solar. As shown in the slides, revenue remains stable year-on-year when including Toba Montrose business interruption proceeds of 7.2 million. EBITDA remains stable for all operations with the exception of Toba Montrose and this reduction of 5.1 million was due to a one-time write-off of 4.4 million related to the rockslide.

I should highlight that the EBITDA numbers reported here and elsewhere for Toba Montrose do not include property insurance proceeds of 10.4 million but do include business interruption insurance proceeds of 7.2 million.

John Carson

Lynda, let me just say that the practical reason for that is the business interruption proceeds just reflect what the asset would have been paid had the water been allowed to flow normally, so very appropriate that we account for that one.

Lynda Freeman

Absolutely. The following slide on Page 11 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 in the year and the Canadian dollar weakening over the same period. Total assets fell by 79 million due largely to the write-down of the operating and development assets, the sale of 25.5% of Dokie 1 and this was offset by investments in geothermal development properties of 26.7 million which were previously recorded in geothermal development costs. And finally an increase in the investment of Toba Montrose of 12.5 million due to recognition of the company's share of income in the period which includes the 10.4 million of property insurance proceeds.

Total liabilities remained relatively stable with the repayment of debt in the year offset by increases in the non-cash fair value of the embedded derivative. The reduction in working capital was primarily due to movements in the short-term portion of the non-cash embedded derivative and higher accounts payable at year end due to spend on property, plant and equipment and development assets such as Jimmie Creek.

The long-term debt position is analyzed on the next slide, Slide 12, and further information on projected debt service is contained in Appendix due to this presentation. As of December 31, 2013, the company's net interest in long-term project debt was 295.2 million. The total represents 172.1 million held at Toba Montrose, 41 million at Dokie 1 and 82.1 million at HS Orka.

During the year, a total net interest in principal repayments of 35.5 million and interest of 19.5 million was made by the project. In addition to project debt, the company also holds 124.1 million in long-term bonds that resumed and are secured on the holding of HS Orka. Interest paid on the bonds was 3.3 million in the year.

That concludes my update for the year and I will now hand you back to John.

John Carson

Thanks very much, Lynda. A lot of good things to report there in 2013. With that, let's go over and look at each of our individual assets in the portfolio; first our operating assets and then our growth assets.

Jay Sutton, our VP of Hydro Power, can you please start us off with Toba Montrose hydro asset.

Jay Sutton

Thanks John. Referring to Slide 13, Toba Montrose had a solid year in 2013 receiving 104% of the annual forecast generation reflecting the actual generation at Toba and pro forma generation at Montrose. Generation in the fourth quarter 2013 was 52% of the forecast; however, this was offset by significantly higher than forecast generation in the second and third quarters of 2013.

As mentioned in our last call, the Montrose facility was placed back into service in late September and the crews completed the additional protection measures and site restoration work and demobilized from the site in October. We continue to monitor the slope and I'm pleased to report there has been no further movement since the rockslide originally occurred late in 2012.

Our generating equipment performed very well in 2013 with no significant issues aside from the penstock repairs at Montrose. We have just completed our annual maintenance on both of those facilities and all four of the generators are ready and available for the upcoming high generation season, which typically starts in late April.

Finally, we've been working with insurers over the past quarter and are in the process of placing additional earth movement insurance coverage which we expect will allow us to remove the current restrictions and permit distributions in the second half of 2014.

That's all I have for TMGP, John, back over to you.

John Carson

Thanks Jay. With that let's take a look at our wind and our geothermal assets with Paul Rapp, our VP of Wind and Geothermal and I'll remind folks who are with us today on the call, it was about one year ago exactly today when we announced that Paul would be also taking over our geothermal and also Murray Kroeker who will speak in a moment would be appointed to Solar. So it's been a great year for each of them in these roles.

With that, Paul, can you start us off with WG?

Paul Rapp

Thanks very much, John. I refer everyone to Slide 14 for the Dokie 1 wind farm. Dokie performed slightly below plan in 2013 producing 301.3 gigawatt hours of electricity which is 92% of budgeted generation primarily due to lower than planned wind in July, September and December. The Dokie wind turbines performed well throughout the year and our turbine operator Vestas continued to exceed their contractual guaranteed wind turbine availability. The balance of plant equipment also performed well with no issues and the plant continues to maintain a sound environmental and safety record.

John Carson

Thanks, Paul. One thing I'd also like to remind everyone of is that we were 91% last year for wind, this year to-date as of two days ago when I last saw the numbers, we are at 102% for the year, so off to a good start in 2014.

Paul Rapp

That's correct, John. Moving on to Slide 15 to our geothermal assets starting with Soda Lake. At Soda Lake, the plant generated 67.2 gigawatt hours in 2013 or 98% of budgeted generation. All turbine generators and production wells performed well in 2013 with no equipment or resource issues and the plant continues to meet or exceed all safety and environmental requirements.

On to Slide 16 for our Iceland assets, that's for Svartsengi and Reykjanes. First of all, a management change occurred at year end with Asgeir Margeirsson moving from his previous position as Chairman of the Board of HS Orka to take on the new role of CEO with the retirement of former CEO (indiscernible). We are very excited to be working closely with Asgeir in the operations of HS Orka. So in 2013 both Svartsengi and Reykjanes plants performed well and production was 102% of budget or 1,280 gigawatt hours.

The main highlight in Iceland was we're continuing in 2013 on the Reykjanes geothermal field, a new production well RN-31 which was drilled in late 2012 was connected in Q2 2013 and continues to provide strong steam supply to the plant. Testing of well RN-32 which was drilled in spring 2013 was started and continues today in anticipation of future connection to the plant. Drilling for a third well, a fluid reinjection well, RN-33 was completed northeast of the existing Reykjanes field. A test reinjection program is currently underway to evaluate the ability of the well to provide precious support in the Reykjanes field and this program is expected to continue into Q2 or Q3 of this year.

With that, I will pass it back over to John.

John Carson

Thanks, Paul. The last thing I'd like to highlight on that slide just before we leave it is that we have a brought a couple of our smaller geothermal units back into service and the capacity for the Svartsengi plant has backed up to 74.4 gigawatt.

Let's move on then, ABW Solar to Murray Kroeker.

Murray Kroeker

Thanks John. 2013 was a successful year for Solar at Alterra with the development and purchase of our first solar project, the ABW project in August and the subsequent sale in November to Fiera Axium. We are continuing to look at other profitable solar opportunities in North America and around the world. Thanks John.

John Carson

Very good. For those of you who may be wondering how are we keeping Murray busy these days on our team without a solar asset currently in hand, number one, we're scouting of course in the right places for new solar opportunities for the company. Number two, he is fully engaged also in supporting us on our two growth assets, Jimmie Creek and Shannon wind.

So with that, I'd like to turn our attention to those growth assets on Slide 18, the Jimmie Creek hydro asset. The first thing I want to show you there is a picture that I took last time I was up there. This is just a small portion of the glacial watershed. It is a truly astoundingly large glacial watershed at Jimmie Creek. The assets there, the water battery is amazingly large not to mention just the annual flow that you get from typical snow and precipitation, so it's quite a – it will be a very extremely long life asset for sure.

We now own, as the bullets indicate, 100% of this project. In March we closed the transaction with our former partner there, GE, by a very friendly transaction and so now we own 100%. We've advanced the project forward recently. We just got our full construction permits and we've actually begun certain preconstruction activities, a bit of camp activity, a bit of access road construction and tree clearing, so there are some early stage activities occurring at the site.

SNC Lavalin is a contractor we've chosen when we move this project forward to really deliver it or manage the construction of it under EPCM or managed model. This is really how almost all hydro projects are built today, so we're following a good pathway, an economic pathway but a very safe pathway as well and a well proven pathway. We consider SNC Lavalin to be one of the premier if not the premier entity to partner with us in delivering this asset.

Lastly, we are still in discussions with project lenders and with the potential new partner there, these are all parties of which we're well familiar with and having good progress, moving things forward on this project.

With that, let's go to Slide 19 and talk about Shannon wind and likewise there, the very first bullet is we now own 100% of this. We didn't publish the numbers, I don't believe in our financials, Lynda, as an immaterial amount of cash. The developer will receive a nice fee when this project is delivered as is very typical and as is appropriate here and we're very excited about this transaction.

We've entered into an exclusivity agreement since we last met with the analysts here with a very large energy infrastructure fund, one that we've known for years. We will hold a variable amount which will be up to us as to how much we want to own in the transaction up to 50% of the wind farm. So we're working full steam ahead. Just had calls East Coast face call this morning before this meeting with our partner and with prospective financiers, et cetera. So this file is extremely active. We have a very large team working on both this transaction and the Jimmie Creek transaction.

Ongoing activities; just mentioned we're finalizing major project contracts, we're documenting our offtake, the economic cornerstone for the project which we anticipate will be a 13-year power hedge PPA. The recent market movements as of just this morning there's been a nice little run-up, so we're pleased of where the economic sit for the plant for the power hedge.

On financing; we're every day involved with our construction lenders, with our tax equity partners and moving this forward and we didn't put it on this slide but right now I'd anticipate closing around May 30.

December 13, we did some construction work that we feel will qualify Shannon wind for USA production tax credits or PTCs and more importantly than we feel that we'll get the job done, we had three law firms tell us it would get done, brought in several consultants, so we have a very solid case where we are with the production tax credits.

Next, 76% of the power output from the project will be contracted through the power hedge I mentioned earlier. Finally, we plan to commence commercial operations for the project in mid 2015. There on the right you see a picture of some of the work that was done in December, again I'm very excited about this and the major focus for the company.

Let's turn to the last slide there on Page 20, you'll see a listing of our other growth projects. This is not substantially different from last year. These are the longer timeframe projects. Just a couple of update there; the Peru geothermal partnerships now total $14 million with our partner there EDC on Italy. We did close the partnership which we hadn't last time, so you can look through a few detail changes here but otherwise this is our longer stage pipeline.

In addition to this wherever you see that we're looking at other early stage opportunities, this is where we're looking at projects like what we did with Shannon wind this past year. And I'd like to take this one moment to describe what we did with Shannon wind last year. We looked at a lot of early stage developers, local developers and others who had projects. They were willing to turn over to someone with more financing expertise, mid-stage and late-stage development expertise, contract negotiation and structuring and construction management expertise. This is what we have as a company. We can take the original position of land leases and mold them and shape them, bring them up to the point of financial closings and make a very extremely valuable strip of cash flows long term with reliable contractual uptake. That's the value that we create is taking some smarts, some land positions and a whole lot of work and making something that's very valuable and that's what the company really is all about.

With that, Ross, I'll turn it back over to you.

Ross Beaty

Thanks John. Peter, can you go back to the growth slides. I just wanted to remind our listeners that in spite of the non-cash write-down we took on lot of these growth projects, as I said at the start we still own them and we – what is needed for accounting purposes is not necessarily permanent. And so if in 2014 for example looking just to British Columbia, the real juggernaut in this province is the development of liquefied natural gas business. There are many, many proposals for converting natural gas to liquefied natural gas for export and this is an absolutely important set of projects for the province and a huge amount of effort has been done on a lot of fronts.

So the whole issue of power needs for the province of British Columbia related to the LNG business is still up in the air, the big question being whether these operations will use Gas Drive for their power needs to liquefy the natural gas for export or how much will they take off the grid. And therefore even though BC hydro put out an integrated resource plan in the fall of 2013 that more or less suggested that BC's full up for power for the next 10 years, it didn't include much of an estimate for the power required from the LNG operations such as they maybe, and the reason for that is because by last fall they hadn't been quantified in any way or firmed up.

But as these projects move through the permitting process, the engineering and planning process and to some degree the political process as to whether they'll be required or themselves decide to use electric drive or electricity for the ancillary operations in pumping and piping, the construction requirements and municipal requirements for power, it's my guess that the power needs for British Columbia will be significantly higher than has been stated in the integrated resource, but it may well be that some of our development projects will be called on for development over the next five to ten years and we can bring these back into the active file as opposed to the standby file.

Similarly, this will be necessary which is a couple of hydro projects in Iceland that are owned by HS Orka and those are quite active as well being moved along the process for development, all the things that are needed and it may be that some of those come forward. Similarly, in Iceland there may be a new power requirement for either a new smelter if we can end up resolving our differences with Norðurál for the new Helguvík plant in Iceland and bring these projects to a much more rapid development stage. We hope that will be the case but at the moment they are sufficiently uncertain that we had to take the write-down from the standpoint of our balance sheet.

I don't really have anything more. I really think that the presentation today was good. I thank all of the members of the management team around the table. You made a very clear presentation, I think. We do have a very complicated set of financial statements, it's just one of those things and I think Lynda especially has done a heroic job of trying to make those into plain English for people like me to understand and she's done a good job on that.

I hope we have answered most questions that our analysts and interested shareholders might have for us today to the simplification of these complicated financial statements in the summary slides today, but apart from that I think I'll end the call here and open the call to questions from anybody to explain anything else that we're doing that we haven't described well enough today. So thank you very much for listening and that will be the end of the formal part of the call. Operator, we'll open it up to questions now. Thank you all.

Question-and-Answer Session

Operator

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 Financials. Please go ahead.

Jeremy Mersereau - National Bank Financial

Hello, everyone. I just wanted to start with the write-downs. Just wondering if you could outline what the plant and equipment write-down was?

Lynda Freeman

Yes. Just clearly we took a fair value of the Soda Lake facility, so we have the Soda Lake facility on that book and it was sitting in property, plant and equipment. We obviously consolidate Soda Lake but the biggest asset obviously of Soda Lake is PP&E, so we – that was sitting on our books at just over 34 million and so we wrote that down to the 20.2 million now. And in addition to that, there was also a small write-down in Chile relating to a camp that we had there when we moved over to ex the account in Chile when signing the agreement with EDC, we had to write off the value on that book. Does that answer your question?

Jeremy Mersereau - National Bank Financial

Yes, it does. Do you think you'll be able to fund both the Jimmie Creek and Shannon with the cash and company credit or will you look to sell any additional assets?

John Carson

No. We don't feel the need to sell any further assets, it doesn't mean we might now have a modest sale or two in the future but the matter of meeting one, no, we would only sell one strategically. We really are looking at, as I've mentioned several times, holding company level financing and I think Jerry you're familiar with that structure where we wrap a bundle of operating assets into one holding company and put the financing there. The quantum that we're looking at from multiple lenders on that instrument is high enough that we don't need to do anything else we feel finance wise to finance Jimmie Creek or Shannon.

Jeremy Mersereau - National Bank Financial

Great. And I think you said that we might hear of the financing at Shannon in May or so. Do you think we will hear more terms like ownership percentage and whatever else by next quarter then or…?

John Carson

Yes, you'll hear that but you probably won't hear the ownership percentage until right about when we financially close. It's really a decision and we've structured the deal such that our partner is happy to let us structure it this way. We can write our own check size. I may have indicated that. So it will depend on exactly what we're spending on Jimmie Creek at that point, what we're doing in the rest of the business but it's nice to have that flexibility that we can write basically whatever check size we want into Shannon wind.

Jeremy Mersereau - National Bank Financial

And approximately when would we hear of that then?

John Carson

Yes, so again my target when I'd like to close the project, when we'd like to close is May 30 of this year, it may even stretch into June but right now May 30. We just had a call this morning and said that we're really going to try to target that and get all of our stakeholders and financiers the target that day. So we'll disclose that stuff at that time. It should be Q2 Jeremy.

Jeremy Mersereau - National Bank Financial

Okay. And then just finally before I leave, I just wanted to know if you talked with EDC lately about their ability to pay for the explorations since the typhoon?

John Carson

Yes. Really you'd have to look at them and their reports, but we've seen no indication of lack of will to go forward or lack of anything to go forward. We just had them in our offices a week and a half ago, very productive meeting. Paul, any other color to add? We've got nothing but green lights.

Paul Rapp

Yes. To echo what John said, they were very active as John said in the field building and refurbishing roads and refurbishing the camp onsite right now in anticipation of getting out next summer and building drill pads and they did provide a very extensive presentation on their plans for drilling. So as John said, all systems are go and they are very enthusiastic about the project.

Jeremy Mersereau - National Bank Financial

Okay, great. Thank you.

John Carson

Thanks Jeremy.

Operator

Your next question comes from Andy Krystal from Royal Capital Management. Please go ahead.

Andy Krystal - Royal Capital Management

Good morning.

John Carson

Good morning, Andy.

Andy Krystal - Royal Capital Management

I was just wondering in terms of the dividends that you received, you received two; one from Blue Lagoon and one from HS Orka. Those were repatriated back to Canada, back to the holding company level?

John Carson

Lynda?

Lynda Freeman

Yes, actually we used them to pay our interest on our Magma Energy Sweden bonds, so the bonds that we hold partly in Icelandic krona and partly in U.S. dollars that we used to fund, but they would have been repatriated back to Canada if it wasn't for that, we had a use for them in Iceland.

John Carson

It's part of that $3.3 million that we paid…

Lynda Freeman

Correct.

Andy Krystal - Royal Capital Management

Okay, sure. And is there going to be any fair level of dividends that we should expect going forward from those two companies or is it going to be highly variable, just depending on the cash needs of the business or whatnot?

Ross Beaty

The Blue Lagoon right now is the one source that we can provide dividends apparent to Alterra without restrictions and we are using – we are planning to do that again this year. We expect in 2014 a higher dividend than in 2013 as the operations of Blue Lagoon in 2013 were extraordinarily strong. That business is just hitting better and better milestones every year, it's tremendously valuable and it's extremely well run and anybody who is on this call, whoever goes to Iceland I'm certain will go to visit the Blue Lagoon, it's a beautiful facility and that we own 33% of it and very proud to be owners of Iceland's number one tourist attraction. It had over 530,000 people in last year and this is pretty remarkable for a country that only has 330,000 inhabitants.

John Carson

Further on dividends, it's important to look at our debt service at HS Orka which we've emphasized at several times. You'll see in 2017 and following the debt service falls off significantly. At that time you should expect to see larger distributable money coming out of the assets to us. And those are standard operating distributions. There's no currency restrictions or anything else on exporting those currencies out of Iceland.

Andy Krystal - Royal Capital Management

Sure. Okay. And would it be possible for you to provide a number in Icelandic krona of the amount of the dividends that were dividend?

Lynda Freeman

I'll have to get back to you…

John Carson

In the past year?

Lynda Freeman

You mean in the past year?

Andy Krystal - Royal Capital Management

Yes, during 2013?

Lynda Freeman

Yes, I don't know it off the top of my head but I can…

John Carson

Maybe Asgeir knows it. Asgeir, do you have that number on the top of your head or maybe can you find it and we'll get back to you before the end of the call.

Andy Krystal - Royal Capital Management

Perfect. Okay. And just in terms of the restrictions on the Icelandic bank – so dividends, there's no restriction on repatriating that money but an asset sale there would be restrictions?

John Carson

There could be, correct.

Andy Krystal - Royal Capital Management

Okay. Perfect. Okay, that's it. Thank you so much.

John Carson

Thank you.

Ross Beaty

One thing you might want to keep in mind, Andy, is that an asset sale whether it would be restricted or not would depend on where that asset sale occurred. If we were to sell our interest in Iceland – if Iceland were to sell Icelandic interest, yes, there would be currency restrictions. If we were to sell our assets from outside of the company, for example our Swedish holding company you wouldn't face those types of restrictions.

Andy Krystal - Royal Capital Management

Okay, great.

Operator

Your next question comes from [Robert Morrison] (ph), a private investor. Please go ahead.

Unidentified Analyst

Hi. Thanks. I was reading an article recently from North American wind power which talked about some of the technological improvements in turbines in terms of how that might affect the economics of the wind project, particularly they talked about the lengthening of turbine blades and I'm just wondering if there is anything you can say about how that's affected your determination to go into the Shannon project and how it might affect the economics of that?

Paul Rapp

Sure. It's Paul Rapp here. I'll take that question. Yes, there has been a significant increase in efficiency of wind turbines over the last few years and it's primarily driven by more efficient generators and better technology for the longer blades. So the wind turbines you're seeing deployed right now and particular in sort of midrange wind areas like Texas where we typically have very large blades to better utilize the wind and extract more energy. And so just to compare our Dokie wind farm, the blade – the rotor diameter is 90 meters, the anticipated turbines we're going to use at Shannon wind is 103 meters, so an additional 13 meters in rotor diameter. And what you're seeing now is a ramp up in the capacity factor of the wind turbines across the industry and it's quite common now to get capacity factors in the mid 45% range where five, ten years ago you'd be doing well to get something in the 30% to 35% range; so better technology, longer blades, better extraction of the energy from the wind. So you're absolutely right and that's exactly the ramp up in efficiency that we're utilizing at Shannon.

Unidentified Analyst

Right, okay. One other thing and pardon me if this is in the public statements, I'm wondering also if you can elaborate at all on the power purchasing terms that you have particularly in British Columbia and in Texas? I know you have an arrangement in British Columbia which maybe helps you, the fact that it's clean energy. Is there anything like that aside from tax issues in Texas or are you really more just at the mercy of the market?

John Carson

No, it's really just the tax credits and the tax benefits. The other good things about Texas and why you've seen so many people go there is that our prices are good. There is a lot of demand for power in Texas. Texas has some of the thinnest reserve margins in North America that means that they just don't have a whole lot of power passed what they could need at a peak demand time. So that's why a lot of people are in Texas. There is no other benefits though, economic benefits besides the U.S. production tax credit.

Unidentified Analyst

Right, okay. If I could squeeze in one other quick question and that's with regard to the idea down the road potentially of doing wind power for liquefied natural gas. Just if you could comment on this, I would think that would be a particularly sensible use for wind power if there was sufficient gas storage on sites and could be down in an off grid way because as long as you got sufficient gas storage, it doesn't really matter whether the wind is blowing at 2 o'clock in the morning or 4 o'clock in the afternoon, because you just keep converting to – you have some flexibility in the timetable in terms of which the natural gas is liquefied. Is that the kind of thing that you envisage?

John Carson

We agree with what you say and that's pretty much up to the utility and the gas operators or the LNG operators, but certainly from the British Columbia standpoint the instrument or scope for using wind power in northern BC for the LNG business really it's off the grid but it really bolsters. What you say is absolutely correct.

Unidentified Analyst

Right, okay. Thank you very much.

Operator

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

Jared Alexander - Canaccord Genuity

Good morning. I was just wondering could you confirm for me the fourth quarter net interest EBITDA was about negative 300,000. I just want to make sure we're backing out the right numbers here, given the confusion around head office and exploration expenses in Q1?

Lynda Freeman

Yes. We actually haven't presented the fourth quarter net EBITDA, but I can come back to you on that one. We've shown the annual EBITDA numbers for net interest, but if you need to know the fourth quarter I can get that information to you later today.

Jared Alexander - Canaccord Genuity

Okay. That would be great. Thank you. And then just turning to Shannon wind, I know on past calls you haven't wanted to divulge a lot of details at this point, which I completely understand. But you're now spending money on it. It definitely looks like you are proceeding with it. So I think we should start thinking a little more seriously about the value of this project is. So could you at least maybe provide a rough IRR range, if possible?

Ross Beaty

I would love to – John will have something to say but my quick comment is just give us one quarter because if we can get financially close in Q2, we'll know exactly the level at which we will be participating; number two, the amount of capital which we'll be allocating and therefore number three, the value. We know what target IRR we have but it kind of meaningless until you know the quantum of capital we're going to deploy in this. Beyond that, John, do you have anything to add?

John Carson

No. I was just going to state what our typical target returns are. For wind we'd like to get close to mid teens. We'll do deals a lot lower than that, but we're approaching them and that's our target here. It remains our target at Shannon wind.

Jared Alexander - Canaccord Genuity

Okay, great. I'll look forward to talking to you next quarter then. Thanks. Those are my questions.

John Carson

Thank you.

Operator

Your next question comes from Mike Plaster with Salman Partners. Please go ahead.

Mike Plaster - Salman Partners

Thanks very much. Good morning, everyone. Just a couple of questions from me. Continuing on with the Shannon wind, I guess just looking at it for now on a 100% basis, how do you see the weighting of the CapEx of that 12-month build time? Is it kind of spread evenly over the 12 months or would it be more frontend weighted?

John Carson

It probably is even overall. We do have a couple of payments upfront and then mid stage during construction we have – start to get in for substantial turbine payments. The turbines are 70% of the deal. Paul, do I have it about right?

Paul Rapp

Yes. No, that sounds right.

Mike Plaster - Salman Partners

Okay. Thanks. And on Jimmie Creek you said I guess in your earlier comments about making good progress there with potential partners. Is it still your expectation that you could hit financial close on that and construction start kind of later in Q2 or what's the expectation now?

John Carson

Yes, we didn't put anything a date per se in the book. Let us revert to you on that. We're right in the middle of a bunch of processes on that, so as soon as the dust kind of clears we will get back to you with a target date.

Mike Plaster - Salman Partners

Okay. Fair enough. Thank you.

Operator

(Operator Instructions). Mr. Beaty, there are no further questions at this time. Please proceed.

Ross Beaty

Okay. Thank you, operator. We have one answer to one of the questions. Go ahead, Lynda.

Lynda Freeman

Yes. The question was asked what was – in ISK what was the distributions issued in 2013? So HS Orka issued a distribution of 150 million ISK which Alterra got the 66.6% in share of that, so two-thirds. And in 2013 HS Orka received 217 million in distributions from the Blue Lagoon. Hopefully that answers the questions.

Ross Beaty

Very good, thanks. And thanks again to all who are listening and to all of the management team who has contributed here and to Asgeir and Monte for standing by and not having to do anything. So with that, I will end the call. Thank you again and have a good day.

Operator

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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