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

| About: Polaris Infrastructure (RAMPF)

Ram Power, Corp. (OTCPK:RAMPF) Q4 2013 Results Earnings Conference Call April 7, 2014 10:00 AM ET


Steven Scott - Director of Investor Relations and Corporate Secretary

Antony Mitchell - Executive Chairman

A. Murray Sinclair - Director

Ashlee Carter - Acting CFO



Good morning, ladies and gentlemen, welcome to the Ram Power Corp's Earnings Call. I would now like to turn the meeting over to Mr. Steven Scott, Director of Investor Relations for Ram Power Corp. Please go head Mr. Scott.

Steven Scott

Thank you Slyvie. Good morning, ladies and gentlemen and welcome to the Ram Power Corp., conference call to discuss the financial and operating results for fiscal year ended December 31, 2013. In addition to the press release issued over the Newswire last week you can find our financial statements and management's discussion and* analysis on both sedar.com and our website at ram-power.com.

I would like to remind you that commentary made during this call may include forward-looking statements within the meaning of applicable Canadian Securities Legislation, regarding the future performance of Ram Power Corp., and its subsidiaries. These statements are current expectations and as such are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations.

These risks and uncertainties include the factors discussed in the company's annual information form for the year-ended December 31#, 2013. Certain measures referenced in this call have no standardized meaning under the international financial reporting standards and therefore are considered non-GAAP measures. For example EBITDA is commonly defined as earnings before interest, taxes, depreciation and amortization. For the company EBITDA is more just directly comparable to the GAAP measure, operating income or loss except depreciation and amortization expenses of planned assets but excluded in the calculation of EBITDA.

We believe many readers of the company's financial information find EBITDA to be useful in assessing the company's performance. In the company's earnings releases consolidated financial statements and MD&A unless otherwise noted all financial information is prepared in accordance with IFRS.

Joining me this morning is Antony Mitchell, Executive Chairman of Ram Power, Murray Sinclair, Director and Chair of our Mergers and Acquisitions Committee and Ashlee Carter, our Acting Chief Financial Officer. With that said I will now turn the call over to Tony.

Antony Mitchell

Thank you, Steve. Good morning everyone and thank you for joining us to discuss our financial and operating results for the year-ended December 31, 2013. We've now completed a full year of generation for the combined phases of our San Jacinto project and during 2013 generated over 423,000 megawatt hours of electricity and billed $46.2 million.

In the call today we will discuss the current status of our San Jacinto project, including the current performance of the plant and the recently concluded remediation effort, then discuss today's announcement regarding our Geysers project and finally get an overview of the strategic process by the Chair of our Mergers and Acquisitions Committee, Murray Sinclair.

First, I would like to touch on the conclusion of the remediation process. It goes without saying that the drilling campaign which began in July of 2013, was critical for the company to both increase total megawatt capacity and stabilize the San Jacinto geothermal resource. We had many challenges during the program which tested both our resource engineer, SKM and our PENSA operations team but we continue to see progress in hooking up the wells into the power plant.

I am pleased with the outcome of the program whilst fully acknowledging this has been a tough and lengthy process. I'd like to thank our shareholders for their patience during this period and we continue to take a prudent and safe route for the long term health of the project and the power plant itself.

Further as we announced this morning, the company has entered into a definitive purchase and sale agreement for the Geysers project with U.S. Geothermal. The purchase price for the Geysers project is $6.4 million and is expected to close in the month of April. Net proceeds from the sale will be used by the company to fulfill upcoming interest payments obligations to the holders of the company's outstanding debentures due June 30, 2014 and for general corporate and working capital purposes.

I would now like to ask that Steve to give us an update on our San Jacinto and Casita projects. Steve?

Steven Scott

Thank you, Tony. Turning our focus to San Jacinto, with respect to fourth quarter operations we are currently operating the plant at a 99% plant availability which continues to be an excellent availability factor for the industry. For the quarter we generated approximately 31,000 megawatt hours in October, 29,296 megawatt hours in November and 30,794 megawatt hours in December. This equates to 41.7 megawatts in October, 40.69 megawatts in November and 41.39 megawatt net in December.

Additionally as unit three has been in operation for over a year the company has scheduled its major maintenance in accordance with the Fuji maintenance requirements beginning in early June of this year. As a result the major maintenance is scheduled to last approximately 20 days during which the plant will operate its unit four at its design capacity of 36 megawatts net.

Turning our focus to the remediation, our remediation drilling efforts which began in July of 2013 were completed in February of this year and successfully remediated Well SJ 6-1, 6-2, 9-3 and 12-3. With respect to Well SJ 12-3 the remediation program began late in October 2013 and was completed in January of this year. The remediation plan included the perforation, deepening and forking of the well. Since being placed back into the commercial process Well SJ 12-3, well head temperature and pressures continue to oscillate which should stabilize overtime and the well is expected to produce between seven and ten megawatts net.

Moving onto Well SJ 9-3, the well continues to be in thermal recovery. The company recently made five attempts to tie-in a well into the plant after nine weeks of thermal recovery. The well has demonstrated a production output of between seven to ten megawatts when achieving a wellhead pressure necessary for the operating pressure of the plant. The well continues to show improved thermal recovery of temperature and pressure but will continue to be shut in for periods of times over the coming weeks to allow for post-stabilization.

Keeping in mind that Well SJ 9-3 is not tied into the gathering system the plant is currently operating between 54 and 57 megawatts gross as Well SJ 12-3 continues to cycle. While it's still too early to determine the exact megawatts we have gained as a result of the program we will continue to monitor the stabilization of 9-3 and 12-3 going forward and we will have further updates as needed.

Upon the successful tie-in of Well 9-3 the company will begin a 30 days stabilization period in or around mid-April immediately following the stabilization period, a seven day performance test to determine that operating output of the plant will be conducted.

Moving to our Casita project in February 2013, Cerro Colorado was awarded an exploration concession for a period of 25 years and commenced negotiations for a formal contract of N power purchase agreement. We expect to enter a new formal agreement over the next -- in the next three months. In addition the company in May of 2013 executed an agreement with PAF Securities appointing PAF as the exclusive financial advisers to the company in connection with one or a series of transactions pursuant to which the company is in negotiations to arrange approximately $80 million in senior debt and equity financing to drill and develop the initial phase of the Casita project.

During the second quarter of 2013 the company began an environmental assessment to obtain environmental and municipal permits required to begin exploration drilling and the company initiated work on impact studies to the Nicaraguan National and Regional Network required for obtaining a generation license and begin negotiating of a PPA. The company expects to complete these requirements before the end of the second quarter of 2014.

The Casita resource is currently certified at 85 megawatts of P90 and the company plans to develop the project with three 11 megawatt units in order to begin commercial operation at the earliest possible date. I'd now like to turn the call over to Ashlee to give us an overview of the financials.

Ashlee Carter

Thank you, Steve. Let me begin by referring our listeners to the company's recently filed financial statements and MD&A for the year-ended December 31, 2013 for a more complete presentation and discussion of the company's financial position and results of operations.

San Jacinto operations generated energy revenue of $46.2 million during the year an $18.1 million or a 65% increase over 2012. EBITDA of $30.5 million increased $20.8 million for the year versus EBITDA of $9.7 million for the prior year. The increase principally resulted from the $18.1 million increase in revenue from San Jacinto operations and a $2.5 million decrease in general and administrative expenses.

By December 31, 2013 the company had $22.5 million in cash, $19.9 million of which was held for use in the San Jacinto project and operations with the remaining $2.6 million available for general corporate purposes. From an outlook perspective with remediation activities complete we expect annual revenues this year to be $49 million to $52 million assuming average production of approximately 52 megawatts to 55 megawatts net and company EBITDA of $34 million to $37 million.

The company reduced corporate financing cost by $1 million in 2013 and will reduce financing cost by $3.8 million annually going forward as a result of refinancing the corporate credit facility. We also reduced corporate cost of $2.5 million in 2013 and $4 million annually going forward as a result of the corporate reorganization of the Reno office which is currently staffed by four professionals. In total we have reduced our corporate overhead and interest burden to approximately $8 million annually.

In addition due to the disposal of various North American assets we expect to reduce North America project cost from $1 million in 2013 to less than $0.5 million in 2014. In total the company has an estimated $8.5 million of corporate expenditures to be covered through distribution from the San Jacinto project and asset sale.

I would now like to ask Murray Sinclair, a long-standing Director of the company and the Chair of the Mergers and Acquisitions Committee give us an update on the strategic process for the company.

A. Murray Sinclair

Thank you, Ashlee and good morning all. As we said back in November the company has engaged Dundee Securities to assist us in aggressively pursuing a transaction for the company. Currently the company has a virtual data room in place and several interested parties behind the confidentiality agreements. The company has not set a timetable for the completion and review of the process and does not intend to comment further regarding the review process unless a specific transaction or other alternative is approved by the Board of Directors, the review process is concluded or it is determined that further disclosure is appropriate or required.

I am pleased to be able to join all of you this morning and very excited about our future.

Antony Mitchell

Thank you, Murray. And Sylvie we're now ready to entertain questions.

Question-and-Answer Session


Thank you. (Operator Instructions). We do have a question from participant. Please state your name and company and please proceed with your question.

Unidentified Analyst

Hello, yes, good morning, hi there. Thanks for taking this call. Murray, I am not sure if you can speak to this but are you getting some type of feel of what multiple somebody is willing to pay for the company. We touched upon that last time on the conference call and that seemed to be the $1 million question, what is somebody willing to pay and a lot of us are just trying to get a feel and it's been a source of lot of debate, it's given a range, the $0.24 to $0.50 have been thrown around and that's obviously at a seven to nine multiple which is that reasonable, is that something to be expected or is that something that we could look to, look forward to?

A. Murray Sinclair

I have to be cautious, so I will apologize for my answer in advance, but as you pointed out because I think your question is quite eloquent, I mean at the end of the day it really is a math issue and if you take a multiple and with the remediation process having been essentially concluded and knowing roughly how many megawatts we're going to be producing and knowing roughly what our EBITDA is going to be on a go forward basis the numbers that we have quoted herein were really on a year basis but of course don't forget we are already essentially in mid-April which is not quite a third of the way through the year.

So the numbers on a go forward basis, on a year-to-year annual basis will be better than the numbers you've heard here today. And so unfortunately if I sit here and say we are going to get an ex-multiple you can just take and multiply it by the amount of money we are going to get and that would put us all I think in a bit of jeopardy.

Having said that, however, I think we are reasonably comfortable. I think your nine multiple is probably a bit high to begin and I don't think that anybody really has expectations of nine multiple. The [declines] after giving us seven or eight multiple of EBITDA, I don't think that would shock us. And I think that, that's in this low interest rate environment given the stability of the asset and the long term nature of it and the fact that it's essentially a utility, I mean certainly if we were the -- it may be we enjoyed a different profile some of these assets in United States and elsewhere would trade north of nine. But the -- I think seven to eight it wouldn't shock us is that a straight way of answering it?

Unidentified Analyst

Yes, I understand, I guess so. I understand that it's all about what somebody is willing to pay, at the same time I guess what the shareholders want to know is how is it being marketed to potential buyers or to potential partners. Yes, I mean -- I guess if it's to somebody may be in North America as it was said that number might be a little bit lower, but if it's to an international market what that how could I say this. Yes I guess I want to know how is it being marketed, how is it being put out there to potential [feelers], how is this -- how is it being shown to the rest of the world?

A. Murray Sinclair

Again we mentioned that we've retained Dundee Securities, but it's not really just Dundee Securities, it's Dundee Securities, UK. So we made a specific effort to retain the services of an international broker who would take an international flavor to it. And so that's being coordinated out of their office in London, England. It's been headed up by a gentleman I have known for 15 years or more. And they really have taken a very wide scope on it.

Again, be careful when one takes a look at mergers and acquisitions as the name of the committee and I don't think that shareholders should merely sit there and look for somebody to come along in office on some sort of one price fits all type thing. We are taking a look at a very broad range of potentially interested parties from around the globe. So to put your concerns at rest the concept of nearly focusing on North American (inaudible), that's not the case at all.

In fact candidly if I eye-balled the list of people who've expressed interest in it, I would say the bulk of the interest is coming from people who are outside North America and they, so I think that's encouraging. At the end of the day, what one really needs to take a look at is two questions. And I think you have touched on both. The first is what is* an asset of this quality, given its longevity and the nature of the income from it, as I said previously utility, what's that worth* and then also who would be interested in an asset like this.

And there are a lot of people who again in this day and age the low interest rate environment that we’re in who are interested in buying an income stream. But the majority and that's putting it mildly the substantial majority of the people who have been contacting, the people who are interested thus far are non-North American based.

Unidentified Analyst

Okay. Yes. I guess as a long term shareholder the fear is sort of garnishing or getting some type of a premium on today's share price but again it really boils down to the multiple because a 30% or 40% premium on today's share price gets us probably another penny or two. But changing the multiple wasn't matching the story and that brings a little bit more value back to the long term shareholder. So that's all I am trying to establish and see. If there is no interest then the six multiple it's probably going to be -- it's going to stay that way because if there is more interest than all of a sudden that drives the pace up just like with anything.

A. Murray Sinclair

Yes, again you’re quite right, at this point in time we've had a lot of people who have expressed* interest in the project. Now again it involves a great deal of due diligence, involves a great deal of negotiation. The Geysers Project which we press released this morning and then touched on in the conference call that was a very lengthy process that was involved for months and so obviously an asset such as our* producing asset is going to involve at least that much effort. It's a long time consuming process, it's frustrating but the one thing that you can come back to is and I speak as a substantial shareholder which is a matter of public record it is our objective to take and ensure that the shareholders see as much of a return as we can humanly generate and everybody is working 24x7, not to sound stereotypical to take and make sure that happens.

So I speak from a very long position. I think it's well known that not only am I a big shareholder but my entire plan as it were, has been a believer in the project from the beginning and we continue to be.

Unidentified Analyst

Okay, and just last question, this is a different topic. Can you explain or somebody on the panel there explain in laymen terms, what does it mean to try and tie in the well 9-3 and making five attempts, what does that exactly mean, is it not catching, is it not -- what is that not doing that you -- that it's that you are putting it back offline and waiting, what is it you are trying to do?

Antony Mitchell

Yes, great question. The laymen answer; sorry I didn't catch your name.

Unidentified Analyst

It's Mark.

Antony Mitchell

Mark, we talk about thermal recovery of the wells and so just 30 seconds on geothermal drilling. And obviously the wells themselves are at very high temperatures. So when we are going to drill we have to cool them down and with a 9-3, we ended up doing three separate things to 9-3. We first of all deepen the well and then we fork the well and when you drill, a lot of the drilling cuttings end up staying in the well bore and they get cleaned out when the well begins to flow. So you flow it initially into what's called as a silencer until all the rocks come out and the chemical properties of the water becomes stable and then the sort of mucky water becomes clear.

During -- in 9-3 during that process the well was, and this is a good thing, it was quite violent and it dislodged enough sediment to actually block the well bore and we have to go over with the rig to clean that out. So again that required that we put cold water down the well* and cooled it down a third time. So what we are actually doing now is we're rushing nature a little bit. If Ram had all the money in the world and it had extra steam we would simply close out 9-3 and allow it to heat up naturally.

What we are doing for -- we are doing it for obviously the shareholders, we're doing it for the lenders and we are doing it for the cash flow is where the active flow in the well* cleans out the cooler water and speeds up the heating process. So don't be perturbed by that it just means that we are rushing nature a little bit, where we've got clean water coming out. So it allows us to tide into the plant any electricity we generate, we get revenue from but we sort of fully expect this sort of on-off, on-off cycle to continue for -- could be a couple of weeks, could be a few weeks but it's normal for where we are right now.

Unidentified Analyst

Okay, thank you guys that's all for my questions.

Antony Mitchell

Thank you, Mark.


(Operator Instructions). There are no questions registered at this time.

Antony Mitchell

Okay, well we thank everyone for listening in. We look forward to putting our future updates as they occur. And thanks everybody for joining today.

Steven Scott

Okay, that's it, thank you.


Thank you.

Antony Mitchell

Thank you.


The conference call has now ended. Please disconnect your lines at this time. We thank you all for your participation.

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