Alterra Power Corp. (OTCPK:MGMXF) Q2 2014 Earnings Conference Call August 13, 2014 11:30 AM ET
Good morning, ladies and gentlemen and welcome to the Alterra Power Corp’s Second 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. (Operator Instructions) I would like to now remind everyone this call is being recorded on Wednesday, August 13, 2014.
I would now like to turn the conference over to your host Ross Beaty. Please go ahead.
Thank you very much operator and good morning ladies and gentlemen and welcome to the Q2 Alterra conference call. We had a very busy and productive quarter on all kinds and fronts, lot of it was summarized in our earnings release this morning and especially the announcement. Subsequent to that few hours to the closing of our $110 million Holdco Financing which of course as everybody must know represents giant amount of work for a small team like we have here. When it’s combined with the giant effort that’s been made as well to construct the Jimmie Creek hydro closure up the coast from Vancouver and also all the work we’re doing at Shannon and of course on the maintenance work we’re doing to keep our other operations running well in Iceland, Nevada and British Columbia.
So busy and productive quarter. And I am going to turn the call over to John Carson, but the first slide of course is, I want everybody to look and to remind themselves that we are going to be making forward looking statements today. And we have considerable disclosure in our presentation of our forward looking statements and I would advise everybody to not rely on all of the statements we state here completely and we seek Safe Harbor in this respect.
With that introductory comment. I am going to turn the call over to John Carson, will introduce our team who is here today and then we’ll come back and of course have Q&A after the presentation. John.
Thanks Ross. We do have our full management team on the call today and we’ll introduce those as we go and joining us remotely from our Nevada asset is Monte Morrison, who runs our plant there; and also from Iceland, Asgeir Margeirsson the CEO of our Iceland business; Paul Rapp is also phoning in from Iceland where he’s been working with the team there on the geothermal matters and he’ll be joining us in just a little bit.
Let’s start then with Slide 4, we’ll do things in a little bit different order from usual here because we just closed a major transaction that all of you will probably have some curiosity about. So let’s jump right in, we have made a press release for this financing. It is a $110 million Canadian financing, it will come in three tranches. First tranche there listed on Slide 4, is a $67.3 million amount of proceeds. We will receive this later this week, the CTs have already been met, this is merely a matter of why are transfers occurring et cetera.
The second too will be dependent on us fulfilling certain conditions president for the Jimmie Creek and the Shannon transactions. We put them in the order in which we expect them to occur, we expect Jimmie Creek to close first. We expect most likely Shannon would close later on in the year. When each of those transactions occurs it will enable either at or after those closings to have subsequent tranches of the Holdco Financing released 21 million at each financing. All three of the tranches together will total CAD110 million.
Let me just remind everyone this is a holding company facility. It does not exist or live at the top company at Alterra. The good thing about that is there are no corporate constraints on what Alterra can do, there are no Alterra covenants to follow. Alterra is just as free to do whatever it would like as it was before. The loan exists at a new holding company which after some very good work internally to restructure our assets just a bit and to protect and not cause any negative tax occurrences and to keep everything in good order, we’ve created a new holding company which will now hold indirectly our Dokie and Toba Montrose assets.
Those assets will comprise the security and also the cash flow support for the Holdco Financing. So cash flow come up from Dokie and Toba Montrose go through the holding company, it will pay us a periodic interest along the way, after its paid its interest it will pass all remaining funds up to Alterra at the top of the company.
Let’s look at the major terms of the loan there. First of all this is an 8.5 year loan, it matures in 2023. We have the flexibility in this loan let me point it out to retire it early if we would like, this is not a fixed rate loan per se that has make hole or anything like that, so it's important aspect that this loan is flexible.
In our future as we continue to build the company and have different needs we may make some adjustments to this facility. We’re not anxious to take it out, we’re very happy to have this facility, we’re very happy to work with the provider of this facility AMT Capital whom we’ve gotten to know very well in the past year and have a good relationship with already. So we’re not out to take it out early but it is able to be adjusted as the future goes and that’s a good thing.
Next, there are no scheduled principle payments for the loan. In other words if everything goes according to plan, at the end of the term we would still have the complete amount of principle outstanding to be refinanced or to be paid down in some other way. But I emphasize there is no scheduled principle payments. We will have the flexibility again and this loan is all about flexibility to pay any principle along the way as we would deem appropriate at any time.
The pricing for the loan as you see is about 8%, we will be swapping that very soon for fixed, it’s currently a floating rate loan it will be fixed for us after we’ve completed the swaps which we’re working on now. And I have already mentioned how the loan is secured.
Now then what are we doing with these funds? We’re doing exactly what we told you we’ve been up to over these past several months. They are going right into our Jimmie Creek project and our Shannon win project and our other growth projects and our general corporate purposes. Those are for sure the primary use of funds. Up until now this year we’ve been using the revolving credit facility, which our Chairman Ross Beaty provides to the company. We’ll immediately pay down amounts outstanding there which are project amounts and we’ll continue to fund our way in those projects from this capital.
The important point there at the bottom bullet is that Alterra won’t require any further financing for its near-term growth plans. This takes care of the Jimmie Creek equity; this takes care of the Shannon equity. You won’t see us saying we need to raise equity for those projects we just did it. And I can’t emphasize enough this is a flexible loan we really feel good about it as a team and again just key members of our management team have made this happen from Jon Schintler our Head of Project Finance to Shannon Webber our new General Counsel to Lynda Freeman and our CFO and really everybody in the room here has worked very hard on this, we’re very happy with it. When we get to Q&A we’ll let you ask anything you’d like about it and that’s really our big news today.
Let’s move on then and talk about the rest of the quarter. And with that Lynda Freeman, I will turn it over to you.
Thank you John and good morning to everyone. I am going to commence my presentation with a discussion on the second quarter consolidated results of the company. Consistent with the previous quarter of 2014 and comparative quarter 2013 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 equity investment.
For those of you that are following the presentation on our website, I refer you to Slide 5 second quarter consolidated results. As demonstrated and explained on the slide revenue is up 9% on a comparative quarter at 16.5 million versus 16.1 million. Due to increased generation [technical difficulty] as a consequence of this, gross profit increased by 0.7 million to 2.7 million at June 30th.
During the second quarter the company recognized a net equity profit of 2.9 million against profit of 7.2 million for the same quarter of 2013, representing the company’s interest in Toba Montrose, Dokie 1 and the Blue Lagoon.
The decrease in profit was primarily due to a decrease in non-recurring property insurance proceeds at Toba Montrose of 4.1 million in the comparative quarter to 0.8 million in the current quarter relating to the 2012 Montrose Creek [indiscernible].
Other significant changes against the comparative quarters continue to be movements in other income and expenses which improved by 14.7 million against 2013. Such increases predominantly due to non-cash items including the movement in the fair value of the embedded derivatives and bonds payable of 8.1 million due to an increase in the long-term forecast aluminum price.
The additional non-cash movement was a favorable movement in foreign exchange of 6.7 million against the same period of 2013. The end result was a profit before tax of 7.2 million against a loss of 3.9 million in the comparative period.
Moving on to Slide 6 and 7, and also reported in the company’s management discussion analysis, we are demonstrating the company’s net interest in the generation revenue and EBITDA of our operating assets. These numbers reflect the Company’s 66.6% interest in HS Orka, 40% interest in Toba Montrose, 100% interest in Soda Lake and 25.5% interest in Dokie 1.
With performance comparatives reflecting what the net interest would have been if our interest for the comparative quarter at Dokie had also been 25.5%. As shown in the slide, EBITDA revenue and generation decreased on a net interest basis when including 2013 business (interruption) [ph] insurance prices at Toba Montrose. It is worth highlighting however that although generation revenue and EBITDA were down against a comparative quarter Toba Montrose generation was strong in the quarter at 106% of budget.
The following slide on Page 8 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 June 30th against December 31st, and the Canadian dollar weakening over the same period.
Total assets increased by 60.9 million largely due to spend on Jimmie Creek, the acquisition and subsequent spend on Shannon Wind including a 10.1 million for the Shannon interconnection security deposits. Offset by a reduction in equity interest predominantly due to the loss of Toba Montrose for the period. Total liabilities increased by 51.8 million due to a 31.5 million drawn revolving credit facility and an increase in accounts payable of 19.7 million predominately due to the increased construction activity at Jimmie Creek. During the quarter and subsequent period the company continues to finance the construction of Jimmie Creek with the close of project finance expected later in 2014. Such an increase in liabilities had a knock on impact on working capital particularly as the revolving line of credit is classified as provide short term as it is payable on or before January 1, 2015.
Lynda I think it’s safe to say this, do just I jump in there, that if we were to publish these statistics today after we close this financing it would be substantially different.
Absolutely. So as previously mentioned by John and Ross the company is facing out today that it has secured a holding company level financing. Funds from the initial transfer which were expected before the end of the week will be used in part to repay the revolving line of credit installed. Remaining funds will be used to continue to fund Jimmie Creek until financial close, where amounts paid in excess of the company’s equity contribution will be returned.
The final slide I will talk to is on page nine long-term debt. As of June 30th the company’s net interest in long-term project debt was 284.4 million. This represents 169 million Toba Montrose, 38 million of Dokie 1 and 77 million of HS Orka. During the quarter principal repayments of 3.5 million remains predominately against the HS Orka debt. In accordance with the credit agreement at Toba Montrose no principal repayments were made in the period. Interest payments of 3.9 million were made in the quarter reflecting 2.6 million at Toba, 0.7 million at Dokie and 0.6 million in HS Orka.
In addition to project debt the company also holds 127.3 million in long-term bonds that were assumed and [indiscernible] from the holding of HS Orka and 31.5 million in the revolving credit facility. Interest paid on the line of credit in the quarter was 0.7 million. Now interest is due on the long-term bonds in the quarter.
That concludes my update on the second quarter results and I’ll now hand it back to John.
Thanks Lynda. Again after the primary presentation Lynda will be around to answer any questions for the financials that you may have. With that let’s take a look at our operations. We’re going to start with Toba Montrose, our primary hydro asset and where we had a really quarter. Jay?
Thanks John. Referring to slide 10 Toba Montrose had a very successful second quarter producing 242 gigawatt-hours of energy and achieving a 106% of our forecast generation. July and August are also our forecast of July 103% and August at 107% of forecast generation to-date. Our crews continue to operate the plan safely within our environmental commitments and there are no significant operating issues at either of the facilities.
In the second quarter we settled our insurance claim with FM Global for the rockslide repair and obtained an insurance policy with substantially the same coverage as was in place prior to the rockslide at a significantly lower premium. With this new insurance in place our credit agreement has been amended to remove the waiver which is allowed for project distributions to resume. This puts rockslide event fully behind us and we’re looking forward to continued steady operation of the facilities. That’s all I have for TMGP John, back to you.
Thanks Jay. With that let’s go to the wind side and Paul would you please tell us about Doki 1 this quarter?
Okay. Thanks very much John. I’ll direct everyone to slide 11 which deals with Doki. The Dokie wind farm performs slightly below plan for the first half of 2014 producing about 161.8 gigawatt-hours electricity or 86% of the budgeted generation primarily due to lower than planned wind. The Dokie wind turbines did perform well in the first half of the year in the balance of planned equipment also performed well and we had significant equipment issues. In mid-July a large forest fire the [indiscernible] fire came quite close to the Dokie facility. The fire did not reach the Dokie site and none of our assets were damaged. Dokie was shut down as a precautionary measure for approximately 48 hours when the fire was at its closest point and [indiscernible] normal services to fire activity moved north of the area. The BC forest service continues with fire mop up activity in the area but the danger to Dokie site has largely cut off.
And with that I will move on briefly to our geothermal operations directed at slide 12 for Soda Lake. At Soda Lake we plan to perform very well, year-to-date and generate 96% of budgeted generation in Q2. A pump replacement was carried out in May in well 84B33 and the larger pump was installed and that has resulted in approximately 500 kilowatts of increased plant capacity and that has contributed to higher than budget production through July and into August.
Moving now on to slide 13 in Iceland at our [indiscernible] Reykjanes plant, both [indiscernible] Reykjanes performed well in Q2 2014 and year-to-date and production in Q2 was 101% of budget or 312.9 gigawatt-hours. The primary focus of [indiscernible] plants was [indiscernible] into the Reykjanes geothermal field a work over or rehabilitation of existing well are [indiscernible] completed and the well was currently heating up prior to flow testing and reconnecting to the plant in late August. And we're anticipating that it will provide approximately 4 megawatts of (used steam) [ph] to the plant. We're discontinuing on tracer testing which confirms connection between the various wells at site and will allow us to complete the final design of the plant reinjection program. The program will continue to provide ongoing pressure support to the existing field.
That’s all I had John. I will pass it back over to you now.
Thanks Paul, appreciate that. Turn everybody’s attention to Slide 14, we’re now going to discuss our growth projects as we come towards the end of the first part of the presentation here. First we’re going to talk about the Jimmie Creek hydro project. And just this last Monday two days ago we took most of our Board of Directors up to the site and don’t forget that at our Jimmie Creek site it is just adjacent to our Toba Montrose site, which is very good for the construction of the new projects, it will share synergies of course with the Toba Montrose project. The Board visit went extremely well.
Jay Sutton our Head of Hydro led the trip. At this point I’d like to bring him back to the presentation just to describe what you’re seeing in the picture there and to give us the construction highlights on the slide.
Thanks John. We’re making great progress on the Jimmie Creek site. All of the major project construction contracts have been executed and work on site is well underway. In the second quarter we completed construction of the roads and bridges that access the power house and intake and commenced work on the penstock alignment and powerhouse site. By the end of August we expected the main camp construction will be completed and we’ll be installing the first sections of penstock and placing concrete at the powerhouse, which is what you see in the picture on the slide.
We have a great group of local contractors performing the work and we’re very pleased with the progress to date.
On the financing side we’re working with our lenders and are targeting financial flows by the end of August.
The financing is going well for this; we think it will be our next project to close before the Shannon project. So well underway and as we’ve also indicated there and previously [indiscernible] which is good partner in British Columbia at both Dokie and Toba Montrose will also be our 49% partner here at the Jimmie Creek project. So all set to go at Jimmie Creek, full contingent of construction work is on site, we’re very excited about the progress there.
With that let’s talk about the Shannon Wind project. You recall that we started on site construction there at the end of 2013. That was to make sure that we would lock in our production tax credits which we did. We also placed this quarter additional interconnection security. We now have $10.1 million of interconnection security in place. That security is refundable to us upon the closing of the project financing.
We have many major contracts executed for this project or in final stage, we’re also working with financing parties, documentations and diligence, so there is really a lot of activity around the office on this project and that will continue until we close it which we intend to do later on in the year.
With that let’s turn to Slide 16; where I’ll briefly just mention our geothermal partnerships around the world. First and foremost in Chile the Mariposa project which is our premiere project and we think maybe the premiere geothermal project in South America. We’ve stopped construction activities for the winter and we are still planning fully to engage in our large diameter drilling program in the summer of 2015 that means November in South America.
So planning is fully underway for that and we’re in close engagement with our partner EDC as we plan our next stage activities. As a reminder they’re funding 100% of the next up to $58 million in that JV to fund those next stage activities. Photograph on the right of side of the slide you see there, is a camp site there which we recently brought into full preparation for those upcoming activities.
In Peru we’re planning our next steps also with our partner EDC, and in Italy we’re also making plans for modest field work there with our good partner Graziella Green Power.
The last slide in the presentation that we'll talk through is just our growth asset slides. Slide number 17, I won’t got through these item by item other than to say that I could give you good anecdotes and good conversations we’re having around several of these assets. So these will be some of the assets from the future that you’ll see jumping up in to prominence as we continue to move the company forward. Some of these will be the assets you’ll see after Shannon and after Jimmie Creek.
With that I’d like to turn it back to you Ross.
Okay John thank you very much. I think you’ve covered the company pretty well in what we’re doing here as have the rest of the team, so I think we’ll just go straight to questions. Thank you operator.
Thank you. Ladies and gentlemen we will now begin the question-and-answer session. (Operator Instructions). Your first question is from Jeremy Mersereau, National Bank Financial. Jeremy please go ahead.
Jeremy Mersereau - National Bank Financial
Just wondering if you could touch on the total equity requirement, you think you’ll need for both the Jimmie Creek and Shannon.
All in under our current base case, just can give you rough and round numbers which are pretty accurate and Jimmie Creek is going to about 30 million totaled into the project financing and Shannon is going to be for 50% about 65 million. So those are our two sales right now Jimmie.
You didn’t mention John on Shannon we have considerable flexibility and decrease in that amount if you decide to.
That’s right we have a private equity infrastructure fund who is our partner there, we haven’t yet announced who they are, but the agreement that we have with them is that if we want to put in less than that amount, we certainly can. They want to put all the money they can into it, it’s just a matter they want at least 50% of the project. At this point in time our base case is 50% ownership.
Jeremy Mersereau - National Bank Financial
Okay. And you did talk about having some sort of long-term hedge PPA or PPH in -- how exactly will that work? And wondering when we’ll have a better idea of what the revenue EBITDA will be?
Yes, well it is a long-term hedge that we have fully negotiated and documented all but the signatures. Signatures will come at the closing of construction financing and the thing about a hedge is that the price moves on it every single day, there is activity in car markets, there is activity in gas markets, all of those things effect what the price of the hedge.
Fortunately the price of the hedge has moved up a bit this year, so we’re very pleased with where the pricing is at this time. That PPA or that hedge which is similar to a PPA will have a 13 year agreed tender from the point of commercial operations and it will hedge about three-fourth of the power that we will sell. About 25% of the power that we sell from that project will be sold directly into the Texas merchant market, which I’ll mention by the way the Texas merchant market is one of the more attractive places to have a project these days, it is a very liquid market, it is a growing market, it has narrow reserve margins so it’s a place where we are happy to be Jeremy.
Jeremy Mersereau - National Bank Financial
And I guess back to -- when do you think we'll get a better feel for the revenue and EBITDA, is that kind of a financial close as well?
I had thought that we had made an earlier indication on that, so we’ll have to show you that a little later.
Jeremy Mersereau - National Bank Financial
Yes, I will give you the rough number of EBITDA up at around 10 million a year.
Jeremy Mersereau - National Bank Financial
Okay. Just getting to the distributions, you got another one from Blue Lagoon, wondering what that should be looking like over the year in addition to the ETN distribution you got one in, or you expect to get one I believe in Q3, should we expect one in Q4 as well?
Yes, I’ll take that one. Firstly with regards to Blue Lagoon, I would expect that for the foreseeable future the distribution will be similar to the distribution we see this year. Blue Lagoon continues to be a very strong performing asset. So I would expect distributions at least a minimum the same since they currently are.
With regards to the Toba distributions, we’re anticipating that that will come through in the next week to two weeks witnessing the final stages of really fundraising that, that the amount has been confirmed. So Alterra will receive 7.6 million Canadian that will now that we have closed the Orka financing as John mentioned earlier that will now flow through the Orka financing, so we would actually expect to receive that money or a portion of that money in November when it comes out of the (workflow) [ph] we have for Orka and then with regards to further distributions we are accepting further distributions from Toba and Dokie around the end of the year sort of at the end of Q4 beginning of Q1 nest year and those amounts are still to be finalized, does that answer your question.
Thank you. Your next question is from Aram Fuchs, Fertilemind Capital. Aram, please go ahead.
Aram Fuchs - Fertilemind Capital
Yes, regarding Shannon, can you go over how the dynamic is going to work between the tax equity partner and the cash equity partner and if is the infrastructure fund, the tax equity partner are they taking some of the cash equity, some more info should be helpful there.
Sure, I appreciate the question I can give you a few of those details. The infrastructure fund will be a cash equity partner just like we will, we will essentially share exactly the same economics. With respect to the structure between the cash and the tax equity, I really can’t give you much detail there, because we’re actually still working out a few of those details. The one thing I will tell you is that its most likely we will have a consistent set of cash flow across the 10 years, i.e. pretty smooth allocations rather than older tax equity deals where you saw cash allocations go for a few years and then bottom out to almost nothing. That’s not the way we’re structuring this deal, that’s about all the color I can give you on that Aram.
Aram Fuchs - Fertilemind Capital
Okay. And then events on the growth opportunities you could give some anecdotes, I was wondering if you can give us details on the demand side of the BC power market what you are seen there, that seems to be the key variable in all these former plutonic project, what are you seeing in terms of LNG and some of other elements that affect demand?
Very good I’ll take this, and really the bottom line is very unsettled right now. It's something we are keeping a close watch on, the LNG business is coming down the pipe like a juggernaut, there is 13 opponents now, several are well advanced, some have contracts to sell the LNG in Asia and some don’t but there are multiple of these that are likely to be proceeding in the next -- it might take a few years. At this point in time BC Hydro does not have demand from this sector in its projects because none of the projects are [indiscernible] enough for them to do that. The other thing is they don’t know whether it’s going to be an electric drive or a gas driven business, the performance by and large trying to have the argument that they control their own gas supply and they want to have gas driven compressors in the amount of the power that’s needed for compression into liquefied state of the natural gas.
There is also a lot of power that will be needed for transmission for regional communities for the employment based services required and the pumping at the well heads. But none of this is factored, I don’t think in to BC Hydro’s projections. So the debate is both a principle debate of whether you use natural gas to drive the business or use electricity which in BC's case is clean electricity from hydro and we have an abundant or hydro or wind for example, we have an abundant hydro wind, we have an abundant pipeline and a number of other companies have a great pipeline of projects that could feed into increased electricity demand for this business and we’re hoping that that’s the way BC Hydro goes and the BC government goes.
I except with no uncertainty and then -- but even if gas is used as the power drive for the business we think there is going to still be a significant amount of new power required in BC over the next five to 10 years. That’s got to work its way into projections then that has to move into a call for power by BC Hydro, when that happens we are absolutely going to be there ready and willing to proceed with multiple projects to see this new electricity demand in the progress.
[indiscernible] to be for many of this that we think all of the forces are lining up very, very, very actively right now and in the next certainly 12 months we think a lot of resolution will happen on this and we hope it will come our way that will provide real value to a lot of our development projects.
Aram Fuchs - Fertilemind Capital
Ross one other follow up, in the past you have mentioned that the goal for Alterra is to be a dividend producing IPP obviously you have had some growth opportunities where you have been consuming capital. Can you just talk about how you look at it as a shareholder when you look to balance growth to the inevitable goal of dividend producing company.
For sure, we are still in the development stage as a company. We are still trying to build the scale needed for us to reduce our cost of capital so that we can compete with larger players, over constant capital and evolve from a kind of a development status right now with non-dividend payment, development/operator status to a full on significant power company, I am going to say producing more than 1,000 megawatt at least and having a free cash flow to justify a significant dividend for our shareholders. That is absolutely the medium term target I am going to say and with the share price where it is right now our equity cost to capital is extremely high, we’ve elected to forego the dividend route today using cash flow from the BC assets in favor of eliminated our need to finance our growth to sale of share capital instead doing the Holdco financing, that’s why we did it.
It’s a significantly lower cost of capital for us in doing the equity issuances at these share prices. So we’re hoping that there is going to be re-adjustment in our share prices one of these days and when that happens it will be more on par with the industry and particularly if the wind start blowing again in favor of renewable energy public companies such that we can actually do an equity issuance that would allow us to finance some of our growth and then take the free cash flow and pay dividends as opposed to putting it back into the Holdco Financing.
And that could even mean using equity finance to reach to pay down some of our debts so we free that cash flow to pay dividend. But it’s definitely in our cards still and we hope -- we just can’t wait to get there.
Thank you. (Operator Instructions). Your next question is from Mike Plaster, Salman Partner. Mike please go ahead.
Mike Plaster - Salman Partner
Just to talk about HS Orka for a second. You had some discussion in the MD&A about breakdown of talks with overall and start up some arbitration proceedings. Could you elaborate on that a little bit please?
No as we publicized several times in our financials we have been having talks with Century/Nordural for some time to try to work something out, try to get to some mutual ground of understanding. We did finally came to a point of saying that we’re going to end these discussions for now and you have seen we have filed arbitrations in July to establish the validity of the contract. We think it’s time to do that, we think the time was right. So conversations have stopped and that’s where we are.
Mike Plaster - Salman Partner
Okay, and if you don’t go route with the Nordural KPA, what other options would you have for uptake from the [indiscernible] expansion?
Yes I’ll start with that and Ross may jump is as well. It’s actually a very positive outlook these days, we hadn’t publicized it separately but we just signed a nice smaller PPA with a server firm Company that is housed in Iceland and other market indicators and market prices realized actually are moving up. So the market in Iceland is looking more promising these days.
Thanks John I would actually [Oscar] are you on the line? We have the CEO of our HS Orka business who should be on the line here and I’ll just going to ask him if he could provide some commentary on the Icelandic power market but he did have some earlier problems dialing in, so he may not be able to get on the call. So I'll reiterate what John said, the Icelandic market right now is very much a sellers' market, power prices are going up in a very favorable way to us. So our view has always been that the Nordural contract is no longer valid because the conditions in the contract are impossible doing that for profitability particularly under the conditions on the contract. And so we’d like to have a declaration and arbitration as the contract is down and out. That will free us up to enter into other markets to the extent that we can supply more power in Iceland.
Mike Plaster - Salman Partner
Okay. And just in terms of how we should be sort of thinking about it and modeling it I mean I realize you’re doing some additional testing on the resource but should we still be kind of thinking about a 80 megawatt expansion and if you go a different route with it obviously and in terms of the timeline I think are we still reasonable to look at say mid-2017 or something that could be feasible?
I would hold up on those projections, because what we’re doing in the company is having a complete rethink of all of the power market that in capacity we have to feed into the potential expansion production, different places, different reservoirs, different wells and we are instituting a major reinjection program as well to try to stabilize the production at specifically the Reykjanes plant which is declining a little bit more and then luckily we’re making it up -- more than making it up in the starting the operations which is producing beautifully. So we’re doing a lot of technical work right now to answer those questions ourselves as to what -- where we should be expanding from, how we should be doing it, what it's going to cost us to do it and that work is in progress well at the same time we’re kind of dealing with the existing Nordural situation.
In process one of the reasons why Paul Rapp our Head of Geothermal Operations is over in Iceland right now, because it is a very important issue to us. And so we work very closely with our Iceland company and that's what's he's doing now.
Thank you. There are no further questions at this time. Please proceed.
If there are no further questions, we don’t need to talk anymore. Thank you all for joining us again today and thanks to everybody around the table here and on the phone and with that we’ll end the call. Thank you again.
Thank you. Ladies and gentlemen, this concludes your conference today. We thank you for participating and ask that you please disconnect your lines.
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