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Panax Geothermal Funded To Progress Indonesian Geothermal Power Agreements And Financing

Panax Geothermal (ASX: PAX) has raised A$1.1 million, giving it the working capital to finalise Power Purchase Agreements and project financing discussions for its Indonesian geothermal projects.

The company has already received written advice that execution of the Power Purchase Agreements for both the Sokoria and Dairi Prima projects in Flores and North Sumatra are expected to occur soon.

This will in turn allow it to finalise project financing for the two projects.

Panax and its local partner PT Bakrie Power, which is involved in all the projects, are also close to finalising the Power Purchase Agreement for the larger Ngebel Project in East Java.

Entitlement offer

Shareholders took up applications for A$447,161 worth of new shares priced at A$0.007 each under the renounceable pro-rata entitlement offer, which allowed eligible shareholders to subscribe for one new share for every 2 shares held.

Patersons Securities, which had agreed to partially underwrite the offer will take up 93.26 million shortfall shares for a total of A$652,839.

Proceeds will be used for legal and associated costs of finalising power purchase agreements the Sokoria and Dairi Prime geothermal projects in Flores and North Sumatra, each with planned electricity generation capacity of 30 megawatts.

It will also pay for site infrastructure, environmental studies, transmission line route analysis and for general working capital purposes.

Sokoria and Dairi Prima

Panax and Bakrie are targeting to start electricity production at the Dairi Prima, which will be capable of generating up to 55 megawatts of power, by late 2013, coinciding with the expected start of lead and zinc production from PT Dairi Prima Minerals' Dairi Prima lead/zinc underground mine in North Sumatra.

The joint venture has already reached a binding agreement with PTDPM for the supply of up to 30MW of geothermal power for the mine and will be required to construct a transmission line to do so.

This will involve upgrading the existing Sidikalang Substation, constructing a 24 kilometre transmission line to the mine site, providing the necessary equipment at the mine switchyard in order to be able to deliver power to the agreed interface point with Dairi Prima Mineral.

The Sokoria project in Flores has planned capacity of 30MW. Electricity generated at this project will be sold to Indonesian Government electricity regulator PT PLN (Persero).

Sokoria also has potential to be expanded with a 2008 report completed by the Japan International Cooperation Agency estimating the field had potential to produce up to 90MW of geothermal power.

Electricity tariff's in Flores were recently increased by 20% to US$150 per megawatt hour while Panax expects the electricity pricing at its Dairi Prima project in North Sumatra to increase to $US170 per megawatt hour from the current US$150.

Panax has a 51% stake in Dairi Prima and 45% in Sokoria.

Ngebel

Panax is also earning a 35% interest from Bakrie in the larger Ngebel project, which is located in East Java.

Plans are underway to increase initial generating capacity at the project to 220 megawatts, up from the current phased 165MW development due to the Indonesian Government's growing demand for secure renewable energy.

The partners are also likely to be granted the rights to develop the transmission-related aspects of the Ngebel geothermal project in East Java, giving them an increased electricity tariff as well as increased certainty over the timing and deliverability aspects of the project.

To top it off, tariffs in Java will increase by about 33% to US$120 per megawatt hour.

Analysis

With the funds in hand, Panax will now be able to progress its geothermal projects at a time when the operating environment has become increasingly attractive.

The Indonesian Government's decision to increase the electricity tariff for geothermal projects is a definite positive for Panax by improving its project economics.

This is likely to result in more attractive terms for project financing, which will further bolster the case for investment in the company.

Indonesia, which has some of the richest geothermal reservoirs in the world, has also gone out of its way to promote geothermal power in recent months.

This include the confirmation that geothermal and renewable energy investments would not be impacted by the Indonesian Government's changes to resource ownership laws, a guaranteed feed in tariff of US$97 per megawatt hour, carbon credits and full protection to geothermal projects during exploration and construction.

These are all aimed at securing the investment needed to increase Indonesian geothermal production by 240% over the next four years to more than 4000MW.

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