Ram Power Corp. (OTCPK:RAMPF) announced on August 1st that it has reached an agreement with lenders at the International Finance Corporation to convert the Phase II Credit Facility for the San Jacinto-Tizate project site into a term loan. Some insights into the progress in Nicaragua and the operating attitude of the business can be taken from this agreement.
"Under the terms of the agreement, the Lenders agreed to waive the minimum steam requirement set forth in the original agreement and permit the Company to complete its resource remediation program over the next five months. While the Company will not be permitted to receive distributions until the completion of the resource remediation program, the Company will receive administrative fee payments from Project revenues of $0.5 million per month effective July 31, 2013, August 15, 2013, September 15, 2013 and October 15, 2013."
The above referenced distributions are a part of the existing PPA, and the section regarding the "administrative fee payment from Project revenues" imply that Phase 1 is still operational and generating power/payments.
"To expedite the resource remediation drilling program currently in progress, the Company funded $3 million in June 2013 to the Major Maintenance Reserve Account from Project equity. The Company has also agreed to fund from Project equity an additional $2.95 million to the Major Maintenance Reserve Account by December 15, 2013 for other potential resource remediation efforts if necessary. In conjunction with the conversion, the Company from Project equity funded $2.4 million to a reserve account to satisfy certain power purchase agreement obligations not currently met by the off-taker. Once the off-taker fulfills their guarantee requirements under the terms of the power purchase agreement, the $2.4 million will be released from the reserve account and be eligible for distribution to the Company under the Project distribution conditions."
This section demonstrates that Ram is taking the appropriate steps to provide the power they said they would, while hedging their bet to maintain good faith with the purchasers. This also demonstrates the capacity, if need be, for Ram to use "off-takers" (likely conventional oil or coal based energy providers) in the event of an interruption in production.
"Following the completion of the resource remediation drilling program on or before December 15, 2013, the Company will conduct a plant capacity test to be concluded no later than January 22, 2014. The test includes a 30-day stabilization period of the resource field followed by a 7-day performance test to determine the net operating output of the plant. Upon completion of the plant capacity test, the Company is eligible for distributions if it is able to meet certain debt service coverage ratios and other operational requirements."
This vitally important sentence gives a firm date by which drilling and testing should be complete, bringing (assuming all goes well) SJT Phase II online and producing at least 55Mw of power (more in this in a moment).
"Should the plant capacity test result in a net operating output below 55 MW (net), the Phase II Credit Facility will be in default. If the plant capacity test results in a net operating output equal to or greater than 65 MW (net), the $2.95 million Project equity deposited into to the Major Maintenance Reserve Account will be released and be eligible for distribution under the Project distribution conditions, and quarterly contributions to the Major Maintenance Reserve Account will be approximately $1 million per quarter. For net operating output results below 65 MW (net), the $2.95 million will remain in the Major Maintenance Reserve Account for future drilling efforts and quarterly Major Maintenance Contributions will increase by $0.2 million per MW for production levels below 65 MW (net). The Company has the option to re-test the plant capacity at any time and upon any re-test resulting in the plant operating at or above 65 MW (net) will result in the Major Maintenance contributions resetting to approximately $1 million per quarter."
The first line of this paragraph is obviously a red flag, and would spell disaster if the SJT site were to ever fall below 55Mw capacity. This is of little concern, however, since Phase I turbines are already producing 60Mw of power with 99% uptime (this data, along with many other insights, can be found in this fantastic article). The rest outlines the steps to be taken in the event the facility fails to meet the power requirements in the PPA.
"While complex, the agreement provides for a mechanism to ensure a successful drilling program, and the flexibility to provide sufficient funds for our continued efforts to develop the steam resource. The drilling program in Nicaragua is now underway, and we look forward to successful drilling results and the subsequent increase in plant production at San Jacinto."
Ram Power Corp. has converted a credit line being actively used for construction of the Phase II facility into a term loan to be paid once power generation comes online. Until that time, Ram will use off-takers to meet the delivery terms of their PPA, and has set aside a significant fund in the event something goes wrong. If all goes according to plan, the San Jacinto-Tizate will be producing the full 72Mw of agreed upon power by January 22nd, 2014. Perhaps that will be the time institutions begin to take notice of this unique business.
Disclosure: I am long OTCPK:RAMPF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.