Maxim Power Corp. Receives Arbitration Decision for Coal Supply Agreement and Issues 2010 Guidance
May 25 2010 - 8:01AM
Marketwired Canada
Maxim Power Corp. ("MAXIM" or the "Corporation") (TSX:MXG) announced today that
it has received an arbitration decision relating to the dispute between its
wholly-owned subsidiary, Milner Power Limited Partnership ("MPLP"), and Coal
Valley Resources Inc. ("CVRI") regarding the price MPLP pays for coal purchased
from CVRI.
Arbitration Decision
To date, MPLP's supply of thermal coal to its HR Milner Facility has primarily
been sourced from a CVRI mine located in Hinton, Alberta. In July of 2008, MPLP
exercised its option to extend the term of the coal supply agreement for an
additional five years expiring on December 31, 2013. CVRI was of the view that
they had the right to initiate a price review for the extended term and
requested the price for coal be increased above the price provided for under
escalation provisions of the agreement. An independent arbitrator was appointed
to consider the matter and rendered two concurrent decisions. The arbitrator
firstly decided that a price review was warranted and secondly established the
price that MPLP is to pay for coal purchased from CVRI effective February 1,
2009. MAXIM is providing guidance to apprise investors of the impact of this
decision. MAXIM has a number of options available to mitigate the effects of
this higher price in 2010 and beyond including alternative sources of coal
supply and development of its Mine No. 14 (see below).
Guidance
MAXIM is issuing guidance for its projected 2010 results. This guidance is
considered to be "forward looking information" and is subject to important risks
and uncertainties. Refer to Forward Looking Information below.
Maxim Power Corp. Projected 2010 Results
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For the year ending
($000's, except per share amounts) December 31, 2010
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EBITDA (1) 40,000
Funds from operations (1) 30,900
Fund from operations per share - basic and diluted (1)(2) $ 0.57
Net income
- Net income excluding 2009 portion 8,800
- Impact to 2010 net income for 2009 coal purchases (4,300)
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- Net income 4,500
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Net income per share - basic and diluted (2) $ 0.08
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(1) The following measures are not measures under Canadian Generally
Accepted Accounting Principles ("GAAP") and may not be comparable to
similar measures presented by other companies. Refer to the
reconciliation to Non-GAAP measures below.
- EBITDA is a measure of earnings before interest, taxes, depreciation
and amortization.
- Funds from operations is a measure of cash flow from operations before
working capital requirements
(2) Per share amounts are calculated in accordance with per share data
provided in the assumptions
Net income presented above includes the full impact of the coal contract
arbitration decision. The total impact of this decision is a reduction in net
income of $8.8 million, $4.3 million of which relates to coal supplied from
February 2, 2009 to December 31, 2009 and $4.5 million of which relates to
forecast 2010 coal supply.
These projections are based on MAXIM's existing portfolio of assets, do not
include the impact of possible acquisitions or commercialization of development
initiatives, and are based on the following assumptions:
Maxim Power Corp. Assumptions for 2010 Projected Results
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For the year ending
($000's, except as otherwise noted) December 31, 2010
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Electricity deliveries (MWh) 1,341,900
HR Milner 961,100
Other facilities 380,800
Net generation capacity at year ending (MW) 809
Capital expenditures (excluding acquisitions)
France repowering and peaking facilities 7,300
Development projects 3,500
Other assets 2,100
HR Milner 1,200
Average 2010 Alberta spot electricity price ($/MWh) $ 64.00
Average annual foreign exchange rates
C$/USD $ 1.01
C$/Euro $ 1.36
Weighted average shares outstanding (000's) 54,030
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The 2010 forecast is subject to, among other things, spot electricity prices in
Alberta. A $1.00 per MWh increase in the average Alberta spot electricity price
for the balance of year commencing June 1, 2010 will increase 2010 EBITDA by
$531 thousand, funds from operations by $531 thousand and 2010 net income by
$490 thousand with corresponding changes to per share amounts. A decrease of
$1.00/MWh has the opposite effect on EBITDA, net income, and corresponding per
share amounts.
The 2010 forecast assumes all sales of HR Milner generation output are at
Alberta spot market prices. In France, the cogeneration season ended on March
31, 2010 and a new season begins on November 1, 2010. MAXIM continues investing
in its development initiatives related to its Mine 14, Milner Expansion,
Deerland and Buffalo Atlee projects. In addition, the 2010 forecast assumes
turnaround maintenance will be carried out at HR Milner over a fifteen day
period in Q2, 2010.
Mine 14
As previously announced in December 2009, MAXIM obtained approval of the Energy
Resources Conservation Board ("ERCB") and authorization of the Lieutenant
Governor in Council for the permit to develop the Milner No. 14 coal mine. MAXIM
is currently reviewing options for construction and operation of the mine
including bringing in a third party investor or partner. In this regard, MAXIM
is evaluating various alternatives to capitalize and operate the mine. MAXIM
anticipates that development of the mine will commence once key commercial
arrangements necessary to support development have been concluded.
Reconciliation of Non-GAAP Measures
Funds from Operations ("FFO")
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($000's, except per share amounts)
Cash flow from Operations 4,700
Changes in Working Capital 26,200
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Non-GAAP measure - FFO 30,900
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EBITDA
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($000's, except per share amounts)
Net income for the year 4,500
Income taxes 3,600
Interest expense 5,900
Depreciation and amortization 20,500
CVRI arbitration settlement - coal purchased in 2009 (pre-tax) 5,500
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Non-GAAP measure - EBITDA 40,000
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Forward Looking Information
Certain information in this press release is forward-looking and is subject to
important risks and uncertainties. The results or events predicted in this
information including the aforementioned guidance for 2010 and prospects
relating to capitalization and operation of Mine 14 may differ materially from
actual results or events. Factors which could cause actual results or events to
differ materially from current expectations include the ability of the
Corporation to implement its strategic initiatives, the availability and price
of energy commodities, government and regulatory decisions, plant availability,
competitive factors in the power industry and prevailing economic conditions in
the regions that the Corporation operates. Forward-looking statements are often,
but not always, identified by the use of words such as "anticipate", "plan",
"estimate", "expect", "may", "project", "predict", "potential", "could",
"might", "should" and other similar expressions. The Corporation believes the
expectations reflected in forward-looking statements are reasonable but no
assurance can be given that these expectations will prove to be correct. These
forward-looking statements speak only to the date of this press release. The
Corporation disclaims any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise except as required pursuant to applicable securities laws.
Readers are cautioned that management's expectations, estimates, projections and
assumptions used in the preparation of such information, although considered
reasonable at the time of preparation, may prove to be imprecise and, as such,
undue reliance should not be placed on forward-looking statements.
About MAXIM
Based in Calgary, Alberta, MAXIM is an independent power producer, which
acquires or develops, owns and operates innovative and environmentally
responsible power projects. MAXIM currently owns and operates 44 power plants in
western Canada, United States and France, having 809 MW of electric and 117 MW
of thermal net generating capacity. Approximately 80% of MAXIM's current
portfolio is comprised of clean burning natural gas, high efficiency
cogeneration, waste heat and landfill gas fuelled generation. MAXIM trades on
the TSX under the symbol "MXG". For more information about MAXIM, visit our
website at www.maximpowercorp.com.
Statements in this release which describe MAXIM's intentions, expectations or
predictions, or which relate to matters that are not historical facts are
forward-looking statements. These forward-looking statements involve known and
unknown risks and uncertainties which may cause the actual results, performances
or achievements of MAXIM to be materially different from any future results,
performances or achievements expressed in or implied by such forward-looking
statements. MAXIM may update or revise any forward-looking statements, whether
as a result of new information, future events or changing market and business
conditions and will update such forward looking statements as required pursuant
to applicable securities laws.
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