TIDMINFA
RNS Number : 3939L
Infrastrata PLC
19 April 2018
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulations (EU) No. 596/2014 ("MAR"). With the
publication of this announcement via a Regulatory Information
Service, this inside information is now considered to be in the
public domain.
19 April 2018
INFRASTRATA PLC
("InfraStrata" or the "Company")
Project Update
The Board of InfraStrata (LON: INFA), the UK quoted company
focused on development of strategic gas storage capacity, is
pleased to provide an update on the Company's 100% owned gas
storage project in Islandmagee, Northern Ireland (the "Project" or
"Islandmagee") and also to set out the current status of the
Project's development and work to date.
Highlights:
-- Strategic milestones established for the Company, its Board
and senior management team with an overriding focus on expediting
the prospective revenue generation of Islandmagee;
-- The Front End Engineering and Design ("FEED") is a key step
in the Project's development and the Company has recently announced
that it has secured the funding arrangements to enable the Company
to commence and complete the FEED and will have sufficient general
working capital until the end of 2018 upon completion of the
placing announced on 4 April 2018 (the "Placing"), which is subject
(inter alia) to the passing of resolutions at the General Meeting
on 25 April 2018 (the "GM");
-- Once the Placing completes, the Company will have achieved
the milestone of raising sufficient funds for the FEED to match the
European Union Connecting Europe grant, enabling up to EUR4,024,000
of grant funding to be accessed by the Company, of which
EUR1,600,000 has been received in cash by the Company and is
currently held in escrow pending release against verified FEED
expenditure, with the balance to be paid in instalments after
satisfactory completion of each FEED stage;
-- Finalisation of formal contract agreements with key FEED
contractors is nearing completion and FEED commencement is expected
to be announced shortly;
-- A Project Concept Evaluation Study ("PCE Study") was
commissioned by the Company in early 2017 to evaluate and define
the key technical requirements and design parameters for the
FEED;
-- Interpretation of the PCE Study findings by the Board and
advisers demonstrates advantages through project phasing and,
specifically, completion of the Project in two cavern increments
enabling potential earlier revenue generation;
-- Independent verification work undertaken by an international
consultancy firm demonstrates a robust return on investment from
the Project with a baseline internal rate of return ("IRR") of 12%,
with potential for further improvement in certain scenarios,
including access to additional grant funding and an extension to
the operational life of the Project;
-- The Board is assessing opportunities for additional grant
funding and believes, based on work undertaken, there is potential
for a 40 year operational life compared to the 20 year life upon
which the Project economics have been modelled to date; and
-- Detailed discussions continue with construction financing
providers in respect of Project level finance. A number of
providers have expressed a conditional interest in taking a
substantial Project level equity stake in Islandmagee's
construction financing, subject to completion of due diligence and
terms being agreed.
Adrian Pocock Chief Executive Officer of InfraStrata plc,
commented: "This announcement demonstrates the extensive work
undertaken to date to move the Project forward. We are grateful to
all those parties that have helped us achieve the milestones to
date, including advisers, private and public organisations and our
shareholders.
The PCE Study report was intended to prepare the Company for the
commencement of the full FEED and has highlighted a number of
positive design developments to enhance the Project and to
potentially expedite first revenue generation.
The Board is now finalising matters ready for commencement of
the FEED, an extremely important step in the Project's development.
Concurrently, we are also advancing discussions with construction
finance providers for potential project level financing.
After extensive work within the Company, we are now in a strong
position to advance the business and generate shareholder value in
a real sense. Our business momentum is gathering pace and I look
forward to updating shareholders further."
Strategic Milestones
The Company's Board recognises that shareholders are eager to
see a clear definitive plan to drive the Company forward and
realise value from the Islandmagee project.
As a result, and in line with reasonable expectations when
seeking to bring a major infrastructure project through final
development and into the commercialisation phase, the Company has
established the key strategic milestones for the Company, its Board
and the senior management team members. Similar milestones will be
included in contracts with third party suppliers and consultants to
ensure the Company remains on track with its key operational and
strategic objectives.
As an outline, the milestones cover the following areas:
- Commencement of FEED as soon as possible and completion by Q4
2018, in line with grant timetabling requirements (see below);
- Successful conversion of existing grant allocations received
by the Company into cash and the application for, and securing of,
all available additional grant allocations over and above those
announced to date within Q3 2018;
- Provide a meaningful update on agreements to be negotiated
with gas storage/traders and construction finance providers at a
project level during Q3 2018;
- Provide updates of refined Project economics based on
optimised project phasing, design maturation and commercial
agreements during second-half of 2018.
- Issue of tender documentation for the project construction
phase in Q4 2018, in line with completion of FEED;
- Selection of contractor(s) for project construction Q1 2019; and
- Achieving Final Investment Decision point, confirming the
decision to proceed to Project construction, including all required
project construction finance agreements, in Q2 2019.
Financing
FEED funding
As previously announced the Company was awarded a grant from the
EU Connecting Europe Facility, providing up to EUR4,024,000 in
grant funding towards the cost of the FEED phase and in-situ
downhole testing programme, subject to the Company receiving match
funding.
As confirmed in the Company's Strategic Fundraise announcement
on 4 April 2018 and with the completion of the Placing (which is
subject, inter alia, to the passing of the resolutions at the
Company's General Meeting on 25 April 2018), the Company will have
raised the funding to enable the Company to commence and complete
the FEED.
Of the EUR4,024,000 grant awarded, EUR1,600,000 has been
received in cash by the Company and placed into a holding account
pending commencement of the FEED wherefrom, subject to normal grant
allocation procedures, the monies will be released to the Company
against confirmed FEED expenditure.
Under the terms of this grant certain activity milestones are
expected to be met including completion of the FEED engineering
report by 28 September 2018 and completion of the FEED by 20
December 2018. Upon satisfactory completion of milestones required
by the grant, the balance of grant monies would be expected to be
released to the Company soon thereafter.
Construction Finance
The Company has actively engaged with a number of potential
finance providers to secure project level finance for the
construction phase of the Project's development.
The overall Project construction CAPEX was previously estimated
to be circa GBP308 million and of this around GBP100 million, or
one third, would ideally be sourced from project level equity
finance. The work undertaken during the PCE Study has identified a
number of Project enhancements in terms of phased project
implementation that will be incorporated into the construction
finance model. To be clear, this equity finance would be at the
project level and not at the InfraStrata plc level.
Following extensive work undertaken by the Board, a number of
parties have expressed a conditional interest in providing this
project level equity finance subject to completion of due diligence
and terms being agreed.
The remaining debt proportion of the Project's construction
finance is expected to benefit from the UK Government Guarantee
Scheme
(https://www.gov.uk/government/publications/uk-guarantees-scheme-key-documents).
Government support under this scheme takes the form of an
unconditional and irrevocable financial guarantee of scheduled
principal and interest in favour of a lender to an eligible UK
infrastructure Project. The Company has opened dialogues with a
number of potential providers of debt finance for the Project
construction. These discussions are expected to gather momentum as
the FEED engineering progresses and further definition is produced
on the budget and scope of the next phase of the Project.
Project Concept Evaluation Study ("PCE Study")
The Company has received the completed PCE Study report for the
Project in mid-2017. This study was commissioned in preparation for
the FEED to evaluate the concept of value enhancement on the
current design basis and to define the key technical requirements
and design parameters for the FEED.
The report highlights the importance and commercial benefits of
phasing the Project. The report also clarifies a number of
technical areas and shows a potential improved level of
profitability, when compared with earlier assumptions.
On the basis of the PCE Study report and the findings gained
from discussions with key prospective stakeholders, the Board
intends to follow the recommendations in the PCE Study for the
Project to be completed in incremental sections. The Board intends
to work towards developing two caverns at a time (eight caverns in
total, as originally planned) to seek to achieve the following:
-- securing commercial tenants for the caverns in advance of incurring costs (see below);
-- reducing the time to first revenue from the Project;
-- take advantage of the proposed project to allow reverse flow
of the Scotland Northern Ireland Pipeline in the event that it is
completed before maximum storage capacity of the Project is
completed and available; and
-- align the pace of the debt facilities with the forecast revenue streams.
The Board intends to issue further announcements relating to the
technical elements of the Project as the FEED process
progresses.
Project Commercialisation
A key objective for the Project is the successful
commercialisation of the underlying asset. The Board has carefully
considered the strategic market positioning of the Project, to
identify the major companies operating in the market and to
ultimately plan towards ensuring the best design to ensure that the
facility is beneficial for all stakeholder and interest groups.
In this regard the Company has been in dialogue with many
finance providers, gas storage operators, potential investors and
Government-backed organisations. Following more detailed dialogue,
a number of potential partners are now in the process of carrying
out due diligence on the Company and the Project.
Each of these potential partners has a different commercial
proposal and the Company is in the process of evaluating each and
negotiating terms, with a view to maximising the potential benefits
to shareholders. The Board intends to conduct a final appraisal of
all the available funding solutions and commercial partners before
finalising its decision on which option to proceed with.
The outcome of this extensive work suggests that the Project has
three primary routes to commercialisation which are not necessarily
mutually exclusive:
1. Letting caverns on a long-term arrangement to a gas trading company or companies;
2. Letting caverns to the Government to ensure it has a
strategic reserve supply of gas in storage to meet demand spikes in
periods of high demand; or
3. For the Project's operator to purchase and trade gas via the facility as principal.
Based on the above, the Company is in negotiations regarding the
terms of potential leases for the facility. The Company has also
entered into discussions with the Government regarding the
potential longer-term implications of the gas storage market and
the important role that the Project could facilitate, an aspect
that may yet gain traction as a Government priority.
The Company, at this stage, has evaluated and discounted the
possibility of it purchasing and trading gas from the facility. It
was felt that this would be a distraction from the important task
of securing Project finance and constructing the facility. However,
a major advantage of an incremental approach is that the Project's
operator can re-visit the decision regarding whether to trade gas
once the facility is operational and generating revenue with its
first tenant.
What has emerged from the Board's discussions to date is that a
smaller initial facility with a rapid turnaround from injection to
withdrawal is what the market requires. The feedback from the
Company's discussions with industry stakeholders suggests that this
would also be desirable to the gas trading market.
Project Return on Investment
The Company has been working with an international consultancy
firm to ensure an independent verification of the Project's
prospective return on investment.
The results of the independent review and modelling of the
Project demonstrate that the baseline IRR for the Project fully
constructed, as modelled, is 12%, which the Board believes to be in
line with a reasonable estimate of an industry average IRR. This is
a strong baseline outcome for the Project.
Notably, the independent review and modelling of the Project
demonstrates that there is potential for substantial upside in the
Project's IRR in certain scenarios, which includes if the Project
receives significant levels of additional grant funding and an
extension to the operational life of the Islandmagee facility.
The Board will continue to work with grant agencies to identify
further opportunities for significant grant funding for which the
Board considers the Project may be eligible, reflecting the
strategic significance of the asset.
Furthermore, the Project has previously been modelled and
internal returns determined based on a 20-year operational life,
but the Directors believe that on the basis of the extensive
technical work undertaken, there is a solid argument for the
facility having an actual life of 40 years. If a 40-year life is
used for the Project's financial modelling, then this is expected
to lead to a substantially increased IRR.
Further information will be announced regarding Project
Commercialisation as material developments occur.
For further information, please contact:
InfraStrata plc c/o Yellow Jersey
Adrian Pocock, Chief Executive +44 (0)20 3735
8825
-------------------------------------------------- -------------------
Allenby Capital Limited (AIM Nominated Adviser
& Joint Broker) +44 (0)20 3328
Jeremy Porter / Alex Brearley / Liz Kirchner 5656
-------------------------------------------------- -------------------
SI Capital Limited (Joint Broker) +44 (0) 20 3871
Nick Emerson 4038
-------------------------------------------------- -------------------
Yellow Jersey PR (Financial PR / IR)
Tim Thompson / Sophia Macleod / Henry Wilkinson +44 (0)7710 718
Infrastrata@yellowjerseypr.com 649
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-ENDS-
The Front End Engineering & Design (FEED) and Insitu
Downhole Testing programme for the Islandmagee gas storage Project
is co-financed by the European Union's Connecting Europe
Facility.
Disclaimer releasing the European Union from any liability in
terms of the content of the dissemination materials:
"The sole responsibility of this publication lies with the
author. The European Union is not responsible for any use that may
be made of the information contained therein."
information is available on the Project company's website:
http://www.islandmageestorage.com/.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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