Magma Energy Corp. - Corporate Presentation - July 2010


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Magma Energy Corp. - Corporate Presentation - July 2010

  2. 2. Caution Regarding Forward-Looking Statements These slides and the accompanying oral presentation contain certain “forward-looking information” within the meaning of Canadian securities laws, which may include, but is not limited to, statements with respect to future events or future performance, management’s expectations regarding our growth, results of operations, estimated future revenues, requirements for additional capital, production costs and revenue, future demand for and prices of electricity, business prospects, opportunities and estimates of recoverable geothermal energy “resources” or “reserves” or energy generation capacities (at either P90 or based on the Geothermal Code for Public Reporting) Such forward looking information reflects management’s current beliefs and is based on information Reporting). forward-looking management s currently available to management. A number of known and unknown risks, uncertainties and other factors, may cause our actual results or performance to materially differ from any future results or performance expressed or implied by the forward-looking information. Such factors include, among others, those discussed in the section of our prospectus entitled “Risk Factors”. These factors should be considered carefully. The forward-looking information is also based upon what management believes to be reasonable assumptions, including, but not limited g p g p g to, assumptions about: the success and timely completion of planned exploration and expansion programs, including expansion and improvements to operations in Iceland and to our Soda Lake Operation in Nevada; the growth rate in net electricity consumption; support and demand for non-hydroelectric renewables; government initiatives to support the development of renewable energy generation; the accuracy of resource and reserve estimation methodology and probabilistic analysis used to estimate the quantity of potentially recoverable energy; geological, geophysical, geochemical and other conditions at our properties; the reliability of technical data, including extrapolated temperature gradient, geophysical and geochemical surveys and geothermometer calculations; capital expenditure estimates; availability of capital to fund exploration development and expansion programs; the differences in financial exploration, results reported under IFRS and Canadian GAAP; and general economic conditions. Forward-looking information and statements are also based upon the assumption that none of the identified risk factors that could cause actual results to differ materially from the forward-looking information and statements will occur. There can be no assurance that the forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, prospective investors should not place undue reliance on y p g y, p p p forward-looking information. Other than as required by applicable securities laws, we assume no obligation to update or revise such forward-looking information to reflect new events or circumstances. 2
  3. 3. Geothermal - What is it? Geothermal is a proven, global, underexploited, base-load, renewable energy source Literally heat from the earth, derived from deep natural magma (molten rock) Requires Heat, Permeability and Water CAPACITY FACTORS FOR RENEWABLE POWER Surface Solar 1 – 3 km Wind Run of River Drill hole  D ill h l Geothermal depths 0 25 50 75 100 Percentage Source: University of Utah – the Energy & Geosciences Institute (EGI) Source: Canadian Geothermal Energy Association 3
  4. 4. Magma Energy - Strategy & Value Creation Magma’s strategy: broad asset portfolio and scale = “discovery returns” and “utility returns”  Reduces drilling risk and high front-end capital risk  Improves margins with lower cost of capital  Better multiples Portfolio acquisition & discovery highlights:  Nevada: 13.5 MW power plant with 47.5 MW expansion potential p p  Iceland: 98.5% interest in HS Orka’s 2 power plants producing 175 MW with 230 MW expansion potential  Chile: discovery of 320 MW Inferred Resource  Plus a further 21 early stage and 4 advanced stage projects We are a power company and an energy asset holder Income growth and sub-surface capital asset growth Geothermal power can be the lowest cost and cleanest form of electricity generation  Potentially a great cash generator without incentives  Incentives (USA Europe, Chile) greatly improve margins (USA, Europe 4
  5. 5. Magma Energy Corp - Corporate Summary Mission: To build a leading pure play geothermal power company Strong team of explorers, builders and operators Execution: From 2008 startup, the world’s fastest growing geothermal power company 200 1400 175 PRODUCTION  GROWTH 186 1200 GEOTHERMAL RESERVES 1,354 150 & RESOURCES GROWTH 1000 125 800 MW 100 854 1 W  M MW 75 600 84 50 400 25 11 200 0 199 2008 2009 2010 YTD 0 2008 2009 2010 YTD Growing financial strength $60  $25  REVENUE  $20  EBITDA  $50  $15  $15 D  Millions USD $40  $ MILLIONS USD $10  $30  $5  $20  $‐ $10  ‐$5  $‐ $ ‐$10  $10 2 2 3 2 2 3 Jan ‐ Jun /08 July/08 ‐ Dec/09 Jan ‐ Dec/10  JAN ‐ JUN /08 JULY/08 ‐ DEC/09 JAN ‐ DEC/10 1 Independently verified MW 2 2008 and 2009 actuals (2009 reflects Magma’s equity portion in HS Orka) 5 3 2010 is an estimate and reflects Magma's equity portion in HS Orka
  6. 6. North American Primary Geothermal Companies 700 DEVELOPERS 600 500 400 MW 300 200 100 0 2 1 1 1 1 1 SGP Raser Ram Power U.S. Geo NGP Cal Energy MAGMA Ormat Operating Development through 2013 1 Data from Jacob Securities Inc 2 Geothermal Reporting Code verified MW 6
  7. 7. Magma Energy Corp - Global Project Pipeline INDICATED & AREA PROVED STAGE PROPERTY INFERRED RESERVES (HA) RESOURCES Operations Soda Lake, Nevada (100%) (1) 2,881 41 20 HS Orka Iceland (98.53%) (2) Orka, (98 53%) ( ) 31,067 31 067 630 173 Advanced Chile (2) (3) 104,000 320 USA (4) (4) 18,491 170 Early Stage Argentina (2) 39,057 Peru (7) 7,900 USA (12) 38,016 (1) Reporting Code Estimate GeothermEx (2) Reporting Code Estimate Mannvit Engineering, acquisition expected to close July ‘10 241,413 1,161 MW 193 MW (3) Reporting Codes Estimate SKM (4) Independent estimate P90 Geo Hills Associates Plant Property 7
  8. 8. Advanced Development - Mariposa, Chile 320 MW Inferred Resource discovered MP-02 DRILL SITE by Magma in 2009 50 MW Phase 1 exploitation p p plan approved in April 2010 $15M resource confirmation program underway to drill additional slim holes >$100/MWh power rates and drilling incentives available <25 km from 2 transmission lines under development MP-02 MP-01 8
  9. 9. Production - Soda Lake, Nevada 13.5 MW with facility nameplate capacity of 23 MW  Currently operating at 60% capacity Phase 1 expansion to 23 MW - currently underway  New production well recently connected to the plant  Converting non-commercial well drilled 2009 into an injector  Target blended PPA rate of $85/MWh to reflect expanded capacity and market conditions  Average cost of acquisition and expansion ~ $1.5 Million/MW $1 5  Projected EBITDA ~ $6.5 Million Phase 2 expansion - achieve reservoir capacity 61 MW  Additional 14 MW expected by 2013 9
  10. 10. HS Orka Acquisition - Overview Magma acquiring 98.5% of HS Orka PROPERTY RESERVES RESOURCES  3 separate deals (2009 - 2010) PROVED INDICATED INFERRED COMMENT  Cost for HS Orka: SVARTSENGI 75 MW No further expansions planned thus far 45 MW of steam behind pipe in 3 production   $135.7 million cash REYKJANES 100 MW 100 MW 90 MW 90 MW wells and sea outflow canal; 50 MW Fuji  ; j turbine arrived June 2010; further production   $ 95 million vendor bonds1 drilling underway  $2.4 M/MW2 for 175 MW in production ELDVÖRP 50 MW Steam behind pipe from 1 production well  $0.52 M/MW2 for 175 MW Reserves and 4 MW of steam behind pipe from 2 production  KRÝSUVÍK 500 MW wells that are candidates for stimulation; 9 slim  640 MW Resources wells; 19 temperature gradient wells 1 TOTAL MW 175 MW 640 MW Bonds indexed to price of aluminum with an average coupon rate of 2.4% and 2016 maturity 2 Includes $186.7 million HS Orka non-recourse long term debt* Delivery of 50 MW turbine units ‐ June 2010 * Basket of foreign currency with an average coupon rate of 2.8% and maturities ranging from 2016-2031 Magma gains:  Large producing asset base creates strong income statement & balance sheet  Significant expansion potential  World class geothermal team Iceland’s largest private energy company (9% of country’s power supply) l ) 10
  11. 11. HS Orka Expansion Highlights Potential to expand from 175 MW to 405 MW PPA discussions with Nordural and Others on-going CapEx for full 230 MW expansion is ~$560 M; will be staged 50 MW phase expansion commenced; significant equity already invested Next 30 MW phase requires no additional drilling ~46% of HS Orka’s revenue currently indexed to aluminum price  Future PPA’s with smelters and/or other power off-takers will impact HS Orka’s on-going sensitivity to aluminum prices CONCEPTUAL PRODUCTION GROWTH Assumptions:  Economic model based on London Metal Exchange (LME) forward aluminum prices  Exchange rate 125 ISK/USD  Expansion financed with 40% equity and 60% debt at a 6% interest rate  Capital costs $2.2 - $2.5 M/MW CCurrent PPA P i i t Pricing 11
  12. 12. HS Orka Financial Highlights 1 1 HISTORICAL DAILY LME ALUMINUM PRICES ACTUAL BALANCE SHEET HIGHLIGHTS $3,500 2009 2010 - Q1 $3,000 $ / tonne CURRENT ASSETS 16.0 49.2 $2,500 $2,000 NON-CURRENT ASSETS 320.5 308.7 $1,500 TOTAL ASSETS 336.5 357.9 $1,000 CURRENT LIABILITIES 43.1 29.9 LONG-TERM DEBT 190.2 186.7 TOTAL LIABILITIES 223.8 217.7 TOTAL SHAREHOLDERS’ EQUITY 112.7 112 7 140.2 140 2 TOTAL LIABILITIES & SHAREHOLDERS’ 336.5 357.9 EQUITY 1 ACTUAL INCOME STATEMENT HIGHLIGHTS 2009 2010 - Q1 20102 ALUMINUM PRICE (USD/TONNE) 1,699 2,194 2,296 MW IN OPERATION 175 175 175 NET GENERATION (GWH/YEAR) 1,358 328.1 1,363 OPERATING REVENUE 49.81 14.50 63.75 COSTS (31.29) (8.78) (33.11) EBITDA 18.52 5.72 30.64 EXPANSION INVESTMENT 9.89 5.07 27.67 EXISTING LONG TERM DEBT 190.21 186.66 164.70 All values in US $ millions 1 As reported under IFRS 2 2010 is an estimate 12
  13. 13. Near-Term Milestones LOCATION MILESTONE TARGET DATE Desert Queen, Nevada , Temperature Gradient Drilling Results p g  Reykjanes, Iceland 80 MW Expansion Program Begins  Mariposa, Chile p , Slim Hole Drilling Results g On-Going g Peru Exploration Results On-Going HS Orka, Iceland Acquire Controlling Interest (98.5%) Q3 Q-3 Reykjanes, Iceland PPA Negotiations with Nordural and Others Q-3 Soda Lake, Nevada Phase 1 Expansion Resource Confirmed Q3 Q-3 Soda Lake, Nevada New PPA with NV Energy Q-3 Soda Lake, Nevada Lake Phase 1 Expansion Complete; 23 MW Online Q-4 13
  14. 14. Organic Growth - Advanced Projects Development Timeline 636 MW 438 MW 302 MW 1 245 MW 196 MW 84 MW 11 MW 1 Includes 98.5% stake in HS Orka 14
  15. 15. Ownership, Capital Structure & Coverage Magma’s largest shareholders CAPITAL STRUCTURE: AS OF MAR 31/10 (1) ISSUED & OUTSTANDING 248,577,974  Ross Beaty / Sitka Foundation - 45.38% OPTIONS 2,776,667 (Sitka is a private environmental foundation) WARRANTS 0  Institutional shareholders - 34.58% FULLY DILUTED 251,354,641  Retail shareholders - 15.48% LONG TERM DEBT (2) US $ 51.1 M  AltaGas Income Trust - 4.56% CASH US $ 40.5 M SHAREHOLDERS’ EQU O S QUITY US $ 156.5 M (1)   100M shares held by Ross Beaty/Sitka Foundation restricted sale until 2013 (2)   Bond  has a face value of US $70.2 M ANALYST COVERAGE CONTACT Cormark S C k Securities iti MacMurray Whale M M Wh l h l @ k Dundee Capital Markets Ian Tharp Jacob Securities John McIlveen Mackie Research Capital Matthew Gowing National Bank Financial Jeremy Mersereau Pritchard C it l P t P it h d Capital Partners Veny Aleksandrov V Al k d l k d @ it h d it l Raymond James Securities Steven Li Salman Partners Mike Plaster Thomas Weisel Partners Dilip Warrier Wellington West Capital Sean Peasgood INDEX COVERAGE Ardour Global Alternative Olushola Ashiru Energy Index 15
  16. 16. World Class Management Team Ross Beaty – Chairman & CEO Geologist and resource company entrepreneur with 38 years experience in the international minerals industry. Founder and chair of Magma Energy Corp and Pan American Silver Corp. (TSX: PAA, NASDAQ: PAAS) and several other resource companies that were successfully built and divested including Northern Peru for $455 Million and Global Copper Corp for $415 Million MAGMA ENERGY CORP MAGMA ENERGY GLOBAL OPERATIONS Lyle Braaten: Secretary & General Counsel Dick Benoit: USA Lawyer. Extensive experience negotiating commercial Exploration Manager agreements and implementing large infrastructure projects Over 35 years experience in the geothermal industry both nationally and internationally Annette Cusworth: Chief Financial Officer Mark Kumataka: USA Certified General Accountant with over 20 years experience Chief Engineer in the public and private sectors Professional Engineer with over 30 years experience in geothermal resource management in U.S. & Latin America Dr. Dr Catherine Hickson: VP Exploration & Chief Geologist Ásgeir Margeirsson: ICELAND World renowned volcanologist with over 25 years experience President & CEO in Canadian and international geosciences An extensive career in geothermal power development both within Iceland and internationally Alison Thompson: VP Corporate Relations Monte Morrison: USA Masters of Chemical Engineering and Queen’s MBA; Country Manager & VP Operations Extensive experience in the energy industry; Chair of Professional Engineer with 25 years experience managing g y p g g CanGEA the operations and maintenance of geothermal power plants John Selters: CHILE & ARGENTINA Andrea Zaradic: VP Operations & Development Country Manager Mechanical Engineer with 20 years experience in Mining engineer with over 40 years experience in Latin engineering design, construction, commissioning and America operations with large international mining projects 16
  17. 17. Institutional Quality Board of Directors Ross Beaty - Chairman and CEO David W. Cornhill - [Independent] Member Audit, Compensation and Governance Committees Mr. Cornhill is the founder, Chairman and Chief Executive Officer of AltaGas Income Trust, one of Canada’s largest energy infrastructure groups, focused on gas and power infrastructure and renewable energy (wind and hydro). With more than 25 years of experience in the energy industry, Mr. Cornhill also sits on several private and public boards including AltaGas Utility Group and Ivey Business School. Robert Pirooz - [Independent] Chair Corporate Governance Committee, Member Compensation Committee Mr. Pirooz studied commerce at Dalhousie University and received a Juris Doctor degree from the University of British Columbia in 1989. From May 1990 to February 1998, Mr. Pirooz practiced law primarily in the areas of corporate, commercial and securities law. Mr. Pirooz' extensive legal and business background spans over 20 years and includes the role of General Counsel for the BCR Group of companies and Pan American Silver Corp, a role in which he currently serves, and as principal in the Lumina group of resource companies. Currently a director of 5 public companies, Mr. Pirooz has worked with Ross Beaty since early 1998. Donald Shumka - [Independent] Chair Audit Committee, Member Governance Committee Mr. Shumka is Managing Director of Walden Management Ltd., a financial consulting firm. Mr. Shumka received his Bachelor of Arts degree from the University of British Columbia and a Master of Business Administration from Harvard University. From 1966 -1979 he worked in a variety of positions in the forest industry, from 1979 -1989 he was Vice President a d C e Financial O ce o West Fraser Timber Co Ltd. a d from 1989 - 2004 he headed as ce es de t and Chief a c a Officer of est ase be Co. td and o 989 00 e eaded the Forest Products Group for two Canadian investment banks. Mr. Shumka is active in the not for profit sector and is currently the Chair of the British Columbia Arts Council. Paul Sweeney - [Independent] Chair Compensation Committee, Member Audit Committee Mr. Sweeney has over 30 years experience in financial management of mining and renewable energy companies. He is currently Executive Vice-President, Business Development, of Plutonic Power Corporation, a run-of-river hydro developer. He has served as CFO of a number of successful mineral resource companies including Canico Resources and Sutton Resources and is a Director of several resource companies including Pan American Silver Corp. where he chairs the audit committee. 17
  18. 18. Road to Success = Explore ► Acquire ►Build ► Produce USA ICELAND USA CHILE ICELAND USA 18
  19. 19. Global Advanced & Early Stage Project Pipeline INDICATED & STAGE PROPERTY AREA INFERRED EXPLORATION RESULTS RESOURCES EXPANSIONS & ADVANCED STAGE (Ha) MW CHILE Mariposa (1) 104,000 320 2 slim hole, 3 more underway; 3 fumarole fields (2) 49 MW of steam behind pipe from 6 production wells and outflow ICELAND HS Orka 31,067 630 canal; 3 reservoirs; 50 MW Fuji turbine delivered June 2010; further drilling underway (3) Production well drilling on-going USA Soda Lake 2,881 41 > 100 wells on site including slim holes, temperature g g , p gradient and production/injection wells (4) USA McCoy 7,815 80 7 slim holes; 55 temperature gradient wells (4) USA Panther Canyon 4,515 34 85 temperature gradient wells (4) USA Desert Queen 5,448 36 13 temperature gradient wells, 4 new wells drilled (4) USA Thermo 713 20 1 slim hole; 21 temperature gradient wells EARLY STAGE ARGENTINA 2 Concessions 39,057 - 50 temperature gradient wells; hot springs, vents PERU 7C Concessions i 7,900 7 900 - 34 hot springs on properties; sulphur deposits 1 dry production well (injection candidate); 9 slim holes; USA 12 Leases NV + OR 38,016 - numerous temperature gradient wells TOTAL 241,413 1,161 (1) Reporting Code Estimate GeothermEx (2) Reporting Code Estimate Mannvit Engineering, acquisition expected to close July ‘10 (3) Reporting Codes Estimate SKM (4) Independent estimate P90 Geo Hills Associates 19
  20. 20. 20 8-Jul-10