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13th June 2008
Acquisition of Remaining 50 per cent. of Energia del Sur ("EdS") (the "Acquisition")
Placing for Cash of 12.5 million New Ordinary shares ("Shares") (the "Placing")
Rurelec plc (AIM:RUR), the power plant developer and owner - operator of power generation assets in Latin America, announces today that it has entered into a conditional agreement to acquire the 50 per cent. of EdS which it does not already own and it has also placed 12.5 million Shares at 65 pence each with both existing and new institutional shareholders, conditional on completion of the Acquisition.
EdS is the owner of the existing 76 MW gas fired open cycle power plant in Patagonia, Argentina. It has nearly completed expansion of the plant by adding 60 MW of steam turbine capacity and converting to combined cycle operation in Comodoro Rivadavia, one of the principal gas producing zones of Argentina.
The CCGT capacity is due to enter commercial operation in August 2008 and will help alleviate some of the power shortages which have been forecast for the coming winter months in Argentina. Under the combined cycle conversion, the waste heat from the two existing General Electric 6B gas turbines is channelled through two new heat recovery steam generators ("HRSGs") which have been installed on site. Instead of being vented directly into the atmosphere, the waste heat from the existing power plant is captured by the HRSGs. This in turn allows electricity to be produced by a single steam turbine synchronised to the two original gas turbines from the same consumption of natural gas as is currently used to fire the open cycle gas turbines.
EdS expects to generate approximately 40 per cent. more electricity in combined cycle, compared to the current production in open cycle, without any increase in gas usage. This significant reduction in gas consumption per MW generated reduces the new CCGT unit's emissions of CO2 for every hour of electricity generated. For this reason, the project qualifies for certified emissions reductions ("CERs") certificates, also known as "carbon credits", under the Kyoto Protocol of the United Nations Framework Agreement on Climate Change. Rurelec announced on 16th May that it had received formal notification from the United Nations that the EdS plant had been accepted for registration with an approved 148,018 CERs each year. It also announced that it had agreed outline terms for the forward sale of the CERs at around US $20 per CER producing some US $3 million of income in a full year from the CER sales.
Following the buy-out, Rurelec will enjoy the full benefit of the CER income when the plant begins production in the coming weeks. Rurelec will also now be able to complete its own financing plan based on securitisation of the EdS carbon credits.
The Placing by Hichens Harrison, brokers to Rurelec, raised approximately £7.8 million net of expenses. Following the Placing the Company will have 85,788,775 issued ordinary shares of 2p each admitted to trading to AIM. While the number of new shares in issue will increase by 17 per cent. following the Placing, Rurelec's net ownership of power plant capacity, measured in megawatts, will increase by 24 per cent. when the new CCGT capacity comes online.
In the year ended 31st December, 2007 EdS made an after tax loss of £1.27m on turnover of £7.92m. The net book value of EdS at 31st December 2007 was £9.7m. The imputed value per MW of EdS at the acquisition price is approximately $500 per kW, compared with a new CCGT construction cost of US$950-1,200 per kW. Since the year end EdS has continued to invest in the combined cycle project. The new capacity in Argentina is expected to benefit from Argentina's Energia Plus electricity tariff, while margins on energy production are set to rise since 40 per cent. more electricity will be produced in future from the current level of natural gas consumption.
Rurelec is paying US$25 million to Basic Energy Limited for the acquisition of those shares in Patagonia Energy Limited, the parent company of EDS, which it does not already own. US$12 million is payable in cash on completion, with further payments of US$3 million due after 3 months and a final payment of US$10 million due in one year. The deferred payments, which are unsecured, attract interest at a rate of 11.32 per cent. per annum. Rurelec has also agreed to refinance (with effect from 3 months after completion of the acquisition) US$6.79 million of shareholder loans provided by the vendors to the project for the combined cycle conversion.
The Acquisition is conditional upon obtaining the consent of Standard Bank to the acquisition and upon Basic being removed as a guarantor in connection with the facility which Standard Bank is providing to the Patagonia group. Application for admission of the Placing Shares to trading on AIM will be made following the satisfaction of this condition. Admission is expected to occur before 28th June 2008
The Acquisition is conditional upon obtaining the consent of Standard Bank to the acquisition and upon Basic being removed as a guarantor in connection with the facility which Standard Bank is providing to the Patagonia group. Application for admission of the Placing Shares to trading on AIM will be made following the satisfaction of this condition. Admission is expected to occur before 28th June 2008.
Peter Earl, Managing Director of Rurelec commented: "I am delighted that Rurelec will now own all of EdS as it expands into combined cycle mode and starts to earn its first carbon credits. I believe that this will be the first of a number of important expansion moves as we seek to grow earnings per share and to increase Rurelec's ability to pay dividends."
For further information please contact:
Peter Earl, CEO, Rurelec PLC 020 7793 5610
Paul Shackleton, Daniel Stewart & Company Plc 020 7776 6550
Ana Ribeiro, Park Green Communications 020 7851 7480