Magma Presentation April 2011
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Transcript of Magma Presentation April 2011
APR 2011 TSX : MXY
A GLOBAL GEOTHERMAL POWER COMPANY
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 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 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 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 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
MAGMA ENERGY - STRATEGY & VALUE CREATION
Magma’s mission: to build a leading global geothermal power company
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
Magma’s strategy: broad asset portfolio and scale =
“discovery returns” and “utility cash flows”
Reduces drilling risk and high front-end capital risk
Improves margins with lower cost of capital
Better multiples
We are a power company and an energy resource company
3
DISCOVERYRETURNS
UTILITYCASH FLOWS
ACQUISITIONEXPLORATION
FEASIBILITY
PERMITTING
FINANCING
CONSTRUCTION
OPERATIONS
TIME
PR
OJE
CT
VA
LU
E $
Capital G
rowth
Income Growth
BALANCED PORTFOLIO: GLOBAL EXPLORATION & OPERATIONS
ICELAND:
2 power plants with 175 MW capacity
80 MW of expansions underway
Additional 150 MW of defined expansion plans
USA:
23 MW power plant with expansion potential
Steady, predictable and long-life cash flow
Excellent government support for geothermal projects
12 other exploration properties
CHILE / PERU / ARGENTINA:
Huge (320 MW) inferred resource discovered at low cost
Emerging geothermal markets with world-class potential
Strong government support for geothermal projects
Active exploration concessions covering in excess of 184,922 ha in Argentina, Chile and Peru
4
From 2008 startup, the world’s fastest growing geothermal power company
2008 2009 2010 2011e0
250
500
750
1000
1250
1500
0
50
100
150
200
250
16 91
1,023
1,334
23
190 191
POWER GROWTH
Prod
uctio
n (G
Wh)
Inst
alle
d Ca
paci
ty (M
W)
MAGMA ENERGY – EXECUTION TO DATE
5
2008 2009 20100
400
800
1200
1600
199555
99011
86
195
60
181
GEOTHERMAL RESERVES & RESOURCES GROWTH
InferredIndicatedReserves
MW (1)
(1)Geothermal Reporting Code verified MW
POWER GROWTH
GEOTHERMAL RESERVES & RESOURCES GROWTH
MAGMA ENERGY – GROWING FINANCIAL STRENGTH
6
(1) 2009/2010 reflects Magma’s equity portion in HS Orka(2) 2011 is an estimate with assumed aluminum price of USD 2,300/tonne and 111 ISK/USD(3) See page 7 footnote for definition
Jan-Jun/08
Jul/08 - Dec/09
2010 2011e $(10)
$(5)
$-
$5
$10
$15
$20
$25
EBITDA
Mill
ion
s U
SD
Jan-Jun/08
Jul/08 - Dec/09
2010 2011e $-
$10
$20
$30
$40
$50
$60
$70
$80
REVENUE
Mill
ion
s U
SD
REVENUE
(1)
(1)
(1)
(1)
(2)
(2)
(3)
EBIDTA
Magma gained control of HS Orka during Q1, full consolidation of results occurred in Q2
Q2 - 2011 OPERATING AND FINANCIAL HIGHLIGHTS
Expressed in thousands of US dollars, except for MWh and per share amounts
ACTUAL
2011-Q2 2011- H1 Year EndJune 30-2010
NET PRODUCTION (MWh) 351,461 688,707 62,072
TOTAL REVENUE 18,751 26,795 5,056
GROSS PROFIT 5,485 6,295 625
EBITDA (1) 6,155 13,050 (3,261)
TOTAL ASSETS 656,222 656,222 198,703
TOTAL LIABILITIES 427,093 427,093 56,633
7
(1) EBITDA is defined by the Company as earnings before interest and other financing costs, taxes, depreciation and amortization, as well as before deductions for non-cash charges related to employee compensation, equity earnings/losses, loss on re-measurement of equity interest, gain on bargain purchase and changes to the balance sheet carrying value of long-term debt and derivatives. The Company discloses EBITDA as it is a measure used by analysts and by management to evaluate the Company's performance. As EBITDA is a non-GAAP measure, it may not be comparable to EBITDA calculated by others. In addition, as EBITDA is not a substitute for net earnings, readers should consider net earnings in evaluating the Company's performance.
Ram Power U.S. Geo NGP Magma Ormat0
100
200
300
400
500
600
700
Operating Development through 2013
MW
NORTH AMERICAN PUBLIC GEOTHERMAL COMPANIES
(1) Geothermal Reporting Code verified MW
Source: Jacob Securities Inc
8
(1)
PROGRESS AND NEXT STEPS
OUR PROGRESS Now the 2nd largest public geothermal
developer in North America
Existing Iceland infrastructure allows for rapid, low cost expansions
Major discovery in Chile
NEXT STEPS Complete Iceland expansions
Fulfill potential at Soda Lake, NV and develop other US assets
Develop Mariposa, Chile and explore other Chile/Peru assets
9
2008 2009 2010 2011 2012 2013 2014 2015+0
100
200
300
400
500
600
700
0
1000
2000
3000
4000
5000
6000
Soda Lake Iceland Other USAChile
INST
ALLE
D C
APAC
ITY
(MW
)
GW
h
CREATING VALUE
VALUE PROPOSITION Renewable production and steady cash flow
Strong inventory of development prospects
Sufficient resources to increase existing company proved reserves six-fold
Growing portfolio size reduces risk
Large team of geothermal experts - core asset
10
248
11
84
190
307
443
643
191
EXPECTED ORGANIC GROWTH
11
APPENDIX
MAGMA ENERGY - GLOBAL PROJECT PIPELINE
STAGE PROPERTYAREA RESERVES RESOURCES
(HA)PROVE
D INDICATED INFERRED
Operations Soda Lake - USA1 2,881 20 41 Iceland 2 560 175 90
Advanced Mariposa - Chile3 104,000 320McCoy - USA4 4,621 80Eldvorp - Iceland 2 50Krysuvik - Iceland 2 30,507 500
Early Stage Argentina 26,922Chile 158,000Italy 48,446Peru TBDUSA 34,977 90
410,914+ 195 MW 181 MW 990 MW
12
(1) Reporting Code Estimate GeothermEx(2) Reporting Code Estimate Mannvit Engineering (3) Reporting Code Estimate SKM(4) Reporting Code Estimate Geo Hills Associates
operationsproperties
STP MXY CLL $-
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
EV/BOE RESERVES & RESOURCES
EV/BOE Reserves EV/BOE Resources
CD
N $
/ B
OE
STP MXY CLL
(400)
(200)
-
200
400
600
800
1,000
1,200
CO2 Credits (Penalties) From Reserves & Resources
Me
ga
To
nn
es
STP MXY CLL -
500
1,000
1,500
2,000
2,500
boe RESERVES & RESOURCES
BOE Reserves BOE Resources
MM
BO
EMAGMA IS AN UNDERVALUED ENERGY COMPANY
13
. . . . . @ $15/tonne
≈ $14 billion credit over 30 years
TSX symbols: STP Southern PacificMXY Magma EnergyCLL Connacher Oil & Gas
Assumptions:
0.62 bbl/MWh(th)
0.1 MW(e) / MW(th)
30 years of assumed project life430 kg CO2 emitted per BOE
ICELAND EXPANSION HIGHLIGHTS
Potential to expand from 175 MW to 405 MW
PPA discussions with Nordural and others on-going
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
Signing of new PPA that is not Al price-linked
50 MW phase expansion commenced; as of Dec 2010 $39 MM already invested
Next 30 MW phase requires no additional drilling
~CapEx for full 230 MW expansion is ~$642 MM; will be staged
14
Reykjanes & Svartsengi
Reykjanes 3Reykjanes 4Krýsuvík 1Krýsuvík 2Eldvörp
2009 2010 2011 2012 2013 2014 2015 +0
100
200
300
400
MW
Reykjanes 3 $131 MM
Reykjanes 4 $ 66 MM
Krýsuvik 1 $ 155 MM
Krýsuvik 2 $ 145 MM
Eldvörp $ 145 MM
CONCEPTUAL PRODUCTION GROWTH EXPANSION BUDGET
PRODUCTION - SODA LAKE, NEVADA
Ramping up to capacity of 23 MW Current throughput is 84,000 GWh/yr
Phase 2 expansion - achieve reservoir capacity 61 MW
15
320 MW Inferred Resource discovered by Magma in 2009
50 MW Phase 1 exploitation plan approved in April 2010
Completed $21 MM slim hole drill program for resource confirmation
>$100/MWh power rates and drilling incentives available
<25 km from 2 transmission lines under development
ADVANCED DEVELOPMENT - MARIPOSA, CHILE
MP- 03 DRILL SITE
MP- 01MP- 02
16
MP- 03
WORLD CLASS MANAGEMENT TEAM
Monte Morrison: USACountry Manager Professional Engineer with 25 years experience managing the operations and maintenance of geothermal power plants
John Selters: CHILE & ARGENTINACountry ManagerMining engineer with over 40 years experience in Latin America
Dick Benoit: USAExploration Manager Over 35 years experience in the geothermal industry both nationally and internationally
Mark Kumataka: USAChief EngineerProfessional Engineer with over 30 years experience in geothermal resource management in U.S. & Latin America
Lyle Braaten: Secretary & General CounselLawyer. Extensive experience negotiating commercial agreements and implementing large infrastructure projects
Annette Cusworth: Chief Financial OfficerChartered Accountant with over 20 years experience in the public and private sectors
Dr. Catherine Hickson: VP Exploration & Chief GeologistWorld renowned volcanologist with over 25 years experience in Canadian and international geosciences
Anders Kruus: VP Corporate RelationsFinance professional with over 20 years international experience in capital markets and corporate finance
Asgeir Margeirsson: VP Operations & Development, An extensive career in geothermal power development both within Iceland and internationally
Ross Beaty: Chairman & CEOGeologist 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.
MAGMA ENERGY GLOBAL OPERATIONSMAGMA ENERGY CORP
17
John Carson: Executive Vice PresidentMr. Carson is a highly experienced renewable energy business leader with a core expertise in structuring and leading financial transactions. His financing experience includes senior positions held with GE Energy Financial Services, Terra-Gen Power and Noble Environmental Power, and he has closed over US$2 billion of transactions, primarily in the renewable energy space.
INSTITUTIONAL QUALITY BOARD OF DIRECTORS
Ross Beaty - Chairman and CEO
David W. Cornhill - [Independent] Member 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 Audit and 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 1966-979 he worked in a variety of positions in the forest industry, from 1979-989 he was Vice President and Chief Financial Officer of West Fraser Timber Co. Ltd. and from 1989-2004 he headed 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.
18
NEWS - FLOW CATALYSTS
LOCATION GOALTARGET
DATE(CALENDAR YEAR)
Peru Concession Awards On-Going
Iceland Subsidiary Sale of 25% to Pension Funds On-Going
Canada Proposed Merger with Plutonic Power Q-2
Mariposa, Chile Investment Partner for Advanced Development Q-2
Soda Lake, Nevada Receipt of US Treasury Grant Q-2
Soda Lake, Nevada New PPA with NV energy Q-2
Reykjanes, Iceland PPA negotiations with Nordural and others Q-3
19
CAPITAL STRUCTURE: AS OF DEC 31/2010
ISSUED & OUTSTANDING
313.9 MM
OPTIONS 3.5 MM
LONG TERM DEBT US $284.4 MM
CASH * US $ 48.6 MM
SHAREHOLDERS’ EQUITY
US $229.1 MM
* INCLUDES RESTRICTED CASH
OWNERSHIP, CAPITAL STRUCTURE & COVERAGE
20
ANALYST COVERAGE CONTACT
Canaccord Genuity Jared Alexander
Cormark Securities MacMurray Whale
Jacob Securities John McIlveen
Mackie Research Capital Matthew Gowing
National Bank Financial Jeremy Mersereau
Pritchard Capital Partners Veny Aleksandrov
Raymond James Securities Steven Li
Salman Partners Mike Plaster
Wellington West Capital Mgmt Sean Peasgood
INDEX COVERAGE
Ardour Global Alternative Energy Index
S&P/TSX Clean Technology Index
40%
5%29%
26%
Magma Energy Shareholders(Dec 2010)
Board and Management
Strategic Partner (AltaGas)
Estimated Institutional
Estimated Retail
5%
46%
11%
12%
26%
Regional Representation of Shareholders (Dec 2010)
USA Canada
Europe Other
Unknown Retail
21
Blue Lagoon & Svartsengi Power Plant
22
TSX MXY
6-Apr-11
www.magmaenergycorp.com