In a release by the company, “Magma Energy Corp. announces that it has signed an agreement with Geysir Green Energy ehf (“GGE”) to purchase all of GGE’s stake in Iceland geothermal company HS Orka hf (“HS Orka”) resulting in Magma’s stake increasing to 98.53%. HS Orka currently produces 175 megawatts (“MW”) of geothermal power and 150 MW of thermal energy for district heating, and has near-term expansion plans that would increase its power production to 405 MW by 2015. The transaction will increase Magma’s geothermal power production to 186 MW, its geothermal reserves to 193 MW and its indicated and inferred geothermal resources to 1,161 MW. The remaining 1.5% stake in HS Orka is held by four Icelandic municipalities.
Magma’s Chairman and CEO, Ross Beaty commented, “I am really pleased with this landmark acquisition, which brings Magma such long term core assets as large scale low cost geothermal power production, enormous in-ground geothermal resources that will enable additional future production growth, and a wonderful team of Icelandic geothermal experts who can help us grow both in Iceland and internationally.”
The agreement provides that Magma’s wholly owned subsidiary will purchase GGE’s remaining interest in HS Orka for 10.56 billion Icelandic Kroner (“ISK”) (approximately $84.5 million) and by assuming a bond issued by GGE with a face value of 6.29 billion ISK (approximate net present value of $36 million). Magma may elect to pay $26.55 million of the purchase price in common shares valued on the basis of Magma’s trading price in late July 2010 and the remaining cash component in two tranches of $45.45 million by July 31, 2010, and $12.50 million by November 30, 2010. The bond will be secured by 27.35% of the shares acquired by Magma in this transaction. The Company plans to finance this transaction by: bridge financing, conventional debt and/or equity financing, and/or sale of a minority stake in HS Orka to other Icelandic or offshore investors. The agreement is subject to several closing conditions and is expected to close in late July 2010.
Ross Beaty, Magma’s Chief Executive Officer, said, “This transaction will significantly advance Magma’s ambitious goal of becoming one of the world’s pre-eminent geothermal power companies, and will help us meet our target of producing at least 500 MW of geothermal power and holding at least 2,000 MW of geothermal reserves and resources by 2016. We feel very privileged to be able to acquire such an important power generation business in Iceland and we intend to demonstrate to the Icelandic people that we will manage this business for the long term benefit of all stakeholders.”
About HS Orka: HS Orka is the largest privately owned energy company in Iceland producing 9% of the country’s power needs. Installed geothermal power capacity is 175 MW from the Svartsengi and Reykjanes power plants. In addition, HS Orka generates 150 MW of thermal energy for district heating. Expansions are planned that will increase HS Orka’s geothermal power production to 405 MW by 2015. HS Orka’s 75 MW Svartsengi plant began production in 1978 and its 100 MW Reykjanes plant began production in 2006. Much of the power is sold under US dollar contracts to a large aluminum smelter that is one of the world’s lowest cost aluminum producers. The expansion plans of HS Orka will provide power to a new aluminum smelter that is currently under construction.”
Source: Company release via Marketwatch