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Nevada Geothermal Power considers sale of some of its development projects

Blue Mountain Faulkner-1, geothermal power plant, Nevada (source: Nevada Geothermal Power)
Alexander Richter 30 Oct 2012

Nevada Geothermal Power announces an interest in the sale of one or more of its development projects to raise additional funds following its financial difficulties with the operation of the Blue Mountain geothermal power plant in Nevada, U.S.

In its annual results published last week, Canadian developer and operator Nevada Geothermal Power provides a financial overview on its current state that is dominated by the ongoing troubles with its Blue Mountain geothermal plant in Nevada. It also quotes an interest in the “sale of one or more of its development projects to raise additional funds”.

As reported before, the company has breached the debt service coverage covenant under its mezzanine loan from EIG Global Energy Partners in December 2011 and has since been unable to make full minimum interest payment on the loan since January 2012.

The work of determining strategic alternatives ended without success. During June of this year both companies, EIG and Nevada Geothermal Power, said they would prefer to work cooperatively to transfer NGP’s ownership interest in BM Holdco and the Blue Mountain project, including long-term liabilities owing to John Hancock Life Insurance company, to EIG. It is planned that NGP will continue act as an operator of the plant. Negotiations are currently ongoing.

“The John Hancock loan requires the Company to obtain an independent forecast of the performance of the Blue Mountain geothermal resource on an annual basis. These resource forecasts have in the past indicated that power production will gradually decline over time, and the Company has undertaken a number of projects in order to reduce the extent of the decline. During September 2012, the Company received an updated resource forecast in respect of Blue Mountain. This forecast predicts a much faster decline in resource temperatures than had previously been forecasted. Accordingly the Company recognized an impairment loss of $44.4 million in respect of the Blue Mountain assets, which is included in the results of discontinued operations above. The Company is working with its advisors to confirm the results of the report. During October 2012, John Hancock advised the Company that it will not allow further distributions from NGP Blue Mountain I LLC, which owns the Blue Mountain Power plant, until matters are resolved.

The Company continues to maintain its resource property assets at Crump Geyser (with Ormat as a partner), New Truckhaven, Pumpernickel Valley and North Valley. The Company has not renewed leases on the East Brawley, South Brawley, and Edna projects. The Company has taken steps to reduce its costs, and is exploring all available strategic alternatives.

On August 10, 2012, the Company and Ormat reached an agreement to extend the time period in which Ormat is required to complete the initial development spending of $15 million to maintain their interest in the project. In return the total cash instalments payable under the agreement were increased from $2.5 million to $3.0 million. A payment of $500,000 was received during August 2012, and a further payment of $500,000 is due on October 29, 2012. The final payment of $1.7 million and completion of the $15 million work commitment is due on June 30, 2014. Ormat has the right to early termination of the agreement, in which case the $1.7 million is no longer payable and 100% of the project reverts to NGP.

During the past year the Company focused project work on the New Truckhaven property. The Company received an independent resource assessment from Mannvit HF, an Icelandic engineering and consulting company based in Reykjavik, Iceland, which confirmed the existence of an Indicated Geothermal Resource of 35 – 60 MW (net) recoverable electric energy, suitable for development of a binary power plant. Management plans to advance the development of this project during 2013.

The Company will consider selling one or more of its development projects to raise additional funds. Management also expects that the contemplated Blue Mountain equity transfer and debt relief described above will improve the financial condition of the continuing operations and make it easier for the Company to advance its plans.”

Source: Company release via The Sacramento Bee