Great Plains Metals Corp. press release

Pristine Power Announces Second Quarter 2009 Results

2009-08-07

TSXV - TSX Venture Exchange · Gold · Copper · Molybdenum · Rare Earth Elements · Uranium · Canada

Company Provides Update on Operations, Construction, and Development Activities

CALGARY, Aug. 7 /CNW/ - Pristine Power Inc. ("Pristine" or the "Company") (TSX: PPX), an independent Canadian developer and operator of electricity and steam generation facilities, today announced its financial and operating results for the three and six months ended June 30, 2009. The Company's financial statements and Management's Discussion and Analysis are available for review at www.pristinepower.ca, and have been filed on SEDAR. Unless otherwise noted, all dollar amounts are expressed in Canadian dollars except share and per share amounts.

Financial Review: For the three month For the six month period ended period ended June 30, June 30, June 30, June 30, 2009 2008 2009 2008

Net production (MWh)(1) 5,700 - 12,187 -

$ $ $ $ Revenue 575 516 1,458 695 Expenses 3,897 2,517 7,410 4,248 Net loss and comprehensive loss (3,100) (1,936) (5,641) (3,784) Net loss per share - basic and diluted (0.10) (0.06) (0.19) (0.16)

Cash used in operations (3,405) (1,855) (5,304) (3,243) Funds used in operations(2) (2,380) (1,553) (4,533) (2,949)

Notes: (1) Before non-controlling interest share. (2) Funds used in operations is a non-GAAP measure. Refer to the section titled "Cash Flow from Operations" for an explanation on its use and a reconciliation with the Company's GAAP measures.

Key Facts About the Quarter

Pristine Power generated 5,700 megawatt hours of net production in the three months ended June 30, 2009, and 12,187 megawatt hours in the first half of 2009; The Company entered into an agreement with Siemens Energy Inc. to reserve manufacturing slots for two Siemens STG6-PAC-5000F combustion turbine generator packages to be used in the York Energy Centre project; Both GE LM6000 turbines at the East Windsor Cogeneration Centre project achieved first fire and delivered the project's first commissioning megawatts to the local electricity grid; Net loss for the second quarter increased to $3.1 million ($0.10 per share, basic and fully diluted) compared with loss of $1.9 million ($0.06 per share, basic and fully diluted) for the same period of the previous year; Cash used in operations during the second quarter of 2009 was $3.4 million compared with $1.9 million in 2008; and The Company had $19.1 million in cash and cash equivalents at June 30, 2009.

"The reservation of the required generators and the advancement of permitting for York, combined with the first fire and power generation at the East Windsor Cogeneration Centre, demonstrate good progress for the quarter," said Jeff Myers, President and Chief Executive Officer of Pristine Power Inc. "We were on schedule and on budget for our EnPower projects last year, and we are duplicating that success on a much larger scale at East Windsor. Legislative changes relating to carbon regulations and the failure of the feasibility of nuclear in Ontario will favour Pristine's portfolio of natural gas fired and renewable generation and continue to drive growth in Pristine's project development pipeline. Finally I would like to welcome Toby Austin, who joined our management team on August 4th, as Vice President and General Counsel. Toby is a strong addition to our team, and brings to Pristine more than 20 years of legal experience in the securities, banking and electricity industries."

Second Quarter 2009 Financial Highlights:

Revenue for the three months ended June 30, 2009 increased by 11% to $575,000 compared with $516,000 for the same period in 2008. For the six months ended June 30, 2009, revenue increased by 110% to $1.5 million compared with $695,000 in the first half of 2008. Revenue consists of sales from power generation, management fees earned from developing projects and interest earned on cash invested in short-term investments held during the year. In the second quarter of 2009, revenue from power generation totalled $423,000 or $74.21 per megawatt hour (MWh) on net production of 5,700 MWh. On a year-to-date basis, revenue from power generation totalled $972,000 or $79.76 per MWh on net production of 12,187 MWh. Under the terms of the electricity purchase agreement, EnPower receives lower fixed prices per MWh in the off peak summer months. These plants commenced commercial operations in the third and fourth quarters of 2008 and accordingly there were no operations for the three and six months ended June 30, 2008.

Project development and other revenue was $152,000 in the second quarter of 2009 compared with $516,000 in the second quarter of 2008. For the first six months of 2009, project development and other revenue was $486,000 down from $695,000 in the comparable period of 2008 due primarily to lower interest income on lower cash balances.

General and administrative expenses increased 44% to $1.7 million in the second quarter of 2009, up from $1.2 million in the second quarter of 2008, but consistent with the $1.8 million incurred in the first quarter of 2009. In the first six months of 2009, general and administrative expenses increased 68% to $3.5 million compared with $2.1 million in the first six months of 2008. When compared with 2008, general and administrative expenses increased due to a larger staff complement to support increased development activity, and to meet the Company's reporting obligations. To accommodate the increased head count, the Company added office space in Vancouver to better support development activity in the west, and in the greater Toronto area to mobilize to build the York project. In addition, in 2009 Pristine incurred higher consulting costs related to its International Financial Reporting Standards conversion project and CEO/CFO certification processes.

During the second quarter of 2009, project development costs increased 13% to $1.1 million compared with $948,000 incurred in the second quarter of 2008. For the first six months of 2009, development costs increased by 28% to $1.9 million compared with $1.5 million incurred in the first six months of 2008. Development costs are a function of the number of bids under development for submission, the type of project and the jurisdictional process into which the bid is submitted. In the first six months of 2009, Pristine submitted six bids and continued to actively develop potential projects in BC and Ontario, compared with three bids submitted in the same period of 2008.

Interest, bank and financing charges in the second quarter of 2009 increased to $220,000 compared with $2,000 in the second quarter of 2008. For the first six months of 2009, interest, bank and financing charges increased to $448,000 compared with $13,000 in the same period of 2008. Interest, bank and financing charges in the first half of 2009 were almost entirely comprised of the Company's share of interest incurred on EnPower's $24.6 million, 6.65% ten-year debt facility obtained in the fourth quarter of 2008. Interest expense was lower in 2008 as the Company had a higher cash balance on hand from its initial share offering and almost all interest incurred related to the construction of the East Windsor Cogeneration Centre which was capitalized to the project.

Plant operating costs for the three months ended June 30, 2009 were $94,000 or $16.49 per MWh, and were $293,000 or $24.04 per MWh for the first half of 2009. No plant operating costs were incurred in the corresponding periods of 2008 as no facilities were operational at that time. Plant operating costs in 2009 relate entirely to the Company's EnPower ERG(R) plants and consist of fees paid to Spectra Energy for waste heat, land leasing, and personnel for managing the plant operations at Savona and 150 Mile House. Also included are other administrative costs directly attributable to the projects but exclude amortization and financing charges.

Stock based compensation expenses for the three months ended June 30, 2009 decreased 37% to $123,000 compared with $194,000 for the second quarter of 2008. The decrease in stock based compensation expenses for the quarter reflects a lower weighted average fair value of the options granted in the second quarter of 2009 compared with prior period grants. For the six months ended June 30, 2009, stock based compensation expenses decreased 77% to $237,000 compared with $1.0 million for the first half of 2008. The reduction in this expense for the first half of 2009, in addition to the reason described above, is also related to the options that were granted to two new Directors at the time of the Initial Public Offering in 2008 that vested upon award.

Expenses related to the unrealized losses on derivative financial instruments for the three months ended June 30, 2009 decreased 32% to $101,000 compared with a loss of $149,000 in the same period of 2008. For the six months ended June 30, 2009, the unrealized loss on derivative financial instruments was $196,000 compared with an unrealized gain on derivative financial instruments of $221,000 in the first half of 2008.

Foreign exchange loss for the three months ended June 30, 2009 was $274,000 compared with a foreign exchange gain of $23,000 in the corresponding period of 2008. For the six months ended June 30, 2009, foreign exchange loss was $269,000 compared with a foreign exchange gain of $221,000 in the first half of 2008. The foreign exchange loss included losses related to US dollar cash balances purchased in April and May 2009 to partially mitigate the Company's exposure to foreign exchange fluctuations on US dollar priced equipment and services to be incurred in the development and construction of the York Energy Centre. Since these monies were purchased, the Canadian dollar has strengthened, resulting in the foreign exchange loss.

Depreciation and amortization expense in the second quarter of 2009 increased to $282,000 compared with $45,000 in 2008. For the six months ended June 30, 2009, depreciation and amortization expenses were $556,000 compared with $59,000 for the first half of 2008. Higher depreciation and amortization expenses in 2009 are related depreciation charges for the Company's EnPower plants that began operating during the first half of 2008. These plants are depreciated on a straight-line basis over twenty years, which coincides with the term of the power purchase agreements with BC Hydro and the related underlying leases with Spectra. Also included in depreciation and amortization expense in 2009 is depreciation of leasehold improvements made in the latter half of 2008 on the Company's new premises. These costs are being depreciated over five years, the remaining term of the Company's office leases.

For the second quarter of 2009 the Company incurred a loss of $3.1 million ($0.10 per share, basic and diluted) compared with loss of $1.9 million ($0.06 per share, basic and diluted) in the second quarter of 2008. Higher expenditures on development activities and salaries, reflecting increased staffing levels, primarily attributed to the increased loss in 2009 over the comparable period in 2008. On a year-to-date basis, Pristine incurred a net loss of $5.6 million ($0.19 per share, basic and diluted) compared with a loss of $3.8 million in the comparative period ended June 30, 2008 ($0.16 per share, basic and diluted). Increased costs were partially offset by higher revenues from power generated at the Company's two operating plants which commenced operations in the last half of 2008.

At the end of June 30, 2009 the Company's cash and cash equivalents had decreased to $19.1 million compared to $37.7 million as at December 31, 2008. The decrease in cash and cash equivalents reflects ongoing capital expenditures related to the York project, development and general and administrative expenditures as well as the pledging of $7.3 million of cash as security for letters of credit. Such cash pledged as security has been presented as current restricted cash, of which $5.3 million will be released for general purposes upon completion of the non-recourse debt financing related to the York project. Working capital decreased to $22.8 million at June 30, 2009 compared with $37.1 million at December 31, 2008.

Cash Flow from Operations

During the second quarter of 2009, funds used in operations were $2,380,000, an increase from $1,553,000 in the second quarter of the previous year. Funds used in operations is a non-GAAP performance measure and represents funds provided by or used in operations before changes in non-cash working capital and, in management's opinion, is a useful complementary measure of the Company's ability to generate the funds necessary to repay debt or fund future growth through capital investment.

Funds used in operations increased in the second quarter of 2009 compared with 2008 due to increased general and administrative and development expenditures. These expenditures were partially offset by funds generated from project management fees and operating cash flow contributed by EnPower. As the Company's projects become operational and begin to generate cash flow, funds used in operations is expected to decrease as cash flow distributions from projects increasingly cover the Company's administrative costs and project development expenditures.

A reconciliation of funds used in operations to cash used in operations is set out below. Refer to "Non-GAAP Measures" under the Advisories section of Management's Discussion Analysis for the three and six months ended June 30, 2009.

Reconciliation of Funds Used in Operations For the three month For the six month period ended period ended June 30, June 30, June 30, June 30, 2009 2008 2009 2008 $ $ $ $

Funds used in operations (2,380) (1,553) (4,533) (2,949) Change in operating working capital (1,025) (302) (771) (294) Cash used in operations (3,405) (1,855) (5,304) (3,243)

Subsequent Events:

On August 4, 2009, Pristine Power welcomed Toby Austin to the role of Vice President and General Counsel at Pristine Power. Toby comes to Pristine with more than 20 years of experience providing legal counsel in the securities, banking and electricity industries in Canada and the UK. He served as Managing Counsel of Calpine Canada starting in 2001, and subsequently served as President of Calpine Power Income Fund from 2004 until its sale in 2007 to private equity buyers. Prior to Calpine, he was employed by a major Canadian power developer as General Counsel of its independent power division. Toby began his legal career in Calgary with MacLeod Dixon.

Project Update:

East Windsor Cogeneration Centre (84 MW gross capacity, 25% interest)

Construction of the $207 million 84 MW EWCC continued in the second quarter of 2009, remaining on schedule and on budget. All major equipment is now on site and installed. During the second quarter, work continued on piping and the plant's electrical systems, and the initial commissioning of the plant was commenced. In addition, both of the GE LM6000 turbines at the EWCC project achieved first fire and delivered the project's first megawatts to the local electricity grid in the quarter. Commissioning of the project is ongoing, and the facility is expected to commence commercial operations by the end of the third quarter of 2009.

York Energy Centre (393 MW gross capacity, 50% interest)

In December 2008, the Company was awarded a 20 year contract by the Ontario Power Authority to construct and operate the York Energy Centre, a 393 MW natural gas fired peaking generation facility, located in the Township of King, Region of York, Ontario. Pristine expects to hold a 50% interest in the project with total project costs expected to be up to $365 million. The Company has received confirmation from municipal and regional authorities that the facility complies with both zoning by-law requirements and the "Region of York Official Plan," which provides policies, land use designations and criteria to direct economic, environmental and community-building decisions affecting the use of land.

During the first quarter of 2009, the Ontario Ministry of the Environment denied all requests for elevation of the project to a full environmental assessment. In the second quarter of 2009, during the normal appeal period, appeals of this decision were received by the Ministry of the Environment and are currently under review by the Minister. The Company continues to work towards the completion of the necessary provincial environmental assessment, permitting, and site plan process to obtain the necessary approvals required for construction, with completion of the permitting process expected in the fourth quarter of 2009.

On June 15, 2009 the Company entered into an agreement with Siemens Energy, Inc. ("Siemens") to reserve two Siemens STG6-PAC-5000F combustion turbine generator packages to be used at the YEC. A definitive purchase agreement with Siemens is expected to be entered into in the third quarter of 2009. Delivery of the turbines is scheduled for early 2011. The Company is continuing the process of finalizing agreements with the preferred Engineering, Procurement, and Construction ("EPC") contractor. Discussions have continued with potential lenders for long-term non-recourse financing, with such financing expected to be in place following receipt of all necessary environmental permits. Construction is expected to commence in mid 2010 with completion anticipated late in 2011.

Mackenzie Green Energy Centre (65 MW gross capacity, 35% interest)

The Mackenzie Green Energy Centre is a proposed 65 MW (thermal equivalent) biomass fired project to be located in Mackenzie, British Columbia. The closing of several mills in the region has jeopardized the availability of the biomass fuel required for the project. Pristine Power is currently evaluating several strategies to mitigate the fuel risk for this project. The British Columbia Ministry of Forests and Range advised Pristine that Mackenzie Green Energy Inc.'s current energy supply contract with BC Hydro, dated August 31, 2006, was designated as a bioenergy supply contract under the Forest Act and accordingly could apply for a non-replaceable forest license, supplying a portion of the necessary fuel requirements. This is a step towards securing adequate fuel supplies for the project, however, additional fuel supplies must be obtained. The Company continues to assess its options regarding the project site and the ability to mitigate the project's fuel price risk. To ensure long term profitability, and the project's overall viability, several issues must be resolved before Pristine will proceed with the project.

Development Activities

In June 2009, Pristine submitted two bids in Colorado in response to the Black Hills/Colorado Electric Utility Company, LP ("BH/CO Electric") Non-Intermittent Resource Solicitation for the development of two 100 MW plants, each utilizing gas-fired reciprocating engines. If awarded, Pristine expects to hold a 100% interest in each of the projects. Should these projects be selected by BH/CO Electric in its short list of potential suppliers, a contract negotiation process will follow. The short list is expected to be announced by BH/CO Electric in the third quarter of 2009.

With respect to the two bids to the Southwestern Public Service ("SPS") in New Mexico made in the first quarter of 2009, for the development of two 200 MW natural gas peaking power plants that Pristine would hold 50% interest in, the SPS has delayed its award as it reviews its demand growth situation in light of the economic downturn.

As disclosed in the first quarter 2009, Pristine submitted two bids for the development of two 200 MW gas-fired generation plants to the Public Service Company of Colorado ("PSCO") All Source Solicitation in April 2009. In July, 2009 the Company was informed that these proposals had not been shortlisted by PSCO. Despite this, the Company has four bids outstanding in the United States, comprised of the two bids to BH/CO Electric and the two bids to SPS.

During the second quarter of 2009, in response to the introduction of the Green Energy Act by the Province of Ontario, the Ontario Power Authority proposed the establishment of a Feed-in Tariff Program ("FIT"), providing fixed and known prices to promote the development of onshore and offshore wind, bioenergy, small hydroelectric and solar resources. The objectives of the proposed FIT program are to increase capacity of renewable energy supply to ensure adequate generation and to reduce emissions while simplifying the method to procure and develop generation. Pristine is participating in consultations for the establishment of the rules of engagement for FIT, and the Company is evaluating resources and projects to offer under the FIT program for bioenergy and other technologies. The FIT program is expected to launch in later 2009.