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Press release from CNW Group


Tuesday, September 28, 2010

MAGMA ENERGY CORP ANNOUNCES FOURTH QUARTER AND AUDITED 2010 YEAR END RESULTS20:38 EDT Tuesday, September 28, 2010(All amounts in US dollars and all production figures are gross MW unless otherwise stated. MW are presented according to the Geothermal Reporting Code)VANCOUVER, Sept. 28 /CNW/ - Magma Energy Corp. (TSX:MXY) today reported its fourth quarter and audited financial and operating results for the fiscal year ended June 30, 2010. The Company also provided an update on its operations. This earnings release should be read in conjunction with the Company's 2010 Audited Annual Consolidated Financial Statements, Notes thereto, Management's Discussion and Analysis and Annual Information Form for the corresponding period, which are available on the Company's website at and have been posted on SEDAR at on today's announcement, Ross Beaty, Chairman and CEO, said "2010 has been an exciting inaugural year for Magma Energy as a public company. Since our IPO in July 2009, we have grown our production from 11 megawatts to 186 megawatts and have increased our reserves and resources nearly seven-fold. We have a balanced portfolio of operations and exploration in three core geothermal regions in the world, Iceland, Chile and Nevada, including a leading exploration position in the US to complement our expanding Soda Lake operations, enabling us to participate in the country's generous renewable energy grant programs. I look forward to continued rapid growth in the forthcoming year."Financial ResultsMagma commenced operations in 2008, began generating revenue in October, 2008 and as at June 30, 2010 held only a 46.18% interest in HS Orka requiring it to equity account for HS Orka's operations. Subsequent to year-end, Magma acquired another 52.35% of HS Orka and will now consolidate its results. Therefore, Magma's financial results presented here are not reflective of financial results in the future and comparisons of revenues and expenses are not meaningful.Summary Financial Results(expressed in thousands of dollars, except for MWh and per share amounts) << ------------------------------------------------------------------------- For the For the Three Three Months Months For the For the Ended Ended Year Ended Year Ended June 30, June 30, June 30, June 30, 2010 2009 2010 2009 (unaudited) (unaudited) (audited) (audited) ------------------------------------------------------------------------- Production (MWh) 17,268 14,991 62,072 47,589 Total revenue 1,347 1,256 5,056 4,485 Gross profit 488 644 1,659 1,482 Expenses 3,493 1,261 9,997 4,966 Other expenses 5,669 1,260 8,108 976 Loss for the period 8,674 1,877 16,446 4,460 EBITDA(1) 2,978 (1,592) (3,261) (3,004) Loss per share (basic and diluted) .04 .01 .07 .03 Total assets 198,703 43,780 198,703 43,780 Total liabilities 56,633 4,582 56,633 4,582 Cash and cash equivalents 25,343 4,483 25,343 4,483 Working capital 21,426 2,748 21,426 2,748 ------------------------------------------------------------------------- (1) EBITDA is defined by the Company as earnings before interest, taxes, depreciation and amortization, as well as before deductions for non- cash charges related to employee compensation and changes to the balance sheet carrying value of long-term debt. 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. >> Revenues from energy sales were $5.1 million, and gross profit from the Soda Lake operations was $1.7 million. The net loss for the year of $16.4 million or ($0.07) per share was primarily related to a non-cash $10.8 million equity loss from Magma's investment in HS Orka, increased expenses of $10.0 million related primarily to Magma's rapid growth and the write-off of $0.9 million of geothermal properties partially offset by the Soda Lake operational gross profit of $1.7 and foreign currency gains of $4.3 million.At June 30, 2010 Magma owned 46.18% of HS Orka and recorded a $10.8 million equity loss for the period. While HS Orka's income from operations was 70% higher than the same period last year, HS Orka reported a net loss of $18.2 million for the six months ended June 30, 2010. This loss was primarily the result of a non-cash loss of $31.8 million in the fair value of embedded derivatives in sales contracts. Approximately 50% of HS Orka's power sales are partially indexed to the price of aluminum resulting in embedded derivatives. Changes in the forward price of aluminum result in a fair value change of the derivative. At June 30, 2010 the forward price of aluminum on the London Metal Exchange was lower than the value at December 31, 2009. HS Orka's EBITDA for the six months ended June 30, 2010 was $12.1 million.On a cash basis for the year ended June 30, 2010, the Company spent $97.8 million on investing activities, including investments of $67.7 million to acquire a 46.18% interest in HS Orka, $16.0 million to acquire and explore the Company's portfolio of exploration projects and $13.4 million on the Soda Lake expansion and other equipment. At June 30, 2010, Magma had cash and cash equivalents of $25.3 million, working capital of $21.4 million, and long-term debt with a fair value $49.3 million. Subsequent to year end, the Company completed a secondary equity offering for net proceeds of C$43.3 million and entered into a credit facility agreement of C$10.0 million.HS Orka OperationsSvartsengi's 75 MW power plant and associated 150 MW district heating system, as well as the 100 MW Reykjanes power plant produced as expected during the quarter. Progress on the two phase, 80 MW expansion at Reykjanes also continued when a new well, R-29, commenced drilling in the fourth quarter and a 50 MW turbine generator arrived on site. The well is currently being flow tested to establish its power production potential. $38 million of the $116 million budget for the first 50 MW expansion phase has been expended to date. The remaining cost for the expansion is expected to be funded mainly from HS Orka's cash on hand and by debt financing. To proceed with the expansion, HS Orka will require an expansion to its operating permit from the National Energy Authority as well as Power Purchase Agreements for the plant's expanded output.Soda Lake OperationThe Phase 1 expansion of Soda Lake's output from 11 MW to nameplate capacity of 23 MW is ongoing. Three new wells have now been drilled and an existing well which had been shut in for many years has been brought back into service. A full field optimization program is underway in order to re-balance production and re-injection at Soda Lake. An extensive refurbishment completed in late 2009 increased the power conversion efficiency and added 1 MW of net power output. Magma expects to complete the Phase 1 expansion by the end of 2010. Upon completion of Phase 1, the Company will apply for the US Federal Treasury Grant which is valued at up to 30% of the eligible project costs.Magma has also commenced a 14 MW Phase 2 expansion at Soda Lake based on a revised field potential estimate that was prepared earlier in the year in accordance with the Geothermal Reporting Code. Initial work will comprise geophysical and drill programs which will be assisted by a $5 million US Innovative Exploration and Drilling grant. Phase 2 is also expected to qualify for the 30% US Federal Treasury Grant program.Negotiations have commenced with NV Energy and another Off-Taker to improve the power pricing under the current Power Purchase Agreements and for the planned increase in output expansion efforts. Portfolio Energy Credits are also a revenue stream at Soda Lake and are currently being held for future sale.Exploration ActivitiesDuring the fourth quarter of fiscal 2010, Magma acquired three new geothermal leases in Nevada from the Bureau of Land Management for $0.8 million. These additions strengthened our land position on two existing properties, Desert Queen and Granite Springs. Exploration work consisting of environmental assessments, geophysical surveys and temperature gradient wells are on-going at Soda Lake, McCoy and Desert Queen.In Chile, at Magma's Mariposa reservoir, a 50 MW exploitation permit was granted in the fourth quarter on the Maule property. 24 kilometers of road and camp infrastructure were constructed enabling Magma to establish year round operations. Two new slim holes have been drilled to further characterize the reservoir. More slim holes are planned and all data will be used in a reservoir model to update the current 320 MW Inferred Resource estimate.In Peru, exploration work consisting of water chemistry, geologic mapping and structural analysis continues on Magma's properties, which hold significant potential for large high temperature geothermal systems.OutlookMr. Beaty concluded, "Geothermal power is a great, clean energy source. I am really pleased we have already built a large, sustainable geothermal energy company and look forward to continuing growth in the years ahead as we seek to further expand our Soda Lake and HS Orka operations, further develop Mariposa and continue to discover new geothermal resources in Nevada, Chile, Peru and Iceland."About Magma Energy Corp.Magma Energy Corp. is a geothermal power company which operates, develops, explores and acquires geothermal energy projects. We have an extensive portfolio of properties throughout the western United States, Iceland and Latin America, including one operating power plant in Nevada and two in Iceland. << ------------------------------------------------------------------------- Magma Energy will host a conference call to discuss financial and operating results on Wednesday, September 29, 2010 at 11:30 am ET (8:30 am PT). North American participants dial 1-877-240-9772 and International participants dial 1-416-340-8527. The call will also be broadcast live on the Internet at The call will be available for replay for one week after the call by dialing 1-416-695-5800 / 1-800-408-3053 (for North American and International callers) and entering replay pin number 3548841. ------------------------------------------------------------------------- >> Cautionary Note regarding Forward-Looking Statements and InformationThis news release contains 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, revenues, requirements for capital, future demand for and prices of electricity, business prospects and opportunities, exploration and development, geothermal resources, recoverable geothermal energy or energy generation capacities. Such forward-looking information reflects management's current beliefs and is based on information currently available to management.In addition, it is worthy of note that the financial results of HS Orka represent the first operating year of the company in its present form. As such, future results could differ materially from those reported or anticipated. Accordingly, prospective investors should not place undue reliance on the current reported financial results. 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.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. The forward-looking information is 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, 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 reserve estimation methodology and analysis used to estimate the quantity of potentially recoverable thermal 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; 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.For further information: Alison Thompson, Vice President, Corporate Relations, Magma Energy Corp., Phone: 604.646.1882, Email: