Finavera Wind Energy: Slow Progress
Tom Konrad CFAWithout a press release since June, and the stock price in the doldrums, investors have been looking for updates on Finavera Wind Energy (TSXV:FVR, OTC:FNVRF. Disclosure: I own this stock.) In fact, there has been an update: Finavera’s second quarter interim report, filed on August 28th on SEDAR, but without a press release or news articles, many investors seem to have missed it.
Despite the lack of updates, progress continues behind the scenes, although Jason Bak, Finavera’s CEO is yet not able to say much about the ongoing initiatives. On Friday, he told me, “I’m keen to get more news out to shareholders, towards the end of September or early October may be appropriate.” Until then, we’ll have to make due with what we can glean from the interim report.
Selling wind projects to Pattern
The timeline for the sale of Finavera’s Canadian wind projects to Pattern has slipped slightly, although progress continues. According the the interim report, “Closing of the Pattern Transaction is now dependent upon the receipt of various required consents and regulatory approvals; performance of the Company’s covenants and obligations under the PSA Agreement; assuming no Material Adverse Changes and other standard closing conditions.”
- Finavera expects to receive between C$11.7 and C$18.7 million, net of loan repayments, depending on the final project sizes (see below.) It anticipates between C$3 million and C$5 million in additional development costs to bring the projects to financial close, the first $2 million of which will be paid by Pattern. The Q2 MD&A was not clear if the C$3-C$5 million was in addition to the the amount covered by Pattern, or inclusive of it, but I have confirmed with the company that the latter is the case, and the expected development costs payable by Finavera range between C$1 and C$3 million. Finavera has internally budgeted $2.7 million (at the upper end of the range) for these development costs.
- The company has received shareholder approval and consent from the Toronto Venture Exchange.
- There has been some delay submitting the Meikle project for environmental review. When I last spoke to Bak, he expected this in July, he now says it will be submitted in mid September.
- Finavera has been collecting wind data on which the final project sizes and payments will depend. Bak tells me a decision on project size is “imminent.”
- The company is in the process of obtaining preliminary assent from BC Hydro for the transfer of the Power Purchase agreement to Pattern. According to the interim report, “Such preliminary consent is expected imminently” as of August 28th. Bak was not able to give me any further information about the timing.
- Financial close of the transaction is “expected mid-2014 to early 2015.” This was previously expected in the second half of 2014.
Cloosh Valley Wind Farm
This 105 MW estimated capacity wind farm is still anticipated to close on project financing in late 2013. At that point, Finavera expects to receive €7.14 million (C$9.79 million.) It is considering options for its remaining 10% stake in the farm.
Use of proceeds from the Pattern transaction
Data in C$ million, except for shares (millions) and per share data.
|Item||Worst Case||Expected||Best Case|
|Future Development costs||($3)||($2.7)||($1)|
|Sale of 10% Cloosh Stake||$3||$3||$4|
|8/28/13 Net Liabilities||($23.9)||($23.9)||($23.9)|
|C$ per share||$0.17||$0.22||$0.42|
|Data in C$ millions except shares (million) and per share data. Sources: Finavera Q2 2013 MD&A, Jason Bak interviews.|
After repaying all its obligations after the close of the Cloosh and Pattern transactions, Finavera should have between C$6.8 million and C$16.8 million in cash on hand, or between 17 and 42 cents per share (see table.) This is less than my previous estimates. Ongoing development costs have risen from my previous estimates. My most recent estimates are shown in the table to the right.
Finavera plans to give shareholders a say in the use of these proceeds, and the company is currently working on the terms of a future development deal to present to shareholders. When the terms of this deal are finalized, it will be presented to shareholders. An alternative use of the funds will be to simply return it to shareholders.
With timelines slowly slipping, costs inching up, and an earlier revision to the deal with Pattern which greatly reduced the potential payoff, I’m very disappointed. Other shareholders are, too, which is why the stock is currently trading at C$0.15, and has traded as low as C$0.13 recently.
With only a 50% expected gain left after another year which could produce yet more timeline slippage, I’m not in a rush to buy more, although the potential gains are easily enough to keep me around at this price.
Disclosue: Long FVR
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