Magma Energy Corp.

Magma Energy Corp.

May 17, 2010 06:35 ET

Magma Energy Corp to Hold 98.53% of Iceland Geothermal Energy Producer HS Orka

VANCOUVER, BRITISH COLUMBIA--(Marketwire - May 17, 2010) -

(All amounts in US dollars unless otherwise stated and use a conversion rate of 125 ISK/USD. All financial and production figures are approximate.)

Magma Energy Corp. (TSX:MXY) is pleased to announce 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 Króner ("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.

HS Orka published its first quarter 2010 financial results today and the results have been reconciled to Canadian GAAP. Summary financial information with respect to the operation of HS Orka, on a 100% basis, is as follows:

  For the Three Months Ended March 31,
For the Year Ended December 31,
Total revenue 14,170 49,834
Cost of energy production (9,706) (35,521)
Gross profit 4,464 14,313
Expenses (250) (2,941)
Other income (expenses) 7,611 46,314
Income tax recovery (expense) (2,212) (7,408)
Income (loss) for the period (i) 9,613 50,278
EBITDA 5,813 19,142
Total assets 335,636 318,534
Total liabilities 208,911 217,813
Cash and cash equivalents 2,092 1,218
Working capital (deficiency) 19,323 (26,984)

(i) Magma's share of equity income (loss) was $3.6 million for the quarter ended March 31, 2010 and ($1.9 million) for the quarter ended December 31, 2009.

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.

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 other operating power plants in Iceland. 

Cautionary Note regarding Forward-Looking Statements and Information

This 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, prospects for closing our acquisition of an interest in HS Orka, plans to expand our and HS Orka's geothermal power production, management's expectations regarding our growth, business prospects and opportunities and geothermal energy generation capacities. Such forward-looking information reflects management's current beliefs and is based on information currently available to management. 

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: conditions to closing our acquisition of an interest in HS Orka being met, 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 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.

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