Maxim Power Corp.
TSX : MXG

Maxim Power Corp.

May 25, 2010 08:00 ET

Maxim Power Corp. Receives Arbitration Decision for Coal Supply Agreement and Issues 2010 Guidance

CALGARY, ALBERTA--(Marketwire - May 25, 2010) - Maxim Power Corp. ("MAXIM" or the "Corporation") (TSX:MXG) announced today that it has received an arbitration decision relating to the dispute between its wholly-owned subsidiary, Milner Power Limited Partnership ("MPLP"), and Coal Valley Resources Inc. ("CVRI") regarding the price MPLP pays for coal purchased from CVRI.

Arbitration Decision

To date, MPLP's supply of thermal coal to its HR Milner Facility has primarily been sourced from a CVRI mine located in Hinton, Alberta. In July of 2008, MPLP exercised its option to extend the term of the coal supply agreement for an additional five years expiring on December 31, 2013. CVRI was of the view that they had the right to initiate a price review for the extended term and requested the price for coal be increased above the price provided for under escalation provisions of the agreement. An independent arbitrator was appointed to consider the matter and rendered two concurrent decisions. The arbitrator firstly decided that a price review was warranted and secondly established the price that MPLP is to pay for coal purchased from CVRI effective February 1, 2009. MAXIM is providing guidance to apprise investors of the impact of this decision. MAXIM has a number of options available to mitigate the effects of this higher price in 2010 and beyond including alternative sources of coal supply and development of its Mine No. 14 (see below).

Guidance

MAXIM is issuing guidance for its projected 2010 results. This guidance is considered to be "forward looking information" and is subject to important risks and uncertainties. Refer to Forward Looking Information below.

Maxim Power Corp. Projected 2010 Results

($000's, except per share amounts) For the year ending December 31, 2010
EBITDA (1) 40,000
Funds from operations (1) 30,900
Fund from operations per share - basic and diluted (1) (2) $   0.57
Net income  
  - Net income excluding 2009 portion 8,800
  - Impact to 2010 net income for 2009 coal purchases (4,300)
  - Net income 4,500
Net income per share - basic and diluted (2) $   0.08
(1)   The following measures are not measures under Canadian Generally Accepted Accounting Principles ("GAAP") and may not be comparable to similar measures presented by other companies.  Refer to the reconciliation to Non-GAAP measures below.
  - EBITDA is a measure of earnings before interest, taxes, depreciation and amortization.
  - Funds from operations is a measure of cash flow from operations before working capital requirements
(2)    Per share amounts are calculated in accordance with per share data provided in the assumptions

Net income presented above includes the full impact of the coal contract arbitration decision. The total impact of this decision is a reduction in net income of $8.8 million, $4.3 million of which relates to coal supplied from February 2, 2009 to December 31, 2009 and $4.5 million of which relates to forecast 2010 coal supply.

These projections are based on MAXIM's existing portfolio of assets, do not include the impact of possible acquisitions or commercialization of development initiatives, and are based on the following assumptions:

Maxim Power Corp. Assumptions for 2010 Projected Results

($000's, except as otherwise noted)   For the year ending December 31, 2010
Electricity deliveries (MWh) 1,341,900
  HR Milner 961,100
  Other facilities 380,800
Net generation capacity at year ending (MW) 809
Capital expenditures (excluding acquisitions)  
  France repowering and peaking facilities 7,300
  Development projects 3,500
  Other assets 2,100
  HR Milner 1,200
Average 2010 Alberta spot electricity price ($/MWh) $  64.00
Average annual foreign exchange rates  
  C$/USD $  1.01
  C$/Euro $  1.36
Weighted average shares outstanding (000's) 54,030

The 2010 forecast is subject to, among other things, spot electricity prices in Alberta. A $1.00 per MWh increase in the average Alberta spot electricity price for the balance of year commencing June 1, 2010 will increase 2010 EBITDA by $531 thousand, funds from operations by $531 thousand and 2010 net income by $490 thousand with corresponding changes to per share amounts. A decrease of $1.00/MWh has the opposite effect on EBITDA, net income, and corresponding per share amounts. 

The 2010 forecast assumes all sales of HR Milner generation output are at Alberta spot market prices. In France, the cogeneration season ended on March 31, 2010 and a new season begins on November 1, 2010. MAXIM continues investing in its development initiatives related to its Mine 14, Milner Expansion, Deerland and Buffalo Atlee projects. In addition, the 2010 forecast assumes turnaround maintenance will be carried out at HR Milner over a fifteen day period in Q2, 2010.

Mine 14

As previously announced in December 2009, MAXIM obtained approval of the Energy Resources Conservation Board ("ERCB") and authorization of the Lieutenant Governor in Council for the permit to develop the Milner No. 14 coal mine. MAXIM is currently reviewing options for construction and operation of the mine including bringing in a third party investor or partner. In this regard, MAXIM is evaluating various alternatives to capitalize and operate the mine. MAXIM anticipates that development of the mine will commence once key commercial arrangements necessary to support development have been concluded.

Reconciliation of Non-GAAP Measures

Funds from Operations ("FFO")

($000's, except per share amounts)  
Cash flow from Operations 4,700
Changes in Working Capital 26,200
Non-GAAP measure - FFO 30,900

EBITDA

($000's, except per share amounts)  
Net income for the year 4,500
Income taxes 3,600
Interest expense 5,900
Depreciation and amortization 20,500
CVRI arbitration settlement - coal purchased in 2009 (pre-tax) 5,500
Non-GAAP measure - EBITDA 40,000

Forward Looking Information

Certain information in this press release is forward-looking and is subject to important risks and uncertainties. The results or events predicted in this information including the aforementioned guidance for 2010 and prospects relating to capitalization and operation of Mine 14 may differ materially from actual results or events. Factors which could cause actual results or events to differ materially from current expectations include the ability of the Corporation to implement its strategic initiatives, the availability and price of energy commodities, government and regulatory decisions, plant availability, competitive factors in the power industry and prevailing economic conditions in the regions that the Corporation operates. Forward-looking statements are often, but not always, identified by the use of words such as "anticipate", "plan", "estimate", "expect", "may", "project", "predict", "potential", "could", "might", "should" and other similar expressions. The Corporation believes the expectations reflected in forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct. These forward-looking statements speak only to the date of this press release. The Corporation disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise except as required pursuant to applicable securities laws.

Readers are cautioned that management's expectations, estimates, projections and assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements.

About MAXIM

Based in Calgary, Alberta, MAXIM is an independent power producer, which acquires or develops, owns and operates innovative and environmentally responsible power projects. MAXIM currently owns and operates 44 power plants in western Canada, United States and France, having 809 MW of electric and 117 MW of thermal net generating capacity. Approximately 80% of MAXIM's current portfolio is comprised of clean burning natural gas, high efficiency cogeneration, waste heat and landfill gas fuelled generation. MAXIM trades on the TSX under the symbol "MXG". For more information about MAXIM, visit our website at www.maximpowercorp.com.

Statements in this release which describe MAXIM's intentions, expectations or predictions, or which relate to matters that are not historical facts are forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties which may cause the actual results, performances or achievements of MAXIM to be materially different from any future results, performances or achievements expressed in or implied by such forward-looking statements. MAXIM may update or revise any forward-looking statements, whether as a result of new information, future events or changing market and business conditions and will update such forward looking statements as required pursuant to applicable securities laws.

Contact Information

  • Maxim Power Corp.
    John R. Bobenic
    President and CEO
    (403) 263-3021
    or
    Maxim Power Corp.
    Michael R. Mayder
    Vice President, Finance and CFO
    (403) 263-3021
    www.maximpowercorp.com