Reservoir Capital Corp.

Reservoir Capital Corp.

June 19, 2012 07:00 ET

Reservoir Capital Corp.: Feasibility Study Completed for the Brodarevo 1&2 Hydroelectric Projects in Serbia

VANCOUVER, BRITISH COLUMBIA--(Marketwire - June 19, 2012) - Reservoir Capital Corp. (TSX VENTURE:REO)(FRANKFURT:ROC)(BERLIN:ROC) ("Reservoir" or the "Company") is pleased to report that its independent hydroelectric power consultant, Energoprojekt Hidroinzenjering Co. Ltd. ("EHC") of Belgrade, Serbia, has completed a feasibility study for the Company's Brodarevo 1 and Brodarevo 2 hydroelectric projects on the River Lim in southwest Serbia.

Highlights of the feasibility study include:

  • Recommended increase in capacity from 58.4 megawatts ("MW") to 59.1 MW;
  • Projected output of 232.5 gigawatt hours per year ("GWh/year");
  • Capital cost of approximately €145.83 million;
  • Estimated after-tax equity internal rate of return ("IRR") of 24.04%; and
  • Estimated after-tax levered net present value ("NPV") using a 10% discount rate of €71.72 million.

Plant Design

EHC has recommended a capacity increase from the pre-feasibility of 58.4 MW to 59.1 MW, with a corresponding output of 232.5 GWh/year. The study has also defined dam sites and provided recommendations for the design of the hydroelectric power plants, as summarized in the table below:

License Plant Site Water
Brodarevo 1 Junakovina 519 19.73 150 26.0 103.4
Brodarevo 2 Lucice 488 24.70 150 33.1 129.1
Total 59.1 232.5
* metres above sea level

Capital Cost

Total capital cost of the project is estimated to be €145.83 million, including €34.08 million related to the construction of 7.31 kilometres of new road and tunnels on the M21 highway between Prijepolje and Bijelo Polje, where it will be affected by the project.

The budgeted costs are set out in the following table:

License Civil
Brodarevo 1 19,134 5,184 8,151 12,250 26,358 711 71,787
Brodarevo 2 23,806 4,911 8,787 11,813 23,993 733 74,043
Total 42,940 10,095 16,938 24,063 50,351 1,444 145,830
% of Total 29% 7% 12% 17% 35% 1% 100%
Note: Capital expenditure estimates include contingencies of 8% on the civil works, 5% on equipment and roads and 15% on the construction of the road tunnels.

Timing and associated costs of the construction pursuant to the study are set out in the table below:

Type of Works 1st year
2nd year
3rd year
4th year
Civil Works 10,398 14,422 14,284 3,835 42,939
Equipment 10,339 14,684 17,272 8,801 51,096
Prime Costs 44,385 2,082 2,131 1,753 50,351
Working Capital -- -- 733 711 1,444
Total 65,122 31,188 34,420 15,100 145,830
% of Total 45% 21% 24% 10% 100%

Note: Anticipated construction time for Brodarevo 1 is 4 years, and Brodarevo 2 is 3 years.

Electricity Sales & Operating Costs

The Brodarevo 1 and 2 projects have been included in the Italy-Serbia bilateral agreement on renewable energy, whereby Serbia may export green energy into Italy (see Company news release of February 7, 2012). Under the terms of this agreement, all renewable energy produced by approved projects in Serbia and exported to Italy will receive a guaranteed price of €155 per MW hour ("MWh") for a 15-year term. For the purposes of the feasibility study, EHC has used a more conservative net realized price of €147.5 per MWh to reflect costs associated with transmitting the power from Serbia to Italy and assumed that the projects will sell electricity into the regional Serbian market following the initial 15-year term at a projected price of €80 per MWh.

EHC has estimated annual operating expenses of €1.1 million for Brodarevo 1 and €1.3 million for Brodarevo 2, for a total of €2.4 million per year or €10.2 per MWh on average.

Financial Analysis

Based on EHC's assumptions and calculations, the after-tax unlevered IRR is estimated to be 13.14% for Brodarevo 1, 16.79% for Brodarevo 2 and 15.07% for the combined projects. The after-tax unlevered NPV of the combined projects at an 8% discount rate is estimated to be €98.657 million, and at a 10% discount rate is estimated to be €58.797 million.

Unlevered After-Tax
Financial Metric
Brodarevo 1 Brodarevo 2 Combined
IRR 13.14% 16.79% 15.07%
NPV @ 8% (€000) 34,507 63,869 98,657
NPV @ 10% (€000) 17,441 41,215 58,797

Reservoir anticipates 30% of the project capital will be financed by equity and intends to obtain debt from a syndicate of lenders for the remaining 70%. For the purposes of the feasibility study, the Company has assumed, based on preliminary discussions with potential lenders, that the debt will have a 15-year term from initial drawdown and be subject to an annual interest rate of 6.5%.

Based on EHC's assumptions and the capital structure outlined above, the after-tax equity internal rate of return for the combined projects is estimated to be 24.04%. The after-tax levered NPV of the combined projects at an 8% discount rate is estimated to be €101.20 million and at a 10% discount rate is estimated to be €71.72 million.

Levered After-Tax
Financial Metric
IRR NPV @ 8% (€000) NPV @ 10% (€000)
Combined 24.04% 101,202 71,725

"We are very pleased to have reached this important milestone and encouraged that the feasibility study projects a solid economic return on both Brodarevo 1 and 2," said Miljana Vidovic, President & CEO.

About Reservoir

Reservoir is a renewable energy company that is engaged in the development of a 59.1 MW hydroelectric project at Brodarevo in southwest Serbia. Reservoir holds four geothermal exploration licenses in Serbia and has applied for three hydroelectric concessions on the Cehotina River in Bosnia (17.75 MW). Reservoir's common shares trade on the TSX Venture Exchange (symbol "REO") and on the Frankfurt and Berlin Exchanges (symbol "ROC").

Cautionary Note regarding Forward-Looking Statements and Information

This news release contains forward-looking statements and factual information that are current as of the date hereof. Forward-looking statements include, but are not limited to, statements with respect to the timing and amount of estimated future development activities and expenditures, requirements for additional capital and financial performance based on, among other things, assumptions about future economic conditions.

Forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among others, risks related to actual results of project development activities; changes in project parameters as plans continue to be refined; the ability to enter into joint ventures or to acquire or dispose of projects; future prices of electricity; accidents, labour disputes and other risks of the power industry; ability to obtain financing; and delays in obtaining governmental approvals.

For further information on Reservoir Capital Corp., please consult the Company's website

Neither the TSX Venture Exchange nor the Investment Industry Regulatory Organization of Canada accepts responsibility for the adequacy or accuracy of this release.

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