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Rame Energy widens finance options with new deals

House broker Cantor Fitzgerald suggests Rame Energy's relationship with InterEnergy appears to be more than a one-off.
Rame Energy widens finance options with new deals
Lots of wind in Chile

-- updates for Cerro Coihue project --

Getting the funding for large infrastructure projects is a problem for all small companies, but Rame Energy (LON:RAME) is showing some dexterity in attracting partners for its portfolio.

The Chile–focused wind power group has just sold two more development projects in Chile ‘off-plan’ to Cayman Islands–based utility group InterEnergy.

A contract for the sales of the 9Mw (megawatts) Punta Chome and 6Mw Raki Sur has been signed with milestone payments expected of up to at least £2.03mln.

The final payment becomes due when Punta Chome and Raki Sur reach "ready to build" status and construction begins.

InterEnergy recently acquired two other wind power projects in Chile developed by Rame, Raki and Huajache, and the companies have agreed terms for a service contract for these going forward.

Rame will also help develop InterEnergy’s Chilean LNG (liquid gas) distribution business.

What the broker says

House broker Cantor Fitzgerald suggests Rame Energy's relationship with InterEnergy appears to be more than a one-off.

“In our view such a relationship can allow Rame to do what it does best - namely to prospect, plan and commission strong renewable energy projects in Chile.

“The payment structure in these deals should enable the company to recycle capital more quickly and to take advantage of further opportunities in the market.”

What the boss says

On InterEnergy:

Tim Adams, Rame’s chief executive, said he was delighted to be working more closely with InterEnergy. 

“Having designed, built and sold the Raki and Huajache projects, we are ideally placed to operate and maintain them on behalf of InterEnergy.”

Switch on at Cerro Bayo

Rame is also about to switch on its 1.8MW wind project to supply power to miner Mandalay Resources Corp's (TSE:MND) Cerro Bayo gold mine in the Patagonia region of Chile.

The Cerro Coihue project, estimated to provide the firm with revenues of more than $400,000 annually over five years, involves three turbines in a very remote location and has been financed in cooperation with German partner, Anden Re.

Construction was completed on March 14 and operational start-up is expected within two weeks.

Why Chile?

Chile is renowned as the country of huge copper mines, but powering these enormous open pits is proving ever more difficult.

The Cerro Coihue project underlines the power problems facing miners in the country and Rame wants to establish a blueprint of how to build and run wind and other renewable sources of electricity.

Ruki/Huajache, in July, was the first project commissioned but Tim Adams, Rame‘s chief executive, wants 300Mw of generating assets in Latin America within the next three years.

It’s possible, as Cantor says Rame’s presence in Chile should not be underestimated.

“The business community, and within it the renewable energy industry community, is small and Rame has been able to build a strong reputation within this.”

It is viewed as a leading developer and has a healthy pipeline of projects.

As the industry in Chile matures, Cantor expects demand from income seekers for operating renewable energy projects to increase in step, with US pension funds leading the way.

Projects in Chile have not yet been of sufficient size to attract direct institutional investment, says the broker, but the ‘yieldco’ trend has continued to grow driven by North American investors.

Rame has so far been involved in almost a quarter of Chile’s wind generation projects and before InterEnergy had set up project development deals with two finance partners, Santander and German group Anden.

Santander is providing the funding for a portfolio of 133 Mw of wind farm projects.

For its funding, the bank will take between 80-90% of a project once commissioned with Rame owning the remainder and also receiving construction and management fees.

Raki/Huajache was the first project completed under the Santander arrangement.

Longer term potential

It is the longer term potential that has Cantor more excited though. Chile faces a growing energy crisis.

Hydro-electricity has been hit by a long lasting drought while gas imports are limited by limited liquefied natural gas (LNG) import facilities.

Indeed, one aspect of the InterEnergy deal is for Rame to help the Cayman company build a LNG distribution network in Chile.

Longer term, Rame, which has a solar operation as well as wind farm expertise, may take larger equity stakes as more projects come on line.

That would be “potentially game changing for Rame” suggests Cantor, although it adds it would depend on the cost of the additional finance.

What's it worth? 

Cantor sees sales rising from US$2.2mln last year to US$6.6mln by end 2017, which coincides with a move into the black.

Cantor Fitzgerald kept its target price at 24p, or almost three times the current market price of 8.4p.

“Rame’s progress at the Cerro Colhue off-grid project follows the announced sale of two of its on-grid projects. The project details confirm our forecasts and valuation which now represents almost 3x upside. “

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