www.ipsagroup.co.uk
IPSA was established to develop, own and manage power generation plants in Southern Africa. The Company’s management has an established track record in developing power projects worldwide and with relevant experience in the electricity sector in South Africa. It has two principal business objectives, the development and ownership of power generation facilities in Southern Africa in order to sell electricity and/or heat or steam to companies and communities on commercial terms; and in due course, the purchase, refurbishment and operation of existing power plants in the region.
IPSA’s value will be ‘quite substantial’ after turbine sales complete, says Peter Earl
By selling four gas powered turbines on July 20, IPSA (LON:IPSA) chief executive Peter Earl may well have brought the company back from the brink.
But having spoken to Earl, Proactive Investors has learnt that this deal is more than simply a means to clear the group’s debt. Crucially Earl reckons his South African independent power business will now have ample cash left over to push ahead with a new phase of growth.
It was less than two weeks ago that IPSA’s patient investors celebrated the news that two deals were finally in place to sell four gas turbines for £41 million.
The turbines were initially bought for the Coega power plant, a project shelved back in 2008. Since then the expensive turbines have been a costly burden and the group has had to rely on its creditors.
But after years of uncertainty the future is beginning to look much brighter for IPSA, which now plans to focus all its attention on the Newcastle Cogeneration power plant that generates electricity and also sells by-product steam to neighbouring industrial customers.
"The value of IPSA’s remaining business will be quite substantial and IPSA shareholders will benefit from this once the turbine sales are complete and we’ve cleared our debt," chief executive Peter Earl told Proactive Investors.
“When the dust settles, I believe we will be looking at a net worth in the mid-twenties (pence per share) based on the last audited balance sheet.”
At the end of March IPSA had £2.9 million in cash and its debt totalled £36.8 million. Now it is set to receive a £41 million windfall from the turbine sales and it plans to clear its debts, leaving a meaningful cash pile for the group’s future development.
“Our cash position should be at least £7 million and it could be higher than that,” Earl said.
He explained that around £4 million of IPSA’s outstanding liabilities are tied in with a commercial dispute relating to a previous contract with Sasol Gas Limited, and IPSA may actually ultimately pay less than the amount initially claimed by Sasol under take or pay provisions.
Meanwhile, Earl believes that the group’s core asset, the Newcastle independent power plant (IPP) could be worth more than the US$23 million it cost to build the plant back in 2006 and importantly he hopes that IPSA’s investors will now focus on this part of the business.
“We’ve made a number of announcements about the Newcastle plant which I don’t think many investors really took on board while the turbines were still an issue,” Earl said.
“And we’re now looking to expand the Newcastle plant to maximise its potential capacity on the grid.”
“Newcastle is now in positive cash flow territory and we continue to work on improving margins, revenues and output,” Earl added.
“We’ve got an active contract with South Africa’s main power distributor, Eskom, which is buying in power from Newcastle at a premium under the Medium Term Power Purchase Programme (MTPPP).”
“And we are now finally cranking up our steam sales on the site, so we are now generating revenues from power generation and from steam.
“In order to maximise our profitability of Newcastle we have to be selling both electricity and stream, but if we’re not generating electricity then we can’t sell steam.
“So it’s a delicate balance,” he said. “When Eskom stopped buying electricity from us in 2008, a period during which electricity demand fell, it was a big problem.
“But now they’re buying all the power we can generate at a good price and life is now much easier for IPSA.”
Looking forward, Earl added: “It is quite likely that we will look at ways to improve the output at the Newcastle plant, to improve margins – that might mean adding a bit more capacity, tweaking it, or doing some other technical stuff.”
Earl explained that this won’t be a major undertaking instead it will be a case of juicing some extra megawatts one way or another.
While the Newcastle plant is currently debt free, Earl revealed that IPSA will look to refinance the plant in the future to ‘bring cash back to London’.
“Normally you’d be 70-30 debt to equity. But at Newcastle we’ve had to be 100 per cent equity. But now that the turbines have been sold we can refinance the Newcastle plant and free up some more cash for our development plans.”
Specifically with reference to those development plans for Newcastle, Earle adds: “We’ve been looking at a few options, but needed to get the turbines sold before we could consider them seriously. And now that’s what we’ll be doing next.”
Now that he has finally sold the turbines, a success that some had doubted would ever come, investors will now be watching eagerly to see if Peter Earl can pull another rabbit out of his hat, for his other IPP company Rurelec (LON:RUR).
In May 2010 the Bolivia’s President Evo Morales nationalised Rurelec’s interest in IPP firm EmpresaGuaracachi, and international arbitration proceedings begin in December over the compensation due to Rurelec.
Speaking about Rurelec’s ongoing talks with Bolivia, Earle said: “It is all progressing positively, but I can’t really talk about that in any detail at the moment.”
