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Rurelec: Poised for rejuvenating period of growth

After a challenging period Rurelec is getting back in the business of building power plants. And chief executive Peter Earl reveals that dividends may resume next year.
Rurelec: Poised for rejuvenating period of growth

Rurelec (LON:RUR) is poised for a potentially rejuvenating twelve months as the South American power company gets back on track.

A significant cash injection is on the way and the project pipeline has been replenished. 

“We are back in the business of developing and building power plants," Rurelec chief Peter Earl told Proactive Investors.

This sentiment is likely to buoy Rurelec’s patient investors. The company itself admits it has been a long and arduous slog for the company to reach this point. 

In 2008, Rurelec was among scores of growth companies that were frozen out of the funding market. Then two years later, in May 2010, it was ousted from Bolivia by the country's new President Evo Morales.

“We’ve come through a horrible time since 2008 and we are now recovering. We are now working to replace all the megawatts (of generation capacity) that we lost in Bolivia. 

“And I believe that by next year we will be at a point where we’ll be able to start paying our dividends to our investors again.

“We are moving into a new growth phase and we hope to be paying dividends from 2013 onwards.”

Importantly Earl’s optimism for the future is without caveat or condition. He says this future growth is coming regardless of what happens with Rurelec’s arbitration claim against Bolivia. 

A date is set for the hearing, for April next year, and it is expected that Rurelec will be awarded compensation in the range of US$75 and US$142 million. 

And Earl is keen to stress that there’s no disputing Rurelec’s right to compensation and the disagreements relate only to the amount of compensation that’s due.

“There’s no argument that money is owed; the dispute is with the quantum of compensation.

“If there isn’t a settlement beforehand, then in April the arbitration panel will simply come up with a number (between US$75 and US$142 million).”

Earl points out that often an arbitration panel will make an award within the middle of the range, so around US$100 million is a likely outcome. And given that, at the current price of 7p, Rurelec is worth just shy of £30 million any award will be very significant for the company.

Once the money is in the bank, Rurelec plans to buy-back 25 per cent of the company’s shares.

Rurelec has also already borrowed against some of the expected windfall. In early July, the company banked US$15.45 million through a funding deal tied to the future receipt of compensation.

And this money is being invested in Rurelec’s new growth phase. It will help the firm develop its new projects in Chile and Peru. Significantly, it will see Rurelec greatly increase upon the 136 megawatts of generating capacity currently online in Argentina.

“To get back to where we were before, we need to replace 540 megawatts of capacity.” 

To do that Rurelec is planning to add around 300MW initially in Chile, and 300MW in Peru. And this capacity will come from new projects that it will build from scratch since power plants which are already built change hands at a big premium in those markets.

Much of the high risk groundwork has already been done by its partner, Independent Power Corporation, a specialist in green field development, and Rurelec is now in a position to progress at least one significant project.

The Arica project in Northern Chile will be the first project. It will have a capacity of 38MW and it is only awaiting environmental approval coming few days before it achieves financial close and construction work can begin.

Beyond that, Rurelec also has the Mejilones project which is much larger, at 255MW. Like Arica this project is now awaiting environmental approval. The green light is expected in the next two to three weeks. 

The project will also need arrangements for project financing once it has had the environmental sign off.

“The two new Chilean projects will transform Rurelec. It will mean we’ll have the bulk of our megawatts in Chile and not Argentina. That will allow us to start getting re-rated by the market. 

Also, to reflect this focus on Chile, the firm will subsequently list on the Santiago stock exchange. Something that is expected to happen early in 2013.

While Chile is becoming Rurelec’s core territory, Earl points out that the new business in Peru will also be important – though the company is taking a different approach here.

It owns half of Cascade Hydro, a ‘run-of-river’ hydroelectricity business. And it is expected that this new business will at some point be a separately listed company both in London and Lima.

Cascade is already working on a number of run-of-river projects. The first being the 5.3MW Canchayllo project, where construction could begin next month. This would then be followed by a series of other small plants along the river – which incrementally generate power as the water ‘cascades’ from one to another.

While Rurelec’s new projects promise new growth, its current business in Argentina continues to operate within expectations. Though Earl says ongoing efforts to re-finance the subsidiary are moving slowly. He claims says this slow moving progress is inherent with the Argentine banking system, but a deal is expected in the third quarter of this year.


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Rurelec Plc Timeline

November 13 2015

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