Acquisition of Kalgoorlie Power Systems Investor Presentation 11 December 2008
Pacific Energy Group Pacific Energy develops and owns power stations Hydro Kalgoorlie Power Systems Biomass Development Blue Rock Dam (VIC) 2.5MW Cardinia Reservoir (VIC) 3.5MW 11 power stations located at mine sites (WA and NT) 100MW Perth Project (WA) 30MW Blue Rock Turbine Typical KPS Power Station Example Biomass Facility 2
KPS Overview (1) The leading provider of long term mine site power in WA Owned and managed by Ken Hall since 1981 Kalgoorlie based with a strong historical presence in WA Goldfields 20 staff 150MW of generation capacity 100MW of installed capacity 50MW of additional capacity available for future deployment 20MW of new capacity being negotiated for 2009 Build / Own / Maintain business model Simple contracted $ per Kwh charge rate Miner supplies and pays for fuel Assets can be cost effectively redeployed upon mine closure Proven track record with strong brand and industry recognition KPS requested to tender for contracts despite not actively seeking work (i.e. no website, business cards, signage, mobile phone etc) High quality client base including some of the World s leading miners Xstrata, Norilsk, Newmont 3
KPS Overview (2) Contracted long term annuity style cashflow Typically 5 year contracts with early termination payments in place Contract s invariably rollover at contract end if mine continues to operate Inhouse engine modification delivers superior efficiency, reliability and longevity which gives KPS a distinct competitive advantage Improving reliability and reducing fuel costs for miner Extending periods between overhaul by approximately 2 times and reducing costs significantly Cookie cutter approach to new power stations Market leader in dual fuel technology Delivers significant fuel costs savings for miners Enhances fuel and operational flexibility (i.e. recent WA gas crisis) 24 hour real time remote monitoring systems maximises efficiency by improving maintenance knowledge and reducing manning requirements Significant opportunities exist to expand KPS into new regions and business sectors 4
KPS Power Stations Generator Hall Power station and adjacent switch room Switch room KPS power stations are custom built but highly standardised Quick to establish and easy to redeploy 5
Acquisition Consideration Payment Structure Net Cash Payment Vendor Note Equity to Vendor Total Maximum Contingent Payments $49.5m $15.0m $12.5m $77.0m $20.0m Acquisition includes unencumbered plant and equipment (replacement cost $75 million) Contingent payments to be 50% cash, 50% scrip Contingent cash payments to be made from free cash flow and if paid to be EPS accretive Independently assessed value of $120 to $150 million 6
Acquisition Highlights Provider of critical energy infrastructure Established and proven track record with leading global and domestic mining clients High margin, profitable business with significant barriers to entry Attractive entry price for investors at 2009 PER of 3.4x (peers trading at >14x) Projected 2009 NPAT of $10 million, with EPS of 7.4 cents per share Conservative leverage Net Interest Cover in excess of 8x in 2009, 15x in 2010 Contracted medium to long term revenues with take or pay terms Sustainable cost structure advantage over its competitors Significant opportunity for both geographical and industry expansion 7
KPS Operating Locations and Clients WA NorthWest 1 power station 9MW active capacity NT Central 2 power stations 23MW active capacity International Expansion Opportunities WA Goldfields KPS Office and Workshop 8 power stations 70MW active capacity Domestic Expansion Opportunities Significant opportunities for expansion into new markets Leverage blue chip client relationships across their multiple projects 8
KPS Contracted Revenue by Commodity Long term takeorpay contracts which invariably rollover for remainder of mine life Average remaining term on existing contracts is 4 years Average estimated remaining mine life is 7 years Multiple 10 year contracts presently being negotiated Revenue is forecast to grow and become more diverse with the winning of new contracts in 2009 Existing Revenue (2009E to 2014E) Forecast Revenue (2009E to 2014E) Copper 2% Lead 2% Copper 1% Lead 1% Nickel 20% Nickel 31% Gold 55% Gold 65% Mineral Sands 23% 9
KPS Organisation and Management Capitalising on Pacific and KPS management s combined knowledge and strengths KPS to continue business as usual as a subsidiary of Pacific Ken Hall to remain actively involved in KPS under a 2 year consultancy agreement to ensure smooth transition and knowledge transfer Will remain Pacific Energy s largest shareholder with 38% of PEA ordinary shares Management transition plans well advanced Existing management provided with Pacific Energy options A Business Development Manager will be appointed to expand the client base, particularly into new regions and sectors Corporate and operating locations shared between Perth and Kalgoorlie Corporate office in Perth Regional operating office in Kalgoorlie 10
KPS Financial Performance Highly profitable track record and contracted growth KPS Financial Performance* $25m $20m Revenue EBIT $15m $10m $17 $23 $5m $15 $8 $10 $12 $7 $12 $0m FY2007 (12 months) FY2008 (12 months) JulDec 2008 (6 months) CY2009E (12 months) * Historical financial data based on unaudited accounts of KPS CY2009 based on Pacific Energy projections, and include 3 new power stations (Sinclair, Gwalia Deeps and Higginsville) 6 month period from July December 2008 includes termination payment following closure of the Lennard Shelf mine. 11
Summary of Funding Funding Requirement Acquisition of KPS Government Charges (Stamp Duty) Transaction Costs Growth Capital Total Uses $77m $5.5m $3.5m $12m $98m Funding Sources Senior Debt Exch. Bond Vendor Note Equity Total Amount $28m $35m $15m $20m $98m Security 1 st Ranking Unsecured Unsecured Term 4 Years 4 Years 2 Years Repayment Amortising Redeemed on maturity if not exchanged Exchanged on maturity if not redeemed Redemption Premium 4% pa (accruing) $1 million Interest Rate BBSW + 2.5% 0% 0% ~2.7% 2009 Net Interest $2.1m $0 $0 +$0.8m $1.3m 12
Pacific Energy Comparison: Pre & PostAcquisition Capital Structure Shares on Issue Market Capitalisation ($0.25) Cash Interestbearing Debt (4 year term) Zero Coupon Exchangeable Bonds Zero Coupon Vendor Note Enterprise Value PreAcquisition 51.0m $12.8m $0.5m $12.3m PostAcquisition 131.0m $32.8m $12.0m $28.0m $35.0m $15.0m $98.8m Projected 2009 Profitability EBITDA NPAT Undiluted EPS Diluted EPS (258m Fully Diluted shares 1 ) $17.0m $10.0m 7.4 cps 3.8 cps 1 Assumes Exchangeable Bonds are converted and Vendor Notes are redeemed 13
The New Pacific Energy (1) Post acquisition Pacific Energy will emerge as a balanced energy utility company with significant growth prospects and opportunities Pacific Energy is an attractive value proposition relative to ASX peers Energy Developments (ASX:ENE) and Transfield Services Infrastructure Fund (ASX:TSI) Shares on Issue Market Capitalisation Net Debt Enterprise Value Revenue (FY09E) EBIT (FY09E) NPAT (FY09E) EBIT Margin P / E Pacific Energy 1 131m $33m $66m $99m $24m $11m $10m Margins, Multiples & Returns (FY09E) EV / EBIT ROE 4 45% 8.9x 3.4x 31.3% ENE 2 152m $365m $423m $788m $224m $70m $25m 31% 11.3x 14.6x 7.9% TSI 3 267m $275m $754m $1029m $175m $74m $16m 42% 13.9x 17.2x 6.1% 1 Based on a Pacific Energy share price of $0.25 with net debt immediately post KPS acquisition and earnings based on Pacific Energy s estimates for FY09 (31 December end) 2 Based on a ENE share price of $2.40 with net debt as at 30 June 2008 and earnings as per consensus broker forecasts 14 sourced from Bloomberg 3 Based on a TSI share price of $1.03 with net debt as at 30 June 2008 and earnings as per consensus broker forecasts sourced from Bloomberg 4 ROE for ENE and TSI as per consensus broker forecasts sourced from Bloomberg. PEA ROE based on $31.3m equity (ie: $11.3m equity at Jun 08 plus $20m equity raised to fund the acquisition of KPS)
The New Pacific Energy (2) Top Ordinary Shareholders Ken Hall Pacific Road Asian Cleveland LIM Asia Ian Middlemas Stuart Foster Adam Boyd PreAcquisition 15.1% 10.0% 9.8% 8.0% 4.1% PostAcquisition 38.2% 9.2% 5.9% 3.9% 3.8% 3.1% 1.6% Directors NonExecutive Chairman NonExecutive Deputy Chairman Managing Director NonExecutive Director Pacific Road Representative Vendor Representative PreAcquisition Brian Hewitt Ian Middlemas Adam Boyd Stuart Foster PostAcquisition Brian Hewitt Ian Middlemas Adam Boyd Stuart Foster Louis Rozman Ken Hall nominee 15
The New Pacific Energy Investment Opportunity High Quality Business Proven high margin business Market leader with distinct competitive advantages Infrastructure like characteristics Longterm contracted takeorpay based revenue Positive Fundamentals Exposure to positive long term resource (primarily gold) and energy infrastructure fundamentals Strong Growth Strong growth outlook Significant expansion opportunities into new regions and business sectors Attractive Value Cheap relative to peers estimated 2009 PER of 3.4x Fully Diluted DCF valuation > $0.60 per share 1 Investor Group Opportunity to invest alongside a knowledgeable and supportive investor group Biomass Upside Biomass projects potentially provide investors with additional upside 1 Pacific Energy estimate based on Postissue DCF valuation of KPS and Hydro power stations assets with an additional $8 million to attributed to Pacific Energy s cash, listed investments and other projects 16
Indicative Timing Execution of Business Sale Agreement Announcement to ASX Notice of Meeting, Explanatory Statement and Independent Expert s Report dispatched Formal Approval from Senior Lender Shareholders Meeting to approve acquisition Equity placement funds transferred to trust account Completion & issue of shares 21 November 2008 4 December 2008 17 December 2008 16 January 2009 16 January 2009 30 January 2009 6 February 2009 17
Important Notice This Briefing document does not constitute an offer, invitation or recommendation to subscribe for or purchase any security or financial product and neither this Briefing document nor anything contained in it shall form the basis of any contract or commitment. This Briefing document is being furnished to you on the basis you are a person who does not require a prospectus. The distribution of the Briefing document in jurisdictions outside Australia may be restricted by law and any such restrictions should be observed. This presentation has been prepared by Argonaut Capital Limited ( Argonaut ) and Pacific Energy Limited ( Pacific ). Some information in this presentation has been derived from third parties and though Argonaut and Pacific believe it to be reliable as at the date of this document, they make no representation or warranty as to the accuracy, reliability or completeness of information in this presentation or for updating any information or correcting any error or omission which may become apparent after the presentation has been issued. The information in this presentation is subject to change. Reliance should not be placed on the information or opinions in this presentation. Any decision to invest in Pacific should be made after making independent enquiries. To the extent permitted by law, Argonaut, Pacific and its officers, employees, related bodies corporate and agents ( Agents ) disclaim all liability, direct, indirect or consequential (and whether or not arising out of the negligence, default or lack of care of Argonaut, Pacific and/or any of its Agents) for any loss or damage suffered by a Recipient, a purchaser or other persons arising out of, or in connection with, any use or reliance on this presentation or information provided in connection with it. The Recipient agrees that it shall not seek to sue or hold Argonaut or Pacific or its Agents liable in any such respect for the provision of this presentation or any other information. This presentation may contain forwardlooking statements relating to the future performance of Pacific. Forwardlooking statements, specifically those concerning future performance, are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied by the statements in this presentation. Given these uncertainties, the Recipient should not place reliance on such statements. All amounts in A$ unless stated otherwise. 18
Appendices 19
Pacific Energy PostSettlement Once the KPS acquisition is completed, Pacific Energy will have strong earnings and EPS, on both an undiluted and fully diluted basis Ordinary Shares on Issue Fully Diluted Shares on Issue 1 Est. 2009 PEA EBITDA Est. 2009 PEA NPAT EPS PE Ratio 131 million 258 million $17 million $10 million 7.4 cents 3.4 times Major Shareholders (undiluted) Major Shareholders (fully diluted) Ken Hall (38.2%) Pacific Road (9.2%) Ken Hall (40.7%) Pacific Road (30.5%) 1 Assumes Exchangeable Bonds are converted and Vendor Notes are redeemed 20
Funding Overview Senior debt, exchangeable bonds, exchangeable vendor notes, and PEA shares To be funded by leading institutions and investors, existing shareholders and the vendor Senior Debt Exchangeable Bonds Vendor Note Equity to Vendor Equity @ $0.25 / Share Leading Australian Bank completing final due diligence Pacific Road and Ken Hall 2 year exchanging note, redeemable at Pacific Energy s option Vendor to hold 38% of Pacific Energy Ordinary Shares Pacific Road, Argonaut Equity Partners, clients of Argonaut and existing shareholders Sources Uses Senior Debt Exchangeable Bonds Vendor Note Equity to Vendor $28.0m $35.0m $15.0m $12.5m Acquisition of KPS Costs (incl. Stamp Duty) Growth Capital Total Uses $77.0m $10.0m $11.0m $98.0m Equity Placement $7.5m Total Sources $98.0m 21
Exchangeable Bond Key Terms Issuer Holders Value Security Bonds to be issued Term Pacific Energy (KPS) Pty Ltd Pacific Road ($20m), Ken Hall ($15m) $35 million Unsecured 127.3m Bonds 4 Years Interest Rate 0% Redemption Premium Exchangeability Face Value 4% pa accruing, paid only if redeemed at maturity Exchangeable at Face Value into PEA Ordinary Shares $0.275 cents (ie: 10% premium to equity placement price) 22
Vendor Exchangeable Redeemable Note Key Terms Issuer Pacific Energy (KPS) Pty Ltd Holders Ken Hall or nominee Value $15 million Security Unsecured Term 2 Years Interest Rate 0% Redemption Redemption Premium Exchangeability Pacific Energy can redeem the Note at its option at any time up to maturity $1m paid upon redemption If not redeemed, the Note automatically exchanges into PEA Ordinary Shares at 10% discount to 30 day VWAP, subject to minimum of 25 cents 23
KPS Strong Growth Potential Industry Fundamentals Ongoing project pipeline underpinned by global resources requirements, uranium deregulation in WA etc Increasing Energy Security Issues New High Growth Mining Regions New Markets Increasing importance placed on energy supply, security and diversity Development of high growth mining regions will provide strong demand for long term power solutions (eg: WA, Qld, Eucla Basin, Africa, South America) Multiple opportunities to diversify into new markets such as remote applications, RCAP and offshore Strong outlook for continued demand and significant business opportunities for KPS Strong Relationships Strong relationships with global miners provides ongoing opportunities to supply power across their multiple projects Active Management and Promotion Active management and promotion will grow the KPS business 24
Pacific Energy Operational Overview Owner of the Cardinia (3.5MW) and Blue Rock (2.5MW) hydro power stations in Victoria 20 year offtake agreement with TRUenergy Generating nearly $1 million free cash flow per annum Cardinia Turbine Blue Rock Turbine Evaluating 2 biomass power stations which provide attractive renewable energy options Advanced stage evaluation of a 30MW biomass power station in Perth Manager and 50% owner Site and residual plantation timber fuel source secured Other key agreements advancing Great Southern Biomass Project Plan to duplicate Perth Project design 25
Perth Biomass Project The project provides Pacific Energy an attractive renewable energy option Perth Power Station Size Gross Capacity 30MW Max Generation 170GWh Capacity Factor Fuel Mid Merit (Baseload Upside) Plantation Timber Residue +190,000 tpa Biomass Carbon Cycle Financial Snapshot (100%) Revenue EBITDA Capex Annual Average $40m $20m $115m Life of Project (20 Years) $800m $400m $115m Timing of capex combined with strong positive cash flows from the KPS business means that little or no additional equity will be needed to fund Pacific Energy s share of the Perth Biomass Project 26
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