With us today is Frank C. Smeenk President & Chief Executive Officer of KWG Resources Inc. Mr. Smeenk discusses recent conversation with Noront Resources after proposed acquisition of Cliffs Chromite was announced.
|April 30, 2009|
|NaiKun Wind Issues Project Update|
|VANCOUVER, BRITISH COLUMBIA--(Marketwire - April 30, 2009) - NaiKun Wind Energy Group Inc. (TSX VENTURE:NKW) distributed a quarterly project update to shareholders after the close of markets yesterday. The content of the update appears below.
Welcome to the NaiKun Wind Quarterly Shareholder Update
This publication is designed to keep NaiKun Wind Energy Group shareholders informed about corporate activity in a way that augments the information we distribute via news releases. We hope you find the Update useful and welcome your feedback on its content and ways in which it might be enhanced to better meet your needs.
This being our first issue we have lots of ground to cover and wish to begin by highlighting achievements in recent months that illustrate the substantial progress being made on development of Phase 1. Our cutting-edge meteorological mast, in operation at the Phase 1 project site, has further confirmed the quality of our wind resource and we are delighted with the data, as the assessment shows a 9.5-10.0 metre per second average wind speed. This gives the site a Class 7 wind resource rating - the highest on the U.S. Standard Wind Classification Scale for wind energy projects.
NaiKun Wind was pleased to make the announcement in November that we had signed a Letter of Intent with Siemens Wind Power regarding the supply of Siemens SWT-3.6-107 offshore turbines for Phase 1. We view the Siemens 3.6 MW as the world's premier wind turbine for offshore applications and look forward to having the leading company in its field manage the production and installation of this key piece of equipment. We also have an earlier Memorandum of Understanding with Siemens Power Transmission & Distribution to provide the project's HVDC transmission system, bringing power from our offshore site to the B.C. grid connection point at shore near Prince Rupert.
Later the same month, we submitted our proposal into BC Hydro's Clean Power Call. The proposal, at 396MW, is 24% larger than what we had originally envisioned. We had long planned that we would use a maximum of 110 turbines in Phase 1. The Siemens converter platform we will be utilizing can handle up to 400MW and now that we have a path to securing Siemens 3.6MW turbines, we can build Phase 1 to an optimum 396MW (3.6MW x 110 turbines) size. The result will be higher revenue and greater cost-efficiency.
The signing of a commercial agreement with the Haida Nation is the final piece of news we wish to highlight. NaiKun Wind has been discussing the project with the Haida since 2002 and continues to benefit greatly from the Nation's input. Our commercial agreement makes the Haida a 50% partner in the business entity that will provide operations/maintenance services for the project. This will provide significant ongoing cash flow to the Haida and also serve as a source of employment in a variety of fields that include management, engineering and operational support.
Among the files that have kept us busiest of late has been the preparation of our application for an environmental assessment certificate. We anticipate formal acceptance of our application for review in May, after which the 180 day assessment period begins. Early in the assessment there is a 45 day period during which members of the public will be able to provide formal input at community meetings as well as through letters, e-mail and other methods. We expect environmental approval of Phase 1 from the provincial and federal environment ministers before the end of 2009. We are also conducting a simultaneous environmental assessment with the Haida Nation and would thus obtain environmental approval from three governing bodies.
Contracting is another key file for which we have clear objectives in the current quarter. Upon receipt of an Electricity Purchase Agreement, NaiKun Wind would soon perform additional geotechnical and project design work with an eye to contracting for the major equipment and key project services by year-end. Our project management team is speaking with contractors in Canada, the United States and Europe and we intend to choose a project services company during the summer.
One other file to highlight is the selection of a second strategic partner for Phase 1. NaiKun Wind senior personnel will be meeting over the next two months with potential partners and also holding early discussions on project financing. Our targeted partner is a major utility or supplier of equipment, as either of these would not only commit to providing equity but also make strategic contributions to project delivery. This approach has proven highly valuable for us already. For example, ENMAX Corporation, which owns 50% of Phase 1, augments NaiKun Wind expertise in activities that include market analysis, financial modeling and risk management.
On the topic of project financing, we are pleased to inform our shareholders that NaiKun Wind is working with the Bank of Tokyo-Mitsubishi UFJ (BTMU) London office on structuring and obtaining financing to construct Phase 1. The BTMU team has been involved in wind project financings in Europe, knows the sector well and possesses the contacts necessary to support NaiKun Wind in achieving its financing goals.
It is no secret that obtaining debt financing for large projects would be difficult in the current environment. However, BTMU suggests that when the credit markets stabilize, project finance will be one of the preferred vehicles early on for debt financiers, as risk can be more accurately quantified with such projects than is the case with commercial loans and some other types of lending. Possessing a long-term Electricity Purchase Agreement with BC Hydro would be important as the utility carries a AAA credit rating from Standard & Poor's through the province.
It is important to point out that the project financing to build Phase 1 will be raised by a NaiKun Wind subsidiary called NaiKun Wind Generating Inc., or GenCo 1 for short, with a 70% debt and 30% equity target structure, in line with financing advice received. There will be a separate GenCo subsidiary for each subsequent phase of the project and these entities will own the generating assets and contracts. From the beginning of NaiKun Wind's work seven years ago, it has been our team's objective to own 10% to 20% of each phase's GenCo and bring in partners to own the balance. NaiKun Wind is a project developer, seeking the higher return on capital this aspect of the business provides.
We frequently receive questions about our cash position, which as of December 31, 2008 was $22.7 million (next financials due out mid to late May). This amount should be sufficient both to take us through the development stage of Phase 1 and partially cover our equity contribution as a Phase 1 owner. The balance of our equity contribution to Phase 1 is to come from the development rights transfer fee we receive ($69 million, upon close of debt financing scheduled for mid-2010) and the proceeds paid to NaiKun Wind by the second strategic partner for its investment in Phase 1. An equity financing by the NaiKun public company is not part of our current plan.
The Clean Power Call
We anticipate that it will be June/July when BC Hydro announces successful bidders in the Clean Power Call. Remember, our proposal is for a long-term, indexed, take-or-pay contract to supply around 2% of British Columbia's electricity.
Investors often want to know why we are confident of success in the Call. Here are some of the reasons that we believe our project fits the needs of British Columbia like no other:
- Counter-seasonality: NaiKun Wind's project will generate peak power during the months when electricity demand in B.C. is highest but hydro-based assets operate at their lowest water levels.
- Geographic diversity: It is essential that the province's renewable energy projects not be clustered together. NaiKun Wind benefits from its geographic region being away from B.C.'s existing energy generation clusters but right on B.C.'s main transmission grid.
- Transmission: B.C.'s transmission grid is capacity constrained near existing major energy generation clusters but NaiKun Wind has access to almost 800MW of available main transmission line capacity. That's enough for about 270,000 homes.
- First Nations: The Haida Nation, and the Metlakatla and Lax Kw'alaams First Nations are commercial partners on Phase 1 and provide valuable input on an ongoing basis.
- HaidaLink: Our project provides for the potential to connect Haida Gwaii to the main provincial grid via NaiKun Wind's Phase 1 transmission installation. This would displace approximately 26,000 tonnes of CO2 emitted annually by diesel generators on Haida Gwaii and also help BC Hydro meet its mandate to connect remote diesel-dependent communities to cleaner and more reliable sources of power.
- Local Benefits: NaiKun Wind's project is uniquely positioned to provide social and economic benefits to Haida Gwaii, Prince Rupert and surrounding areas.
- Credibility: NaiKun Wind has the quality and depth of management required to complete the project, ENMAX Corporation is a strategic public utility partner, plus our turbines and our transmission system will be built and installed by Siemens, one of the world's most highly respected industrial groups.
In closing, I would like to take this opportunity to express the appreciation of the entire team at NaiKun Wind for the support of our shareholders, not only for the trust you show in us by owning NaiKun Wind shares, but also for the words of support and valuable ideas we receive from you on a regular basis. We will be issuing four shareholder newsletters each year and would also encourage investors to visit the Investor Q&A section of our website, as this contains thorough answers to many questions about the company and our project.
Paul Taylor, President and CEO
NaiKun Wind Energy Group Inc.
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