Contact plans capital raising, first half earnings flat

Contact Energy plans to raise capital from shareholders to help fund its $623 million Te Mihi geothermal power plant northwest of Taupo.

In announcing first half underlying earnings of $78.8 million, down slightly on the $79 million in the same period a year ago, Contact said today it had committed to the construction of the 166 megawatt project.

Managing director David Baldwin said a heads of agreement had been signed for Te Mihi, designed to partially replace the 52 year-old Wairakei power station.

Contact said the project would cost approximately $623 million, which would be funded through a combination of debt and equity. 

The company planned to launch a pro-rata renounceable rights issue in the near term. Contact’s majority shareholder, Origin Energy has advised that it will subscribe for its share of the rights issue.

Contact’s first half result was underpinned by a 12% increase in revenue to $1.2 billion, on higher sales volumes and electricity prices.

Mr Baldwin said the result was good given wet conditions during the six months to the end of December and significant external cost increases.

The rise in revenue was offset by increases in network and gas costs as well as the onset of carbon costs resulting from the introduction of the emissions trading scheme, largely offset the revenue increases.

An unchanged interim dividend of 11c per share is to be paid.

Mr Baldwin said the company was expecting to benefit from developments that would improve its operational flexibility.

The developments included the completion of the Ahuroa gas storage project, along with the Stratford peaking project, expected to be in commercial operation in April, and a reduction in gas take or pay volumes from January.

Ebitdaf (earnings before net interest expense, income tax, depreciation, amortisation, financial instruments and other significant items) was expected to benefit from the increased operational flexibility in the second half of 2011 financial year.

First half ebitdaf edged up 0.2 percent from a year earlier to $225.5m.

“The financial year to date has been marked by encouraging financial performance and a series of strategic milestones including the completion of Ahuroa gas storage project, the current commissioning of the Stratford Peaking project and the start of construction of the Te Mihi geothermal project,” Mr Baldwin said.

“Ahuroa and Stratford, together with a reduction in gas take or pay commitments will significantly increase Contact’s portfolio flexibility, better enabling the company to adjust to increasingly volatile operating conditions. 

“EBITDAF in the second half of the 2011 financial year is expected to benefit from this increased operational flexibility.”

Contact shares dipped 4c to $6.15 in early trading.