To all,
Rene called me back at 7:30 PM CDT on Tuesday evening with Wayne Hansen on the line.
Rene started by saying "I want to walk you through the Hamilton 400 tpd "Mark II" plant, as we call it, or as it will be referred to in all our new literature...and we will be moving forward with the new Thermo Master Plant patents...we're working on a news release...it's in draft stages now...hopefully, we'll get that out tomorrow.
On the new patents...basically, here's what the world is going to realize...the 400 tpd plant in Hamilton, that is near completion, will be the new Thermo Master Plant.
With that, what we will do...I'll read the questions that you've asked us Dave...the majority of them are finance questions and Wayne will answer them."
New Hamilton 400 tpd TMP construction is underway and yet no financing has been announced. Please provide specific answers to the following questions. If answers can not or will not be provided, please indicate why.
a. What is the total capital cost that will be depreciated? i.e. $12.0 million?
Wayne answered "OK, that will be. the total capital cost of the 400-ton Hamilton plant will be approximately $16 million."
b. What form of contracts is in place and for what tipping fees? With whom? For what % of the capacity of the plant?
Wayne replied, "OK...long-term contracts for that plant are in place at 100%...for that plant's capacity...400 tpd with tipping fees at $40 a ton. The organic waste supply there is organized and guaranteed by Ontario Waste."
c. How is the TMP being (or to be) financed ( what mix of debt and equity)? i.e. 25% equity and 75% debt, non-recourse? Who (what company) is providing the debt financing? What is the projected date of financial closing? What impact will this have on the completion of construction, recently indicated as scheduled for May 1998 for Hamilton?
Wayne again... "OK, the new TMP is being financed right now with equity we've previously drawn down and have on hand. We have discussions underway with lenders so to takeout financing. We're talking with a few lenders and we're really not in position to name them, or the specifics, until we've got them completed.we don't want to prejudice the discussions."
I then asked, "Who is the construction company on Hamilton?" Rene replied "Magest Construction is doing the building. We have Todd Dupuis, that's doing Hamilton, also building Oshawa, Niagara and Richmond...basically, I'll use the term...project manager overseeing...we have Paul Miller, that's also been involved, and helping us...and we have (the first name I couldn't make out...Lanyan Metric?) and Milbert & Milright as sub-contractors, Milbert & Milright are the ones that put the plant together and took the Brampton plant and moved it to Hamilton. So, all the contractors have been with us for the last three years."
d. Is the equity part being financed by further share dilution of the Thermo Tech shares? (Reg D, and Reg S, etc.)
Wayne answered, "The construction to date is paid for by equity financing we previously raised. It's probable that there will be some small additional draws down on the convertible debenture issue that will be necessary to complete the project...so, there will be a small additional draw down on that debenture."
I quizzed Rene about the amount currently drawn down and he replied "around $8 million". I continued."On a previous CC conference call, you did allow for maybe $2 million more to be drawn down, at one time...and that still holds?" Rene replied that "the way that we plan on doing it...will never be noticeable (to the market). With the transfer station that's open today...the transfer station and the revenue sources that are coming our transfer stations and the Hamilton TMP...very quickly, we're going to be in a positive cash position."
I then asked "Did you address whether Hamilton is on track then for the end of this month.being completed and operational...the second phase?"
Rene replied "Well first of all, Hamilton had some equipment delays...it looks like it's going to closer to the end of June. I tell you exactly what it is...it's the new thermal oxidizer and some fans. They have been delayed from the manufacturers. We're looking at, Dave, having the grand opening, we're going to call it...for the new "Mark II" TMP in Hamilton...and that should be late June or early July."
Wayne added that the projected date of financial closing, while tough to pin down, should be coincidental with that time frame.
e. What % of the equity did Thermo Tech take, if not 100% then who else is in on it and for what %?
Wayne answered "Hamilton is owned a 100% by TTRIF.
f. What are the terms and conditions of the debt financing (i.e. what approximate rate of interest to be repaid over how many years?)
Wayne replied "Well, that has not been finalized yet, and, as soon as it is...then, we will be in a position to talk about it."
g. If not non-recourse to Thermo Tech, who/what is pledged against the debt service?
Wayne again..."That's not applicable because we don't know yet. We're in the midst of negotiations and we're really in a confidential state...and I think to talk about them in any kind of detail, or identify the players...it upsets the negotiations."
Wayne did say that there is a different lender for each of the projects (Hamilton and Richmond).
Question 3
Why is it taking so long for the US Filter joint announcement? If there is a holdup for reasons other than dotting i's and crossing t's on the paperwork? When is it anticipated that the conditions will be in place to permit an announcement?
Wayne answered "We've signed a confidentially agreement with USF which was quite an undertaking..because we've got very onerous confidentially agreement.and that was the main hurdle...so that's now been done...but we're holding back a little bit 'til we've got a real good commercial announcement...where we're actually doing some particular project with them...before making an announcement.and when we do make an announcement with USF...our agreement is...we will be making joint announcements.
Rene added on USF..."by early next week or the week after, there's a MAJOR finalization that's going to be happening. That's how close we are. So because of the request, and because there was such a fumble of the ball, last time around, where the head office got all annoyed...what we decided to do...we will wait the week or two it takes...or whatever...to get the actual TMP...work with them on this one...and this will support what we've been telling everybody. Yes, it would probably help the stock today.if we jointly announce what we're already doing with them, but from their request...it really wouldn't matter to them, and they're saying...hey...they're there...they're a part of us...we will have an actual project to announce down the road with them."
I asked about the three plant package of financing mentioned on the threads.
Rene responded "The three plants in a package is the John Hancock Group...that's the financing side over there. USF will do do one, two, three, ten...whatever. Right now, there's some major things, Dave, that they're doing. They're working with us...this...let's call it...start on the wrong foot...got us recognized right at the home office. They're working with us very aggressively...there are some major things that are happening in Boston right now. The bottom line is like this...we know we've got it...we've signed it...we're moving on...we'll be announcing something very shortly, but it's going to be an actual project."
Question 4
If the definitive meeting for the 100% financing of the Oshawa and Niagara projects was Monday May 4th, well delayed from previously anticipated dates, what has been holding things up? When will these issues be cleared up?
Rene fielded this one, "On May 4th.we did meet...the meeting had the EPC (Engineering Procurement Construction) contract with West Mechanical...has to be finalized and signed. That's one of the requirements, we had another one on end product utilization, they just needed more clarification...that was sent.
The meeting's today, as we're speaking right now, the meeting will be finished or is close to being done. Basically, it will be finalized. So, the issues to be cleared up are very minor from our point of view.
They've made some major commitments, Dave, on themselves to advance this project. We've ordered equipment for Oshawa and Niagara already, we've ordered insurance policies, civil work is being done, building are looking at being ordered...this project is way farther down the road than what the market is aware of."
I asked "You've actually ordered equipment for three plants as we were talking last (on a 5-1-98 call).Richmond, Oshawa and Niagara?"
Rene replied "That's why we have Todd Dupuis, the Ontario Thermo Tech Group...I got him to organize all of the construction."
I asked "Has the EPC contract been signed and finalized?"
Rene replied "No, the EPC contract is in the process of being finalized. There's one document we have left to do."
I continued. "What's holding that part up.is that the performance bond problem?"
Rene again."No, that's all taken care of. The EPC contract is probably around a $400-500,000 contract, meaning that's what it's costing for the lawyers...we get about 5 « or 6 inches of paper for that...I swear, Wayne and I both believe they charge by the inch."
(CONCLUDES HAMILTON Q&A-- RICHMOND Q&A POSTED LATER TODAY)
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