To all,
Here's the second half of a Tuesday evening conference call I had with Rene and Wayne Hansen, CFO...
(CONTINUED FROM SI #4111/YAHOO #5646)
New Richmond 400 tpd TMP (to be increased to 600 tpd by August? per latest 6-K) 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.
Rene said "Wayne, let me start this out. Construction is well underway, if you look at it, we've organized different means of construction financing. Now, we didn't announce the construction financing because Wayne's busy working on debt financing to take the construction financing out. That's why we're having some major discussions on this EPC contract, even for Richmond.
There are construction companies, Dave, that will provide a turnkey plant for you and provide the construction financing as long as they know they're going to be taken out within six to nine months. And that doesn't hurt.takes no dilution from us. There's no equity needed.there's very little financing from our side needed, as long as we have the debt to take them out after the plant's built."
a. What is the total capital cost that will be depreciated ? i.e. $15.0 million?
Wayne answered "That's about 15 million dollars."
b. What form of contracts is in place and for what tipping fees? With whom? For what % of the capacity of the plant?
Wayne continued "on your next question, with respect to tipping fees and waste.there's a contract actually in place for about 60% of the 400 tpd capacity. There's a marketing group, that we've got out looking for additional waste supplies. We are very confident that they've got close lines on the remaining 40% capacity. We'll have that in place prior to plant completion. We don't like to give out the names of the specific individuals, people that are supplying us with waste. We may be able to do that at a later time. Like I say, we've got about 60% lined up and the other 40%, we shouldn't have any trouble by the time that plant is done. The tipping fees should be $45 a ton. Hamilton is a bit lower than Richmond cause we've got a different mix in there."
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 July 1998 for Richmond?
Wayne replied."We are in discussions with one of the major financial institutions. I expecting to have a letter of intent next week, which will be essentially the takeout for construction financing. I'm quite pleased with the way that's heading along.
Rene added "That's going to be, basically, the "cookie cutter" for other projects. See what we did Dave, is we went to a construction company that does over a billion dollars in sales a year. The construction company, itself, can carry 10-15 projects as we get them going.as long as they've been taken out. Then, when you get one going, it will be applicable. We're not saying that we've got it all done yet. What I'm saying is the project is looking good."
I asked "Is this (construction company) Ledcor?" Wayne answered "Well, we're talking to, uh...I don't think we want to name them until we have everything finalized. We've chatted to Ledcor. It would be very premature just to put out names right now."
d. Is the equity part being financed by further share dilution of the Thermo Tech shares? (Reg D, and Reg S, etc.)
Rene replied that this question was answered earlier. I asked "So both projects will be 100% owned though right?...Hamilton and Richmond?" Rene and Wayne both replied "That's correct."
Rene continued "Dave, one of things the thread always keeps referring to.they can't understand how or why.we're going to keep 100% of the plants, without diluting the shareholders. One of the key items, you must remember, the way we're approaching this.when it's all fully developed.with the right construction company, that will carry you for six months or so, for the whole complete project.and then, you have takeout financing.the company can own 100% of the project and expend very little. The key to the Thermo Master Mark II project is the raw material. As long as the raw material is in good long-term contracts, that are bankable, the construction and debt financing work hand-in-hand."
I added "The long-term waste contracts are the key.aren't they?.everything else falls into place with those contracts? Rene replied "But it can backfire on you.you've got to make sure.we did lose some credibility.to give you an idea, back in 1988, Dave, I had a long-term contract with Laidlaw.and I couldn't deliver a plant. I had to let the contract die and forget it.right? It works both ways."
e. What % of the equity did Thermo Tech take, if not 100% then who else is in on it and for what %?
Answered earlier in the call.
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?)
Answered earlier in the call. Terms and conditions aren't finalized.
g. If not non-recourse to Thermo Tech, who/what is pledged against the debt service?
Wayne answered "We were able to pledge the assets of the plant, as the contracts come in." I asked "Is Hamilton completely debt-free.is it encumbered in any way, at this point?" Wayne replied "Hamilton is free of debt." Rene continued "The unique thing about it.if you look at our Hamilton project, there's four acres of land, there is a 45,000 square foot building, there's the processing of the 400 tons and the expansion, there is most of the equipment there for the next phase.all debt free. We have an opportunity here very shortly.that we'll put debt on that project that will give at least two more projects life.
Wayne added "That's one good thing with going with all equity.we do have this equity.it's sitting in hard assets, so we can use it to leverage off."
Rene added "Dave, let's just make this assumption as a projection.when everything gets completed, we actually have two 400 tpd plants sitting in Hamilton.but, let's just say we have one sitting at Hamilton.totally debt free.with the depack center working there, etc., etc..right? There is going to be an accumulation of roughly $24 million worth of assets. That's $24 million that we can put debt on.that plant can service the $24 million debt over ten years.no problem. We have.minimum.if we use that right.we can build an extra plant for that. And those projects will be paid for.then we can put debt on.it's like us having a $24 million, even $20 million, revolving line of credit.cause after one project is paid for.you put the debt on it, then you take your money out and go do the next one." Wayne added "You piggyback along."
Rene again."I know definitely, that the market is not aware of, basically, how close we are to this thing busting loose.big time. It's been a struggle now, and we're struggling for it.the other side of the coin.a lot of people have seen us.where we've said things, and never delivered. But, if you look at it objectively, an open mindedly, you see that, basically, I've organized a super team.I think we have a very good working relationship.we've got a brand new patent.we're good for another twenty years on that patent.we got some more potentials down the road.but, you know that's on the research side.but even just on what we already have.it's brand new.and it's proven.and it's profitable."
I then asked about the patents "the $5.1 million in license agreements, that's shown in the 1-31-98 6-K, in other assets.what will become of that entry in view of the new patents.are we going to write those down?"
Rene answered "This is my suggestion Wayne.I know I'm not a CA here.correct me if I'm wrong.this is from a marketing point. The license will be depreciated.or will lapse.the old one. But, when we license Oshawa and Niagara, Richmond and the future ones.with the $1 million license fee.that will be right back up there to where it is anyway. It will be a wash, Dave."
Wayne added "That's right. One of the things.this year, we're really probably going to take a look at our year-end.at positioning ourselves for next year, cause this year, we're going to be profitable.we do want to present a fairly clean balance sheet by a year from now."
I asked "What kind of loss carry forward do we have built up at this point?" Wayne responded "I think we've got about $50 million in loss carry forward." I then asked about the Canadian tax treatment of tax loss carry forwards. Wayne answered "Losses can be carried forward for seven years."
I then mentioned that the IR guys were talking about a possible news release tomorrow. Rene responded "That was probably on the patents. We have it drafted.we're looking at it. I want to make sure that we don't release something that the Trooper boys can shoot us with. The real key to this whole thing.is the Patent Examiner and Patent Attorney have given us a letter stating that it is a brand new patent.over and above our existing patents in our license agreements.
Laurence Liebowitz, our internal counsel, definitely believes that on May 21st there's no way that there is a possibility of us being found in contempt. We have an engineer, plus we Dr. Dan Cumming, plus we have the Patent Examiner and Attorney letter.stating what they've got and what we have and that the Dick Engineering drawings belong to the new patents. We believe we're in very good shape.this could still end up not necessarily being resolved, but the issue on May 21st is.are we in contempt of court? How can we be in contempt of court when we have testimonial that we delivered. Now, what we delivered, may not be what either party wanted...
I thanked Rene and Wayne for taking the time to speak with me. The call ended at 8:08 PM CDT.
Regards,
David Pickering
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