Magma Energy CEO Ross Beaty has sent us a long response to response to Björk’s recent statement regarding his company’s operations in Iceland and acquisition of a major share in Icelandic energy company HS Orka. In it, he attempts to answer the questions Björk posed to members of the Icelandic parliament one by one, before stressing his disappointment in the way his company has been received in Iceland. “I am really disappointed about the negative reaction to Magma’s investment. I think it is based on wrong information and wrong impressions about us,” he says before going on before expressing wishes to become a good corporate citizen in Iceland, and reminding that Magma supported Iceland’s Winter Olympic teams at the 2010 Vancouver Olympics. Read his full letter below.
July 16, 2010
Letter to the Editor: The Grapevine
I have seen a press release from Bjork published in The Grapevine recently and would like to respond. I fully respect Bjork’s concerns and those of other Icelanders and I hope I can provide some information to help make this a more informed discussion. There is a lot of fear and distrust in Iceland today and I really regret how this is influencing people’s attitudes to our involvement in HS Orka. I believe we are a good company to hold HS Orka and not one to be angry about. A lot of the discussion is based on misinformation, so I hope I can correct some of it here.
Who are Magma Energy’s shareholders? Magma is a public company traded on the Toronto Stock Exchange with over 2,000 shareholders. Our shareholder list changes every day but as of July 9, 2010 our largest shareholders were Ross Beaty / Sitka Foundation (45%), institutional investors (35% – any stockbroker can find a detailed list of these investors as it is publicly disclosed information), retail investors 15% and Altagas Income Trust (a large Canadian gas company) 5%. The Sitka Foundation is a registered private Canadian foundation whose vision is to be a catalyst in the preservation of the environment and the promotion of biodiversity (see, for example, www.beatymuseum.ubc.ca). As far as we know, Magma has no Icelandic shareholders. However, we have attempted for some time to bring Icelandic based investors into HS Orka as co-investors, and remain hopeful this can be achieved in the near future. We have also offered to the Iceland government to give it a first right of purchase if Magma ever decides to sell its stake – thereby ensuring the company can be held by the Icelandic state in future if this is politically desired.
How much is Magma investing in HS Orka? Magma has, to date, paid ISK 6.9 billion in cash to the municipalities of Reykjanesbaer, Reykjavik, Harnarfjordarbaer and Sandgerdisbaer to acquire 43% of HS Orka, plus ISK 1.7 billion in cash as direct investment in HS Orka for capital projects for a proposed expansion (drilling, turbine, purchase, etc). Magma has agreed to pay ISK 10.6 billion in cash (or the equivalent in cash and stock) to Geysir Green Energy on July 31, 2010 to increase Magma’s stake to 98.5%. In addition Magma owes ISK 8.8 billion to Reykjavik, Harnarfjordarbaer and Sandgerdisbaer in the form of vendor bonds payable in six or seven years. Magma will also assume a bond issue by Reykjanesbaer to Geysir Green Energy with a value of ISK 6.3 billion. Magma plans to invest an additional ISK 66 billion by 2016 to expand HS Orka’s production from 175 MW to 405 MW, from a combination of debt and equity sources. I believe that Magma was the largest foreign investor in Iceland in 2009 and we really believe we can help bring Iceland out of its current tough economic condition with additional investment in the near future. The current debate is not exactly encouraging other foreign investment.
Magma Sweden? Magma Sweden is a company we established to hold our investment in HS Orka, since we were not allowed by current rules to hold our investment as we would have preferred in a direct subsidiary from Canada (there had to be an EU company). We have followed Iceland laws (and always will) in doing this, and it has been approved twice by Iceland’s Committee on Foreign Investments. It is unfortunate that Magma has to use a Swedish subsidiary but that is how the laws work and we have to follow them. I do question why all the fuss is being made in Iceland about this. Would Iceland rather have a Bulgarian company or Polish company own this business instead of a reputable Canadian company? I guess this is really a fight against any foreign company owning HS Orka, but right now any European company can do so. I note that Iceland is trying to auction offshore oil and gas rights to foreign investors – is this so different than letting a foreign company hold its geothermal resources? I would finally point out that control of HS Orka is already held offshore – the facts are that Geysir Green Energy is today controlled by Islandsbanki’s offshore creditors.
Magma profits? Based on current and future expectations of cash flow from HS Orka net of its approximate $180 million (ISK 22.5 billion) of existing bank debt, and after account for the substantial planned investments to expand capacity, Magma expects to recover no profits out of Iceland for many years to come as all profits will likely be re-invested. Eventually, Magma certainly hopes to recover its investment with a reasonable return to our shareholders, but we see this as a very long term investment that will require a lot more money to be invested before we are able to recover any of this in the form of dividends.
Jobs? Upon completion of the current transaction, Magma will employ 130 Icelanders at HS Orka, five at its Icelandic subsidiary and many other in future expansion projects, plus support a great deal of indirect employment in the communities around HS Orka’s operations. Our hoped-for expansion of HS Orka’s capacity from 175 MW to 405 MW will employ hundreds of Icelanders directly, maybe even thousands. Our expectation is that 100% of jobs at HS Orka will be Icelanders.
Profit to Iceland? Iceland profits from jobs, economic development, taxes and foreign exchange created by HS Orka today and for many years to come.
I am really disappointed about the negative reaction to Magma’s investment. I think it is based on wrong information and wrong impressions about us. We at Magma are dedicated to building a great clean energy company with the core involvement of Iceland’s great engineers and technicians, and to being a good corporate citizen in Iceland over the long term. We were proud supporters of Iceland’s Winter Olympics team that participated in the 2010 Vancouver Olympics, and we hope to continue to support Iceland and Icelandic-Canadian relations for many years to come.
Geothermal power is a beautiful form of electricity with the lowest environmental impact of all types of electricity production. We have no agenda except to work as hard as we can to operate and, if we are allowed to, further develop Iceland’s geothermal resources for the future benefit of Iceland, our shareholders and, quite frankly, the world.
Björk and Beaty also had an interesting exchange over the last two days, which you may read about here and here.
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