Maxim Power Corp. ("MAXIM" or the "Corporation") announced the release of financial and operating results for the fourth quarter ended December 31, 2022. The audited condensed consolidated financial statements, accompanying notes and Management’s Discussion and Analysis (“MD&A”) will be available on SEDAR and on MAXIM's website on March 16, 2023. All figures reported herein are Canadian dollars unless otherwise stated.
OPERATING RESULTS
Since commissioning Milner 2 (“M2”) in June 2020, M2 has generated 3,309,725 MWh of electricity, earned $337 million of revenue and $155 million of Adjusted EBITDA(1). In 2022, M2 generated 1,064,693 MWh of electricity, earned $141 million of revenue and $76 million of Adjusted EBITDA(1).
During the fourth quarter of 2022, revenue, adjusted EBITDA and net income were lower than the same period in 2021 as a result of a non-injury fire incident (“Incident”) at M2 which prevented the facility from operating in the fourth quarter of 2022. Business interruption insurance partially offset the reduction to Adjusted EBITDA and net income (see Insurance Information Update below).
During 2022, revenues decreased as compared to 2021 primarily due to lower generation volumes of M2, partially offset by higher realized prices. Adjusted EBITDA(1) increased due to the recognition of the business interruption claim in 2022 and higher net realized gains for power and natural gas commodity swaps in 2022. These favourable variances were partially offset by increased fuel costs as a result of greater per unit natural gas costs in 2022 and the same factors impacting revenue.
Net income decreased in 2022 as compared to 2021, with a significant portion due to the recognition of the second and third payment of $47 million from the Line Loss Proceedings in 2021 (representing refunds for overpayments and interest thereon from the Alberta Electric System Operator for the period from 2006 to 2013), and the write-off of the air inlet filter house and higher depreciation in 2022. These unfavorable variances were partially offset by the same factors impacting Adjusted EBITDA(1), lower current and deferred income tax expenses and impairment of Deerland in 2021.
M2 RETURN TO SERVICE UPDATE
MAXIM has disassembled the damaged air inlet filter house of M2, procured a replacement air inlet filter house and is actively expediting the fabrication, delivery and construction process to restore M2 to operational service as soon as possible. Installation of the new air inlet filter house is planned to commence at the end of March 2023, with completion expected in late July 2023. MAXIM does not expect to be generating electricity from the HR Milner (“Milner”) site until July 2023, at which point MAXIM anticipates commencing hot commissioning activities for the Combined Cycle Gas Turbine (“CCGT”) expansion of M2. Hot commissioning activities are anticipated to occur over an approximate three-month period, during which there will be periodic outages of the facility resulting in intermittent generation of electricity. MAXIM anticipates the CCGT expansion of M2 will commence commercial operations during the fourth quarter of 2023.
M2 CCGT EXPANSION PROJECT UPDATE
As previously reported, start up of the CCGT expansion project will be delayed due to the Incident. Construction of the CCGT expansion project is currently greater than 99% complete, however, hot commissioning activities cannot occur until M2 is returned to service.
The estimated project cost, excluding borrowing costs and the net effect of $20 million of grant proceeds, is currently $155 million, subject to the inclusion of incremental costs anticipated to be incurred as a result of the delay in commissioning due to the Incident. As of December 31, 2022, MAXIM had incurred $148 million of capital investment in relation to the CCGT expansion of M2 and had funded this spending with existing cash on hand, cash flow from operating activities, debt and grant proceeds.
As previously noted, completion of the CCGT expansion of M2 will allow for the capture of waste heat that would otherwise exhaust into the atmosphere and turn it into useful low carbon electricity for the Alberta power grid. The CCGT expansion of M2 will reduce the intensity of carbon emissions by more than 60% compared to the legacy coal-fired H.R. Milner facility.
At this time, MAXIM forecasts it has sufficient liquidity to complete both the CCGT expansion of M2 and the replacement of the air inlet filter house and will fund these costs using cash on hand, available funds through the existing senior and subordinated credit facilities, and anticipated insurance proceeds, as required.
INSURANCE INFORMATION UPDATE
As previously noted, MAXIM reaffirms insurance coverage for the Incident, subject to the terms and conditions of the Corporation’s Property Insurance (“PI”) policy, including Business Interruption (“BI”) provisions. The Corporation continues to progress an insurance claim for property damage and lost earnings under the PI policy. The PI policy provides $200 million in total coverage, including BI. The PI insurance coverage related to the property damage from the Incident is subject to a customary deductible. The sub-limitations on the BI provision of the PI policy include a 45-day deductible, a monthly cap of $5.5 million gross margin (plus 10% margin allowance), and a policy cap of $66 million total gross margin. The Corporation is comfortable that the PI policy limit of $200 million, less any coverage related to the BI provision, is more than adequate to cover the property damage related to the Incident. To date, $25 million has been paid by the insurance company in relation to BI and PI claims.
NORMAL COURSE ISSUER BID
MAXIM’s current Normal Course Issuer Bid (“NCIB”) program is for the August 29, 2022 to August 28, 2023 period. Under this NCIB, the Corporation may purchase for cancellation up to 2,500,000 common shares of the Corporation. Collectively under this program and as of the date of this MD&A, the Corporation has repurchased and cancelled 51,736 common shares for $0.2 million. MAXIM’s NCIB program is limited to $1.0 million for the 2023 calendar year under the senior credit facility. Any excess is subject to approval from the lenders under the senior credit facility.
