Polaris Renewable Energy Inc.

Good morning, ladies and gentlemen, and welcome to the Polaris Renewable Energy, Inc. Third Quarter 2022 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Anton Jellick. Sir, the floor is yours.

Thanks, John. Good morning, everyone, and welcome once again to our Q3 2022 Earnings Call. In addition to the press release issued earlier today, you'll find our financial statements, MD&A, and quarterly information form on both CDAR and our corporate website, PolarisREI.com. Unless noted otherwise, all amounts referred to are denominated in U.S. dollars. I'd like to remind you that comments made during this call may include forward-looking statements within the meaning of applicable Canadian securities legislation regarding the future performance of Polaris Renewable Energy and all its subsidiaries. These statements are current expectations and as such are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations. These risks and uncertainties include the factors discussed in the company's quarterly information form for the quarter ended September 30th, 2022. I'm joined this morning, as always, by Mark Murnaghan, CEO of Polaris Renewable Energy. At this time, I'll walk through our financial highlights. Power generation. During the three months ended September 30th, 2022, quarterly consolidated power production was lower than the same period in 2021. due to lower hydrology in Peru and planned major maintenance performed in Nicaragua and Peru, partly offset by the additional production from the solar project in the Dominican Republic, acquired on June 28th, and the hydroelectric project in Ecuador, acquired on September 7th. During the nine months ended September 30th, power production was 475,536 megawatt hours net, compared to 480,000 981 megawatt hours net in the Nine Lens ended September 30th due to the decrease in production at the San Jacinto facility expected from the natural decline of the reservoir. The decrease was partly offset by the increase in production as mentioned by the Peruvian facilities coupled with production contributions by Canoa One and HSJM, both acquired during the Nine Lens period ended September 30th. Revenue. Total revenue was $14.5 million during the three months ended September 30th compared to $14.8 million in the same period last year. Total revenue of $45.8 million for the nine months ended September 30th compared to $44.6 million in the same period last year. Net earnings loss. The net loss attributed to owners was $1.5 million for the three months ended September 30th. compared to earnings of 2.2 million for the same period in 2021. Further, the net loss of tributary loaners for the nine months ended September 30th was 0.5 million compared to net earnings of 1.4 million for the same period last year. Adjusted EBITDA. Adjusted EBITDA was 10 million for the three months ended September 30th compared to 10.9 million last year. As well, adjusted EBITDA was $33 million for the nine months ended September 30th, compared to $32.7 million for the same period in 2021. Cash generation. Net cash from operating activities for the nine months ended September 30th of $20.7 million, lower than the $33.9 million for the same period last year. mainly because in the 2021 period, San Jacinto collected approximately $8 million overdue receivable balance after the sign-off of the new PPA agreement. Net cash used in investing activities for the nine months ended September 30th was 57.3 million compared to 8.6 million in the same period in 2021. The large increase resulted from the 20.3 million cash paid for the acquisition of Emerald in the Dominican Republic and 15.2 million cash paid for the acquisition of HSJM in Ecuador. Net of a total cash received of 3 million from both acquisitions. In addition, the company has funded 19.9 million for the construction of the binary project in San Jacinto and 3.4 million for the solar projects in Panama. Net cash used in financing activities for the nine months ended September 30th of 24.4 million compared to net cash provided by financing activities of $14.5 million reported in the same period in 2021. The decrease was driven by the net proceeds relating to common shares issued during the first quarter of 2021 compared to higher dividends paid in the first quarter of this year and the net impact of the repayment of debt and refinancing completed in Nicaragua in February 2022 compared to the 2021 period. And finally, dividends. we would like to highlight that we do intend on paying our 27th consecutive quarterly dividend on November 25th of 15 cents per share to shareholders of record on November 14th. This continues the board and management's commitment to regular positive distributions to shareholders, coupled with an ongoing emphasis on attractively valued accretive acquisitions. With that, I'll turn the call over to Mark, who will elaborate on current business matters as well as on our quarter-end results. Thank you.

Thanks, Anton. So first, starting with the quarter, this third quarter was always anticipated in terms of the EBITDA and production to be a lower, I should call it our seasonally lowest quarter, given the maintenance in Nicaragua and it is the dry season in Peru, although we did come in lower than anticipated for what I'd call one-time items, but In terms of actual dollar estimates that I run, I would say the dry season in Peru cost us about $500,000. For the quarter, we originally budgeted 47 megawatts net in Nicaragua. We came in at about 45, which we did talk about that a little bit in the press release due to just two wells. It took a bit longer to recover. That was about $500,000. And then Actually, the bigger one was on the G&A line, some deal costs from the acquisitions, et cetera, in terms of the private fees and legal fees of about $600,000. So you're looking at about $1.6 million in costs. I would say either costs incurred or low revenue in the quarter in terms of the net impact on EBITDA that I wouldn't consider significant. go forward and definitely not what we're running in our numbers going forward. Give you an example, San Jacinto in October was 51 and a half net, which is right on budget. The Peru plants in terms of hydrology and production are right back on budget. Ocho de Augusto in October did as much production as the whole Q3 so the rainy season has started in the normal fashion and that's actually more important than having a dry dry season in terms of numbers to us so we're happy with that a few other things about the quarter we call it Dominican was, I would say, as expected, and that did have a full quarter contribution, even around the 1.4 to 1.5. San Jose to Minas was only about a month, so that didn't really contribute anything there, but it is running as expected. And then we did have a small carbon credit sale that brought in about $427,000. in revenue. And that was actually for 2015 vintages. And I'll talk a little bit about that later, but we sold those at a price of $2.30. So that did come in in the quarter. But I think in terms of once San Jose to Minas was Current quarter, it's going to be a full quarter. Obviously, the DR is a full quarter. So before the binary and Panama Solar, though, I think the current quarter where we're running is more indicative of, call it a go-forward number. And I would have that in, call it a $12.5 million range ballpark for current quarter EBITDA. And then, but that does not include the Binary Unit, nor Panasolar in Panama. So in terms of those projects, though, the Binary Unit, we are still looking at a COD in December, the commissioning date in December. And we had spent up to about $23 million in At September 30th, there's another $2 million, so we're expected to come in on budget for that and starting in December. So Q1 should be a full quarter with the binary unit. The Panasolar, and that's the big one of the development projects, the solar in Panama. is moving as expected and as budgeted as well um and we're looking at end of december potentially early january but um for for commissioning so um maybe a little bit of slippage but not much there and on budget uh which is great so so those should come in so q1 next year would be again more on the what I'd call the go-forward run rate, as I just mentioned, plus a quarter of the binary, plus a quarter of Panasolar, and likely some carbon credits as well, which are not in those numbers that I quoted there. In terms of the other development projects that we have on the go, We were, Kanoa 2 would be the most important one. That's the expansion at the site. So we did, two, three weeks ago, we did receive what is called the definitive concession for the ability to double the capacity there. That was or is necessary in order for the off-taker and us to formally do the actual power purchase agreement. So we couldn't get into the pricing term with the off-taker until this was granted by the authority, which it hasn't been granted. So we're now actually exchanging documentation in terms of the contract. And so we hope that to move pretty quickly. And we will, given that, we're gonna be starting what I call the very sort of early stage small dollar site prep designs, et cetera. So that's going to start moving very quickly now, which is great. That would be, call it our first expansion project on the backs of the acquisitions that we announced earlier. The other one that we're going to be starting construction on either this month or first thing in December is the, it's a small expansion, brownfield expansion project at the San Jose de Mina site in Ecuador. which is about a $3 million project, but we think it should increase production by about 20% to 30% annually. Very good payback project, and that should be started, and we're looking at about a nine-month construction there. And then the other that we have yet to, I would say, fully define, but we'll have it by end of December, in terms of what the plan is, is some certain acid jobs on wells in San Jacinto. We've been assessing this with the technical consultant for the greater part of the year. And we think that we have some real interesting opportunities here. Principal one being one of the wells for two where we had to use a lot of mud during drilling because it was We got a lot of steam kicks during the drilling. We're getting estimates of anywhere from, well, 3 to 10 megawatt potential there, and this is something that should cost us about $750,000 to do. So that is something that we will hope to have. The only thing that's left is really what is the exact way of doing it. There's a few options, but we should have that nailed down and can communicate it to it. I think this is important because we don't see any large program drilling at the field for years now, but we do see what I call more typical maintenance slash optimization. And this will probably be the first one that we will execute to kind of validate the thought that we've, call it a maintenance capex of, you know, one to two a year, we can sort of change the, you know, either sustain the 0% decline and potentially even improve the production from where we're at today, which would be very economic for us. Last thing I'll mention is the carbon credits. We did get, so Ocho de Agosto a month ago was finally fully verified. So that's great. So we now have what I call relatively recent credits that we can sell there. And we are in the process on three other ones, which would include the Panama Solar, actually El Carmen in Peru, and the binary unit is actually being done separately. So those should all be done. We've spent a lot of time on that. Those should be done this year. We should be entering, call it next year, with around 350,000 tons annually. in terms of annual production. And where we see the market today is that that is, call it what I would call recent vintages, seem to be going for $4 to $5 a ton, which I think is quite a strong signal given, you know, despite the war, despite inflation, I would have expected maybe more of a pressure on those prices, but... but we're not seeing that. We are seeing transactions getting done. So I would expect, I don't, at this point, I don't see us doing anything in Q4, but given that Ocho de Agosto's done, and we have actually at San Jacinto alone from 2017 and 18, about 300,000 just sitting there in inventory. So I think a policy for us will be just to keep working off things that are four or five years dated. As I said, we sold 2015s. Things closer to today, I think we can get four to five. So I think we would start in Q1, Q2 to look at starting to sell some of that older inventory and even some of the more recent, even if reduced small bits of it. So I would think that next year, in terms of, as I said, the numbers that I quote, I don't put the carbon credits in, but I would expect it to be represent a larger number in terms of our total revenue next year than it did this year. So that's it for my comments. We can open it up for questions now.